Northview Apartment REIT Announces Q3 2018 Financial Results, Including Same Door NOI Growth of 3.6%, Highest Occupancy Since 2013 and Improved Leverage

CALGARY, Alberta, Nov. 06, 2018 (GLOBE NEWSWIRE) -- Northview Apartment Real Estate Investment Trust (“Northview”) (NVU.UN – TSX), today announced financial results for the three and nine months ended September 30, 2018.

HIGHLIGHTS

• Diluted FFO per unit of $0.58 for the third quarter of 2018, compared to $0.59 for the same period in 2017, excluding Non-recurring Items
• Same door NOI increase of 3.6%, including 4.0% increase for multi-family business segment for the third quarter of 2018
• Overall NOI margin of 62.5% in the third quarter of 2018, an improvement of 90 bps from the same period of 2017
• Multi-family portfolio occupancy of 93.5% in the third quarter of 2018, an improvement of 20 bps from the second quarter in 2018, and from the same period in 2017
• Annualized NOI increase from Value Creation Initiatives (“VCIs”) related to the 2015 Transaction was $1.3 million for the third quarter of 2018, bringing the cumulative progress to $10.0 million since November 1, 2015
• Total net fair value increase of $28.5 million on investment properties in the third quarter of 2018, including $22.0 million net fair value increase in Ontario driven by higher NOI and capitalization rate (“Cap Rate”) reduction
• Debt to gross book value decreased by 50 bps from the prior quarter to 54.6% at September 30, 2018 and 180 bps from December 31, 2017

Todd Cook, President and CEO, commented, “We are pleased to have maintained strong operating performance across the portfolio. Overall occupancy has improved to 93.5%, the highest since 2013. Ongoing strength in the Ontario market has allowed us to deliver on our Value Creation Initiatives and continue to expand our successful high-end renovation program into other areas of the portfolio.”

“Our development program continues to deliver solid results for our Unitholders. The Canmore development came online September 1, is 50% leased after the first 60 days and looks likely to perform above our initial expectations. The second phase of our Vista development in Calgary is well underway with an expected completion in mid-2019. We are also in the advanced planning stages of our 2019 developments in Kitchener and Nanaimo,” continued Mr. Cook.

Mr. Cook concluded, “Recent acquisitions have provided opportunities for Northview to improve both the quality of the portfolio and the long-term NOI and NAV growth through our proven strategies such as the high-end renovation program. This is evidenced by the $17.4 million increase in fair value realized on the properties acquired in late 2017.”

FINANCIAL PERFORMANCE HIGHLIGHTS

Funds from operations (“FFO”) is considered a non-GAAP measure and do not have any standardized meaning as prescribed by generally accepted accounting principles (“GAAP”). See “Non-GAAP and Other Financial Measures” disclosure below.

(i) Trust Unit refers to the publicly traded Northview Trust Unit and the Class B LP Unit.
(ii) See “Non-recurring Items” disclosure below.

Q3 2018 HIGHLIGHTS

FFO

Diluted FFO was $37.2 million for the three months ended September 30, 2018, compared to $33.6 million for the same period in 2017. Diluted FFO per unit was $0.58 for the three months ended September 30, 2018, compared to $0.59 for the same period in 2017. Same door NOI growth, and NOI contributions from acquisitions and newly developed properties increased FFO. These increases were offset by the equity issued to fund growth and the disposition of non-core assets. While the recent equity offering and the disposition of a non-core portfolio in Chetwynd, BC will have some dilutive impact on the short-term FFO per unit, these transactions are expected to provide better opportunities for long-term FFO and net asset value growth. The net proceeds from the disposition and equity offering have improved the balance sheet, which has positioned Northview to continue strategic growth.

SAME DOOR NOI GROWTH ACROSS ALL MULTI-FAMILY REGIONS

During the three months ended September 30, 2018, total same door NOI growth was 3.6%, compared to total same door NOI increase of 6.8% for the same period in 2017. Same door NOI increased 4.0% for the multi-family business segment during the three months ended September 30, 2018, compared to an increase of 7.7% for the same period in 2017. The multi-family portfolio has generated same door NOI increases for seven consecutive quarters. The multi-family same door NOI increase was attributable to higher AMR across the portfolio and successful execution of the VCIs in Ontario. The overall rate of same door NOI growth in 2018 declined from 2017, as same door NOI growth in 2017 was higher due to weak performance from resource-based markets in Western Canada during 2016.

Ontario delivered strong same door growth of 7.8% during the quarter due to an increase in AMR, while operating expenses remained flat. In the third quarter, same door NOI in Quebec increased 10.4% due to higher AMR, cost savings from internalization of property management, and lower utility costs, partially offset by lower occupancy due to units taken out of inventory for renovations. Same door NOI growth continues to remain positive, from higher AMR, in Atlantic, Northern, and Western Canada of 2.5%, 2.2%, and 0.4%, respectively, compared to the same period of 2017. In addition, cost savings from internalization also contributed to same door NOI growth in Atlantic Canada.

STRONG TRACTION ON VALUE CREATION INITIATIVES

VCIs resulted in approximately $1.3 million of additional annualized NOI in the third quarter of 2018. The cumulative progress on VCIs is $10.0 million since November 1, 2015, which is 70% of the initial five-year target of $14.3 million established in 2015.

The high-end renovation program continues to be successful, achieving an average rate of return of 26.6% for the nine months ended September 30, 2018 and 21.7% inception to date, exceeding the target rate of return of 15% to 20%. During the quarter, 180 units relating to the 2015 Transaction were completed with an AMR increase of approximately $288 per unit. For the nine months ended September 30, 2018, 450 units have been completed along with an additional 74 units from part of the acquisitions completed in December 2017 and June 2018.

Management continues to evaluate additional properties and suites for high-end renovations to expand the program. As part of the acquisitions completed in December 2017 and June 2018, an additional 1,100 units have been identified as suitable for the high-end renovation program. Management expects to complete approximately 650 units in total under the high-end renovation program in 2018, exceeding the previous target of 500 units.

The transitional service agreement with Starlight Group Property Holdings Inc. and affiliates (“Starlight”) ended as of October 30, 2018. This change is expected to positively impact operations and will not result in any incremental costs. In addition, the entire portfolio is internally managed, which has resulted in annualized savings of approximately $2.9 million, and reduced the number of third party managed units by 12,800 units since 2016.

HIGHEST OCCUPANCY SINCE 2013 AND REMAINS STRONG ACROSS THE PORTFOLIO

Occupancy of 93.5% in the third quarter of 2018, an improvement of 20 bps compared to the second quarter of 2018 and the same period of 2017. Western Canada occupancy improved by 70 bps to 86.6% in the third quarter of 2018 compared to the second quarter of 2018. The increase is due to improvements in Calgary, AB and resource-based markets in northern Alberta and northeastern British Columbia. Occupancy in Atlantic Canada increased due to improved economic conditions, which led to higher market rents and increased occupancy. Quebec occupancy decreased due to units taken out of inventory for renovations while Northern Canada and Ontario occupancy remains strong.

EXPANSION OF NOI MARGINS

NOI margin increased by 90 bps and 110 bps for the three and nine months ended September 30, 2018, compared to the same periods in 2017. The increase in NOI margin was due to contributions from new acquisitions and developments, which generated higher margins than the rest of the portfolio, combined with improvements in revenue from higher AMR and increased occupancy, and effective management of controllable operating expense, facilitated by property management internalization. Compared to the previous quarter, NOI margin increased by 320 bps, from total revenue increasing by 4.6%, lower utilities expenses, and the successful reduction of maintenance expense in Atlantic Canada and Quebec.

GROWTH THROUGH NEW DEVELOPMENT PROJECTS

During the third quarter, Northview completed the development in Canmore, AB, consisting of 140 units and 40 staff housing beds. The property is 50% leased, which is in line with expectations. Total development costs were $27.9 million with an expected stabilized Cap Rate of 7.0% to 7.5%. Northview recorded a net fair value increase of $5.5 million (20%) on completion of the developments in the third quarter.

Northview commenced construction of the second phase of the successful Vista project in the second quarter of 2018. The Calgary, AB, development consisting of 158 units is being built on land already owned by Northview with initial occupancy expected in the second quarter of 2019. Total development costs are estimated to be $30.0 million with an expected stabilized Cap Rate between 6.0% and 6.5%.

Developments in Kitchener, ON and Nanaimo, BC are in the advanced planning stage and expected to commence in early 2019.

DEMONSTRATED SUCCESS IN STRATEGIC RELATIONSHIP

Northview has demonstrated the value of the strategic relationship with Starlight, which has enabled it to complete acquisitions in markets such as Ontario, where competition for multi-family portfolios is high and limited opportunities arise for portfolios with meaningful scale. Assets acquired through the Starlight relationship in December 2017 saw AMR increase by 3.8%, and a $17.4 million (9%) net fair value increase which has been recorded in the third quarter of 2018.

IMPROVED LEVERAGE AND STRONG COVERAGE RATIOS

Debt to gross book value was 54.6% as at September 30, 2018, a decreased of 50 bps from the prior quarter, primarily from the fair value increase to investment properties, and 180 bps from December 31, 2017, as a result of fair value increase to investment properties and the June equity offering. Interest and debt service coverage ratios for the twelve months ended September 30, 2018, remain strong at 3.00 and 1.64, respectively.

Northview continues to monitor interest rates to identify opportunities to reduce its overall borrowing costs. During the three months ended September 30, 2018, Northview completed $78.4 million of mortgage refinancing, excluding short-term financing, for multi-family properties with a weighted average interest rate of 3.30% and an average term to maturity of 8.5 years.

FINANCIAL INFORMATION

Northview’s consolidated financial statements, the notes thereto, and Management’s Discussion and Analysis for the three and nine months ended September 30, 2018, 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 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 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.

NON-RECURRING ITEMS

During the three and nine months ended September 30, 2018, Northview received insurance proceeds of $2.4 million and $2.7 million, respectively, relating to a fire in Lethbridge, AB. During the three and nine months ended September 30, 2017, Northview received insurance proceeds of nil and $0.4 million, respectively, relating to the Fort McMurray, AB, wildfires. During the year ended December 31, 2017, Northview received total insurance proceeds of $0.9 million relating to the wildfires in Fort McMurray, AB, and the fire in Lethbridge, AB. During the year ended December 31, 2016, Northview received total insurance proceeds of $7.1 million for the wildfires in Fort McMurray, AB, 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 wildfires in Fort McMurray, 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 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.

WEBCAST INFORMATION
Date: Wednesday, November 7, 2018
Time: 12:00 p.m. Eastern Time
Webcast: www.northviewreit.com/investor-relations/presentations

CONFERENCE CALL INFORMATION
Dial In: 1-855-473-4527 or 1-661-378-9963
Conference ID: 5987937

REPLAY INFORMATION
The webcast will be available for replay two hours after the conference call ends and will be available at:
www.northviewreit.com/investor-relations/presentations

CORPORATE PROFILE

Northview is one of Canada's largest publicly traded multi-family REITs with a portfolio of approximately 26,000 quality residential suites 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

Mr. Todd Cook
President and Chief Executive Officer
(403) 531-0720

Mr. Travis Beatty
Chief Financial Officer
(403) 531-0720

Mr. Leslie Veiner
Chief Operating Officer
(403) 531-0720