CALGARY, Alberta, Feb. 25, 2020 (GLOBE NEWSWIRE) -- Northview Apartment Real Estate Investment Trust ("Northview") (NVU.UN – TSX), today announced financial results for the three months and year ended December 31, 2019.
HIGHLIGHTS
- Diluted FFO per unit of $2.05 for the year ended December 31, 2019, compared to $2.11 for the same period of 2018, both excluding Non-recurring Items
- Same door NOI increase of 2.9%, including a 3.6% increase for the multi-family business segment for the year ended December 31, 2019
- Total net fair value increase on investment properties of $179.3 million for the year ended December 31, 2019, mainly as a result of strong operating performance and Cap Rate reduction in Ontario
- Multi-family portfolio occupancy improvement of 10 bps from the same period of 2018 to 93.6% for the year ended December 31, 2019
- NOI margin improvement of 50 bps compared to the same period of 2018 to 58.8% for the year ended December 31, 2019
- Debt to gross book value as at December 31, 2019 decreased by 200 bps from December 31, 2018 to 51.8%, primarily as a result of the fair value increases on investment properties and the equity offering completed in June 2019
- Cash flow from operating activities was $120.4 million for the year ended December 31, 2019, a decrease of $18.7 million compared to the same period of 2018
- Net and comprehensive income was $242.0 million for the year ended December 31, 2019, a decrease of $47.7 million compared to the same period of 2018, primarily due to the fair value loss on Class B LP Units of $48.6 million, which was attributable to the Trust Unit price increase from $24.48 to $29.64
Todd Cook, President and CEO, commented, "2019 was another successful year for Northview with continued revenue growth across the country and strong market fundamentals in Ontario leading to solid same door NOI growth and fair value gains on our properties, which sustained the strengthening of the REIT’s financial position."
"We continued to enhance our portfolio quality, evidenced by our current developments in Kitchener, Nanaimo, and Iqaluit, via our ongoing and successful high-end renovation program, acquisitions of quality apartments, and the disposition of non-core assets. As expected, strategic acquisitions in strong markets moderated over the past year," continued Mr. Cook.
On February 20, 2020, Northview announced that it has entered into an arrangement agreement with Starlight Group Property Holdings Inc. and affiliates ("Starlight") and KingSett Capital Inc. ("KingSett") (collectively, the "Purchasers") pursuant to which the Purchasers will acquire Northview, and the Trust Unitholders of Northview’s outstanding Trust Units (other than Starlight’s interest in Northview which will be rolled into the acquiring entities) will receive $36.25 per Trust Unit in cash in a transaction valued at $4.8 billion including net debt (the "Transaction"). The Transaction is not subject to a financing condition. Northview has secured a "go-shop" period of up to 60 days to actively solicit, evaluate, and enter into negotiations with third parties that express an interest in acquiring Northview. Northview expects to continue to pay a monthly distribution of $0.1358 per Trust Unit through closing of the Transaction. The Transaction is expected to close by the third quarter of 2020.
"The recent Transaction announcement that Northview is to be acquired by Starlight and Kingsett, and that Unitholders will receive $36.25 per unit, has proven out our focus on creating value for Unitholders through executing on strategic priorities with organic growth within our portfolio and development and acquisition opportunities. We remain focused on executing on our 2020 Business Plan and generate value until the acquisition is completed," concluded Mr. Cook.
FINANCIAL PERFORMANCE HIGHLIGHTS
| (thousands of dollars, except per unit amounts) | Three months ended December 31 | Year ended December 31 | ||||||||||
| 2019 | 2018 | Change | 2019 | 2018 | Change | |||||||
| Total revenue | 99,850 | 94,041 | 6.2% | 392,562 | 363,968 | 7.9% | ||||||
| Total NOI | 58,704 | 53,708 | 9.3% | 230,710 | 212,126 | 8.8% | ||||||
| NOI margin | 58.8% | 57.1% | 170 bps | 58.8% | 58.3% | 50 bps | ||||||
| Same door NOI increase | 4.4% | 4.2% | 20 bps | 2.9% | 4.5% | (160 bps) | ||||||
| Occupancy | 93.9% | 93.9% | - | 93.6% | 93.5% | 10 bps | ||||||
| Distributions declared per Trust Unit(i) | $0.41 | $0.41 | - | $1.63 | $1.63 | - | ||||||
| Measurement excluding Non-recurring Items(ii): | ||||||||||||
| FFO – diluted(iii) | 35,077 | 32,153 | 9.1% | 138,708 | 130,660 | 6.2% | ||||||
| FFO per unit – diluted(iii) | $0.51 | $0.50 | 2.0% | $2.05 | $2.11 | (2.8%) | ||||||
(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 "Non-recurring Items" below.
(iii) Funds from operations ("FFO") is considered a non-GAAP measure and does not have any standardized meaning as prescribed by generally accepted accounting principles ("GAAP"). See "Non-GAAP and Other Financial Measures" disclosure below.
Q4 AND 2019 HIGHLIGHTS
FFO
Diluted FFO was $138.7 million for the year ended December 31, 2019, compared to $130.7 million for the same period in 2018. The increase in diluted FFO was due to same door net operating income ("NOI") growth of 2.9%, NOI contributions from acquisitions and newly developed properties, partially offset by non-core asset sales in 2019.
Diluted FFO per unit was $2.05 for the year ended December 31, 2019, compared to $2.11 for the same period in 2018. NOI growth of 8.8% increased FFO per unit and was more than offset by a 9.4% increase in the average number of units outstanding from the $92.5 million equity issued and the disposition of non-core assets. The proceeds from the equity raise and disposition of non-core assets were used to fund acquisitions and developments to enhance the overall quality of the REIT’s portfolio and to repay a portion of credit facilities previously used to fund growth.
SAME DOOR NOI GROWTH
During the year ended December 31, 2019, same door NOI growth was 2.9% compared to 4.5% for the same period in 2018. All multi-family regions except Northern Canada achieved positive same door NOI growth due to revenue growth from average monthly rent ("AMR") increases. Ontario led the regions by delivering strong same door NOI increase of 9.6% from last year. Northern Canada same door NOI was 3.1% lower compared to the same period of 2018 due to higher utility and maintenance expenses as a result of below normal temperatures during the first half of 2019, partially offset by increased revenue from higher AMR and occupancy.
During the fourth quarter of 2019, same door NOI growth was 4.4% compared to 4.2% for the same period in 2018. The multi-family portfolio continues to trend positively and increased same door NOI by 5.3% compared to last year due to higher AMR in all regions. Quebec led with same door NOI growth of 16.0%, followed by Ontario at 8.3%. In addition to revenue growth, Quebec same door NOI growth was due to effective management of controllable expenses, while Ontario’s operating expenses remained consistent. Western Canada same door NOI increase of 2.3% was also attributable to lower salaries and utilities expense. Atlantic Canada same door NOI increase of 7.6% was partially offset by higher utilities. Northern Canada same door NOI remained flat as increased AMR and occupancy were offset by higher utility expenses.
STRONG REVENUE AND AMR GROWTH
During the three months and year ended December 31, 2019, revenue increased by 6.2% and 7.9%, respectively, compared to the same periods of 2018. Revenue in the multi-family portfolio increased by 7.2% during the quarter and 8.8% during the year ended December 31, 2019, compared to the same periods of 2018. The increase was due to contributions from acquisitions and newly developed properties, and higher AMR, partially offset by the disposition of non-core assets. AMR growth on suite turnover during the three months and the year ended December 31, 2019, were 7.6% and 6.8%, respectively, compared to the same periods in 2018.
Same door revenue increased by 2.3% and 2.6% for the three months and year ended December 31, 2019, respectively, compared to the same periods of 2018. Same door revenue in the multi-family portfolio increased by 2.9% during the fourth quarter, compared to the same period of 2018 due to higher AMR. AMR increased in all multi-family regions resulting in an average increase of 4.3%. 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 19.3% in the fourth quarter of 2019, compared to 14.2% in the same period of 2018.
OCCUPANCY REMAINS STRONG
Occupancy was 93.9% in the fourth quarter of 2019, consistent with the same period of 2018, and an improvement of 40 bps from the third quarter of 2019. Ontario continued to experience strong occupancy of 96.4% during the fourth quarter of 2019. Western Canada occupancy was 87.8% during the fourth quarter of 2019, compared to 88.2% for the same period of 2018 due to continued economic challenges 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 the number of infrastructure projects in-progress. Northern Canada occupancy remained strong at 97.1% during the fourth quarter of 2019 due to continued tight supply conditions in Nunavut and lease renewal with government tenants in Yellowknife. Atlantic Canada occupancy increased 110 bps to 96.0%, compared to the same period of 2018 due to the re-opening of a local mine in Labrador City, and strong economy and increased migration in Nova Scotia and New Brunswick. Quebec occupancy increases of 30 bps from the same period of 2018 and 100 bps from the third quarter of 2019 to 92.0% were mainly due to a focused effort to improve the quality of the tenant base 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 properties’ common areas to increase rents. As at December 31, 2019, there are approximately 5,600 units remaining suitable for the high-end renovation program. Northview expects to spend approximately $10 million to $15 million on the program in 2020.
For the year ended December 31, 2019, 768 high-end renovation units were completed, generating an AMR increase of $306 per unit and an annualized NOI increase of $2.7 million. The program achieved a rate of return of 25.2% with capital expenditures of $15 million for the year ended December 31, 2019.
ONTARIO GENERATES FAIR VALUE INCREASE ON INVESTMENT PROPERTIES
During the three months and year ended December 31, 2019, net fair value increases on investment properties were $25.0 million and $179.3 million, respectively. Of the total fair value increases in 2019, $136.7 million was related to ongoing strong operating performance and $42.6 million from capitalization rate ("Cap Rate") compression primarily in Ontario. The weighted average Cap Rate for the portfolio was 5.73% as at December 31, 2019, a reduction of 19 bps from December 31, 2018.
The properties acquired through the strategic relationship with Starlight represented 22% or $40.0 million of the total net fair value increase in 2019 bringing the cumulative net fair value increase of these properties to $56.1 million or 10.5% of the $534 million original purchase price, excluding closing costs.
STRATEGIC ACQUISITION AND NON-CORE ASSET SALES
Northview completed the acquisition of a residential property in Langford, BC for $17.6 million during the fourth quarter of 2019. During the year ended December 31, 2019, Northview completed a total of $98.9 million in acquisitions, including closing costs, consisting of 266 multi-family units and 6,000 sq. ft. of mixed-use and commercial properties, and 3.4 acres of land for future development. Acquisitions continue to support Northview’s strategy of adding high-quality assets to the portfolio in growing markets.
During the fourth quarter, Northview disposed a property in Medicine Hat, AB for $10.4 million. In 2019, Northview completed $36.4 million of non-core asset dispositions. Subsequently, the sale of a non-core asset in Dartmouth, NS for $17.6 million is expected to be closed in the first quarter of 2020.
GROWTH THROUGH DEVELOPMENT
In 2019, Northview completed a development project in Calgary, AB with a total cost of $30.0 million, and commenced three development projects in Kitchener, ON, Nanaimo, BC, and Iqaluit, NU with an estimated total cost of $118.0 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 December 31, 2019, 42% 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 December 31, 2019, 44% 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.
The Iqaluit, NU development consists of 30 units and approximately 5,900 sq. ft. of commercial space with an estimated total cost of $10.0 million. Initial occupancy is expected to be in the first half of 2020. As at December 31, 2019, 75% of the estimated total cost has been incurred to date.
Northview has recorded a total net fair value increase of $7.4 million or 27% of the cost on the development project in Canmore, AB. The second phase of the successful Vista development project in Calgary, AB, was completed in the second quarter of 2019, and is currently 80% leased. The development project consists of 158 units at a cost of $30.0 million. Northview recorded a total net fair value increase of $8.1 million or 27% of cost on the second phase of Vista.
REDUCED LEVERAGE AND STRONG COVERAGE RATIOS
Debt to gross book value was 51.8% as at December 31, 2019, an improvement of 200 bps compared to 53.8% as at December 31, 2018, due to fair value increases on investment properties and the equity offering in June 2019. 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 December 31, 2019 remained strong at 2.82 and 1.57, respectively.
During the year ended December 31, 2019, Northview completed $323.2 million of mortgage financing, excluding short-term financing, for multi-family properties with a weighted average interest rate of 2.49% and an average term to maturity of 7.8 years. Northview continues to monitor interest rates to identify opportunities for reducing its overall borrowing cost.
NON-RECURRING ITEMS
During the three months and year ended December 31, 2019, Northview received insurance proceeds of $0.1 million and $3.0 million, respectively, relating to a fire in Lethbridge, AB. During the three months ended December 31, 2019, Northview incurred $0.6 million professional and legal fees related to the Transaction. During the year ended December 31, 2018, Northview received total insurance proceeds of $2.7 million relating to a fire in Lethbridge, AB. These items have been defined as "Non-recurring Items", as they are not considered normal operating conditions, and management has presented some performance metrics adjusting for Non-recurring Items where appropriate.
FINANCIAL INFORMATION
Northview’s consolidated financial statements, the notes thereto, and Management’s Discussion and Analysis for the year ended December 31, 2019, 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 strategic priorities, including high-end renovation program and organic growth within our portfolio, development and acquisition opportunities, completion and occupancy of development projects, and completion of the Transaction. 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; risk of not obtaining required regulatory, lender and CMHC consents and approvals for the Transaction; 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 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 readers’ 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 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.
Northview Apartment Real Estate Investment Trust
(403) 531-0720
Mr. Todd Cook
President and Chief Executive Officer
Mr. Travis Beatty
Chief Financial Officer
Mr. Leslie Veiner
Chief Operating Officer