Northview Apartment REIT comes with a 6.0% yield

A Member of Pat McKeough’s Inner Circle recently asked for his advice on a real estate investment trust that specializes in Canadian multi-family residential properties.

Pat notes that the company offers a high 6.0% yield while paying out just 77% of its cash flow as distributions. The overall outlook for the Canadian rental market also remains strong, although still-low interest rates mean it will continue to compete with the home-buying market in some regions. In addition, the REIT’s growth-by-acquisition strategy also adds to its risks.

Q: Pat, what are your thoughts on Northview Apartment REIT? Thanks!

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Northview Apartment REIT, (Symbol NVU.UN on Toronto;, is a real estate investment trust (REIT) that specializes in multi-family residential properties across Canada. Northview owns a portfolio of 27,000 residential suites and 1.2 million square feet of commercial space in more than 60 markets across eight provinces and two territories. The REIT started up in January 2002 and is headquartered in Calgary, Alberta.

Northview’s portfolio is geographically diversified, with properties throughout Canada. Specifically, 31.0% of the REIT’s revenue comes from Ontario, 25.3% from Northern Canada, 23.4% from Western Canada, 14.3% from Atlantic Canada, and 6.0% from Quebec.

Of the REIT’s total revenue, 89.2% comes from multi-family rental units while the remaining 10.8% comes from commercial properties.

Inner Circle: Portfolio boasts a 93.9% occupancy rate

The REIT continues to add to its portfolio through acquisitions, with an increasing emphasis on Ontario. Northview made $239.2 million in acquisitions in 2017 and a further $333.7 million in 2018. In 2017, 60.5% of these purchases were in Ontario while in 2018, 80.5% were in Ontario.

In June 2018, Northview acquired a portfolio of 623 units in six apartment properties for $151.8 million, and then, in December 2018, a portfolio of 644 units across another six apartment properties for $131.9 million.

In addition to these acquisitions, the REIT completed a number of development projects, with a 95% occupancy rate. They include 132 units in Regina; 30 multi-family units and 11,000 square feet of commercial space in Iqaluit, Nunavut; and 140 units and 40 staff housing beds in Canmore, Alberta, now 85% leased.

Northview’s revenue has grown 93.8%, from $187.8 million in 2014 to $364.0 million in 2018. Cash flow increased at a more moderate 73.1%, from $75.5 million in 2014 to $130.7 million in 2018. However, on a per unit basis, cash flow decreased 11.0%, from $2.37 in 2014 to $2.11 in 2018 on more units outstanding from acquisitions.

In the three months ended March 31, 2019, the REIT’s overall revenue rose 9.3%, to $96.2 million from $88.0 million a year earlier. Cash flow improved 2.6%, to $29.4 million from $28.7 million the previous year. Cash flow per unit fell 8.2%, to $0.45 from $0.49, due to more units outstanding.

Northview pays a monthly distribution in the amount of $0.1358 per unit for a high yield of 6.0%. It pays out just 77% of its cash flow as distributions.

Low interest rates have made home-ownership more affordable. In some markets, this has cut into demand for rental properties, since more tenants can now afford to buy condominiums or starter homes. In addition, the REIT’s growth-by-acquisition strategy also adds to its risks.

However, the overall outlook for the Canadian rental market remains strong. Immigration rates remain steady and youth employment will improve with the economy. That has increased demand for rental housing from these key groups.

Recommendation in Pat’s Inner Circle: Northview Apartment REIT is a hold.


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