Northview Apartment REIT Reports Q3 2017 Financial Results, Strong Same Door NOI Growth of 6.8% Through Improvements in Occupancy and Monthly Rents
CALGARY, ALBERTA–(Marketwired – Nov. 7, 2017) - Northview Apartment Real Estate Investment Trust (“Northview”) (TSX:NVU.UN), today announced financial results for the three and nine months ended September 30, 2017.
Todd Cook, President and CEO commented, “We are pleased with the improvements in our financial performance achieved through same door NOI growth in the existing portfolio and from developments and capital redeployment acquisitions made so far this year. These improvements have largely offset the earnings dilution generated by the sale of non-core assets and the October 2016 equity raise which further strengthened Northview’s balance sheet.”
“We continue to execute on our Value Creation Initiatives with $5.1 million of annualized NOI growth since inception with the high-end renovation program achieving a rate of return of 23% exceeding the initial target of 15% to 20%. We recently completed the property management internalization in Atlantic Canada bringing the total annualized savings to $2.5 million,” continued Mr. Cook.
Mr. Cook concluded, “Our strategic capital deployment continued with the sale of a non-core hotel asset and reinvestment into the newer apartment portfolio in Moncton, NB. We remain focused on creating value for our Unitholders through execution on our 2017 strategic priorities, growth from new developments, and the recent strategic capital deployment to support future external growth opportunities.”
Financial Performance Highlights
|(thousands of dollars, except per unit amounts)||Three months ended September 30||Nine months ended September 30|
|Measurement excluding Non-recurring Items(i):|
|Same door NOI change||6.8%||(5.4%)||12.2%||3.6%||(5.9%)||9.5%|
|FFO – diluted||33,608||32,189||4.4%||89,460||88,336||1.3%|
|FFO per unit – diluted||$0.59||$0.60||(1.7%)||$1.57||$1.66||(5.4%)|
|AFFO – diluted||28,128||n/a||n/a||73,037||n/a||n/a|
|AFFO per unit – diluted||$0.49||n/a||n/a||$1.28||n/a||n/a|
|Distributions declared per Trust Unit(ii)||$0.41||$0.41||-||$1.22||$1.22||-|
|Net operating income (“NOI”), funds from operations (“FFO”), and adjusted funds from operations (“AFFO”) 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.|
|(i) See “Non-recurring Items” disclosure below.|
|(ii) Trust Unit refers to the publicly traded Northview Trust Unit and the Class B LP Unit.|
SUMMARY OF Q3 2017
FFO and AFFO
Diluted FFO was $33.6 million for the three months ended September 30, 2017, compared to $32.2 million for the same period in 2016, excluding Non-recurring Items. The increase in FFO was mainly due to same door NOI growth, NOI contribution from the newly developed properties in Alberta and the acquisition of a portfolio in Moncton, NB, offset by non-core asset sales.
Diluted FFO per unit was $0.59 for the three months ended September 30, 2017, compared to $0.60 for the same period in 2016, excluding Non-recurring Items. The decrease in FFO on a per unit basis was primarily driven by the dilution from the equity offering completed in October 2016 largely offset by the increase in total FFO as noted above.
During the quarter, Northview introduced new disclosure on AFFO defined as a recurring economic earnings measured in accordance with the REALpac White Paper on AFFO. Northview has elected to use an estimated reserve amount of $880 per multi-family unit for the multi-family business segment and an estimated reserve amount of $0.70 per square foot for the commercial business segment.
Same Door NOI Increase of 6.8%
During the third quarter of 2017, all multi-family regions achieved positive same door NOI growth compared to the same period of 2016. For the three months ended September 30, 2017, total same door NOI increased 6.8%, including multi-family same door NOI increase of 7.7%, compared to same door NOI decrease of 5.4% and 8.6%, respectively, in the same period of 2016, excluding Non-recurring Items. Western Canada same door NOI increased to 9.6% in the third quarter of 2017 mainly due to higher revenue from occupancy increase, lower property taxes and management of controllable costs. The increase in AMR from successful execution of the value creation initiatives (“VCIs”), higher occupancy, electricity costs savings, and lower property taxes contributed to same door NOI growth in Ontario during the quarter of 13.0%. AMR improved in all regions compared to the second quarter of 2017 and higher occupancy across the portfolio resulted in same door NOI increases of 5.5%, 3.4%, and 0.8% in Quebec, Northern Canada, and Atlantic Canada, respectively.
Effectively Managing Operating Expenses
For the three and nine months ended September 30, 2017, total operating expense decreased by $1.3 million and $3.4 million, or 3.8% and 3.2%, respectively, compared to the same periods of 2016. This is comprised of a reduction in operating expenses mainly due to non-core asset dispositions and lower utilities. In addition, Northview’s ongoing focus on reducing costs contributed to the decrease in general operating expenses, such as telephone, security and waste management. These cost savings were achieved mainly through negotiating new contracts and process improvements.
Continued Improved Occupancy Across the Portfolio
Occupancy in all regions increased compared to the same period of 2016 along with three consecutive quarters of occupancy growth in Western Canada, Atlantic Canada, and Northern Canada. For the three months ended September 30, 2017, occupancy of 93.3% improved by 1.0% from the second quarter of 2017 and 2.2% from the same period of 2016.
Growth Through New Development Projects
Northview has development projects underway in Regina, SK, Iqaluit, NU, and Canmore, AB with total estimated development costs of $56.7 million. At the end of the third quarter, $20.4 million has been incurred. The first of two buildings in the development project in Regina, SK, is close to completion with initial occupancy in the first quarter of 2018. The development projects in Iqaluit, NU, are on schedule and the project in Canmore, AB, commenced in the fourth quarter.
Strong Coverage Ratios
Interest and debt service coverage ratios were 3.04 and 1.65, respectively, for the twelve months ended September 30, 2017, consistent with the prior quarter. Northview continues to monitor interest rates to identify opportunities for reducing its overall borrowing cost. During the three months ended September 30, 2017, Northview completed $53.8 million in mortgage refinancing excluding short term financing with a weighted average interest rate of 2.99% and an average term to maturity of 9.8 years. In addition, Northview completed $18.9 million in mortgage assumptions and $41.2 million in short term mortgage renewals while replacement funding is being evaluated.
2017 Strategic Priorities Progress
1. Organic Growth
During the third quarter of 2017, Northview generated organic growth with same door NOI increase of 6.8% excluding Non-recurring Items. Ontario achieved same door NOI increase of 13.0% and all other multi-family regions also achieved positive same door NOI growth compared to the same period of 2016. Western Canada has had two consecutive quarters of same door NOI and three consecutive quarters of growth in occupancy.
Progress continues on VCIs with annualized NOI increase of $1.3 and $2.3 million, respectively, for the three and nine months ended September 30, 2017. The high end renovation program has an average rate of return of 23% in 2017, exceeding the target rate of return of 15% to 20%. The cumulative progress on VCIs is $5.1 million since November 1, 2015, in addition to the $2.5 million cumulative annualized savings on property management internalization in Ontario in 2016 and Atlantic Canada in 2017. On October 30, 2017, Northview provided notice to Starlight terminating the transitional service agreement, effective October 30, 2018.
The completion of property management internalization of 2,391 units in Atlantic Canada on October 1, 2017, and the planned internalization of the remaining units in Quebec in the first quarter of 2018 will further strengthen Northview’s operational platform and the ability to enhance financial results.
2. Managing Leverage
Debt to gross book value was 57.0% as at September 30, 2017, which is a reduction of 3.2% from June 30, 2016. This ratio has temporarily increased from the second quarter of 2017 due to the timing of capital redeployment and internally funded development projects.
3. Strategic Capital Deployment in Support of External Growth
As of September 30, 2017, Northview has completed $86.9 million of non-core asset sales since January 2016. Future non-core asset sales are expected to support capital redeployment and external growth opportunities through developments and selected acquisitions. Northview intends to grow on an approximately leverage neutral basis. Northview has recently completed a $14.9 million non-core hotel asset sale and the proceeds were used to support growth and enhance the portfolio through the acquisition of 327 units in Moncton, NB, for $31.4 million, plus $0.5 million in transaction costs.
Northview’s condensed consolidated financial statements and the notes thereto and Management’s Discussion and Analysis for the three and nine months ended September 30, 2017, can be found on Northview’s 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 execution of our 2017 strategic priorities, including VCIs and organic growth within our portfolio, development and acquisition opportunities, completion and occupancy of development projects, and opportunities for the reduction of weighted average interest rates. 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 and mortgage 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; potential conflicts of interest; integration of acquired properties; income tax related risk factors; and other risk factors more particularly described in the 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 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 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 Northview’s most recent Management’s Discussion and Analysis for definitions of non-GAAP and additional GAAP measures, including NOI, FFO, AFFO, debt to gross book value, debt service coverage and interest coverage.
During the nine months ended September 30, 2017, Northview received insurance proceeds of $0.4 million relating to the Fort McMurray, AB, wildfires. During the three months ended September 30, 2016, Northview received insurance proceeds of $2.0 million relating to the Fort McMurray, AB, wildfires. During the nine months ended September 30, 2016, Northview received total insurance proceeds of $6.7 million for the Fort McMurray, AB wildfires, the 2015 fire in Yellowknife, NT and a property in Fort McMurray, AB. In addition, Northview had $1.6 million of lost revenue and $1.6 million of incremental costs relating to the Fort McMurray, AB, wildfires. These items have been defined as “Non-recurring Items”, as they are not considered normal operating conditions, and management has presented revenue, operating expenses, NOI, same door NOI and NOI margin for the multi-family residential business segment and other specific performance metrics adjusting for Non-recurring Items where appropriate.
Financial Results Conference Call and Webcast
Participating on the conference call and webcast will be Mr. Todd Cook, President and Chief Executive Officer, Mr. Travis Beatty, Chief Financial Officer, and Mr. Leslie Veiner, Chief Operating Officer.
Date: Wednesday, November 8, 2017
Time: 10:00 a.m. Mountain Time, 12:00 p.m. Eastern Time
Conference Call Information:
Dial In: 1-855-473-4527 or 1-661-378-9963
Conference ID: 83264093.
The webcast will be available for replay two hours after the conference call ends and will be available at:
Northview is one of Canada’s largest publicly traded multi-family REITs with a portfolio of approximately 24,000 quality residential suites in more than 60 markets across eight provinces and two territories. Northview’s portfolio includes markets characterized by expanding populations, growing economies, high occupancy levels, and rising rents, which provides Northview the means to deliver stable and growing profitability and cash 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.
Mr. Todd Cook
President and Chief Executive Officer
Mr. Travis Beatty
Chief Financial Officer
Mr. Leslie Veiner
Chief Operating Officer