Northview Apartment REIT
TSX : NVU.UN

Northview Apartment REIT

August 11, 2016 16:29 ET

Northview Apartment REIT Reports Second Quarter 2016 Financial Results

CALGARY, ALBERTA--(Marketwired - Aug. 11, 2016) - Northview Apartment Real Estate Investment Trust ("Northview" or the "REIT") (TSX:NVU.UN) today announced financial results for the three and six months ended June 30, 2016.

Second Quarter Highlights

  • Diluted funds from operations ("FFO") per unit of $0.51 for the three months ended June 30, 2016, compared to $0.64 in the second quarter of 2015. Diluted FFO per unit was $0.56, excluding Non-recurring Items. Diluted FFO payout ratio of 79.6% for Q2 2016, or 72.9%, excluding Non-recurring Items.
  • Multi-family residential portfolio occupancy of 90.8%, consistent with 90.7% in Q1 2016. The stable high occupancy in Northview's Ontario, Atlantic Canada, and Northern Canada regions offset occupancy declines experienced in Northview's natural resource dependent markets.
  • Northview's Airdrie, AB, multi-family development is 95% leased after four months.
  • Northview experienced strong leasing demand in Fort McMurray, AB, as residents return to the city, reducing vacancy to 21% on August 1, 2016, compared to pre-wildfire levels of 29% as of April 1, 2016.
  • Completed the property management internalization of 7,600 units in Ontario effective April 1, 2016.
  • Continued execution of the strategic value creation initiatives in line with management's expectations.
  • Non-core asset sales of $79 million (including sales under contract expected to close in Q3 2016) reduce debt to gross book value by 0.9%.
  • Interest and debt service coverage ratios remain strong at 3.05 and 1.72, respectively.
  • The financial impact of the Fort McMurray wildfires and evacuation was $3.2 million. The majority of the costs, in excess of the $1.0 million insurance deductible, are expected to be recovered.

Todd Cook, President and CEO, commented, "Our balanced national portfolio delivered strong and stable results in many of our markets. The strategic diversification achieved in 2015 reduced our exposure to Western Canada from 50% to 22% of net operating income."

Mr. Cook continued, "We are pleased with the strong financial results in Northern and Atlantic Canada and stable results in Ontario and Québec in the second quarter of 2016. We continued to experience weaker results in Western Canada, primarily due to economic conditions in our resource based markets: Alberta and northeastern British Columbia. The strong performance of the portfolio acquired in October 2015 coupled with the ongoing execution of our strategic value creation initiatives will continue to contribute organic growth. We are happy with the lease up of our new Airdrie development and are seeing increased demand for units in Fort McMurray as residents and the local workforce return to the city."

Mr. Cook concluded, "Our focus remains on executing on our 2016 strategic priorities, maintaining or improving occupancy in our properties and managing costs across the portfolio."

The 2016 strategic priorities for Northview are focused on creating value for Northview's unitholders and enhancing the financial stability of the REIT. This will be achieved through the following:

  1. Execution of Strategic Value Creation Initiatives: Northview will continue to execute on the value creation initiatives identified in the Transaction and identify areas throughout the existing portfolio where similar benefits would be expected. These initiatives include the execution of the high-end renovation program, increasing rents to market levels, completing the sub-metering program in Ontario, and the achievement of approved above guideline rent increases in Ontario.

    Progress made on the execution of the strategic value creation initiatives in 2016 is in line with management's expectations.
  1. Disposition of Non-Core Assets: Management has identified approximately $150 million of non-core properties across the portfolio that are expected to be sold in 2016 and 2017. The proceeds from these dispositions will be used to reduce overall debt levels and management will consider repurchasing Trust Units through its Normal Course Issuer Bid ("NCIB") that was approved by the TSX during the second quarter of 2016.

    Northview has completed $30 million of non-core asset sales through August 11, 2016, and has an additional $49 million in dispositions under contract, subject to due diligence. These sales are expected to close in the third quarter of 2016, which reduce debt to gross book value by 0.9%.
  1. Restructure Credit Facilities: The $350 million Bridge Facility that was obtained to purchase the Portfolio Acquisitions in the Transaction was repaid in full on March 30, 2016, through term mortgage financing with a weighted average interest rate of 3.15% and term to maturity of 7.2 years.

    Northview expects to complete the consolidation of its $75 million and $45 million operating facilities into one operating facility in the third quarter of 2016.

    Northview has established a new $30.0 million credit facility secured by certain properties in Nunavut.
  1. Maintain Current Conservative Distribution Levels: Northview's low annual FFO payout ratio of approximately 70% allows the ability to maintain its current conservative distributions long term.

Portfolio Summary (including joint ventures at 100%) - June 30, 2016

Regions Multi-family Execusuites
& Hotel
Total
Residential
(units)
Commercial
(sq. ft.)
Ontario 8,235 - 8,235 -
Western Canada 7,241 - 7,241 136,000
Atlantic Canada 4,151 142 4,293 225,000
Northern Canada 2,402 277 2,679 771,000
Québec 2,285 - 2,285 3,000
Total 24,314 419 24,733 1,135,000

Financial Performance Highlights

(thousands of dollars, except per unit amounts) Three months ended June 30 Six months ended June 30
2016 2015 Change 2016 2015 Change
Total revenue 81,112 49,401 64.2 % 167,419 98,222 70.4 %
Net operating income 44,330 30,041 47.6 % 91,313 56,381 62.0 %
Net and comprehensive income (loss) (4,279 ) 6,289 (168.0 %) 202 20,907 (99.0 %)
FFO - diluted 27,335 20,327 34.5 % 57,676 36,901 56.3 %
FFO per Trust Unit - diluted $ 0.51 $ 0.64 (20.3 %) $ 1.08 $ 1.16 (6.9 %)
FFO payout ratio -diluted 79.6 % 63.7 % 15.9 % 75.4 % 70.1 % 5.3 %
Excluding Non-recurring Items:
FFO - diluted 29,822(i ) 20,327 46.7 % 56,147(ii ) 36,901 52.2 %
FFO per Trust Unit - diluted $ 0.56 $ 0.64 (12.5 %) $ 1.05 $ 1.16 (9.5 %)
FFO payout ratio -diluted 72.9 % 63.7 % 9.2 % 77.4 % 70.1 % 7.3 %
Distributions declared to Trust Unit holders 21,275 12,940 64.4 % 42,551 25,880 64.4 %
Distributions per Trust Unit 0.41 0.41 0.0 % 0.81 0.81 0.0 %
(i) Non-recurring Items in the three months ended June 30, 2016, include $3.2 million of incremental costs relating to the Fort McMurray wildfires, partially offset by $0.7 million of insurance proceeds received in the period.
(ii) Non-recurring Items in the six months ended June 30, 2016, include $4.7 million of insurance proceeds received in the period, partially offset by $3.2 million of incremental costs relating to the Fort McMurray wildfires incurred in the period.

Net operating income ("NOI") and 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.

FFO

Excluding Non-recurring Items, basic FFO for the three months ended June 30, 2016, was $29.5 million, an increase of 45.0%, compared to $20.3 million for the same period of 2015, due to the growth in Northview's portfolio from the Transaction. Non-recurring Items related to the Fort McMurray wildfire include $1.6 million of lost revenue and $1.6 million of incremental operating costs. In addition, Northview received insurance proceeds of $0.7 million in the second quarter. On a per unit basis, excluding Non-recurring Items, basic and diluted FFO for Q2 2016 was $0.56, compared to $0.64 for basic and diluted FFO for the second quarter of 2015.

Excluding Non-recurring Items, basic FFO for the six months ended June 30, 2016, was $55.5 million, an increase of 50.3%, compared to $36.9 million for the same period of 2015, primarily due to the growth in Northview's portfolio from the Transaction. On a per unit basis, excluding Non-recurring Items, basic FFO for the six months ended June 30, 2016, was $1.06 and diluted FFO was $1.05, compared to $1.16 for basic and diluted FFO for the same period of 2015.

The decrease in FFO on a per unit basis in the quarter was driven primarily by higher interest expense from additional mortgages and lower operating performance in natural resource based markets. Partially offsetting the decline was positive same door NOI growth from Northern Canada and positive contributions from the portfolios acquired in the Transaction, and Northview's other acquisitions and developments completed in 2015.

Northview's basic FFO payout ratio was 78.8% and diluted FFO payout ratio was 79.6% for the three months ended June 30, 2016, compared to basic and diluted of 63.7% for the same period of 2015. Excluding Q2 2016 Non-recurring Items, Northview's basic FFO payout ratio was 72.2% and diluted FFO payout ratio was 72.9%.

NOI

Multi-family NOI increased 62.5% and 80.0% for the three and six months ended June 30, 2016, primarily driven by the Transaction, compared to the same period of 2015.

Occupancy

Occupancy for the three months ended June 30, 2016, was 90.8%, increasing from 89.9% experienced in the same period of 2015 and consistent with 90.7% in the first quarter of 2016. The Ontario region maintained its stable high occupancy performance consistent with the first quarter of 2016, while improvements in the Atlantic Canada, Northern Canada and Québec regions offset the declines experienced in the resource based Western region. The addition of the Ontario, Québec and Atlantic Canada portfolios acquired in the Transaction, and the continued strong performance of the Northern Canada portfolio continue to provide Northview with stable operating results, partially offsetting the impact of natural resource based markets.

Occupancy by Region

Region Q1
2015
Q2
2015
Q3
2015
Q4
2015
2015 Q1
2016
Q2
2016
Ontario - - - 96.2 % 96.2 % 95.9 % 95.9 %
Western Canada 85.8 % 84.7 % 84.5 % 84.3 % 84.8 % 81.9 % 81.3* %
Atlantic Canada 94.4 % 93.7 % 91.3 % 93.1 % 93.1 % 92.9 % 93.5 %
Northern Canada 93.1 % 96.1 % 97.4 % 96.5 % 95.8 % 94.6 % 95.3 %
Québec 99.6 % 99.0 % 99.3 % 90.6 % 92.5 % 90.7 % 91.4 %
Overall 89.4 % 89.9 % 90.0 % 91.5 % 90.3 % 90.7 % 90.8 %
* Western Canada occupancy for Q2 2016 has been adjusted to exclude the mandatory evacuation of Fort McMurray due to the wildfires.

Developments

The first phase of Northview's Calgary, AB, development, consisting of 261 units, is anticipated to be completed in the fourth quarter of 2016. Total development costs are expected to be $45.0 million, with an expected Cap Rate between 7.0% and 7.5%.

During the second quarter of 2016, Northview began the development of 36 units in Cambridge Bay, NU, with occupancy expected in the second quarter of 2017. Total development costs are estimated to be $10.5 million, with an expected Cap Rate between 10.0% and 10.5%.

Management continues to evaluate development opportunities in Ontario and has identified approximately 500 new units that can be developed on existing property sites acquired in the Transaction.

Financial Position

June 30,
2016
December 31,
2015
Change
Total assets (000'$) 3,173,109 3,132,617 1.3 %
Debt to gross book value 60.2 % 59.2 % 1.0 %
Interest coverage ratio (times) 3.05 3.31 (7.9 %)
Debt service coverage ratio (times) 1.72 1.86 (7.5 %)
Weighted average mortgage interest rate 3.29 % 3.33 % (0.04 %)
Weighted average term to maturity (years) 5.1 5.0 2.0 %
Weighted average capitalization rate 6.81 % 6.83 % (0.02 %)
Debt to gross book value, debt service coverage ratio and interest coverage ratio are considered non-GAAP measures and do not have any standardized meaning as prescribed by GAAP. See "Non-GAAP and Additional GAAP Measures" disclosure below.

Management has a clear debt strategy plan to reduce leverage. Successful execution of the strategic value creation initiatives coupled with the non-core asset disposition plan is expected to reduce debt to gross book value below 55% in the next three to five years. The long-term goal is a debt to gross book value in the 50% to 55% range.

Northview's coverage ratios remain strong, and are among the best in the Canadian multi-family sector. For the twelve months ended June 30, 2016, the interest coverage ratio was 3.05 and the debt service coverage ratio was 1.72.

During the three months ended June 30, 2016, Northview completed $33.8 million in mortgage financings and renewals with a weighted average interest rate of 2.53% and a term to maturity of 6.1 years. The net proceeds were used to fund development and capital improvement activity.

Financial Statements

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, 2016, can be found on Northview's website at www.northviewreit.com or www.sedar.com.

Cautionary/Forward-Looking Statements

This news release contains forward‐looking statements relating to our value creation initiatives, disposition activity, restructuring of our credit facilities expected costs and Cap Rates of our development project, completion of apartments for which development approvals have been obtained, commencement of development of new buildings, prospects for long-term occupancy, distribution levels, and repurchases under the NCIB. 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; debt 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; Trust Unitholder liability; property and land transfer tax risk; potential conflicts of interest; integration of acquired properties; dilution; restriction on redemption, income tax related risk factors, and other risk factors more particularly described in our 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 news 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 second quarter 2016 Management's Discussion & 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 August 12, 2016, at 8:00 a.m. Mountain Time, 10:00 a.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 1-888-789-9572 or 416-695-7806. You will be required to provide the Conference Call Operator with the Conference ID 6938272 prior to being admitted to the call. Following the conclusion of the call, an instant replay will be available by calling 905-694-9451 or 1-800-408-3053, passcode 4449876. The recording will also be available on our website on August 15, 2016.

Corporate Profile

Northview is primarily a multi-family residential real estate investor and operator providing a broad spectrum of rental accommodations with a portfolio of more than 24,000 quality residential suites in more than 60 markets across Canada. Northview's portfolio includes residential and an execusuites and hotel segment. Northview also has a portfolio of commercial buildings focused on government and quality corporate tenancies predominantly located in Newfoundland and Labrador, the Northwest Territories, and Nunavut.

On October 30, 2015, through a plan of arrangement, Northern Property REIT ("NPR") acquired all of the assets and properties of True North Apartment Real Estate Investment Trust ("TN" or "True North") in exchange for NPR Trust Units and NPR Special Voting Units. In addition, NPR acquired seven apartment properties held by Starlight Investment Ltd. ("SL" or "Starlight") and 26 apartment properties from a joint venture between affiliates of SL and affiliates of the Public Sector Pension Investment Board ("PSP"), collectively the "Transaction". Upon completion of the Transaction, NPR changed its name to Northview Apartment Real Estate Investment Trust.

Northview operates in Alberta, British Columbia, Newfoundland and Labrador, New Brunswick, Nova Scotia, the Northwest Territories, Nunavut, Ontario, Québec, and Saskatchewan.

Northview is traded on the TSX under the ticker symbol: NVU.UN.

Contact Information

  • Northview Apartment Real Estate Investment Trust
    Todd Cook
    President and CEO
    403-531-3610

    Northview Apartment Real Estate Investment Trust
    Travis Beatty
    Chief Financial Officer
    403-531-3545