In today’s environment, asset managers are navigating seismic shifts in public market dynamics that tend to emerge every five years or so. The recent downturn in equities has led some professionals to reassess their public market exposure and explore alternative strategies to mitigate portfolio volatility. While there’s no universal solution to this challenge, there are straightforward and effective ways to enhance portfolio composition by incorporating private assets.

Unstable politics and overpriced stocks: A risky combination

With Donald Trump’s ascent to the Oval Office, public markets were destined for heightened volatility. The threat of tariffs against key trading partners was guaranteed to disrupt markets, marking a historical shift away from a global free-trade model. Additionally, profound planned cuts in U.S. government spending serve to increase risks to the broader economy and employment. Some analysts estimate that layoffs associated with the Department of Government Efficiency (DOGE) could reach 1 million[1], or nearly 20 percent of the U.S. public workforce. The historic realignment of the public workforce, coupled with significant government spending cuts by itself could push the economy into recession.

In combination with frothy equity markets[2]  fueled by persistently high expectations, normalcy bias, and a relentless passive bid via the ETF-ization of financial markets, a fierce downdraft was inevitable.

According to the well-observed Buffett Indicator[3]—a metric that compares the total market capitalization of a country’s publicly traded stocks to its gross domestic product (GDP)—the market cap to GDP ratio is 187.6% (as of March 31, 2025). At these levels, the indicator implies that U.S. equities remain significantly overvalued despite the recent correction.

Historically, the S&P 500 and S&P/TSX Composite indices have exhibited a correlation of approximately 80%.[4] Although managing to buck the trend for the quarter, Canadian equity markets have largely mirrored U.S. market volatility amid ongoing trade tensions and general economic uncertainty.

As of March 31, 2025, the SP/TSX Composite index rose 0.76% year-to-day versus a decline of 4.59% and 10.41% for the S&P 500 and NASDAQ 100, respectively.

Mitigating portfolio risk through private asset allocation

While equities attract most investor attention due to dominant news coverage and their easily measurable price movements, private assets, when used strategically, can help mitigate public market risk. With mark-to-model valuation methods, volatility can be largely eliminated, as unit value changes are not impacted by weekly market fluctuations. Private Real Estate Investment Trust (REIT) and alternative asset portfolios are typically valued solely through data-driven calculations backed by certified appraisals.

Given these advantages and more, private assets are capturing a record share of investor portfolio allocations.

According to Barclays annual report[5], family offices and wealthy individuals are showing increasing interest in private markets. Among the eight distinct benefits cited by its Industry insight segment authors, access to opportunities, diversification and return potential stand out to us as the most prominent.

Regarding the latter, the authors state that “over the long term, private markets have demonstrated an ability to outperform public market equivalents.” The authors further opine that “the average family office portfolio allocation to private market investments is around 45%,” which they see “increasing over time.”

Private REITs and renewable infrastructure funds, such as those offered by Skyline, may be suitable options for asset allocators seeking exposure to private market investments.

Private Assets: Outperformance and stability are possible

Skyline’s REITs and Clean Energy Fund have a strong performance track record, and 2024 was no exception. Skyline Apartment REIT, our largest trust by portfolio fair value, significantly outperformed its public market peers in 2024—a comparison that underscores the trust’s resilience and ability to excel in volatile conditions.

For the year, Skyline Apartment REIT Class ‘F’ units produced a net 10.61% annualized return (6.31% net value increase, 3.86% distribution yield + DRIP; Class ‘A’ since inception: 13.81%), while the five largest publicly traded Apartment REITs by market capitalization produced an average (non-market cap weighted) return on -9.21%. That’s a difference of almost 20 percentage points. If we factor out one-time special distributions from two of the five companies, our performance would exceed all Class units by over 21 percentage points. This is especially notable given this outperformance occurred in a year when the Toronto Stock Exchange gained 17.98%.

With another double-digit return in 2024 and an historically stable long-term performance profile, we continue to demonstrate that private assets can generate consistent results while remaining largely insulated from public market volatility. In fact, Skyline Apartment REIT has not had a unit value decline in almost two decades since inception in 2006. Our investment products have become a valuable addition to many diversified portfolios, offering asset allocators an effective way to mitigate risk without sacrificing performance.

About Skyline Wealth Management

Skyline Wealth Management Inc. (“Skyline Wealth Management”) connects portfolio managers and institutional investors to several private alternative investments operating in the Canadian real estate and clean energy sectors and totaling over $9 billion in assets under management (as at December 31, 2024). These private alternative investments are:

• Skyline Apartment REIT (Fundserv code: SKY2006)
• Skyline Industrial REIT (Fundserv code: SKY2012)
• Skyline Retail REIT (Fundserv code: SKY2013)
• Skyline Clean Energy Fund (Fundserv code: SKY2018)

Each investment comprises a portfolio of geographically diverse assets, offering clients strong historical performance and stable distribution, low MERs, and potential diversification solutions with lower relative volatility to the public markets.

Visit SkylineWealthManagement.ca for more information.

Wayne Byrd, CPA, CMA
Chief Financial Officer, Skyline

---

[1] DOGE Layoffs Pose ‘Growing’ Risk To U.S. Economy And Markets, Says Apollo Economist, DOGE Layoffs Bring ‘Growing’ Risk To Economy And Markets, Economist Says, February 24, 2025

[2] Why This Frothy Market Has Me Scared, Why This Frothy Market Has Me Scared – WSJ, December 17, 2025

[3] Buffett Indicator, Buffett Indicator

[4] Private REITs Offer Stability in Uncertain Political Environments, Private REITs Offer Stability in Uncertain Political Environments | Investment Executive, December 2, 2024

[5] Private Markets Annual Report 2024, https://privatebank.barclays.com/insights/2024/september/private-markets-annual-report-2024/#download

---

Disclaimer for Skyline Wealth Management:
Skyline Wealth Management Inc. (“Skyline Wealth Management”) is an Exempt Market Dealer registered in all provinces of Canada.  The information provided herein is for general information purposes only and does not constitute an offer of securities.  Sales of interests in any investments offered by Skyline Wealth Management are only made to certain eligible investors pursuant to regulatory requirements and available exemptions. Any information provided herein is current as at the date of publication and Skyline Wealth Management does not undertake to advise the reader of any changes.

Commissions, trailing commissions, management fees and expenses all may be associated with investments in exempt market products. Please read the confidential offering documents before investing. The indicated rate of return is the annualized return including changes in unit value and reinvestment of all distributions and does not consider sales, redemption, distribution or optional charges or income taxes payable by any unitholder that would have reduced returns. There is no active market through which the securities may be sold, and redemption requests may be subject to monthly redemption limits. The payment of distributions is not guaranteed and may fluctuate. The payment of distributions should not be confused with an exempt market product’s performance. Distributions paid as a result of capital gains realized by an exempt market product, and income and dividends earned are taxable in your hands in the year they are paid. Exempt market products are not guaranteed, their values change frequently, and past performance may not be repeated. Nothing in this email should be construed as investment, legal, tax, regulatory or accounting advice. Prospective investors must make an independent assessment of such matters in consultation with their own professional advisors.

As the federal government pushes to boost clean electricity capacity by two to three times to achieve a 100% clean electricity grid by 2035 and meet net-zero targets by 2050, it continues to provide incentives to clean energy developers and producers. At the same time, renewables are now the cheapest source of power, allowing the industry’s success to become self-sustaining, according to Rob Stein, President of Skyline Clean Energy Fund, a Canadian private investment trust specializing in clean energy assets such as solar and biogas.

“The renewable industry has already seen tremendous growth and we expect this to continue — not because they are clean, or the right thing to do, although both are true — but because they’re the cheapest [source from which] we can generate power right now,” Stein says. “So, if you’re going to put a dollar in — whether it’s federally, provincially, or privately — it might as well go toward the cheapest form of power; the clean energy and carbon incentive aspects are icing on the cake.”

Stein oversees the Skyline Clean Energy Fund portfolio, which comprises rooftop and ground-mounted solar, as well as biogas facilities, across Canada. “The industry is driving positive social and environmental change, while also fostering emerging clean energy markets across Canada and the world; that’s what makes the space very exciting,” he says.

Positive momentum within the clean energy industry has paid off for Skyline Clean Energy Fund’s investors. To July 1, 2023, the fund’s one-year annualized return was 9.84%, and its three-year annualized return was 9.45%.^[1] As at June 30, 2023, the fund had over $293 million in total assets under management.

A focus on solar and biogas

When Skyline Clean Energy Fund launched in May 2018, generating strong, predictable cash flow was priority. Ontario’s solar market was one of the best-positioned to deliver that cash flow, as many solar assets in the province are backed by 20-year Feed-in Tariff (FIT) contracts with the provincial government, and as a result, those assets have become a foundational investment for the fund. By the end of 2020, Stein and his team had acquired 65 solar assets, all with long-term contracts, when an investor approached them with an offer to tour his biogas facility in Elmira, Ontario. The team purchased a majority stake in the facility in 2021 and retained the previous owner (and developer) as partner.

“Prior to our offer to purchase the Elmira biogas facility, the operational-heavy nature of biogas had made us reluctant to invest in that class of renewables. We were able to get comfortable through partnering with a strong operating team that had many years of experience, along with keeping the original owner and developer in the business as a minority stakeholder,” Stein says.

The closed-loop nature of biogas’ renewable cycle was an attractive feature for the Skyline Clean Energy Fund team. The loop starts with farmers who grow food and send it to cities, where it’s consumed. Since there is a large government push to divert organic waste from landfills, many municipalities pay biogas owners to take it. At the Elmira biogas facility, the organic waste is broken down, creating a gas through a process called anaerobic digestion. This gas is used to power a combined heat and power system that generates electricity, which is then sold back to the grid under a long-term contract.

“The renewable industry has already seen tremendous growth and we expect this to continue — not because they are clean, or the right thing to do, although both are true — but because they’re the cheapest [source from which] we can generate power right now.”

“We’re paid to take the waste. We’re paid to generate and deliver the electricity. And we’re left with this rich organic fertilizer called digestate, which we sell back to the farmers. They replant and fertilize their fields and grow the food, and the cycle starts all over again,” Stein explains.

Additionally, in 2023, Skyline Clean Energy Fund acquired a majority stake in a large biogas facility in Alberta that combines cattle manure from farmers, as well as organic waste from grocery store chains and other sources, to refine into renewable natural gas (RNG), rather than electricity. The renewable natural gas is then sold through a 20-year offtake contact and delivered onto the natural gas grid.

“The federal government is putting a lot of emphasis on biogas because it looks to solve both a waste problem and an energy problem,” says Stein.

Optimizing performance

The fund typically favours stabilized medium to large-scale operating assets that have historically produced reliable cash flows and have a reasonable maintenance history. However, it may also acquire underperforming assets at a discount. The fund’s asset manager, Skyline Energy (also led by Stein), has expertise in improving system operating plans and dispatching technicians for corrective maintenance, so that these assets can be upgraded and optimized for maximum energy generation. Skyline Energy works with technicians to facilitate 24/7 asset monitoring and performance tracking, so the team can take corrective action quickly whenever equipment fails, and power generation slows.

With Canada now being a global leader in clean energy infrastructure — and the federal government signalling through programs such as the clean energy investment tax credit that it intends to further incentivize the deployment of renewable energy capacity across the country — Stein believes the clean energy sector will continue to thrive.

“We have a strong understanding of the Canadian clean energy market, and believe Skyline Clean Energy Fund is well positioned to navigate new opportunities and federal incentives that can help our unitholders benefit from Canada’s shift toward electrification and net-zero targets,” he says.

¹ Skyline Clean Energy Fund’s annualized returns including other periods are: 9.84% 1-year, 9.45% 3-year, 9.17% 5-year, and 9.01% since inception on May 3, 2018. All of Skyline Clean Energy Fund’s numbers are as at July 1, 2023.

Canada set new records for immigration in 2021 and 2022, with a goal to add 465,000 permanent residents in 2023; 485,000 in 2024; and 500,000 in 2025. While the government says this is meeting nearly all of Canada’s growing labour needs, housing capacity isn’t keeping up — and high demand for housing is boosting investor interest in multi-residential investment opportunities.

“We’re about 500,000 homes short in Ontario alone,” says Matthew Organ, President of Skyline Apartment REIT, a Canadian private investment trust specializing in multi-residential real estate. “A report from a research company based at the University of Ottawa projects we will need 1.5 million homes constructed by 2031 to meet Ontario’s housing demand. So, the reality is that over the next decade, we’re going to remain in a housing shortage in this country, and that is fuelling the demand for any form of housing — but especially multi-residential, because it’s generally the most affordable.”

The 244 properties owned by Skyline Apartment REIT have a fair market value of $4.83 billion as at June 30, 2023. In total, they comprise 22,436 units diversified across 60 communities in seven provinces with an average monthly rent of $1,330. The REIT, which boasts a 14.51% three-year annualized return as at June 30, 2023,¹ focuses on secondary and tertiary markets and holds a mix of established properties and new developments. Its historical performance record shows stability, with consistent monthly revenue and increasing rents leading to a steady flow of distributions to investors.

On the construction front, Organ favours partnerships with development-friendly municipal governments. “The longer you have a piece of land tied up to get through zoning requirements, you’re sitting on something that isn’t producing any income, and, at the end of the day, the cost of the whole project increases,” he says “We’re generally looking for municipalities that are willing to work with us to get that development across the line faster.”

For Organ, successfully maintaining a positive relationship with a municipality means Skyline Apartment REIT has a higher likelihood of engaging in additional new development opportunities there. While it evaluates opportunities to enhance its presence in markets where it is established, the REIT also looks to enter new markets.

“Our shopping centres are full of tenants that are relevant and vibrant and successful.”

Buy what you know

For Organ, it makes sense to buy and build in secondary and tertiary markets, in part because there’s less competition from public REITs in those communities.

In addition, as experienced specialists in these markets, the Skyline Apartment REIT team draws from a deep knowledge base that enables them to identify the best opportunities. For example, they’re attuned to the trend of retired farmers planning to move to small towns but seeking an alternative to decades-old apartments. In larger secondary cities such as Windsor, Ontario, Organ says it’s equally critical to understand each particular market and know what’s fuelling demand in order to add what’s needed to the supply.

When considering a property acquisition, the typical “sweet spot” for the REIT is around four storeys, with anywhere between 50 and 500 units.

“We have a fairly extensive CapEx program,” says Organ. “When we purchase a property, we go through a comprehensive evaluation. For an older property, in addition to hallway or common-area renovations, it may need other aspects like the balconies, the roof, or the elevator.”

The REIT continues ongoing investment in its existing real estate holdings — for example, by adding EV chargers to many of its buildings.

“We’re looking five to 10 years down the road, thinking, if we can’t offer electric charging for vehicles, our tenants will move on to the next place that will,” Organ explains.

The goal is to get everything up to a modern-day standard to attract the next tenant, generating income and value growth for unitholders.

Prepared for further rate hikes

According to Organ, the multi-residential housing market’s predictability, consistency, and stability—due to its strong demand projected well into the future—are likely its primary attractors for investors. Rising interest rates further support demand for apartments by making it more difficult for homebuyers to purchase property — and variable mortgage rates are up from a low of 1.26% in December 2021 to more than 6% in August 2023.

Of course, rising interest rates affect Skyline Apartment REIT, too. However, Organ notes the portfolio’s mortgages are staggered, positioning the REIT to avoid having a significant portion of the debt mature in any one year.

“From an investment standpoint, the demand for apartments is not going away,” he says. “We see that in our mark-to-market rent gap. Every time we turn over a suite, we’re able to capture more rent and still stay within what would be considered a reasonably affordable living accommodation in Canada.”

¹ The performance quoted represents the 3-year annualized return. Skyline Apartment REIT’s annualized returns including other periods are 10.46% 1-year, 14.51% 3-year, 17.74% 5-year, 14.69% 10-year, and 14.40% since inception on June 1, 2006. All of Skyline Apartment REIT’s numbers are as at June 30, 2023.

Disclaimer:

Skyline Wealth Management Inc. (“Skyline Wealth”) is an Exempt Market Dealer registered in all the provinces of Canada and the territory of Nunavut. The information provided herein is for general information purposes only and does not constitute an offer of securities. Sales of interests in any investments offered by Skyline Wealth are only made to certain eligible investors pursuant to regulatory requirements and available exemptions.

Commissions, trailing commissions, management fees and expenses all may be associated with investments in exempt market products. Please read the confidential offering documents before investing. There is no active market through which the securities may be sold, and redemption requests may be subject to monthly redemption limits. Exempt market products are not guaranteed, their values change frequently, and past performance may not be repeated. Nothing in this email should be construed as investment, legal, tax, regulatory or accounting advice. Prospective investors must make an independent assessment of such matters in consultation with their own professional advisors.

Some of the investment products offered by Skyline Wealth are from related issuers. A full list of issuers related to Skyline Wealth and details of the relationship between them is available upon request.

The information contained within is disseminated by Skyline Wealth Management Inc. (“Skyline Wealth”) on behalf of the Issuer as at the date of publication and Skyline Wealth does not undertake to advise the reader of any changes. The opinions and statements expressed within are of those of the Issuer and do not necessarily reflect those of Skyline Wealth. Skyline Wealth has not taken any steps to verify the accuracy or completeness of the information provided herein.

PAID CONTENT

The past few years have been tough on many types of retail real estate — but not the open-air strips in secondary markets full of stores selling everyday essentials that are the focus of Skyline Retail REIT.

Since its launch in 2013, this REIT has been building a portfolio of resilient properties anchored by grocery and/or pharmacy tenants and filled out with banks, medical offices, dollar stores, and quick-service restaurants. As at March 31, 2023, the portfolio’s value was $1.65 billion spread across 5.46 million square feet with 96.7% occupancy.

Gordon Driedger, President, Skyline Retail REIT, says that secondary markets have the same well-known tenants offering the same financial covenant that you’d find in a primary market, but the assets are available at a significantly lower cost.

“Although the quality of the income is the same, there’s a greater potential for return on investment in the secondary markets because of the differential in the cap rate — the value that’s paid,” he explains.

The portfolio’s emphasis on long-term (as long as seven- or 10-year) fixed-rate mortgages — some renewed early to sidestep the recent rise in interest rates — has reinforced that financial strength and demonstrated stability. Meanwhile, being a private REIT means the unit price correlates directly to the value of the real estate in the portfolio — rather than to market sentiment, which can cause public REIT unit prices to experience wild fluctuations.

“Our focus is to provide stable returns to our investors,” says Driedger. “Our unit prices have remained consistent and have shown a historical upward trend, [and] our tenants are stable and doing well.”

“Our shopping centres are full of tenants that are relevant and vibrant and successful.”

Markets waiting for consumer spending to slow

A PwC Canada survey published in March 2023 found that 47% of Canadian consumers were very or extremely concerned about their personal finances, and 70% were responding to that by cutting back on non-essential purchases. That hasn’t yet been reflected in retail sales numbers, which remained robust in Statistics Canada’s latest report, rising 1.1% in April 2023 and increasing in eight out of nine subsectors.

However, if and when the anticipated spending slowdown comes, Driedger is confident it will have far less impact on everyday essentials. He believes Skyline Retail REIT is well positioned to thrive as long as people continue to buy food and medications, do their banking, and attend medical appointments. Business may even pick up for quick-service restaurants as people scale back on fine dining.

While over 80% of the portfolio comprises everyday essentials, even the more discretionary retail tenants of the REIT’s properties tend to be relatively resistant to the impact of e-commerce. As Driedger points out, it’s pretty hard to get a haircut or work out at a fitness centre online. Meanwhile, grocery stores in secondary markets tend to fulfill from a retail store, offering online ordering with in-store pickup.

“In the industrial distribution sector, they talk about the last mile … that is often the most expensive,” he says. “What’s interesting about these food-anchored shopping centres is that they become a very efficient last-mile solution … Goods can be brought to the location in a relatively profitable way.”

Building strong relationships with tenants

Driedger sees relationships with the tenants who rent space in Skyline Retail REIT’s properties as partnerships. He says it’s very important to be a good landlord, reinvesting to make locations the best possible place to operate a successful business so tenants don’t even think about leaving when their lease comes up for renewal.

Those reinvestments pay off in more than tenant stability. They also allow the REIT to grow top-line rent faster because it’s delivering to tenants the most desirable opportunity in any given market. Higher income will be an important hedge against potentially higher interest costs when the REIT’s long-term mortgages eventually come due.

Meanwhile, tenant quality ultimately drives up the value of the REIT’s underlying assets.

“Our shopping centres are full of tenants that are relevant and vibrant and successful,” Driedger says. “If you have relevant, full, highly occupied, stable, and growing income from really successful companies, that’s what people want to buy … and our advancement has showcased all of these attributes, positioning us to surpass our predefined objectives even in times of increasing interest rates and a somewhat uncertain [economic] future.”

Gordon Driedger President, Skyline Retail REIT