Northview Apartment REIT
TSX : NVU.UN

Northview Apartment REIT

August 09, 2017 17:53 ET

Northview Apartment REIT Reports Q2 2017 Financial Results, Same Door NOI Growth of 3.9%, Improved Leverage and Fair Value Gain of $92 Million

CALGARY, ALBERTA--(Marketwired - Aug. 9, 2017) - Northview Apartment Real Estate Investment Trust ("Northview") (TSX:NVU.UN), today announced financial results for the three and six months ended June 30, 2017.

Todd Cook, President and CEO commented, "The continued strong performance in our Ontario and Northern Canada markets and improvements in a number of Western Canada markets have positively impacted the financial performance of Northview in the quarter. We generated same door NOI growth of 3.9% in the second quarter, total occupancy improved by 1.7% with increases in all regions across the country, and we continue to execute on our Value Creation Initiatives with annualized NOI increases of $0.5 million in the quarter and $3.8 million since inception."

Mr. Cook continued, "Our focus on leverage reduction resulted in a further decline of 1.4% to our debt to gross book value ratio driven by NOI growth and Cap Rate compression in Ontario. Over the past twelve months our debt to gross book value decreased by 3.8%."

"The successful execution on our 2017 strategic priorities focused on organic growth, managing leverage, and strategic capital deployment has resulted in the strong financial results achieved this quarter and we anticipate positive momentum through the second half of the year," concluded Mr. Cook.

Financial Performance Highlights
(thousands of dollars, except per unit amounts) Three months ended June 30 Six months ended June 30
2017 2016 Change 2017 2016 Change
Total NOI(i) 48,253 46,837 3.0% 90,591 89,805 0.9%
NOI margin(i) 58.8% 57.1% 1.7% 55.6% 54.7% 0.9%
Total same door NOI change(i) 3.9% (11.0%) 14.9% 1.9% (6.2%) 8.1%
FFO - diluted 31,232 27,335 14.3% 56,273 57,676 (2.4%)
Excluding Non-recurring Items(i):
FFO - diluted 30,816 29,822 3.3% 55,857 56,147 (0.5%)
FFO per unit - diluted $0.54 $0.56 (3.6%) $0.98 $1.05 (6.7%)
Distributions declared per Trust Unit(ii) $0.41 $0.41 - $0.81 $0.81 -

Net operating income ("NOI") and funds from operations ("FFO") are considered non-GAAP measures and do not have any standardized meaning as prescribed by generally accepted accounting principles ("GAAP"). See "Non-GAAP and Additional GAAP Measures" disclosure below.

(i) See "Non-recurring Items" disclosure below.

(ii) Trust Unit refers to the publicly traded Northview Trust Unit and the Class B LP Unit.

SUMMARY OF Q2 2017

Funds From Operations

Diluted FFO was $30.8 million for the three months ended June 30, 2017, compared to $29.8 million for the same period in 2016, excluding Non-recurring Items. The increase in FFO was mainly due to NOI contribution from the newly developed properties in Alberta and positive same door NOI growth, offset by non-core asset sales.

Diluted FFO per unit was $0.54 for the three months ended June 30, 2017, compared to $0.56 for the same period in 2016, excluding Non-recurring Items. The decrease in FFO on a per unit basis was primarily driven by the dilution from the equity offering completed in October 2016.

Same Door NOI Growth of 3.9%

During the second quarter of 2017, total same door NOI increased 3.9% including positive multi-family same door NOI of 4.1%, compared to same door NOI decrease of 11.0% and 12.4%, respectively, in the same period of 2016, excluding Non-recurring Items. Western Canada achieved same door NOI increase of 3.3% in the second quarter of 2017 due to an increase in average monthly rents ("AMR") and higher occupancy. AMR and occupancy improved in all regions compared to the first quarter of 2017, with same door NOI increases of 6.1% and 1.7% in Northern Canada and Quebec, respectively, partially offset by a decline of 5.4% in Atlantic Canada. The increase in AMR, higher occupancy, and execution on value creation initiatives ("VCIs") contributed to same door NOI growth in Ontario during the quarter of 7.5%, partially offset by increases in insurance and utilities expenses.

Effectively Managing Operating Expenses

For the three and six months ended June 30, 2017, total operating expense decreased by $1.4 million and $2.1 million, or 4.0% and 2.9%, respectively, compared to the same periods of 2016. This is comprised of a reduction in operating expenses mainly due to non-core asset dispositions, ongoing focus on reducing costs and lower property taxes.

Improved Occupancy Across the Portfolio

Occupancy in all regions increased compared to the prior quarter which resulted in occupancy of 92.3% for the three months ended June 30, 2017, compared to 90.6% in Q1 2017.

Fair Value Gain of $92 million on Investment Properties

During the second quarter of 2017, a net fair value increase of $92 million was achieved on investment properties including $104 million increase in Ontario driven by higher NOI and a 0.5% decline in weighted average capitalization rates ("Cap Rate") to 4.6%, compared to the first quarter of 2017, from strong demand for multi-family properties.

Growth Through New Development Projects

Northview has new developments underway in Regina, SK, Iqaluit, NU, and Canmore, AB.

The Regina, SK, development consisting of 132 units commenced in the second quarter of 2017 with occupancy expected in the first quarter of 2018. Total development costs are estimated to be $22.3 million with an expected stabilized Cap Rate between 7.0% and 7.5%.

The Iqaluit, NU, developments consisting of 30 units and 11,400 square feet of commercial space commenced in the second quarter of 2017 with occupancy expected in the first quarter of 2018. Total development costs are estimated to be $9.4 million with an expected stabilized Cap Rate between 9.0% and 9.5%.

The Canmore, AB, development consisting of 140 units and 40 staff housing beds is in the planning phase, and expected to commence during the second half of 2017. Total development costs are estimated to be $23.3 million with an expected stabilized Cap Rate between 7.0% and 7.5%. The economy in Canmore, AB, primarily depends on the tourism industry.

Improved Coverage Ratios

Northview maintained strong interest and debt service coverage ratios which improved from the prior quarter to 2.99 and 1.66, respectively, as at June 30, 2017. Northview continues to monitor interest rates to identify opportunities for reducing its overall borrowing cost. For the three months ended June 30, 2017, Northview completed $34.0 million in mortgage refinancing with a weighted average interest rate of 2.28% with an average term to maturity of 6.9 years.

2017 Strategic Priorities Progress

1. Organic Growth

During the second quarter of 2017, Northview generated organic growth and three of its largest multi-family markets in Northern Canada, Ontario and Western Canada achieved positive same door NOI increases. Ongoing focus on cost management has contributed to a reduction in operating costs. Progress continues on VCIs with an annualized NOI increase of $0.5 million and $1.0 million, respectively, for the three and six months ended June 30, 2017, including $0.3 million and $0.6 million, respectively, from the high-end renovation program. The cumulative progress on VCIs is $3.8 million since November 1, 2015, in addition to the $2.1 million annualized savings on property management internalization in Ontario in 2016. The planned internalization of the remaining units in Nova Scotia and New Brunswick on October 1, 2017, and the remaining units in Quebec in late 2017 will further strengthen Northview's operational platform and the ability to benefit from enhanced economies of scale.

2. Managing Leverage

Debt to gross book value improved by 1.4% to 56.4% during the second quarter of 2017, which brings the cumulative progress to 3.8% since June 30, 2016. In the second quarter of 2017, improvements in leverage ratios are the result of organic growth reflected in same door NOI growth of 3.9%, and improvement in investment property values in Ontario. In the second half of 2016 and the first quarter of 2017, leverage reduction was resulted from a successful equity offering and non-core asset sales.

3. Strategic Capital Deployment in Support of External Growth

As of June 30, 2017, Northview has completed $72.0 million of non-core asset sales since January 2016. The proceeds of these non-core asset sales were directed to leverage reduction. Future non-core asset sales are expected to support capital redeployment and external growth opportunities through developments and selected acquisitions. Northview intends to manage growth on a leverage neutral basis. Northview has recently completed $14.9 million of non-core asset sales and the proceeds were used to support growth and enhance the portfolio through the acquisition of 327 units in Moncton, NB, for $31.4 million.

Financial Information

Northview's condensed consolidated financial statements and the notes thereto and Management's Discussion and Analysis for the three and six months ended June 30, 2017, can be found on Northview's website at www.northviewreit.com or www.sedar.com.

Cautionary and Forward-Looking Statements

This media release contains forward-looking statements including, but not limited to, statements relating to execution of our 2017 strategic priorities, including VCIs and organic growth within our portfolio, development and acquisition opportunities, closing of non-core asset dispositions completed and under contract, completion and occupancy of development projects, and opportunities for the reduction of weighted average interest rates. These statements are not guarantees of future events, performance or results and will not necessarily be accurate indications of whether, or the times at which, such events, performance or results will be achieved.

Forward-looking statements are based on information available at the time they are made, underlying estimates and assumptions made by management and management's good faith belief with respect to future events, performance and results, and are subject to inherent risks and uncertainties surrounding future expectations generally, which could cause actual results to differ materially from what is currently expected. Such risks and uncertainties include, but are not limited to, risks related to: real property ownership; availability of cash flow and mortgage financing; demand for rental accommodation and commercial space; natural resource prices; development and construction risks; reliance on key personnel; concentration of tenants; capital requirements; interest rate risk; credit risk; liquidity risk; general uninsured losses; government regulation; environmental risk; utility costs; potential conflicts of interest; integration of acquired properties; income tax related risk factors; and other risk factors more particularly described in the most recent Annual Information Form available on SEDAR at www.sedar.com. Additional risks and uncertainties not presently known to Northview or that Northview currently believes to be less significant may also adversely affect Northview.

Readers are cautioned that the above list of factors is not exhaustive and that should certain risks or uncertainties materialize, or should underlying estimates or assumptions prove incorrect, actual events, performance and results may vary significantly from those expected. There can be no assurance that the actual results, performance, events or activities anticipated by Northview will be realized or, even if substantially realized, that they will have the expected consequences to, or effect on, Northview. Readers, therefore, should not place undue importance on forward-looking information. Further, forward-looking statements speak only as of the date on which such statements are made. Northview disclaims any intention or obligation to update or revise any forward-looking information, whether as a result of new information, future events or otherwise, except as required under applicable securities laws.

Non-GAAP and Additional GAAP Measures

Certain measures in this media release do not have any standardized meaning as prescribed by GAAP and, therefore, are considered non-GAAP measures. These measures are provided to enhance the reader's overall understanding of our current financial condition. They are included to provide investors and management with an alternative method for assessing our operating results in a manner that is focused on the performance of our ongoing operations and to provide a more consistent basis for comparison between periods. These measures include widely accepted measures of performance for Canadian real estate investment trusts; however, the measures are not defined by GAAP. In addition, these measures are subject to the interpretation of definitions by the preparers of financial statements and may not be applied consistently between real estate entities. Please refer to Northview's most recent Management's Discussion and Analysis for definitions of non-GAAP and additional GAAP measures, including NOI, FFO, debt to gross book value, debt service coverage and interest coverage.

Non-recurring Items

During the three and six months ended June 30, 2017, Northview received insurance proceeds of $0.4 million relating to the Fort McMurray, AB, wildfires. During the second quarter of 2016, Northview received insurance proceeds of $0.7 million, and incurred $1.6 million of lost revenue and $1.6 million of incremental costs relating to the Fort McMurray, AB, wildfires. During the six months ended June 30, 2016, Northview received total insurance proceeds of $4.7 million for the Fort McMurray, AB, wildfires, the 2015 fire in Yellowknife, NT, and a property in Fort McMurray, AB. In addition, Northview incurred $1.6 million of lost revenue and $1.6 million of incremental costs relating to the Fort McMurray, AB, wildfires. These items have been defined as "Non-recurring Items", as they are not considered normal operating conditions, and management has presented revenue, operating expenses, NOI, same door NOI and NOI margin for the multi-family residential business segment and other specific performance metrics adjusting for Non-recurring Items where appropriate.

Financial Results Conference Call and Webcast

Participating on the conference call and webcast will be Mr. Todd Cook, President and Chief Executive Officer, Mr. Travis Beatty, Chief Financial Officer, and Mr. Leslie Veiner, Chief Operating Officer. Please connect approximately 10 minutes before the beginning of the conference call and webcast.

Webcast Information:
Date: Thursday, August 10, 2017
Time: 10:00 a.m. Mountain Time, 12:00 p.m. Eastern Time
Webcast: www.northviewreit.com/investor-relations/presentations.
Conference Call Information:
Dial In: 1-855-473-4527 or 1-661-378-9963
Conference ID: 23753460.
Replay Information:
The webcast will be available for replay two hours after the conference call ends and will be available at: www.northviewreit.com/investor-relations/presentations.

Corporate Profile

Northview is one of Canada's largest publicly traded multi-family REITs with a portfolio of approximately 24,000 quality residential suites in more than 60 markets across eight provinces and two territories. Northview's portfolio includes markets characterized by expanding populations, growing economies, high occupancy levels, and rising rents, which provides Northview the means to deliver stable and growing profitability and cash distributions to Unitholders of Northview over time. Northview currently trades on the TSX under the ticker symbol: NVU.UN. Additional information concerning Northview is available at www.sedar.com or www.northviewreit.com.

Contact Information

  • Northview Apartment Real Estate Investment Trust
    Mr. Todd Cook
    President and Chief Executive Officer
    (403) 531-0720

    Northview Apartment Real Estate Investment Trust
    Mr. Travis Beatty
    Chief Financial Officer
    (403) 531-0720

    Northview Apartment Real Estate Investment Trust
    Mr. Leslie Veiner
    Chief Operating Officer
    (403) 531-0720