CALGARY, ALBERTA–(Marketwired – May 5, 2016) – Northview Apartment Real Estate Investment Trust (“Northview” or the “REIT”) (TSX:NVU.UN), today announced financial results for the three months ended March 31, 2016.
Fort McMurray, AB Update
Northview currently believe that our fourteen buildings in Fort McMurray have not been damaged, although this could change as the situation evolves.
Todd Cook, President and CEO, commented, “The safety of our people and residents is our immediate priority. We can confirm that as of this morning our staff are safe, and we have not received any reports of harm to our residents.”
Mr. Cook added, “We are currently assessing how we can best assist our residents, employees and the community. We expect to be in a position to provide further information in the next 48 hours.”
First Quarter Highlights
- Successfully completed the property management internalization of 7,600 units in Ontario effective April 1, 2016, which will result in cost savings going forward.
- Portfolio occupancy of 90.7%, a 1.3% increase from the same period in 2015, as a result of the stability added from the portfolios acquired in the Transaction.
- Continued progress made on the execution of the strategic value creation initiatives in line with expectations.
- Refinanced $376.0 million of mortgages with an average term of 6.9 years and an average interest rate of 3.16% in the quarter, with the majority of the proceeds being used to repay the $350.0 million Bridge Facility.
- Twelve month rolling interest and debt service coverage ratios remain strong at 3.27 times and 1.83 times, respectively, at March 31, 2016.
- Diluted funds from operations (“FFO”) of $30.3 million for the three months ended March 31, 2016, an 83.0% increase from the same period in 2015, due to the completion of the Transaction on October 30, 2015.
- Diluted FFO per Trust Unit of $0.57 for the three months ended March 31, 2016, or $0.49, excluding $4.0 million of insurance proceeds received in the period, compared to $0.52 for the same period in 2015. Diluted FFO payout ratio of 71.7% for Q1 2016, or 82.6%, excluding insurance proceeds, compared to 78.1% in Q1 2015.
- Northview currently has $68 million in dispositions under contract, subject to due diligence, with the sales expected to close between June 1, 2016, and August 31, 2016. An additional $15 million in assets are currently in the negotiation stage and are expected to be sold in the second half of the year.
Mr. Cook commented, “The first quarter results are in line with our expectations. The stability of our Northern, Ontario, and Atlantic markets continue to mitigate the on-going operating pressures in our Western Canada markets. Our focus for the last six months has been the integration of the portfolios acquired last fall and the execution of our 2016 strategic initiatives.”
Mr. Cook continued, “During the quarter, significant progress was made on the delivery of our strategic value creation initiatives. The Bridge Facility was termed out prior to the end of the quarter, property management of 7,600 units in Ontario was successfully internalized on April 1, 2016, and we have conditional offers on $68 million in non-core assets that are scheduled to close starting late Q2 2016. We have also continued the execution of the identified value creation initiatives according to plan.”
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 initiatives:
- Execution of Strategic Value Creation Initiatives: Northview will continue to execute on the value creation initiatives identified in the Transaction and continue to identify areas throughout the existing portfolio where similar benefits would be expected to materialize. These initiatives include the execution of the high-end renovation program, increasing rents to market, completing the sub-metering program in Ontario, and the achievement of approved above guideline rent increases in Ontario.
Northview has a history of successfully managing its properties directly. Management has a plan in place to internalize the property management of the properties acquired in the Transaction over the next two years. Effective April 1, 2016, 7,600 units in Ontario were successfully internalized. Internal property management will bring added benefits of direct control over the operations of the properties and reduced operating costs.
Progress made on the execution of the strategic value creation initiatives in the first quarter of 2016 is in line with expectations.
- 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 repurchase Trust Units though a Normal Course Issuer Bid (“NCIB”) that is intended to be implemented during 2016. Management believes the repurchase of Northview Trust Units is a prudent use of the sale proceeds as they currently trade at a significant discount to Net Asset Value and remain highly correlated to the price of crude oil.
Northview currently has $68 million in dispositions under contract, subject to due diligence. The dispositions are expected to be completed between June 1, 2016, and August 31, 2016. An additional $15 million in assets are currently in the negotiation stage and are expected to be sold in the second half of the year.
- Restructure Credit Facilities: The $350.0 million Bridge Facility that was put in place to purchase the Portfolio Acquisitions in the Transaction was repaid in full on March 30, 2016, with term mortgage financing with a weighted average interest rate of 3.15% and term to maturity of 7.2 years. On May 2, 2016, Northview entered into agreements to consolidate the $75.0 million and $45.0 million operating facilities into one operating facility. In addition, Northview entered into an agreement to establish a $30.0 million operating facility secured by certain properties in Nunavut. The agreements to both operating facilities are subject to customary closing conditions.
- Maintain Current Conservative Distribution Levels: Through continued disciplined revenue and expense management across the entire portfolio, Northview will maintain its current conservative distribution levels, with a low annual FFO payout ratio of approximately 70%, to ensure that distributions remain sustainable over the long term.
| Portfolio Summary (including joint ventures at 100%) – March 31, 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 | 4,179 | 142 | 4,321 | 225,000 | |
| Northern Canada | 2,402 | 277 | 2,679 | 779,000 | |
| Québec | 2,285 | – | 2,285 | 3,000 | |
| Total | 24,342 | 419 | 24,761 | 1,143,000 | |
| Financial Performance Highlights | ||||||||
| (thousands of dollars, except per unit amounts) | Three months ended March 31 | |||||||
| 2016 | 2015 | Change | ||||||
| Total revenue | 86,307 | 48,821 | 76.8 | % | ||||
| Net operating income | 46,979 | 26,340 | 78.4 | % | ||||
| Net and comprehensive income | 4,481 | 14,618 | (69.3 | %) | ||||
| FFO – diluted | 30,337 | 16,574 | 83.0 | % | ||||
| FFO per Trust Unit – diluted | $ | 0.57 | $ | 0.52 | 9.6 | % | ||
| FFO payout ratio -diluted | 71.7 | % | 78.1 | % | (6.4 | %) | ||
| Distributions declared to Trust Unit holders | 21,276 | 12,940 | 64.4 | % | ||||
| Distributions per Trust Unit | 0.41 | 0.41 | – | |||||
| 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
Basic FFO for the three months ended March 31, 2016, was $30.0 million, an increase of 81.0%, compared to $16.6 million for the same period of 2015. On a per unit basis, basic FFO for Q1 2016 was $0.50 and diluted FFO was $0.49, excluding insurance proceeds received in the period, compared to $0.52 for basic and diluted FFO for the first quarter of 2015.
The decrease in FFO on a per unit basis in the quarter was driven primarily by higher administration costs, additional interest expense from the floating rate Bridge Facility, and the additional Trust Units outstanding in the current year. Partially offsetting the decline was positive same door NOI growth from Northern Canada, and positive contributions from acquisitions and developments completed in 2015.
Northview’s basic FFO payout ratio was 70.9% and diluted FFO payout ratio was 71.7% for the three months ended March 31, 2016, compared to basic and diluted of 78.1% for the same period of 2015. Excluding the impact of insurance proceeds received in the period, Northview’s basic FFO payout ratio was 81.9% and diluted FFO payout ratio was 82.6%.
NOI
Execusuites and hotel NOI increased by 44.1% in the first quarter of 2016, compared to the same period of 2015. The NOI improvements are the result of improved occupancy in the northern properties and reduced expenses across the portfolio due to cost control measures implemented in 2015. The execusuite property in St. John’s, NL, continues to lag 2015 performance due to suites being unavailable as capital renovations are completed. The capital renovations were substantially complete in the first quarter and all of the affected suites are expected to be returned to inventory by mid-May 2016.
Multi-family continued to contribute the majority of NOI at 86%, the commercial segment accounted for 11%, and the execusuites and hotel segment was 3%. The Transaction completed in 2015 improved Northview’s geographic diversification, adding stability and reducing the impact of natural resource prices on the overall financial results.
Occupancy
Occupancy for the three months ended March 31, 2016, was 90.7%, a decline from 91.5% experienced in the fourth quarter of 2015. Due to the weak economic conditions in a number of resource based regions, Northview continued to experience a higher than normal amount of tenant move outs in certain regions in the first quarter of 2016. The addition of the Ontario and Atlantic Canada portfolios acquired in the Transaction has increased stability to the overall results and decreased Northview’s dependence on natural resource prices. Through dedicated leasing teams, select rental incentives, and the organization-wide focus on customer service, management is focused on stabilizing occupancy in volatile markets and working to increase market share wherever possible. The efforts of the 2015 “Street to Suite” capital program have had a direct impact in increasing occupancy in Yellowknife, NT, and stabilizing occupancy in Fort McMurray, AB.
| Occupancy by Region | ||||||||||||||
| Region | 2014 | Q1 2015 | Q2 2015 | Q3 2015 | Q4 2015 | 2015 | Q1 2016 | |||||||
| Ontario | n/a | n/a | n/a | n/a | 96.2 | % | 96.2 | % | 95.9 | % | ||||
| Western Canada | 89.5 | % | 85.8 | % | 84.7 | % | 84.5 | % | 84.3 | % | 84.8 | % | 81.9 | % |
| Atlantic Canada | 95.6 | % | 94.4 | % | 93.7 | % | 91.3 | % | 93.1 | % | 93.1 | % | 92.9 | % |
| Northern Canada | 93.0 | % | 93.1 | % | 96.1 | % | 97.4 | % | 96.5 | % | 95.8 | % | 94.6 | % |
| Québec | 99.6 | % | 99.6 | % | 99.0 | % | 99.3 | % | 90.6 | % | 92.5 | % | 90.7 | % |
| Overall | 91.6 | % | 89.4 | % | 89.9 | % | 90.0 | % | 91.5 | % | 90.3 | % | 90.7 | % |
Developments
Development activity is focused in areas with high asking prices for existing apartments, and long term potential for low vacancy and rent increases. New developments tend to be in existing markets where Northview leverages its local presence and knowledge of the region. New properties have a modern design, obtain higher rental rates, and have lower initial ongoing capital maintenance requirements, all of which allow Northview to generate returns 100 to 200 basis points higher than those associated with acquiring existing apartments. Northview’s extensive in-house development expertise provides the flexibility to adjust development activities as market conditions change. Units constructed are typically four storey wood frame buildings with large balconies, elevators, and six appliances, including in-suite laundry.
Northview has 48.0 acres of land held for future development which allows for the construction of approximately 1,700 units.
Management is currently assessing development opportunities in Ontario following the closing of the Transaction. Management has identified approximately 500 new units that can be developed at six existing sites in Ontario. This development is not expected to commence prior to 2017.
The 140 unit development in Airdrie, AB, was completed in March 2016, and is currently 80% leased. The project was developed with additional amenities to give a competitive edge in the larger rental market. Total development costs were $26.1 million, with an expected Cap Rate between 7.0% and 7.5%.
Northview’s first Calgary, AB, development commenced late in the third quarter of 2015 with the total project expected to have 419 units. The first phase of development, consisting of 261 units, is anticipated to be completed in early 2017. The project will have additional amenities similar to the recently completed Airdrie project. Total development costs are expected to be $45.0 million, with an expected Cap Rate between 7.0% and 7.5%.
During the first quarter of 2016, Northview was successful in its bid on a request for proposal issued by the Nunavut Housing Corporation for 20 units of staff housing in Cambridge Bay, NU. Northview’s development consists of 36 units with an expected occupancy in the second quarter of 2017.
| Financial Strength | ||||||
| March 31, 2016 | December 31, 2015 | Change | ||||
| Total assets (000’$) | 3,149,320 | 3,132,617 | 0.5 | % | ||
| Debt to gross book value | 59.8 | % | 59.2 | % | 0.6 | % |
| Interest coverage ratio (times) | 3.27 | 3.31 | (1.2 | %) | ||
| Debt service coverage ratio (times) | 1.83 | 1.86 | (1.6 | %) | ||
| Weighted average mortgage interest rate | 3.31 | % | 3.33 | % | (0.02 | %) |
| Weighted average term to maturity (years) | 5.3 | 5.0 | 6.0 | % | ||
| Weighted average capitalization rate | 6.82 | % | 6.83 | % | (0.01 | %) |
| 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. |
In recent years, Northview has grown through successful acquisition and development activities that have been funded internally, resulting in increased debt to gross book value. The Transaction completed in 2015 also temporarily increased debt to gross book value to 59.8% at March 31, 2016. Northview’s coverage ratios remain strong and among the best in the Canadian Multi-family sector. For the twelve months ended March 31, 2016, interest coverage ratio was 3.27 times and the debt service coverage ratio was 1.83 times.
Management has a clear debt strategy plan to reduce leverage over the next several years. 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 with the long-term goal of maintaining debt to gross book value in the 50% to 55% range.
During the three months ended March 31, 2016, Northview completed $376.0 million in mortgage financings and renewals with a weighted average interest rate of 3.16% and a term to maturity of 6.9 years compared to $58.9 million, 2.62%, and 8.9 years, respectively, in the same period of 2015. The net proceeds in 2016 were used to repay the $350.0 million Bridge Facility in full and fund development activity. Northview continues to extend the term on new and renewed mortgages, utilizing 10 year terms where possible.
Distributions to Trust and Class B LP Unitholders
For the three months ended March 31, 2016, total distributions of $21.3 million were paid to Trust and Class B LP Unitholders from $20.8 million of cash flow from operations in the same period.
Financial Statements
Northview’s condensed consolidated financial statements and the notes thereto and Management’s Discussion and Analysis for the three months ended March 31, 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 renewal of 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 page 25 of our first 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 Friday, May 6, 2016, 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, Leslie Veiner, Chief Operating Officer, and Travis Beatty, Chief Financial Officer. Investors and analysts are invited to participate in the call by calling 1-888-789-9572 or 416-340-2217. You will be required to provide the Conference Call Operator with the Conference ID #6261916 prior to being admitted to the call. A recorded playback of the call will be available from May 6, 2016 to May 20, 2016 by calling 905-694-9451 or 1-800-408-3053, passcode #3029998. The recording will also be available on our website on May 9, 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, which provides Northview the means to deliver stable and growing profitability and cash distributions to Unitholders.
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’s residential portfolio is comprised of a multi-family segment, including apartments, town homes, and single family rental units; and an execusuites and hotel segment where the rental period ranges from a few days to several months. Northview also has a portfolio of commercial buildings focused on government and quality corporate tenancies predominantly located in the Northwest Territories, Nunavut, and Newfoundland and Labrador. Geographically, Northview operates in Alberta, British Columbia, New Brunswick, Nova Scotia, Newfoundland and Labrador, the Northwest Territories, Nunavut, Ontario, Québec, and Saskatchewan.
The value of Northview’s real estate at March 31, 2016, was $3.0 billion with 24,761 residential units and 1,143,000 square feet of commercial space. Northview is traded on the TSX under the ticker symbol: NVU.UN.
Todd Cook
President and CEO
403-531-3610
Northview Apartment Real Estate Investment Trust
Leslie Veiner
Chief Operating Officer
647-725-0433
Northview Apartment Real Estate Investment Trust
Travis Beatty
Chief Financial Officer
403-531-3545
