CALGARY, Alberta, Aug. 13, 2020 (GLOBE NEWSWIRE) — Northview Apartment Real Estate Investment Trust (âNorthviewâ or the âREITâ) (NVU.UN â TSX), today provided Transaction and coronavirus (âCOVID-19â) updates, and disclosed financial results for the three and six months ended June 30, 2020.
Todd Cook, President and CEO, commented, âOur 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, and we are proud of the entire Northview teamâs proactive response.â
âWe are also pleased to see a steady performance in our portfolio, financial results remained consistent with last year, which is positive given the additional COVID-19 related expenses and reduced occupancy in the execusuites. Our recently completed development project in Iqaluit, NU reached 100% occupancy in April, and we continue to advance our development projects in Kitchener, ON, and Nanaimo, BC, while adhering to extensive COVID-19 safety protocols,â continued Mr. Cook.
âWe continue to work with Starlight, KingSett, and advisors to complete the Transaction. The final conditions to be met are the approvals from CMHC and certain lenders. While closing was expected in the third quarter, the approvals are taking longer than expected, given the impact of COVID-19 on those organizations, and there is a possibility of the closing moving into the fourth quarter,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). 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 âNorthview Canadian High Yield Residential Fundâ).
On April 23, 2020, Northview was granted an interim order by the Alberta Court of Queenâs Bench (the âInterim Orderâ) regarding the Transaction. The Interim Order authorized Northview to proceed with various matters, including the calling and holding of Northviewâs Annual General and Special Meeting of Unitholders to, among other things, consider and vote on the Transaction on May 25, 2020 (the âMeetingâ). Closing conditions relating to approvals required under the Competition Act (Canada) were met on April 29, 2020.
Details of the Transaction are contained in Northviewâs management information circular for the Meeting (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 included information on how to vote on the Transaction and how to elect to receive the form of consideration for the Transaction.
At the Meeting, a total of 38,558,226 Units were represented, being 55.75% of Northviewâs issued and outstanding Units. The resolution approving the Transaction (the âArrangement Resolutionâ) was required to be passed by: (i) the affirmative vote of at least two-thirds (66 2/3%) of the votes cast by Unitholders, voting as a single class, present in person or represented by proxy at the Meeting and entitled to vote, and (ii) a simple majority of the votes cast by disinterested Unitholders, voting as a single class, present in person or represented by proxy at the Meeting excluding for this purpose the votes attached to Units held by Starlight and its affiliates. The Arrangement Resolution was approved with (i) 99.69% of all Unitholders voting in favour, and (ii) 99.60% of all Unitholders, excluding Starlight and its affiliates, voting in favour. Unitholders elected to receive an aggregate of 5,358,351 Class C Units of the Northview Canadian High Yield Residential Fund (âHigh Yield Fund Unitsâ) as consideration under the Arrangement Agreement. This represents a total aggregate value of $66.979 million of the consideration in the Transaction being elected to be received in High Yield Fund Units, including the election of Starlight to receive 2,402,430 High Yield Fund Units.
On May 29, 2020, the Court of Queenâs Bench of Alberta granted a final order approving the Transaction.
During the second quarter of 2020, Northview continued to work with the Purchasers to prepare for the closing of the Transaction, including coordination of mortgage financing. In July 2020, Northview also provided assistance to enable the pre-closing reorganization requested by the Purchasers. All costs related to the pre-closing reorganization were paid by the Purchasers in accordance with the Arrangement Agreement.
Management continues to work with its advisors and the Purchasers to complete the Transaction. The closing of the Transaction is dependent on obtaining approvals from Canada Mortgage and Housing Corporation (âCMHCâ) and certain of Northviewâs lenders. While the timing of receipt of these approvals had been expected to allow for a closing in the third quarter of 2020, there is a possibility that the receipt of these approvals could be delayed due to the COVID-19 pandemic, which could result in the closing date of the Transaction extending into the fourth quarter.
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 and Letter of Transmittal are also available under Northviewâs profile on SEDAR at www.sedar.com.
BUSINESS OVERVIEW AND RECENT DEVELOPMENTS
On March 11, 2020, the World Health Organization declared the COVID-19 a global pandemic. Since then, 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 landlordsâ ability to evict tenants for non-payment of rent, and restricted landlordsâ ability to increase rent. Social distancing actions to reduce the spread of the COVID-19 pandemic, including closing or limiting the capacity of restaurants and bars, limits on the number of people at public gatherings, and general stay-at-home guidelines have significantly increased unemployment rates. Although some of these restrictions are starting to be relaxed, the disruption to the Canadian economy may continue for some time.
During the first six months of 2020, the financial impact from the COVID-19 pandemic on Northview included a reduction of revenue from execusuite properties, an increase in COVID-19 related expenses, and higher estimated bad debt expense in the multi-family business segment. COVID-19 related expenses include incremental cleaning costs, an employee recognition program, and the purchase of personal protective equipment to manage the safety of residents, execusuite guests, and employees. The financial impact from the COVID-19 pandemic is expected to continue in the second half of 2020.
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. Although provinces have started re-opening their economies with reduction or elimination of previous restrictions, many businesses have not returned to a pre-COVID-19 level of activity. It is also unclear if restrictions will need to be reapplied in some jurisdictions if the rate of COVID-19 cases increases following the reduction or elimination of previous restrictions. Unemployment is higher than it was prior to the onset of the pandemic. The ongoing 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 Northviewâs ability to apply market-based increases to rent.
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 six months of 2020. Although there was a partial recovery in the oil price, and provinces started re-opening their economies with fewer restrictions related to the COVID-19 pandemic in the second quarter, occupancy in Western Canada decreased by 170 basis points (âbpsâ) to 84.9%, compared to the same period of 2019. The lower oil price and the COVID-19 pandemic may continue to have a negative impact on net operating income (âNOIâ) in resource-based markets in future periods, which represents approximately 10% of overall NOI in the second quarter of 2020.
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. In the second quarter of 2020, although there was a slight decline of 30 bps in overall occupancy, Northview was able to achieve an increase of 2.2% in multi-family same door NOI, and an increase of 375 bps in average monthly rent (âAMRâ), compared to the same period of 2019. In addition, Northview collected 98.4% of total rental revenue for the second quarter. The demand for rental accommodations remains strong as home affordability continues to be a challenge in many markets.
During the second quarter, occupancy remains stable in Ontario and the overall market fundamentals remain strong with low capitalization rates, an increasing demand for rental accommodation, 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 with government tenants. Atlantic Canada and Quebec remain stable with positive same door NOI growth in the second quarter. 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, challenging 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 taking steps to limit the spread of COVID-19 at its properties. 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.
Northview collected 98.4% of multi-family and commercial rent in the second quarter. The collection rate to date for July was consistent with the second quarter. Northview postponed rental increases in the second quarter and notified residents of the postponed rent increases at that time. Northview also did not act on evictions for non-payment of rent. Rent increases resumed in August in select markets where provincial and territorial legislations allowed.
Northview implemented a rental deferral program for residential tenants who are facing financial hardships due to the COVID-19 pandemic. Less than 0.5% of residential tenants currently have a rent deferral arrangement and these tenants are fulfilling their obligations under the payment arrangement. Northview is providing its tenants with additional payment options for their rent to further promote social distancing and contactless transactions. In addition, Northview launched a recognition program effective March 29, 2020 which temporarily increased wages for front-line workers (the âemployee recognition programâ) for their important role in the initial changes necessary to make the properties safe, clean, and operational for tenants and execusuite guests. The employee recognition program ended on May 23, 2020.
Q2 2020 HIGHLIGHTS
- Diluted FFO per unit was $0.53 for the second quarter of 2020, compared to $0.52 for the same period of 2019, both excluding Non-recurring Items
- Same door NOI increased by 0.2%, including a 2.2% increase for the multi-family business segment for the second quarter of 2020
- Same door revenue growth was 0.4%, including a 1.9% increase for the multi-family business segment for the second quarter of 2020
- Multi-family portfolio occupancy was 93.1% for the second quarter of 2020, 30 bps lower than the same period of 2019
- Debt to gross book value was 52.4% as at June 30, 2020, an increase of 40 bps from March 31, 2020 as a result of internally funded development projects
- On July 30, 2020, Northview entered into a new $85 million credit facility with a six-month term
- Cash flow from operating activities was $32.8 million for the second quarter of 2020, an increase of $17.8 million compared to the same period of 2019
- Net and comprehensive income was $15.3 million for the second quarter of 2020, a decrease of $63.0 million compared to the same period of 2019, primarily due to $47.2 million of net fair value gain in the second quarter of 2019
FINANCIAL PERFORMANCE HIGHLIGHTS
|(thousands of dollars, except per unit amounts)||
Three months ended
Six months ended
|NOI margin||60.2%||59.7%||50 bps||58.1%||56.5%||160 bps|
|Same door NOI increase||0.2%||2.9%||(270 bps)||3.2%||1.8%||140 bps|
|Distributions declared per Trust Unit(i)||$0.41||$0.41||–||$0.81||$0.81||–|
|Measurement excluding Non-recurring Items(ii):|
|FFO â diluted(iii)||36,580||34,561||5.8%||68,995||63,982||7.8%|
|FFO per unit â diluted(iii)||$0.53||$0.52||1.9%||$0.99||$0.97||2.1%|
(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.
Diluted FFO was $36.6 million for the three months ended June 30, 2020, compared to $34.6 million for the same period of 2019. The increase in diluted FFO was due to same door NOI growth of 0.2% and NOI contributions from acquisitions and newly developed properties, partially offset by non-core asset sales.
Diluted FFO per unit was $0.53 for the three months ended June 30, 2020, compared to $0.52 for the same period of 2019. NOI growth of 1.6% increased FFO per unit was offset by a 4.2% increase in the average number of units outstanding from the $92.5 million equity issuance in June 2019 and the disposition of non-core assets. Higher expenses and lower occupancy in execusuite and resource-based markets as a result of the COVID-19 pandemic and lower oil prices were offset by lower financing costs and administrative expenses in the second quarter.
SAME DOOR NOI
During the three months ended June 30, 2020, same door NOI growth was 0.2%, compared to 2.9% for the same period of 2019. The multi-family portfolio delivered same door NOI growth of 2.2%, compared to 3.3% from the same period of 2019. All regions, except Western Canada, achieved positive same door NOI growth, led by 12.4% and 7.4% same door NOI growth in Quebec and Northern Canada, respectively. The same door NOI growth was driven by higher AMR and lower maintenance expenses, partially offset by the increase in COVID-19 related expenses and higher estimated bad debt expense. Same door NOI in the commercial and execusuite decreased by 16.1%, compared to the same period of 2019, due to lower NOI at the execusuite properties from reduced occupancy and travel restrictions in Northern Canada as a result of the COVID-19 pandemic, partially offset by commercial NOI increase of 2.1%.
Overall NOI margin increased by 50 bps for the second 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) dispositions of non-core assets with lower margins compared to the rest of the portfolio; (iii) improvements in revenue from higher AMR; and (iv) lower maintenance and salaries expenses in the second quarter.
REVENUE AND AMR
During the three months ended June 30, 2020, revenue increased by 0.7%, compared to the same period of 2019. Revenue in the multi-family portfolio increased by 2.2%, 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 second quarter of 2019. AMR growth on suite turnover during the three months ended June 30, 2020 was 5.6%, compared to the same period of 2019.
Same door revenue increased by 0.4% for the three months ended June 30, 2020, compared to the same period of 2019. Same door revenue in the multi-family portfolio increased by 1.9% during the second 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 3.8%. Ontario led the regions with 5.8% AMR growth due to the successful execution of the high-end renovation program and strong market conditions. AMR increase on suite turnover in Ontario was 18.2% in the second quarter of 2020, compared to 15.2% in the same period of 2019.
Occupancy was 93.1% in the second quarter of 2020, a decrease of 30 bps compared to the same period of 2019 and 80 bps lower than the first quarter of 2020. The decreases in overall occupancy were mainly related to Western Canada as a result of the COVID-19 pandemic and oil price decline, partially offset by occupancy increases in Atlantic Canada and Quebec.
Ontario continued to experience strong occupancy of 96.2% during the second quarter of 2020, compared to 96.4% in the same period of 2019. Western Canada occupancy was 84.9% during the second quarter of 2020, compared to 86.6% for the same period of 2019, as a result of the COVID-19 pandemic and continued challenging economic conditions in the resource-based markets located in northern Alberta and British Columbia. Occupancy in these markets fluctuate based on the volume and duration of short-term rentals to contractors, which are influenced by oil prices and the number of infrastructure projects in progress. Northern Canada occupancy was 96.4% during the second quarter of 2020, a decrease of 50 bps compared to 96.9% for the same period of 2019 due to the delay of tenantsâ arrival and lease commencement as a result of COVID-19 related travel restrictions in Nunavut and Inuvik, NT. Atlantic Canada occupancy increased 130 bps to 96.9%, compared to the same period of 2019 due to the rise in employment in Labrador City, NL from re-opening of a local iron ore mine, and the disposition of non-core assets in Nova Scotia. Quebec occupancy increased 130 bps from the same period of 2019 and 40 bps from the first quarter of 2020 to 93.2% as a result of the successful ongoing repositioning of some of the properties in the region.
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.
For the six months ended June 30, 2020, 232 high-end renovation units were completed, generating an AMR increase of $345 per unit and an annualized NOI increase of $1.1 million. The program achieved a rate of return of 28.5% with capital expenditures of $4.4 million during the first six months of 2020. The high-end renovation program was impacted in the second quarter by provincial guidelines in Ontario, which temporarily restricted the scope of work that could be completed in residential apartments. The restrictions were lifted in late May and Northview resumed the high-end renovation program.
In light of the COVID-19 pandemic, additional safety protocols continued at the Kitchener, ON and Nanaimo, BC construction sites during the second quarter of 2020. These additional safety protocols did not impact cost or scheduling, and the projects continue to progress as planned. These projects are in provinces where residential construction is deemed an essential service. The COVID-19 protocols implemented are intended to reduce the risk of an on-site outbreak; however, if an outbreak were to occur, Northview could experience temporary site closure(s).
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%. Occupancy of the 30 multi-family units was 100% on opening in April 2020. Northview recorded a net fair value of $0.8 million or 8% of the total development cost during the second quarter of 2020.
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 June 30, 2020, 67% of the approximate cost has been incurred 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 June 30, 2020, 91% of the approximate cost has been incurred for the first phase. The second phase consists of 111 units and is estimated to cost $30.0 million.
LEVERAGE AND COVERAGE RATIOS
Debt to gross book value was 52.4% as at June 30, 2020, an increase of 40 bps from March 31, 2020 as a result of internally funded development projects. 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 June 30, 2020 remained stable at 2.77 and 1.53, respectively.
During the three months ended June 30, 2020, Northview completed $60 million of mortgage financing, excluding short-term financing, for multi-family properties with a weighted average interest rate of 2.22% and an average term to maturity of 4.8 years.
On July 30, 2020, Northview entered into a new $85 million credit facility with a six-month term.
During the three and six months ended June 30, 2020, Northview incurred $4.4 million and $7.0 million of professional and legal fees related to the Transaction, respectively. During the three and six months ended June 30, 2019, Northview received total insurance proceeds of $2.2 million and $2.8 million, respectively, relating to a fire in Lethbridge, AB. During the year ended December 31, 2019, Northview incurred $0.6 million of professional and legal fees related to the Transaction, and received insurance proceeds of $3.0 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.
Northviewâs consolidated financial statements, the notes thereto, and Managementâs Discussion and Analysis for the three and six months ended June 30, 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 Northviewâs strategic priorities, including development projects, high-end renovation program and organic growth within Northviewâs portfolio, the impact of the COVID-19 pandemic 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, 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.
Northview is one of Canada’s largest publicly traded multi-family REITs with a portfolio of approximately 27,000 quality residential suites and 1.2 million square feet of commercial space in more than 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.
Northview Apartment Real Estate Investment Trust
Mr. Todd Cook
President and Chief Executive Officer
Mr. Travis Beatty
Chief Financial Officer
Mr. Leslie Veiner
Chief Operating Officer
Longview Communications & Public Affairs
Mr. Joel Shaffer