skyline apartment reit

66 Pages·2016·5.7 MB·English

S A REIT
KYLINE PARTMENT
ANNUAL REPORT TO THE UNITHOLDERS
DECEMBER 31, 2015

CONTENTS
1
2015 Highlights
2
Awards
5
Address to Unitholders & Future Outlook
9
Senior Management
10
Independent Trustees
11
Management Strategy
12
Key Performance Indicators
13
Forward-Looking Disclaimer
14
Overview & Goals and Objectives of Skyline Apartment REIT
15
Property Portfolio
19
2015 Operating Highlights
23
International Financial Reporting Standards (“IFRS”)
28
Risks and Uncertainties
32
Subsequent Events
36
Audited Financial Statements
2015 H
IGHLIGHTS

PORTFOLIO
 The REIT acquired an additional 3,939 residential units through the acquisition of 33 multi-residential
properties, for a total investment of $443.1 million
 Occupancy for the year ended 2015 was 95.44%
 Average monthly multi-unit residential rent at the end of 2015 was $983, up from $864 by year end 2014
OPERATING HIGHLIGHTS
 Residential units of 15,178, an increase of 35.06% compared to 11,238 residential units at the end of 2014
 Operating revenues of $154.6 million, an increase of 20.69% compared to $128.1 million for the year
ended December 31, 2014
 Net Operating Income (“NOI”) of $81.9 million, representing a 24.21% increase from $65.9 million for the
year ended 2014
 Funds From Operations (“FFO”) of $39.3 million, an increase of 21.01.% above $32.5 million for the year
ended 2014
 FFO per unit of $0.96 on a weighted average basis, for the twelve month period ending
December 31, 2015
FINANCIAL POSITION
 The REIT financed and assumed $461.3 million in mortgage debt in 2015, at an average interest rate
of 3.63% with terms in excess of 7 years
 The overall Portfolio Weighted Average interest rate has been reduced to 3.87% compared to
4.17% in 2014
 The overall Portfolio Weighted Average Term to Maturity has been increased to 4.80 years
KEY PERFORMANCE INDICATORS
Year Ending 2013 2014 2015
Residential Units 10,108 11,238 15,178
Properties 125 139 172
Commercial Rentable SF 738,946 672,457 674,006
Operating Revenues ($ in thousands) $110,072 $128,124 $154,637
Occupancy Rate 95.7% 96.2% 95.4%
Net Operating Income ($ in thousands) $54,356 $65,930 $81,891
Average Monthly Rents (residents only) $835 $864 $983
Funds from Operations ($ in thousands) $22,207 $32,391 $39,291
FFO Payout Ratio 123.5% 103.4% 101.9%
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A
WARDS
An Incredible Year of Recognition for the Skyline Group of Companies
Requalified Winner for 2015
Sponsored by Deloitte, CIBC, National Post, Queen’s School of Business,
and MacKay CEO Forums, the Best Managed award recognizes Canadian
companies for sustained growth, financial performance, management
practices, and the efforts of the entire organization.
Winner, Canada 2016, Gold Level
A global leader in HR consulting, Aon Hewitt compiles its highly-acclaimed
and reputable list of Best Employers annually, based on comprehensive
research into company policies and procedures, as well as employee
engagement and satisfaction.
Winner, 2015
The 10 Most Admired Corporate Cultures Program recognizes Canadian
organizations for having cultures that enhance performance and sustain
a competitive advantage. Submissions are scored in seven categories,
including leadership, recruitment, cultural alignment, retention,
recognition, organizational performance, and social responsibility.
4-Time Winner, 2015
Skyline accepted top recognition in the categories of Community Service,
Environmental Excellence, Property Manager of the Year, and Resident
Manager of the Year. It also received a Top-3 nomination in the category of
Customer Service Award of Excellence.
2015 Ranked No. 309, 2015
The annual PROFIT 500, the definitive ranking of Canada’s Fastest-Growing
Companies, ranks Canadian businesses by their five-year revenue growth.
Top-10 Finalist, 2015
Presented by Grant Thornton LLP and the Canadian Chamber of
Commerce, this award celebrates private business that put sustainable
growth at the top of their agenda. Businesses are scored based on
innovation, market development, people and culture, strategic leadership,
and improvements in financial measures.
Top-2 Finalist, Community Builder Award, 2015
Presented by the Ontario Chamber of Commerce, the Community Builder
award is awarded to a large business whose community investments have
yielded the greatest social return on investment.
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Airdrie, AB
192 units, 1 property
4.87% of acquisitions
Edmonton, AB
160 units, 1 property
4.06% of acquisitions
Dawson Creek, BC
160 units, 1 property
4.06% of acquisitions
*50% ownership
Sherwood Park, AB
OUR PURPOSE
208 units, 1 property
We exist to create meaningful value 5.28% of acquisitions
Sault Ste. Marie, ON
and an exceptional experience for
407 units, 2 properties
our customers, our people, and our communities. 10.33% of acquisitions
OUR MISSION
We bring passion, energy, and determination
to make a positive impact with every interaction.
OUR VALUES
Professionalism
Respect
Integrity Hamilton, ON
Drive 105 units, 1 property
2.67% of acquisitions
Efficiency
Grounded in real estate, powered by people, and growing for the future...
Skyline Apartment REIT is one of Canada’s fastest-growing private multi-residential real estate
portfolios. It currently operates in 49 communities across six Canadian provinces, with 172 individual
properties,15,178 residential suites, and over 674,000 square feet of commercial space. Skyline
Apartment REIT is steered by an award-winning management team, and has an impressive track
record of consistently delivering stable and growing monthly distributions to its investors.
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3,939 UNITS
2015 ACQUISITIONS
Cambridge, ON
62 units, 1 property
1.57% of acquisitions
Montreal, QC
185 units, 1 property
4.70% of acquisitions
Windsor, ON
1,589 units, 22 properties
40.34% of acquisitions
15,178 UNITS
Gatineau, QC
11,238
871 units, 2 properties
22.11% of acquisitions 10,108
8,434
7,500
5,941 5,933
5,486
3,731
2,487
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
*Total Multi-Residential Units Per Year
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A T U & F O
DDRESS O NITHOLDERS UTURE UTLOOK
From left to right: Jason Castellan, Co-Founder & Chief Executive Officer; Wayne Byrd, Chief Financial Officer;
Roy Jason Ashdown, Co-Founder & Chief Operating Officer; Martin Castellan, Co-Founder & Chief Administrative Officer.
THE BIGGER PICTURE
I wish I were profound enough to give you a perfect prediction of what will happen in the global economy
over the next year. However, we certainly do pay attention to the factors that are relevant to our business,
and then employ strategies that hedge against risk while also maximizing on opportunity. I can speak to
each of the larger factors that impact our business, and how we address them, but once their effects are
combined with the many other variables that exist, it is virtually impossible to predict an exact outcome.
However, if we address each individual aspect of our business—controllable and uncontrollable —and
determine the best course of action, we can narrow the goal posts and sleep more soundly at night,
knowing within a comfortable range where we expect to be in one, three, five, and ten years from now.
If I had to identify our biggest risk, it would be interest rates. Institutional-quality real estate is large
business, and therefore requires large amounts of debt and equity. As an investor, you likely have
reasonable knowledge of where Canada is sitting in the interest rate world today. Rates are currently
low—very low. In fact, Canada’s economy is going through something similar to Japan’s. As you may
know, Japan has been experiencing considerably low interest rates for many years now, which has had
many significant impacts on its economy as a result. It is likely that Canada will also follow this trend for
some time. As an individual investor with one or two properties, if you truly believed this to be the case,
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A T U & F O
DDRESS O NITHOLDERS UTURE UTLOOK
you would likely take the shortest term possible on your mortgage, keep renewing, and win in the long
run. However, if you own dozens, or even hundreds of buildings, as is the case with our REITs, you can
employ a rate-mitigating strategy that lets you win when rates are low, but also feel safe if they increase
– thereby both protecting and stabilizing investor returns.
How do we do it? We take the longest mortgage term possible, while currently paying only a small premium
over short-term money. Then we stagger those mortgage terms to fit nicely within the mortgage pool as
a whole, so that they all don’t mature at the same time. We continue to roll those maturing mortgages
back into long terms, thereby extending out the average term-to-maturity on the whole portfolio. The
beauty of the strategy is this: if rates do stay low, we will take advantage of renewing the currently
maturing mortgages (which we target to be 15-20% of the entire portfolio’s mortgages per year), but
also protect the other 80-85% of the portfolio against interest rate volatility. This will also give us a long
runway of low average rates if (or when) they do start to rise again. A one-or-two-property owner cannot
execute this strategy; you can win big at maturity, or you can be severely exposed if rates are up when it
comes time to mature. This is why we all benefit from the REIT being a large and growing entity: we can
have a better strategy as a whole portfolio, rather than being a single building on its own.
I would identify oil and gas prices as the second-biggest risk to
our business. For our multi-residential properties, oil and gas
“If we address each
is a necessary cost to keep systems running and keep tenants
warm. For our commercial properties, it is a cost paid, in most individual aspect of our
cases, directly by the commercial tenant in order to heat their business, and determine
space, and, in many cases, to operate their business. As for the
the best course of action,
population in general, it is used to get people to and from their
we can narrow the goal
homes and workplaces on a daily basis. With all of this in mind,
record-low oil and gas prices are currently benefiting all of us as posts and sleep more
consumers (assuming you are not in the oil and gas business). Does soundly at night.”
it have larger implications for the Canadian economy? Absolutely!
However, we can get ahead and look at the opportunity we can
gain from these circumstances, which, I believe, outweighs the wider effect low oil and gas is having on
the economy.
Let’s face it: the world is moving toward green or alternative energy solutions. This is a whole new area
in which we are investigating and investing: cogeneration (also known as Combined Heat and Power or
CHP), the ability to be part of virtual Power Plant (VPP) solutions within our communities, and many
more exciting emerging options that are becoming available to us. We realize that continuing to pull
oil out of the ground and burning it to create heat and electricity is no longer a long-term solution, but
we also know that we are not out to invent the next alternative solution. In order to be leaders in our
industry in this regard, we will follow very closely in the wake of those pioneers, and act only once an
alternative method has been proven (and is very cost-effective)—and also if it is a possible opportunity
to generate new revenue streams for the REITs (as with our past solar production contracts). We already
have tenants who share our beliefs in recycling, community involvement, and other Skyline-specific
initiatives. With green and efficient energy being such a hot topic and an area that is gaining exposure,
the measureable benefits are something we will always consider, but through our experience, we know
that residential tenants will live in our buildings because they have a lower impact on the environment.
We are always making sure that Skyline Apartment REIT is taking advantage of all opportunities that will
contribute to its success.
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A T U & F O
DDRESS O NITHOLDERS UTURE UTLOOK
LETTER TO UNITHOLDERS & FUTURE OUTLOOK
For Skyline Apartment REIT, 2015 was a huge year; our entire team pulled off a monumental task this past
year. The REIT expanded into 11 communities, both existing and new, ultimately growing the portfolio
by 3,939 suites. Among the many acquisitions we made this year, I would like to highlight two particular
portfolio purchases: one in Windsor, ON, and the other in Gatineau, QC. Although both deals closed
near the end of 2015, there was tremendous work and negotiation that started many months earlier—in
the case of the 23-property Windsor portfolio, in fact, discussions went as far back as 2014. Although
these large portfolio acquisitions can have huge effects on size and growth, there is always the risk of
the team putting a lot of time and energy into
something that, like all deals we do, may or
may not come to fruition. I feel fortunate to
“We will continue to make
say that, in this case, our months of intense
prudent decisions for the collaboration had a terrific outcome.
existing portfolio, and, Our bread-and-butter strategy for the
Apartment REIT has been to acquire properties
when the timing is right,
one at a time, or in mini-portfolios; by doing
this, we avoid competition for assets—and
make acquisitions that
for most of the communities in which we
will add value to it.” are purchasing, there are no large groups of
buildings to be acquired anyway. This strategy
will not change—nor did it in 2015, as we still
purchased 1,479 suites through traditional, single-property transactions. The large Windsor and Gatineau
portfolios were exceptions: the vendors from which we purchased were in secondary markets—our
geographic wheelhouse—and, due to their institutional focus on larger centres, they were ready to sell.
Ultimately, we were the best buyer; we acquired these properties for a price that was great for us, and
the purchase allowed us to become more efficient operators in those regions within the overall Skyline
Apartment REIT. Again, this type of acquisition is an exception; it is not something we consider as our
only option going forward.
These deals, when transacted with large vendors such as Boardwalk REIT and Oxford Properties, add
stability and breadth to our ever-expanding REIT. In dealing with Boardwalk especially (it is a company
that has roots similar to ours), we capitalized on the opportunity to keep their on-site residential field
staff, and thereby make a more seamless transition (although our operations team will not be happy that
I’m making it sound so easy; it is definitely a process that we put much effort into). These deals accounted
for larger-than-planned-for growth: through our experience with traditional purchasing history, we plan
for growth of 1,600 - 2,000 suites per year; we purchased nearly double that amount of suites in 2015,
which pushed us over the 15,000 suite threshold – another significant milestone in our REIT’s history.
Another benefit of purchasing from institutional investors (vendors) is the accuracy of the information
we rely upon in the due diligence period; when we have issues with deferred maintenance through our
findings, we can reasonably negotiate through discussions with the vendor. So, in the case of our 2015
transactions, there was a solid degree of predictability to the future income stream. However, these
larger deals are never as “juicy” as the smaller deals, where the smaller non-institutional vendors cannot
demand portfolio premiums, nor have they exhausted most of the “low-hanging fruit” opportunities that
our operations team enjoys harvesting once we acquire the properties, specifically in regards to energy
and utility efficiencies.
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