CALGARY, ALBERTA–(Marketwired – March 9, 2016) – 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, 2015.
Highlights
- Successfully completed and fully integrated the transformational acquisition of 13,558 multi-family units that closed on October 30, 2015, achieving a highly diversified portfolio less dependent on resource-based markets
- Refinanced $41.6 million of mortgages with an average term of 7.5 years and an average interest rate of 2.56% for the three months ended December 31, 2015
- Portfolio occupancy of 91.5%, a 1.5% increase from the third quarter of 2015
- Interest and debt service coverage ratios remain strong at 3.31x and 1.86x, respectively
- Basic funds from operations (“FFO”) of $24.4 million and $82.8 million for the three and twelve months ended December 31, 2015, respectively, a 28.0% and 9.8% increase from same periods in 2014
- Basic FFO per Trust Unit of $0.54 and $2.35 for the three and twelve months ended December 31, 2015, respectively, compared to $0.60 and $2.37 for the same periods in 2014
- Basic FFO payout ratio of 75.9% in the fourth quarter compared to 67.3% in Q4 2014, and 69.2% for the year ended December 31, 2015, compared to 67.1% for prior year
Northern Property REIT (“NPR”) acquired all of the assets and properties of True North Apartment Real Estate Investment Trust (“TN”) on October 30, 2015. In addition, NPR acquired an Institutional Portfolio of 4,650 multi-family residential suites for $535.1 million (the “Portfolio Acquisitions”), collectively referred to as the “Transaction”. Upon completion of the Transaction, NPR changed its name to Northview Apartment Real Estate Investment Trust. This media release provides commentary on the performance and results for Northview for the three months and years ended December 31, 2015 and 2014, and includes November and December 2015 operating results of the portfolios acquired in the Transaction.
Todd Cook, President and CEO, commented, “The Transaction was a milestone event that significantly reduces our relative weighting to the natural resource-based markets and provides us with near term growth opportunities that were not available previously. We continue to anticipate that the financial impact of the Transaction will be as expected at the time of announcement. We expect to generate NOI improvements from the value creation initiatives, including property management internalization, a process that is currently underway, however, in the near term, the impact of those initiatives on our FFO per unit may be muted as a result of our previously announced commitment to strengthening the balance sheet through property dispositions.”
2016 Strategic Priorities
The strategic priorities for Northview in 2016 are sustaining value creation for the REIT’s Unitholders and maintaining financial stability. 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 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.
NPR has a long and successful history of managing its properties directly. Management plans to internalize the property management of the properties acquired in the Transaction over the next two years, with 7,600 units in Ontario being internalized effective April 1, 2016, with expected annualized savings of $2.0 million. - Disposition of Non-Core Assets: Management has identified approximately $150 million of non-core properties across the portfolio and it intends to divest these properties in 2016 and 2017. Proceeds from these dispositions will be used to reduce overall debt levels, to fund development activities and repurchase Trust Units. Management plans to implement a Normal Course Issuer Bid (“NCIB”) program that can be utilized if the REIT’s units continue to trade at a significant discount to NAV.
- Restructure Credit Facilities: Management expects to repay the bridge facility of $350 million obtained to purchase the Institutional Portfolios in the Transaction by obtaining new mortgage financing on these properties. To date, 35% of the bridge facility has been repaid, with the remainder of the facility expected to be repaid early in the second quarter of 2016. Management also intends to restructure Northview’s current operating credit facilities, including the consolidation of the facilities and the negotiation of more favourable terms.
- Maintain Current Conservative Distribution Levels: Through continued disciplined revenue and expense management, Northview will maintain its current conservative distribution levels, with a low annual FFO payout ratio of approximately 70%, to ensure that distributions remain sustainable in a challenging operating environment.
Mr. Cook added, “Our focus for 2016 is to make progress against our strategic priorities that include improving both the financial strength of our balance sheet and driving earnings. We will achieve this by utilizing our disposition program and our newly restructured credit facilities to reduce overall debt levels. In addition, a portion of the proceeds will be allocated to repurchase Trust Units as we plan to implement a NCIB program that can be utilized if the REIT’s units continue to trade at a significant discount to NAV. The result will be a stronger and more flexible balance sheet that furthers long term value creation for Unitholders.”
Geographical Segments
As a result of the Transaction, Northview has increased its diversification entering into strong growing markets in Ontario, Québec, Nova Scotia and New Brunswick. Northview now operates in eight Canadian provinces and two territories. As such, management has changed the geographical segment reporting to Ontario, Western Canada, Atlantic Canada, Northern Canada, and Québec, from the previous provincial and territorial reporting. The Ontario and Québec regions include only the operations of properties located in those respective provinces. The Western Canada segment includes the operations of properties located in British Columbia, Alberta, and Saskatchewan. The Northern Canada segment includes the operations of properties located in Nunavut and the Northwest Territories. The Atlantic Canada segment includes the operations of properties located in Newfoundland and Labrador, New Brunswick, and Nova Scotia.
Portfolio Summary (including joint ventures at 100%) – December 31, 2015
| Regions | Multi-family | Execusuites & Hotel |
Total Residential (units) |
Commercial (sq. ft.) |
| Ontario | 8,235 | – | 8,235 | – |
| Western Canada | 7,101 | – | 7,101 | 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 | 24,202 | 419 | 24,621 | 1,143,000 |
Financial Performance Highlights
| (thousands of dollars, except per unit amounts) | Three months ended December 31 |
For years ended December 31 |
||||||
| 2015 | 2014 | Change | 2015 | 2014 | Change | |||
| Total revenue | 70,735 | 48,091 | 47.1% | 217,578 | 187,841 | 15.8% | ||
| Net operating income | 39,353 | 27,473 | 43.2% | 126,699 | 109,607 | 15.6% | ||
| Net and comprehensive income | 21,153 | 23,078 | (8.3% | ) | 31,852 | 74,264 | (57.1% | ) |
| FFO – basic | 24,371 | 19,043 | 28.0% | 82,833 | 75,450 | 9.8% | ||
| FFO – diluted | 24,592 | 19,043 | 29.1% | 83,054 | 75,450 | 10.1% | ||
| FFO per Trust Unit – basic | $0.54 | $0.60 | (10.0% | ) | $2.35 | $2.37 | (0.8% | ) |
| FFO per Trust Unit – diluted | $0.53 | $0.60 | (11.7% | ) | $2.34 | $2.37 | (1.3% | ) |
| FFO payout ratio – basic | 75.9% | 67.3% | 8.6% | 69.2% | 67.1% | 2.1% | ||
| FFO payout ratio -diluted | 75.2% | 67.3% | 7.9% | 69.0% | 67.1% | 1.9% | ||
| Distributions declared to Trust Unit holders | 18,493 | 12,820 | 44.3% | 57,312 | 50,615 | 13.2% | ||
| Distributions per Trust Unit | 0.41 | 0.40 | 2.5% | 1.63 | 1.59 | 2.5% | ||
| 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
FFO for the three months ended December 31, 2015, was $24.4 million for FFO basic and $24.6 million for FFO diluted, an increase of 28.0% and 29.1%, respectively, compared to $19.0 million, basic and diluted, for the same period of 2014. On a per Trust Unit basis, FFO for Q4 2015 basic was $0.54 and FFO diluted was $0.53 compared to $0.60 for FFO basic and diluted for the fourth quarter of 2014, a decrease of 10.0% for FFO basic and 11.7% for FFO diluted. For the twelve months ended December 31, 2015, FFO basic was $82.8 million or $2.35 per unit, while FFO diluted was $83.1 million or $2.34 per unit, compared to $75.5 million or $2.37 per unit for both basic and diluted for the same period of 2014.
The results for the fourth quarter and the year were in line with expectations despite the significant headwinds in our resource-based markets. The decrease in quarterly and annual FFO per unit was driven by the same door NOI decline in resource-based regions in Alberta, Northeastern British Columbia, and Labrador, as well as higher administration costs, lower occupancy in certain properties acquired in the Transaction, additional interest expense from the floating rate Bridge Facility, and the additional units issued in the Transaction. Partially offsetting the decline was same door NOI growth from Northern Canada, and contributions from NPR acquisitions and developments completed in 2014 and 2015.
NOI
For the three months ended December 31, 2015, Northview reported an NOI increase of 43.2% from the same period of 2014. Multi-family NOI increased 53.6% for the three months ended December 31, 2015, driven mainly by the acquisition of portfolios acquired in the Transaction on October 30, 2015. The fourth quarter of 2015 only included two months of operating results from the properties acquired in the Transaction on October 30, 2015.
Commercial NOI increased by 1.6% for the fourth quarter compared to 2014, mainly due to the final Bristol Court building in St. John’s, NL, being fully leased. As the lease up of most new developments and the lease renewals from 2014 have been in place for more than a year, the year over year growth trend for the commercial business segment will be lower than experienced in recent years.
Execusuites and hotel NOI increased by 18.6% compared to 2014, as the operating expenses for most of the business segment were considerably lower due to increased efforts to reduce certain controllable expenses, partially offset by lower revenues. The extensive ongoing CAPEX and rebranding program in the execusuite properties in Yellowknife, NT, and St. John’s, NL, has negatively impacted revenues in the current year due to the number of suites that were removed from inventory to enable the capital improvements to be completed.
For the three months and year ended December 31, 2015, same door NOI decreased 3.1% and 1.6% compared to the same period of 2014, respectively. The decrease in same door results in 2015 was attributable to lower revenue from lower occupancy in Alberta and Northeastern British Columbia; coupled with decreased rental rates. This was partially offset by lower utility rates and more moderate weather.
Throughout 2015 there has been a decline in same door NOI in the multi-family business segment due to economic conditions and resulting vacancy in resource-based markets. The effects are most notable in the second half of the year when adjustments to markets rents and aggressive lease incentives were being utilized to combat the declines in occupancy in these markets. The diversity in the portfolios acquired in the Transaction will help lessen this impact and stabilize financial results in the future.
From a business segment perspective, multi-family same door NOI decreased 4.4%, commercial increased 0.8%, and the execusuites and hotel increased 4.1% for the three months ended December 31, 2015. For the twelve months ended December 31, 2015, multi-family same door NOI decreased 3.3%, commercial increased 4.6%, and the execusuites and hotel increased 6.5%.
Occupancy
Occupancy for the three months ended December 31, 2015, was 91.5%, a 1.5% improvement from 90.0% in the third quarter of 2015. The addition of the Atlantic Canada and Ontario portfolios acquired in the Transaction has added strength and stability to the overall results and decreased Northview’s dependence on high natural resource prices. Through dedicated leasing teams, select rental incentives, and the organization-wide focus on customer service, occupancy has remained stable throughout 2015. The efforts of the “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 | Q4 2014 | 2014 | Q1 2015 | Q2 2015 | Q3 2015 | Q4 2015 | 2015 |
| Ontario | n/a | n/a | n/a | n/a | n/a | 96.2% | 96.2% |
| Western Canada | 88.5% | 89.5% | 85.8% | 84.7% | 84.5% | 84.3% | 84.8% |
| Atlantic Canada | 96.2% | 95.6% | 94.4% | 93.7% | 91.3% | 93.1% | 93.1% |
| Northern Canada | 93.7% | 93.0% | 93.1% | 96.1% | 97.4% | 96.5% | 95.8% |
| Québec | 99.8% | 99.6% | 99.6% | 99.0% | 99.3% | 90.6% | 92.5% |
| Overall | 91.3% | 91.6% | 89.4% | 89.9% | 90.0% | 91.5% | 90.3% |
Acquisitions for the year ended December 31, 2015
| (thousands of dollars) | ||||
| Units/ | ||||
| Commercial | Total | |||
| Property Type | Location | Acquisition Date | sq. ft. | Costs |
| Multi-family/ Commercial(1) | Various | October 30, 2015 | 13,558 / 7,000 | 1,385,087 |
| Multi-family | Pangnirtung, NU | October 08, 2015 | 1 | 82 |
| Commercial | Yellowknife, NT | May 13, 2015 | 2,800 | 684 |
| Multi-family | St. John’s, NL | March 20, 2015 | 139 | 11,732 |
| Commercial | St. John’s, NL | January 14, 2015 | 29,400 | 6,801 |
| 13,698 / 39,200 | 1,404,386 | |||
| (1) The Transaction |
Developments
During 2015, Northview completed three development projects totalling 370 units in Fort St. John, BC, Grande Prairie, AB and Bonnyville, AB for a total estimated cost of approximately $63.0 million and expected Cap Rates ranging from 7.0% to 8.5%.
As of December 31, 2015, Northview has 48.0 acres of land held for future development, which will allow for construction of approximately 1,700 units.
Developments under way – December 31, 2015
| (thousands of dollars, except per unit amounts) | |||||||
| Expected | Expected | ||||||
| Property | Start | Completion | % | Total | Expected | ||
| Type | Location | Units | Date | Date | Complete | Costs | Cap Rate |
| Multi-family | Airdrie, AB | 140 | Q1 2015 | Q1 2016 | 90% | 25,000 | 7.0% to 7.5% |
| Multi-family | Calgary, AB | 261 | Q3 2015 | Q4 2016 – Q2 2017 | 10% | 45,000 | 7.0% to 7.5% |
| 401 | 70,000 | ||||||
The first building of the development in Airdrie, AB, opened February 1, 2016, and the second on March 1, 2016, and it is currently 50% leased and committed. The development is being well received and currently achieving pro-forma rents. The Airdrie project was built with additional amenities to give a competitive edge in the larger rental market.
Financial Strength
| December 31, 2015 |
December 31, 2014 |
Change | |
| Total assets (000’$) | 3,132,617 | 1,666,171 | 88.0% |
| Debt to gross book value | 59.2% | 48.6% | 10.6% |
| Interest coverage ratio (times) | 3.31 | 3.70 | (10.5%) |
| Debt service coverage ratio (times) | 1.86 | 2.10 | (11.4%) |
| Weighted average mortgage interest rate | 3.33% | 3.67% | (0.3%) |
| Weighted average term to maturity (years) | 5.00 | 5.00 | 0.0% |
| Weighted average capitalization rate | 6.83% | 7.97% | (1.14%) |
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 an increased debt to gross book value ratio. The Transaction completed in 2015 has temporarily increased the debt to gross book value ratio from 52.2% at September 30, 2015, to 59.2% at December 31, 2015. Northview’s coverage ratios remain strong and among the best in the Canadian multi-family sector. For the year ended December 31, 2015, the interest coverage ratio was 3.31x and the debt service coverage ratio was 1.86x.
Management has a clear debt strategy plan to reduce the debt to gross book value ratio over the next several years. The organic growth initiatives discussed earlier are expected to provide significant investment property value increases. This coupled with the non-core asset disposition plan should reduce the debt to gross book value ratio below 55% in the next three to five years, with the long-term goal of maintaining the debt to gross book value ratio in the 50 – 55% range.
During the year ended December 31, 2015, Northview completed $214.2 million in mortgage financings and renewals with a weighted average interest rate of 3.10% and a term to maturity of 8.5 years compared to $207.8 million, 3.03%, and 7.2 years, respectively, in the same period of 2014. The majority of the funding in 2015 was on multi-family residential properties, which qualify for Canada Mortgage and Housing Corporation (“CMHC”) rates. The net proceeds were used to repay existing mortgages and operating credit facilities, and fund developments and acquisitions. Northview continues to extend the term on new and renewed mortgages, utilizing 10 year terms where possible.
Northview entered into two bridge facilities for a total of $350.0 million to fund the Transaction completed on October 30, 2015. The first bridge facility is a two-year senior secured non-revolving term loan facility bearing interest at prime plus 0.7% or Bankers’ Acceptance plus 1.95% for the amount of $325.0 million with a maturity date of October 30, 2017. The second bridge facility is a six month term, with a six month extension subject to lender approval, senior secured non-revolving equity bridge facility bearing interest at prime plus 1.25% or Bankers’ Acceptance plus 2.5% for the amount of $25.0 million with a maturity date of April 30, 2016. Specific investment properties with a fair value of $550.4 million have been pledged as collateral security for the bridge facilities.
As of March 9, 2016, repayment of the bridge facility is well underway with all financing committed. Repayment to date is $122M, with an average term of 7.9 years and an average interest rate of 2.77%, 63 basis points lower than the prime interest based borrowings on the bridge facilities. The remainder repayments are expected to be completed in early in the second quarter of 2016.
Distributions to Trust Unit holders
During the three months ended December 31, 2015, Northview declared monthly cash distributions of $0.1358 per Trust Unit. For the year ended December 31, 2015, Northview declared distributions totalling $57.3 million (December 31, 2014 – $50.6 million). The 2015 increase in distributions relates to the additional units issued in the Transaction.
Financial Statements
Northview’s audited consolidated financial statements and the notes thereto and Management’s Discussion and Analysis for year ended December 31, 2015, 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 27 of our 2015 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 Thursday, March 10, 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 and Leslie Veiner, Chief Operating Officer. Investors and analysts are invited to participate in the call by calling 1-800-355-4959 or 416-340-8527. You will be required to provide the Conference Call Operator with the Conference ID #4234951 prior to being admitted to the call. A recorded playback of the call will be available from March 10, 2016 to April 10, 2016 by calling 905-694-9451 or 1-800-408-3053, passcode #7370564. The recording will also be available on our website on March 11, 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.
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 December 31, 2015, was $3.0 billion with 24,621 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 REIT
Leslie Veiner
Chief Operating Officer
647-725-0433