Deadline for Unitholders to return their completed proxies or otherwise exercise their vote on the Transaction is Thursday, May 21, 2020 at 3:00 pm (Mountain Time)
Deadline for electing the form of consideration under the Transaction extended to Friday, June 5, 2020 at 3:00 pm (Mountain Time)
CALGARY, Alberta, May 14, 2020 (GLOBE NEWSWIRE) — Northview Apartment Real Estate Investment Trust (âNorthviewâ or the âREITâ) (NVU.UN â TSX), today provided Transaction and COVID-19 updates, and disclosed financial results for the three months ended March 31, 2020.
Todd Cook, President and CEO, commented, âIn the face of the COVID-19 pandemic, we are grateful for how the entire Northview team has responded by continuing to provide critical services to our residents safely and effectively. Our teams are going above and beyond while ensuring our business continues to succeed.â
âOn the business front, we saw continued revenue growth in our multi-family portfolio across the country during the first quarter, which led to strong same door NOI growth across all the regions. We completed our development project in Iqaluit, NU and continue to progress the development projects in Kitchener, ON and Nanaimo, BC as planned while practicing extensive COVID-19 safety protocols,â continued Mr. Cook.
âWe also continued to work with Starlight and KingSett to move the previously announced transaction forward. On April 29, 2020, Northview issued its management information circular, which provides Unitholders with all the information required to vote on the Transaction,â concluded Mr. Cook.
TRANSACTION WITH STARLIGHT AND KINGSETT UPDATE
On February 19, 2020, Northview entered into an arrangement agreement (the âArrangement Agreementâ) with affiliates of Starlight Group Property Holdings Inc. (âStarlightâ) and KingSett Capital Inc. (collectively, the âPurchasersâ) pursuant to which the Purchasers have agreed to acquire Northview (the âTransactionâ). Pursuant to the Transaction, holders of Northviewâs outstanding Trust Units (âUnitholdersâ) (other than Starlightâs interest in Northview which will be rolled into the acquiring entities) will receive $36.25 per Trust Unit, payable, at the election of Unitholders: (i) in cash; or (ii) in a combination of cash and units of a new multi-residential fund (the âHigh Yield Fundâ).
Details of the Transaction are contained in Northviewâs management information circular in connection with the Transaction and its annual general matters (the âMICâ) which was mailed to Unitholders on April 29, 2020 and publicly filed on Northviewâs profile on SEDAR at www.sedar.com. The MIC includes information on how to vote on the Transaction and how to elect to receive the form of consideration for the Transaction. The deadline for Unitholders to return their completed proxies or otherwise exercise their vote is Thursday, May 21, 2020 at 3:00 pm (Mountain Time).
The deadline for Unitholders to elect the form of consideration under the Transaction, including to receive units of the High Yield Fund, has been extended to Friday, June 5, 2020 at 3:00 pm (Mountain Time).
Northview further announced that it was granted an interim order by the Alberta Court of Queenâs Bench (the âInterim Orderâ) with regard to the Transaction on April 23, 2020. The Interim Order authorizes Northview to proceed with various matters, including the calling and holding of Northviewâs Annual General and Special Meeting of Unitholders to consider and vote on the Transaction on May 25, 2020. Closing conditions relating to approvals required under the Competition Act (Canada) were met on April 29, 2020.
Management continues to work with its advisors and the Purchasers to complete the Transaction. The Transaction is expected to close in the third quarter of 2020. The primary factor which will influence the timing of the closing of the Transaction is obtaining approvals from CMHC and certain of Northviewâs lenders.
For additional details regarding the Transaction, see the MIC available under Northviewâs profile on SEDAR at www.sedar.com. A copy of the Arrangement Agreement, Notice of Meeting, Letter of Transmittal and Form of Proxy are also available under Northviewâs profile on SEDAR at www.sedar.com.
COVID-19 UPDATE
On March 11, 2020, the World Health Organization declared the coronavirus (âCOVID-19â) a global pandemic. Since that time, the spread of COVID-19 has had a substantial impact on the Canadian and global economy. In response to the COVID-19 pandemic in Canada, many provincial governments have limited landlordâs ability to evict tenants for non-payment of rent and frozen rent increases. Social distancing actions to reduce the spread of COVID-19, including closing restaurants and bars, limiting social gatherings, and general stay at home guidelines have significantly increased unemployment rates.
The COVID-19 pandemic had limited impact on the supply chain availability, results of operations, or financial condition of Northview during the first quarter of 2020. The first quarter financial impact included a reduction of revenue from execusuite properties and an increase in the estimate of bad debt expense. In future periods, the COVID-19 pandemic could result in lower demand for Northviewâs properties and a higher credit risk for collection of rent. Increased government regulations may restrict Northviewâs ability to enforce provisions under its leases, including the collection of rent, eviction of tenants for payment related matters and to apply market-based increases to rent. The future operational and financial impact of the COVID-19 pandemic is difficult to determine and it is not possible to predict the duration and severity of the economic disruption, government restrictions and stimulus, social distancing and phased re-opening of economies.
A decrease in crude oil demand due to the COVID-19 pandemic, coupled with excess global crude oil supply resulted in a significant oil price decline during the first quarter of 2020. The oil price decline may have a negative impact on net operating income (âNOIâ) in resource-based markets in future periods, which currently represents approximately 11% of overall NOI.
Notwithstanding the impacts of the COVID-19 pandemic and oil price decline; the long-term fundamentals for Canadian multi-family markets remain compelling, and Northview has a diverse and high-quality asset portfolio. Home affordability, which has deteriorated as housing prices have appreciated at a rate that has exceeded income growth, in combination with the recent increase in immigration have been positive for multi-family fundamentals. Ontario market fundamentals remain strong with low capitalization rates (âCap Ratesâ) and increasing demand for rental accommodation driven by its growing economy, positive net population migration, and a lack of affordable products in the single-family home market. Northern Canada is stable and is supported by tight supply conditions, high occupancy, and long-term leases primarily with government tenants. The positive economic activity trend continues to result in increased immigration and interprovincial migration in Atlantic Canada along with strong economic growth in the Quebec market. In Western Canada, the southern regions of Alberta and British Columbia are expected to remain stable as they are not resource-dependent markets. In the northern regions of Alberta and British Columbia, the ongoing uncertainty for the resource sector including political risk, regulatory environment, lack of energy infrastructure, low commodity prices, and high unemployment rates are expected to continue to adversely impact occupancy.
OPERATIONAL UPDATE IN RELATION TO COVID-19
Northviewâs top priority continues to be supporting the safety and well-being of tenants, execusuite guests, employees, and other stakeholders by managing and controlling the spread of COVID-19. Northview established a response team that is monitoring local circumstances and reacting accordingly. While physical distancing restrictions have impacted certain non-essential maintenance activities, Northview has been able to maintain a level of essential service for its buildings, tenants, and execusuite guests.
Through to May 11, 2020, Northview has collected 97% of multi-family and commercial rent for the month of April. Collections for the month of May have reached 88% as of May 11, 2020, which is consistent with the percentage of collection after the same number of days in April. Northview has postponed rental increases in April and May rent payment and is not currently acting on evictions for non-payment of rent.
Northview has implemented a rental deferral program for residential tenants who are facing financial hardships due to COVID-19. Less than 0.5% of residential tenants currently have a rent deferral arrangement and these tenants are fulfilling their obligations under the payment arrangement. In addition, Northview launched a recognition program and temporarily increased wages for front-line workers as they continue to play a vital role in keeping properties safe, clean, and operational for tenants and execusuite guests.
Q1 2020 HIGHLIGHTS
- Diluted FFO per unit was $0.47, compared to $0.45 for the same period of 2019, both excluding Non-recurring Items
- Same door NOI increased by 6.5%, including an 8.3% increase for the multi-family business segment
- Same door revenue growth was 2.6%, including a 3.5% increase for the multi-family business segment
- Multi-family portfolio occupancy was 93.9%, an improvement of 30 basis points (âbpsâ) from the same period of 2019
- NOI margin was 56.0%, an improvement of 280 bps compared to the same period of 2019
- Debt to gross book value was 52.0% as at March 31, 2020, an increase of 20 bps from December 31, 2019 as a result of internally funded growth
- Cash flow from operating activities was $26.7 million, a decrease of $1.7 million compared to the same period of 2019
- Net and comprehensive income was $7.0 million, an increase of $20.2 million compared to the same period of 2019, primarily due to the higher fair value loss on Class B LP Units in the first quarter of 2019
FINANCIAL PERFORMANCE HIGHLIGHTS
| (thousands of dollars, except per unit amounts) |
Three months ended March 31 |
|||||||
| 2020 | 2019 | Change | ||||||
| Total revenue | 99,878 | 96,224 | 3.8 | % | ||||
| Total NOI | 55,979 | 51,230 | 9.3 | % | ||||
| NOI margin | 56.0 | % | 53.2 | % | 280 | bps | ||
| Same door NOI increase | 6.5 | % | 0.6 | % | 590 | bps | ||
| Occupancy | 93.9 | % | 93.6 | % | 30 | bps | ||
| Distributions declared per Trust Unit(i) | $ | 0.41 | $ | 0.41 | – | |||
| Measurement excluding Non-recurring Items(ii): | ||||||||
| FFO â diluted(iii) | 32,415 | 29,421 | 10.2 | % | ||||
| FFO per unit â diluted(iii) | $ | 0.47 | $ | 0.45 | 4.4 | % | ||
(i) Trust Unit refers to the publicly traded Northview trust units and the Class B LP units in the capital of Northview limited partnerships.
(ii) As further described under the heading âNon-recurring Itemsâ below.
(iii) Funds from operations (âFFOâ) is considered a non-GAAP measure and does not have any standardized meaning as prescribed by generally accepted accounting principles (âGAAPâ). See âNon-GAAP and other financial measuresâ disclosure below.
FFO
Diluted FFO was $32.4 million for the three months ended March 31, 2020, compared to $29.4 million for the same period of 2019. The increase in diluted FFO was due to same door NOI growth of 6.5% and NOI contributions from acquisitions and newly developed properties, partially offset by non-core asset sales subsequent to the first quarter of 2019.
Diluted FFO per unit was $0.47 for the three months ended March 31, 2020, compared to $0.45 for the same period of 2019. NOI growth of 9.3% increased FFO per unit was offset by a 5.3% increase in the average number of units outstanding from the time of the $92.5 million equity issuance in June 2019 and the disposition of non-core assets since the first quarter of 2019.
SAME DOOR NOI
During the three months ended March 31, 2020, same door NOI growth was 6.5%, compared to 0.6% for the same period of 2019. The multi-family portfolio delivered strong same door NOI growth of 8.3%, compared to 0.8% from the same period of 2019. All regions achieved positive same door NOI growth, led by same door NOI growth of 16.1% and 10.9%, respectively, in Quebec and Ontario. The same door NOI growth was driven by higher average monthly rent (âAMRâ), increased occupancy, and lower utilities and maintenance expenses, partially offset by higher salaries and estimated bad debt expense. Same door NOI in the commercial and execusuite decreased by 7.1%, compared to the same period of 2019, due to lower traffic at the execusuite properties as a result of the COVID-19 pandemic, which impacted operations in the latter part of the quarter.
NOI MARGINS
Overall NOI margin increased by 280 bps for the first quarter of 2020, compared to the same period of 2019. The increase in NOI margin was due to: (i) acquisitions and recently completed developments, which generated higher margins than the rest of the portfolio; (ii) improvements in revenue from higher AMR and increased occupancy; and (iii) lower operating expenses. Lower utilities and maintenance expenses, as temperatures returned to a normal level during the current quarter, compared to the same period of 2019, were partially offset by increased salary and benefit, higher estimated bad debt expense and cleaning costs.
REVENUE AND AMR
During the three months ended March 31, 2020, revenue increased by 3.8%, compared to the same period of 2019. Revenue in the multi-family portfolio increased by 4.8%, compared to the same period of 2019. The increase was due to contributions from acquisitions and newly developed properties, and higher AMR, partially offset by the sale of non-core assets following the first quarter of 2019. AMR growth on suite turnover during the three months ended March 31, 2020 was 8.3%, compared to the same period of 2019.
Same door revenue increased by 2.6% for the three months ended March 31, 2020, compared to the same period of 2019. Same door revenue in the multi-family portfolio increased by 3.5% during the first quarter, compared to the same period of 2019 due to higher AMR. AMR increased in all multi-family regions resulting in an average increase of 5.0%. Ontario led the regions with 6.1% AMR growth due to the impact of acquisitions, successful execution of the high-end renovation program and strong market conditions. AMR increase on suite turnover in Ontario was 18.6% in the first quarter of 2020, compared to 15.4% in the same period of 2019.
OCCUPANCY
Occupancy was 93.9% in the first quarter of 2020, an improvement of 30 bps compared to the same period of 2019 and consistent with the fourth quarter of 2019. Ontario continued to experience strong occupancy of 96.6% during the first quarter of 2020. Western Canada occupancy was 87.1% during the first quarter of 2020, compared to 87.6% for the same period of 2019, largely due to continued economic challenges in the resource-based markets located in northern Alberta and British Columbia. Occupancy in these markets fluctuate based on short-term rentals to contractors, which are influenced by the number of infrastructure projects in-progress. Northern Canada occupancy remained strong at 97.2% during the first quarter of 2020 due to continued tight supply conditions in Nunavut and a lease with government tenants in Yellowknife which commenced during the fourth quarter of 2019. Atlantic Canada occupancy increased 60 bps to 96.3%, compared to the same period of 2019 due to the re-opening of a local mine in Labrador City, and a strong economy and increased migration to Nova Scotia and New Brunswick. Quebec occupancy increases of 150 bps from the same period of 2019 and 80 bps from the fourth quarter of 2019 to 92.8% were mainly due to a focused effort to reposition the properties.
HIGH-END RENOVATION PROGRAM
The high-end renovation program involves substantive suite improvements with complete bathroom and kitchen renovations and may involve upgrades to the propertiesâ common areas to increase rents. As at March 31, 2020, there are approximately 5,700 units remaining suitable for the high-end renovation program.
For the three months ended March 31, 2020, 164 high-end renovation units were completed, generating an AMR increase of $300 per unit and an annualized NOI increase of $0.6 million. The program achieved a rate of return of 24.1% with capital expenditures of $3.1 million for the three months ended March 31, 2020. The high-end renovation program in the Ontario market is anticipated to be impacted in the second quarter of 2020 as the scope of work that can be completed in residential apartments with COVID-19 safety protocols in place are temporarily restricted.
DEVELOPMENT AND NON-CORE ASSET SALES
In light of the COVID-19 pandemic, additional safety protocols were implemented at the Kitchener, ON and Nanaimo, BC construction sites. These projects are located in provinces where residential construction is deemed as an essential service, and as a result, the projects continue to progress as planned. The COVID-19 protocols implemented reduce the risk of an on-site outbreak; however, if an outbreak were to occur or there are changes in the designation of essential services, Northview could experience temporary site closure(s). Management is assessing the impact of the additional safety protocols on the timing and estimated costs to complete the projects.
During the first quarter of 2020, Northview completed a development project in Iqaluit, NU consisting of 30 multi-family units and approximately 5,900 sq. ft. of commercial space with a total cost of $10.0 million and expected stabilized yield of 9.0% to 9.5%. Northview also has two development projects in progress in Kitchener, ON and Nanaimo, BC with an estimated aggregate first phase cost of $108.0 million.
The Kitchener, ON development is a two-phase project with an estimated total cost of $115.0 million. The first phase commenced in the second quarter of 2019 and consists of 233 units with an approximate cost of $73.0 million. Initial occupancy is expected in 2021. As at March 31, 2020, 49% of the approximate cost has been incurred to date for the first phase. The second phase consists of 130 units and is estimated to cost $42.0 million.
The Nanaimo, BC development is a two-phase project with an estimated total cost of $65.0 million. The first phase commenced in the second quarter of 2019 and consists of 140 units with an approximate cost of $35.0 million. Initial occupancy is expected in 2021. As at March 31, 2020, 61% of the approximate cost has been incurred to date for the first phase. The second phase consists of 111 units and is estimated to cost $30.0 million.
During the first quarter of 2020, Northview completed the disposition of a non-core portfolio in Dartmouth and Halifax, NS for $17.6 million, excluding closing costs.
LEVERAGE AND COVERAGE RATIOS
Debt to gross book value was 52.0% as at March 31, 2020, an increase of 20 bps compared to 51.8% as at December 31, 2019 as a result of internally funded growth. The long-term target for debt to gross book value ratio is 50% to 55%. Interest and debt service coverage ratios for the twelve months ended March 31, 2020 remained strong at 2.80 and 1.56, respectively.
During the three months ended March 31, 2020, Northview completed $26.7 million of mortgage financing, excluding short-term financing, for multi-family properties with a weighted average interest rate of 2.20% and an average term to maturity of 5.2 years.
NON-RECURRING ITEMS
During the three months ended March 31, 2020, Northview incurred $2.6 million of professional and legal fees related to the Transaction. During the three months ended March 31, 2019, Northview received total insurance proceeds of $0.7 million relating to a fire in Lethbridge, AB. These items have been defined as âNon-recurring Itemsâ, as they are considered to be one-time events and not expected to occur regularly. Management has presented some performance metrics adjusting for Non-recurring Items where appropriate.
FINANCIAL INFORMATION
Northviewâs consolidated financial statements, the notes thereto, and Managementâs Discussion and Analysis for the three months ended March 31, 2020, can be found on Northviewâs 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 the execution of our strategic priorities, including development projects, high-end renovation program and organic growth within our portfolio, the impact of COVID-19 on certain operating and financial results such as but not limited to estimated bad debt expense, operating expenses, revenue, financial covenants, liquidity, collectability of rent and accounts receivables, rent deferral arrangement, high-end renovation program and development projects, expected completion of the Transaction, entry into the new operating facility and future debt to gross book value ratio. 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: the extent, duration and impact of the COVID-19 pandemic; changes in general economic, business and political conditions, including changes in the financial markets; real property ownership; availability of cash flow and mortgage financing; demand for rental accommodation and commercial space; exposure to the natural resource sector; 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 diversion of management time on the Transaction. There are also risks that are inherent in the nature of the Transaction, including failure to satisfy the conditions to the completion of the Transaction and the failure of not obtaining the required regulatory, lender and CMHC consents and approvals for the Transaction (or to do so in a timely manner). The anticipated timeline for completion of the Transaction may change for a number of reasons, including the inability to secure necessary regulatory, court or other approvals in the time assumed or the need for additional time to satisfy the conditions to the completion of the Transaction. A comprehensive discussion of other risk factors that impact Northview are more particularly described in Northviewâs 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 OTHER FINANCIAL 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 readersâ 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 Northviewâs most recent Managementâs Discussion and Analysis for definitions of non-GAAP and other financial measures, including FFO, debt to gross book value, debt service coverage and interest coverage.
CORPORATE PROFILE
Northview is one of Canada’s largest publicly traded multi-family REITs with a portfolio of approximately 27,000 residential units and 1.2 million square feet of commercial space in over 60 markets across eight provinces and two territories. Northview’s well-diversified portfolio includes markets characterized by expanding populations and growing economies, which provides Northview the means to deliver stable and growing profitability and 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.
INVESTORS
Northview Apartment Real Estate Investment Trust
Mr. Todd Cook
President and Chief Executive Officer
(403) 531-0720
Mr. Travis Beatty
Chief Financial Officer
(403) 531-0720
Mr. Leslie Veiner
Chief Operating Officer
(403) 531-0720
MEDIA
Longview Communications & Public Affairs
Mr. Joel Shaffer
(416) 649-8006
nvu@longviewcomms.ca