Northview Apartment REIT
TSX : NVU.UN

Northview Apartment REIT

March 09, 2017 18:16 ET

Northview Apartment REIT Reports Q4 and 2016 Financial Results, Progress on Leverage Reduction, Successful Execution of Value Creation Initiatives and Non-Core Asset Sales

CALGARY, ALBERTA--(Marketwired - March 9, 2017) - Northview Apartment Real Estate Investment Trust ("Northview" or the "REIT") (TSX:NVU.UN), today announced financial results for the three months and year ended December 31, 2016. Diluted FFO per unit was $2.21 for the year ended December 31, 2016, or $2.14, excluding Non-recurring Items, compared to $2.34 for the same period in 2015.

Todd Cook, President and CEO, commented, "Our strategic diversification of our asset base across Canada in 2015 significantly reduced the impact of challenging operating environments in some of our markets in 2016, while continuing to create value for our Unitholders. We made significant progress on our strategic priorities including non-core asset sales, the equity offering in October and asset appreciation through the successful execution of the Value Creation Initiatives and our development program."

Mr. Cook concluded, "Northview is well positioned to continue to deliver Unitholder value and our focus remains on driving organic growth in the portfolio including execution of the Value Creation Initiatives. The significant progress made on leverage reduction in 2016 provides us with the flexibility to transition from disposing of non-core assets to capital recycling."

Financial Performance Highlights

(thousands of dollars, except per unit amounts) Three months ended December 31 Year ended December 31
2016 2015 Change 2016 2015 Change
Net operating income 44,003 39,353 12 % 185,529 126,699 46 %
NOI margin 54.0 % 55.6 % (2 %) 55.8 % 58.2 % (2 %)
FFO - diluted 27,371 24,592 11 % 119,276 83,054 44 %
Excluding Non-recurring Items:
FFO - diluted(i) 26,994 24,592 10 % 115,331 83,054 39 %
FFO per Trust Unit - diluted $0.48 $0.53 (9 %) $2.14 $2.34 (9 %)
Distributions per Trust Unit(ii) $0.41 $0.41 - $1.63 $1.63 -
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) Non-recurring Items for the year ended December 31, 2016, include $7.1 million of insurance proceeds received in the period, partially offset by $1.6 million of lost revenue and $1.6 million of incremental costs relating to the Fort McMurray wildfires, a decrease to diluted FFO of $3.9 million.
(ii) Trust Unit refers to the publicly traded Northview Trust Unit and the Class B LP Unit.

2017 Strategic Priorities

1. Organic Growth

Northview will continue to focus on improving occupancy, monthly rents and operating expense management, which would drive increases in same door NOI. Continued execution of the Value Creation Initiatives ("VCIs") in 2017 is expected to contribute to organic growth.

2. Managing Leverage

The REIT's long-term target for debt to gross book value is 50% to 55%. With the significant reduction in leverage achieved in 2016, leverage reduction for the near to mid-term will be achieved through improvements in asset values driven by the successful execution of the VCIs and developments.

3. Capital Deployment in Support of External Growth

Proceeds from sale of non-core assets will be deployed in support of growth through developments and selected acquisitions in Northview's stronger markets. Northview will continue to utilize its existing land for developments, in addition to recycling selected investments in land to expand the in-house development program to Ontario.

Progress Made Against 2016 Strategic Priorities

At the end of 2015, management identified the following strategic priorities for 2016. Northview successfully executed against these priorities over the course of 2016:

1. Value Creation Initiatives

Execution of the VCIs in 2016 were consistent with management's expectations heading into the year. Annualized NOI increase from VCIs was $2.8 million, which supported a fair value increase to investment properties of approximately $46 million in Ontario.

  1. High-end renovation program: 268 units were completed under this program, resulting in an annualized NOI increase of $0.6 million in 2016.
  2. Below market rents: management achieved an $11 increase in average monthly rents, with annualized NOI increase of $1.7 million, excluding the other VCIs and guideline increase.
  3. Sub-metering program: 3,471 units had sub-metering installed and 1,497 units had enrolled as at December 31, 2016. A total of 333 units enrolled in 2016, driving an annualized NOI increase of $0.2 million for the year.
  4. Above guideline increases: The increase of average monthly rent of the 2,851 units approved for AGIs in 2016 was approximately 4%, including a guideline increase of 2% in Ontario, which produced an annualized NOI increase of $0.3 million.
  5. Property management internalization: Northview internalized the management of approximately 7,600 units in Ontario, resulting in annualized NOI increase of $2.1 million in 2016.

2. Disposition of Non-Core Assets

Northview completed $48.6 million of non-core asset sales in 2016 and $23.4 million to date in 2017, with a further $16.3 million in dispositions currently under contract. In total, these sales reduce debt to gross book value by approximately 100 basis points. Proceeds were used for leverage reduction and in support of VCIs.

3. Restructure Credit Facilities

Northview consolidated its operating facilities into a new $150 million credit facility and secured a new $30 million credit facility in 2016. As of December 31, 2016, the borrowing capacities under these facilities were $108.4 million and $21.7 million, respectively.

4. Maintain Current Conservative Distribution Levels

Northview's long term target for annual FFO payout ratio is approximately 70%. For the year ended December 31, 2016, fully diluted payout ratio was 74.1%, or 76.7% excluding Non-recurring Items. Northview's distribution is sustainable long term.

Summary of 2016

Funds From Operations

Diluted FFO per unit was $2.21 for the year ended December 31, 2016, compared to $2.34 in 2015. Diluted FFO per unit was $2.14, excluding Non-recurring Items for the year ended December 31, 2016. Diluted FFO per unit was $0.49 for the three months ended December 31, 2016, compared to $0.53 for the same period in 2015. Diluted FFO per unit was $0.48, excluding Non-recurring Items for the three months ended December 31, 2016. The decrease in FFO on a per unit basis in the quarter and the year was driven primarily by lower operating performance in natural resource based markets, dilution from the equity offering completed in October 2016, and higher interest expense from additional mortgages.

Fair Value Increase of $54 million in 2016

During 2016, Northview achieved a fair value increase on investment properties of $54 million including $46 million in Ontario and $9 million for the newly developed properties in Alberta. In addition, there was a fair value increase in other regions offset by a fair value decrease in resource based markets. These fair value increases reflect the positive operating conditions in Ontario and Northview's ability to add value through its development projects.

Proven Growth From Development

The 140 unit development in Airdrie, AB, completed in March 2016, has reached stabilized occupancy. The Calgary, AB, development of 261 units was completed in 2016. Leasing is underway and occupancy has reached 33%. During the fourth quarter, Northview continued the development of 36 units in Cambridge Bay, NU, with occupancy commencing in the second quarter of 2017.

Accelerated Leverage Reduction

Northview made significant progress in the second half of 2016 reducing debt to gross book value by 270 basis points through an equity offering and non-core asset dispositions. Debt to gross book value, excluding convertible debentures, as at December 31, 2016, was 57.5% compared to 60.2% as at June 30, 2016.

Occupancy

The Ontario, Northern Canada, Atlantic Canada and Quebec regions, along with southern British Columbia operations, maintained stable high occupancy performance which contributed to overall occupancy of 90.7% in 2016. These regions continue to offset lower occupancy in northeastern British Columbia and most of Alberta caused by poor economic conditions. Occupancy for the three months ended December 31, 2016, was 90.4%, compared to 91.1% in Q3 2016. The decline in the fourth quarter was attributable to a decline in Western and Northern Canada.

Strong Coverage Ratios

Northview maintained strong interest coverage and debt service coverage ratios of 2.98 and 1.70, respectively, as at December 31, 2016. Northview continues to monitor interest rates to identify opportunities for the reduction of its weighted average interest rate. For the year ended December 31, 2016, Northview completed $501.5 million in mortgage refinancing with a weighted average interest rate of 2.97% and an average term to maturity of 7.2 years.

Financial Information

Northview's audited consolidated financial statements and the notes thereto and Management's Discussion and Analysis for the year ended December 31, 2016, 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 2016 strategic priorities, including VCIs and organic growth within our portfolio, 2017 strategic priorities, development and acquisition opportunities, closing of non-core asset dispositions completed and under contract, completion and occupancy of development projects in Airdrie, AB, Calgary, AB, and Cambridge Bay, NU, annualized NOI increase on VCIs, 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 our 2016 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.

Results Conference Call

Northview's conference call will take place on March 10, 2017, at 10:00 a.m. Mountain Time, 12:00 p.m. Eastern Time. Participating on the call will be Mr. Todd Cook (Chair), President and Chief Executive Officer, Mr. Travis Beatty, Chief Financial Officer, and Mr. Leslie Veiner, Chief Operating Officer. Investors and analysts are invited to participate in the call by calling 1-866-223-7781 or 416-340-2218. Following the conclusion of the call, an instant replay will be available by calling 905-694-9451 or 1-800-408-3053, passcode 5812221. The recording will also be available on our website on March 13, 2017. A webcast of the conference call including the presentation slides can be accessed by visiting Northview's website at www.northviewreit.com. The webcast slide presentation can be accessed at http://edge.media-server.com/m/p/cjsuzksb.

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. The REIT 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