ANNUAL REPORT
2016
Corporate Profile
Northview Apartment Real Estate Investment Trust (“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’s residential portfolio is comprised of a multi-family segment, including apartments, town homes, and
single family rental units; and an execusuites and hotel segment where the rental period ranges from a few days
to several months. Northview also has a portfolio of commercial buildings focused on government and corporate
tenants.
Strategy
Northview’s strategy is based on the following:
Portfolio Diversification
Northview’s portfolio is diversified across more than 60 Canadian rental markets located in eight provinces and
two territories.
Organic Growth
Northview’s high quality portfolio includes investments in stable markets characterized by expanding populations,
growing economies, high occupancy levels, and rising rents which enable same door NOI growth.
Growth through Acquisitions
Northview invests in strong and growing markets across the country where it has established operations and
market knowledge. Northview also has a strategic relationship with Starlight that may be considered for future
acquisitions.
Growth through Developments
Northview has in-house development capabilities that enable it to develop high quality multi-family rental
properties that generate returns that are 100 to 200 basis points higher than acquiring existing properties.
Northview has 49 acres of land held for development in Northern and Western Canada along with opportunities
in Ontario that are being assessed for future developments.
Mission Statement
Across Canada,
Northview’s passion
is providing our
customers with a
place to call home
Vision
We are a passionate, community-focused team dedicated to making our properties the best they can be. We are
proud to live, work and play in the neighbourhoods we serve, next to our residents, hotel guests and commercial
tenants. At Northview, we will:
•
•
•
•
•
Treat our customers respectfully and promptly, with thoughtfulness and consideration;
Create neighbourhoods that have a safe and friendly environment for the people we serve;
Provide our team with a supportive environment in which their unique talents and skills are
appreciated and valued;
Pursue growth where opportunities allow us to create value for our Unitholders; and
Invest in the communities we serve.
Values
Customer Satisfaction
Service Excellence
Integrity
Social Responsibility
People
Geographically Diversified
Northview operates in eight Canadian provinces and two territories. The
geographical segments include Ontario, Western Canada, Atlantic Canada,
Northern Canada, and Québec. The Ontario and Québec regions include only
the operations of properties located in those respective provinces. The
Western Canada segment includes the operations of properties located in
Alberta, British Columbia, and Saskatchewan. The Northern Canada segment
includes the operations of properties located in the Northwest Territories and
Nunavut. The Atlantic Canada segment includes the operations of properties
located in New Brunswick, Newfoundland and Labrador, and Nova Scotia.
While our roots are in Canada's north, we are also
located in some of Canada's largest urban areas
and key secondary markets across the country. In
many of our regions, we are the leading residential
landlord,
for
in
commodity-based industries. Our diverse locations
enable us to deliver stable and growing profitability
and cash distributions to our Unitholders over time.
The map below highlights how Northview derives
net operating income (“NOI”) from across Canada.
including
centers
key
24,094 Multi-Family
Residential Units
Northern
Canada
32%
Western
Canada
24%
Geographically Diversified
Northview’s cities and towns are multi-faceted economically.
Some have an important natural resource component and
are in communities that have leadership positions in oil,
natural gas, diamonds, forestry products or agriculture.
These communities represent Northview’s roots and remain
an important part of its strategy, which has now been
expanded to include higher growth markets.
Northview’s portfolio is diversified across more than 60
Canadian rental markets located in eight provinces and two
territories, reducing exposure
to occasionally volatile
resource prices. Northview’s markets in eastern and central
Canada provide opportunities for both internal and external
growth from growing populations, increasing demand for
rental apartments, and lower market penetration.
Atlantic
Canada
13%
Québec
5%
Ontario
26%
While our roots are in Canada's north, we are also
located in some of Canada's largest urban areas
and key secondary markets across the country. In
many of our regions, we are the leading residential
landlord,
including
in
key
centers
for
commodity-based industries. Our diverse locations
enable us to deliver stable and growing profitability
and cash distributions to our Unitholders over time.
The map below highlights how Northview derives
net operating income (“NOI”) from across Canada.
Table of Contents
09 Our Results
10 Letter to Trust Unitholders
11 Management’s Discussion and Analysis
40 Management’s Report
41 Independent Auditor’s Report
42 Consolidated Financial Statements
46 Notes to the Consolidated Financial Statements
81 Trustees and Officers
81 Corporate Information
Our Results
Regions as a % of NOI (1)
Business Segment as a % of NOI (1)
Atlantic
13%
Western
24%
Execusuites
3%
Commercial
11%
Québec
5%
Ontario
26%
Northern
32%
Multi-family
86%
2016 Highlights
$332 Million
Total Revenue
$186 Million
Net Operating Income
$3.2 Billion
Assets
2015: $218 Million
2015: $127 Million
2015: $3.1 Billion
$1.63
$2.14
Distributions per Trust Unit FFO per Trust Unit - Diluted(2)
76.7%
FFO Payout Ratio - Diluted(2)
2015: $1.63
2015: $2.34
2015: 69.0%
(1) The graphs provide the breakdown of the NOI by business and geographical segments for the year ended December 31, 2016
(2) Excludes Non-recurring Items
Northview 2016 Annual Report | Page 9 Letter to Trust Unitholders
Dear Fellow Trust Unitholders:
March 23, 2017
It is my privilege to provide you with an update of Northview’s activities over the past year, and insight into our focus for the upcoming year.
Our main focus for 2016 was the absorption of the major transaction completed in 2015, which effectively doubled the size of Northern Property
REIT, and transformed us into Northview Apartment REIT. Our accomplishments in 2016 include the successful internalization of property
management in Ontario, generating over $2.0 million in annualized savings; execution on the Value Creation Initiatives which has realized almost
$2.8 million in annual NOI growth; leverage reduction of 2.7% through growth in asset values; sale of $49 million in non-core assets; the successful
$75 million equity raise completed in October; and a total unitholder return of 23.7% for 2016.
From an operating perspective, the challenges in our resource based markets in Western Canada persisted as occupancy and rents declined
throughout the year. Our nationally diversified platform reduced the impact of these operating challenges with continued strong performance from
our northern markets and our portfolios in Ontario and Atlantic Canada acquired in 2015. Other factors contributing to the financial results this year
included the reduction of NOI from the non-core asset sales and, to a lesser extent, the dilution from our $75 million equity offering later in 2016.
I am extremely proud of our team and their efforts in how they handled the impact of the wildfires in Fort McMurray this past year. Our first priority
was providing a safe place to call home to the team and residents who have been affected by the wildfires. The second priority was supporting our
displaced residents by providing free accommodations during the evacuation period for the months of May and June. Our team did an extraordinary
job of ensuring our buildings were safe, clean, and ready for occupancy as the residents started to return to their homes in late June.
Looking forward to 2017, we remain committed to our long term goal of generating value for our Unitholders. To that end, we have set out the
following strategic priorities for 2017:
1.
Organic Growth
Northview will continue to focus on improving occupancy, monthly rents and operating expense management, which would drive increases in same
door NOI. Continued execution of the Value Creation Initiatives in 2017 is expected to contribute positive NOI.
2. Managing Leverage
The REIT’s long-term target for debt to gross book value is 50% to 55%. With the significant reduction in leverage achieved in 2016, leverage
reduction for the near to mid-term will be achieved through improvements in asset values driven by successful execution of the Value Creation
Initiatives and developments.
3.
Capital Deployment Supporting External Growth
Proceeds from the remaining sales of non-core assets, and potentially other assets, will be deployed in support of growth through the continued
development program and selected acquisitions in Northview’s stronger markets, primarily in Ontario. Northview will continue to utilize its existing
land investments for developments, in addition to recycling selected investments in land to expand the in-house development program to Ontario.
I believe that the on-going execution of our strategic priorities will continue to set the stage for Northview to deliver Unitholder value, through both
internal and external growth across our nationally diversified portfolio. Your Northview team is committed to the delivery of our strategic priorities to
create Unitholder value, and we look forward to delivering on our priorities in 2017.
We thank our Unitholders for your continued support of Northview Apartment REIT and look forward to keeping you updated on our progress through
the upcoming year.
Respectfully submitted,
Todd R. Cook, President and Chief Executive Officer
Northview 2016 Annual Report | Page 10
Management’s Discussion and Analysis
ADVISORIES
The following Management’s Discussion and Analysis of Financial Results (“MD&A”), dated March 9, 2017, should be read in conjunction with the
cautionary statement regarding forward-looking information below, as well as the Northview Apartment REIT (“Northview” or the “REIT”) audited
consolidated financial statements and notes thereto for the years ended December 31, 2016, and 2015. The consolidated financial statements
have been prepared in accordance with International Financial Reporting Standards (“IFRS”). This MD&A is intended to provide readers with
management’s assessment of the performance of Northview, as well as its financial position and future prospects. All amounts in the following
MD&A are in Canadian Dollars unless otherwise stated. Additional information relating to Northview, including periodic quarterly and annual
reports and Annual Information Forms, filed with the Canadian securities regulatory authorities, is available on SEDAR at www.sedar.com.
Cautionary statement regarding forward-looking information
Certain information contained in this MD&A may constitute forward-looking statements within the meaning of securities laws relating to the
business and financial outlook of Northview. Statements which reflect Northview’s current objectives, plans, goals, and strategies are subject to
risks, uncertainties, and other factors which could cause actual results to differ materially from future results expressed, projected, or implied by
such forward-looking statements. In some instances, forward-looking information can be identified by the use of terms such as “may”, “should”,
“expect”, “will”, “anticipate”, “believe”, “intend”, “estimate”, “predict”, “potentially”, “starting”, “beginning”, “begun”, “moving”, “continue”, or other
similar expressions concerning matters that are not historical facts. Forward-looking statements in this MD&A include, but are not limited to,
statements related to acquisitions or dispositions, development activities, future maintenance expenditures, financing and the availability of
financing, tenant incentives, and occupancy levels. Such statements involve significant risks and uncertainties and are not meant to provide
guarantees of future performance or results. These cautionary statements qualify all of the statements and information contained in this MD&A
incorporating forward-looking information.
Forward-looking statements are made as of March 9, 2017, and are based on information available to management as of that date. Management
believes that the expectations reflected in forward-looking statements are based upon information and reasonable assumptions available at the
time they are made; however, management can give no assurance that the actual results will be consistent with these forward-looking
statements. Factors that could cause actual results, performance, or achievements to differ materially from those expressed or implied by
forward-looking statements include, but are not limited to, general economic conditions, the availability of a new competitive supply of real estate
which may become available through construction, Northview’s ability to maintain occupancy and the timely lease or re-lease of residential,
execusuite and hotel units and commercial space at current market rates, tenant defaults, changes in interest rates, changes in operating costs,
governmental regulations and taxation, fluctuations in commodity prices, and the availability of financing. Additional risks and uncertainties not
presently known to Northview, or those risks and uncertainties that Northview currently believes to be not material, may also adversely affect
Northview. Northview cautions readers that this 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 materially from those expected. This
statement also qualifies any predictions made regarding Northview’s future funds from operations (“FFO”), debt to gross book value, coverage
ratios, and FFO payout ratio.
Except as specifically required by applicable Canadian law, Northview assumes no obligation to update or revise publicly any forward-looking
statements to reflect new events or circumstances that may arise after March 9, 2017.
Non-GAAP and additional GAAP measures
Certain measures in this MD&A do not have any standardized meaning as prescribed by generally accepted accounting principles (“GAAP”) and
are, therefore, considered non-GAAP measures. These measures are provided to enhance the reader’s overall understanding of Northview’s
current financial condition. They are included to provide investors and management with an alternative method for assessing Northview’s
operating results in a manner that is focused on the performance of Northview’s 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 IFRS. In addition, the definitions of these measures are subject to interpretation by the preparers of
financial statements and may not be applied consistently between real estate entities.
Please refer to definitions of non-GAAP and additional GAAP measures, including net operating income (“NOI”), FFO, debt to gross book value,
debt service coverage, and interest coverage in this MD&A.
The following MD&A is for the financial results of Northview for the years ended December 31, 2016 and 2015. Units in the MD&A refer to the
publicly traded Northview Trust Units (“Trust Units”) and the Limited Partnership Class B units (“Class B LP Units”). Unitholders in the MD&A refer
to the Northview unitholders (“Trust Unitholders”) and the Class B LP unitholders (“Class B LP Unitholders).
Northview 2016 Annual Report | Page 11 BUSINESS OVERVIEW
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 investments in markets characterized by expanding populations,
growing economies, high occupancy levels, and generally rising rents, which provides Northview the means to deliver stable and growing profitability
and distributions to unitholders of Northview (“Unitholders”) over time. Northview currently trades on the TSX under the symbol: NVU.UN.
On October 30, 2015, through a plan of arrangement, Northern Property Real Estate Investment Trust (“NPR”) acquired all of the assets and
properties of True North Apartment Real Estate Investment Trust (“TN” or “True North”) in exchange for NPR trust units and NPR special voting
units. In addition, NPR acquired seven apartment properties held by Starlight Investments Ltd. (“SL” or “Starlight”) and 26 apartment properties
from a joint venture between affiliates of SL and affiliates of the Public Sector Pension Investment Board (“PSP”), collectively the “Transaction”.
Upon completion of the Transaction, NPR changed its name to Northview Apartment Real Estate Investment Trust.
Northview’s strategy is based on the following:
•
•
•
•
Portfolio diversification: Northview’s portfolio is diversified across more than 60 Canadian rental markets located in eight provinces
and two territories.
Organic growth: Northview’s high quality portfolio includes investments in stable markets characterized by expanding populations,
growing economies, high occupancy levels, and rising rents which enable same door NOI growth.
Growth through acquisitions: Northview invests in strong and growing markets across the country where it has established
operations and market knowledge. Northview also has a strategic relationship with Starlight that may be considered for future
acquisitions.
Growth through development: Northview has in-house development capabilities that enable it to develop high quality multi-family
rental properties that generate returns that are 100 to 200 basis points higher than acquiring existing properties. Northview has 49
acres of land held for development in Northern and Western Canada along with opportunities in Ontario that are being assessed for
future developments.
2016 HIGHLIGHTS
The following are highlights of Northview’s results for the year ended December 31, 2016:
•
•
•
•
•
•
Multi-family residential portfolio occupancy of 90.4% in the fourth quarter of 2016 and 90.7% for the year ended December 31, 2016.
Achieved fair value increase on investment properties in 2016 of $54 million including $46 million in Ontario and $9 million for newly
developed properties in Alberta.
Northview significantly reduced leverage in the second half of 2016, reducing debt to gross book value by 270 basis points through an equity
offering and non-core asset dispositions. Debt to gross book value, excluding convertible debentures, as at December 31, 2016, was 57.5%
compared to 60.2% as at June 30, 2016.
Interest and debt service coverage ratios remain strong at 2.98 and 1.70, respectively, for the year ended December 31, 2016.
Successful equity offering of $74.8 million closed on October 31, 2016, accelerating management’s strategy to reduce leverage.
Diluted FFO per unit of $2.21 for the year ended December 31, 2016, or $2.14, excluding Non-recurring Items, compared to $2.34 for the
same period in 2015. Diluted FFO payout ratio of 74.1% for 2016, or 76.7%, excluding Non-recurring Items.
Northview 2016 Annual Report | Page 12 PROGRESS MADE AGAINST 2016 STRATEGIC PRIORITIES
1. Value Creation Initiatives (“VCIs”)
Execution of the VCIs in 2016 were consistent with management’s expectations heading into the year. Excluding property management
internalization, annualized NOI increase from VCIs was $2.8 million, which supported a fair value increase of approximately $46 million in
Ontario.
VCIs included:
(i) High-end renovation program: 268 units were completed under this program, result in an annualized NOI increase of $0.6 million
in 2016.
(ii) Below market rents: Excluding the other VCIs and guideline increase, management achieved an $11 increase in average monthly
rents, with annualized NOI increase of $1.7 million.
(iii) Sub-metering program: 3,471 units had sub-metering installed and 1,497 units had enrolled in the program as at December 31,
2016. A total of 333 units enrolled in 2016, driving an annualized NOI increase of $0.2 million for the year.
(iv) Above guideline increases: The increase of average monthly rent of the 2,851 units approved for above guideline increases in
2016 was approximately 4%, including a guideline increase of 2% in Ontario, which produced an annualized NOI increase of $0.3
million.
(v) Property management internalization: Northview internalized the management of approximately 7,600 units in Ontario,
resulting in annualized NOI increase of $2.1 million in 2016.
2. Disposition of Non-Core Assets
Northview completed $48.6 million of non-core asset sales in 2016 and $23.4 million to date in 2017, with a further $16.3 million in
dispositions currently under contract. In total, these sales reduced debt to gross book value by 100 basis points. Proceeds were used for
leverage reduction and in support of VCIs.
3. Restructure Credit Facilities
Northview consolidated its operating facilities into a new $150 million facility and implemented a new $30 million credit facility in 2016. As of
December 31, 2016, the borrowing capacities under these facilities were $108.4 million and $21.7 million respectively.
4. Maintain Current Conservative Distribution Levels
Northview’s long term target for annual FFO payout ratio is approximately 70%. For the year ended December 31, 2016, fully diluted payout
ratio was 74.1%, or 76.7% excluding Non-recurring Items. Northview’s distribution is sustainable long term.
2017 OUTLOOK
The portfolios acquired in the Transaction are performing as expected and producing top line revenue growth. Northview’s Northern, Central and
Atlantic Canada markets are expected to continue to provide positive organic growth, which partially offset the negative impact that low natural
resource prices continue to have on many of the REIT’s Western Canada markets.
The continued execution of Northview’s VCIs in 2017 will continue to contribute positive NOI growth. The VCIs will continue to support the REIT’s
organic growth in earnings and asset values, contributing to the longer term goal of reducing debt to gross book value to 50% to 55%.
The economic outlook remains uncertain for Western Canada as the economic decline continues to negatively impact properties in these
markets. It is uncertain when natural resource prices will recover to levels where economic activity increases sufficiently to improve demand for
rental accommodations. Northview will continue to invest in our portfolio to optimize its performance and be ready for when demand turns around.
Northview 2016 Annual Report | Page 13
2017 STRATEGIC PRIORITIES
1. Organic Growth
Northview will continue to focus on improving occupancy, monthly rents and operating expense management, which would drive increases in
same door NOI. Continued execution of the VCIs in 2017 is expected to contribute to organic growth.
2. Managing Leverage
The REIT’s long-term target for debt to gross book value is 50% to 55%. With the significant reduction in leverage achieved in 2016, leverage
reduction for the near to mid-term will be achieved through improvements in asset values driven by the successful execution of the VCIs and
developments.
3. Capital Deployment in Support of External Growth
With significant progress on leverage reduction achieved in 2016 through the successful equity offering and asset sales, management will focus
on organic growth, capital recycling and external growth opportunities through developments and limited acquisitions. Proceeds from sale of non-
core assets will be deployed in support of growth through developments and selected acquisitions in Northview’s stronger markets, primarily in
Ontario. Northview will continue to utilize its existing land investments for developments, in addition to recycling selected investments in land to
expand the in-house development program to Ontario.
2016 RESULTS
Select financial information
(thousands of dollars, except per unit amounts)
Total revenue
NOI
NOI margin
Net and comprehensive income
FFO – diluted
FFO per Trust Unit – diluted
FFO payout ratio – diluted
Excluding Non-recurring Items:
FFO – diluted(i)
FFO per Trust Unit – diluted
FFO payout ratio – diluted
2016
332,455
185,529
55.8%
77,475
119,276
$2.21
74.1%
115,331
$2.14
76.7%
2015
217,578
126,699
58.2%
31,852
83,054
$2.34
69.0%
83,054
$2.34
69.0%
2014
187,841
109,607
58.4%
74,264
75,450
$2.37
67.1%
75,450
$2.37
67.1%
Weighted average number of Trust Units outstanding -
diluted (000’s)
Distributions declared to Trust Unitholders
Distributions declared per Trust Unit
31,900
50,615
$1.59
(i) Non-recurring Items for the year ended December 31, 2016, include $7.1 million of insurance proceeds received in the year, partially offset by $1.6 million of lost revenue and $1.6
million of incremental costs relating to the Fort McMurray wildfires, a decrease to diluted FFO of $3.9 million.
35,458
57,312
$1.63
53,962
88,403
$1.63
For the year ended December 31, 2016, basic FFO, basic FFO per Trust Unit, basic FFO payout ratio, and basic weighted average number of units outstanding (000’s) were $117.9
million, $2.23, 73.4%, and 52,810, respectively.
Northview 2016 Annual Report | Page 14
Select information
(thousands of dollars, except per unit amounts)
Total assets
Total liabilities
Total non-current liabilities
Mortgages payable
Debt to gross book value (excluding convertible debentures)
Interest coverage ratio (times)
Debt service coverage ratio (times)
Weighted average mortgage interest rate
Weighted average term to maturity (years)
Weighted average capitalization rate
Occupancy
2016
3,185,672
2,032,452
1,708,411
1,661,532
57.5%
2.98
1.70
3.23%
5.0
6.67%
90.7%
2015
3,132,617
2,083,511
1,390,392
1,359,889
59.2%
3.31
1.86
3.33%
5.0
6.83%
90.3%
2014
1,666,171
829,190
606,543
734,553
48.6%
3.70
2.10
3.67%
5.0
7.97%
91.6%
Number of residential units
Commercial square feet (rounded to nearest thousand)
24,513
1,135,000
24,621
1,143,000
10,910
1,142,000
Portfolio Summary (including joint ventures at 100%) – December 31, 2016
Regions
Ontario
Western Canada
Atlantic Canada
Northern Canada
Quebec
Total
Multi-family
Execusuites
& Hotel
% Portfolio
7,754
7,502
4,152
2,401
2,285
24,094
-
-
142
277
-
419
32%
30%
18%
11%
9%
100%
Portfolio reconciliation (including joint ventures at 100%) – December 31, 2016
(Commercial square footage rounded to the nearest thousand)
Balance, December 31, 2015
Developments completed
Dispositions
Balance, December 31, 2016
Multi-family
24,202
411
(519)
24,094
Execusuites
& Hotel
419
-
-
419
Total
Residential
(units)
7,754
7,502
4,294
2,678
2,285
24,513
Total
Residential
(units)
24,621
411
(519)
24,513
Commercial
(sq. ft.)
-
136,000
225,000
771,000
3,000
1,135,000
Commercial
(sq. ft.)
1,143,000
-
(8,000)
1,135,000
Northview 2016 Annual Report | Page 15
Development activity
Development activity is focused in areas with high asking prices for existing properties and long-term potential for high occupancy and rent
increases. New developments tend to be in existing markets where Northview leverages its local presence and knowledge of the region. This
enables Northview to generate returns 100 to 200 basis points higher than acquiring existing apartments. Northview’s in-house development
expertise provides the flexibility to adjust development activities as market conditions change. In 2017, management is evaluating the disposal of
selected land investments in Western Canada with potential redeployment of proceeds to acquire land for development in stronger markets,
particularly Ontario. Management continues to evaluate development opportunities in Ontario and to date has identified an opportunity where
approximately 100 new units can be developed on an existing site.
The development consisting of 140 units in Airdrie, AB, was completed in March 2016, has reached stabilized occupancy. Total development
costs were $26.1 million with expectations for a stabilized Cap Rate between 7.0% and 7.5%. The fair value of this property increased by $2.2
million or 8% from development cost as at December 31, 2016.
Northview’s first Calgary, AB, development consists of three buildings with 261 total units. Leasing is underway for all three buildings and
occupancy has reached 33% which is in line with expectations. Total development costs were consistent with budget at $46.3 million with
expectations for a stabilized Cap Rate between 7.0% and 7.5%. The fair value of this property has increased by $7.1 million or 15% from
development cost as at December 31, 2016.
During the fourth quarter of 2016, Northview continued the development of the 36 units in Cambridge Bay, NU, with occupancy to commence in
the second quarter of 2017. Total costs are estimated to be $10.5 million with an expected Cap Rate between 10.0% and 10.5%. Through
January 2017, 26 units were pre-leased.
For the year ended December 31, 2016, 4 acres of land were purchased for a total of $5.6 million. Northview holds 49 acres of land for potential
future development, primarily in Western Canada, which would allow for the development of approximately 1,800 units.
Northview 2016 Annual Report | Page 16
FFO calculation
(thousands of dollars, except per unit amounts)
2016
2015
Change
2016
2015
Change
Three months ended
December 31
Year ended
December 31
Net and comprehensive income from operations
Adjustments:
Non-controlling interests
Depreciation of property, plant and equipment
Amortization of other long term assets
Amortization of tenant inducements
Loss on sale of property, plant and equipment
(Increase) decrease in fair value
Bargain purchase gain
Business combination transaction costs
Class B LP Unit distributions recorded as interest
Fair value adjustments for non-controlling interest and
equity investments
FFO basic
Add: Interest on 2019 Debentures
FFO diluted
FFO per Trust Unit – diluted
FFO payout ratio – diluted
Weighted average number of units outstanding:
Basic (000’s)
Effect of dilution:
LTIP units
LTI units
Deferred units
2019 Debentures
Diluted (000’s)
Distributions declared to Trust Unitholders
Distributions declared per Trust Unit
43,968
21,153
108%
77,475
31,852
143%
(139)
1,051
11
107
164
(20,630)
-
43
2,368
115
27,058
313
27,371
$0.49
84.7%
(160)
1,242
148
118
307
14,907
(50,893)
35,277
2,130
142
24,371
221
24,592
$0.53
75.2%
(13%)
(15%)
(93%)
(9%)
(47%)
(238%)
(100%)
(100%)
11%
(19%)
11%
42%
11%
(8%)
10%
(190)
4,179
307
459
722
10,268
-
14,579
9,822
331
117,952
1,324
119,276
$2.21
74.1%
(154)
3,951
594
476
762
55,103
(50,893)
38,959
2,213
(30)
82,833
221
83,054
$2.34
69.0%
23%
6%
(48%)
(4%)
(5%)
(81%)
(100%)
(63%)
344%
n/a
42%
499%
44%
(6%)
5%
54,565
45,540
16%
52,810
35,234
50%
2
167
30
966
55,730
23,188
$0.41
83
-
6
651
46,280
18,493
$0.41
(98%)
n/a
400%
48%
17%
23%
n/a
3
160
23
966
53,962
88,403
$1.63
59
-
1
164
35,458
57,312
$1.63
(95%)
n/a
n/a
489%
52%
51%
n/a
Northview measures its performance by using industry accepted non-GAAP performance metrics such as FFO, which has been calculated in
accordance with the Real Property Association of Canada’s (“RealPAC’s) White Paper. The IFRS measurement most comparable to FFO is net
income for which a reconciliation is provided in this MD&A.
For the year ended December 31, 2016, Northview received insurance proceeds of $7.1 million for the Fort McMurray, AB wildfires, the 2015 fire
in Yellowknife, NT and a property in Fort McMurray, AB. Additionally, Northview incurred $1.6 million of revenue loss and $1.6 million of
incremental costs relating to the Fort McMurray wildfires for the year ended December 31, 2016. These items have been defined as “Non-
recurring Items”, as they are not considered normal operating conditions, and management has presented specific performance metrics excluding
Non-recurring Items where appropriate in this MD&A.
Excluding Non-recurring Items, basic FFO and diluted FFO for the three months ended December 31, 2016 were $26.7 million and $27.0 million,
respectively, increases of 9% and 10%, compared to $24.4 million and $24.6 million for the same periods of 2015, primarily due to the growth in
Northview’s portfolio from the Transaction. On a per unit basis, excluding Non-recurring Items, basic FFO and diluted FFO for Q4 2016 were
$0.49 and $0.48, respectively, compared to $0.54 and $0.53 for the same periods of 2015.
Northview 2016 Annual Report | Page 17
Basic FFO and diluted FFO for the year ended December 31, 2016, were $114.0 million and $115.3 million, respectively excluding Non-recurring
Items, increases of 38% and 39%, compared to $82.8 million and $83.1 million for the same periods of 2015, primarily due to the growth in
Northview’s portfolio from the Transaction. On a per unit basis, excluding Non-recurring Items, basic FFO and diluted FFO for the year ended
December 31, 2016, were $2.16 and $2.14, respectively, compared to $2.35 and $2.34 for the same periods of 2015.
The decrease in FFO on a per unit basis in the quarter and the year was driven primarily by lower operating performance in natural resource
based markets, dilution from the equity offering completed in October 2016 and higher interest expense from additional mortgages.
Basic FFO payout ratio and diluted FFO payout ratio for the three months ended December 31, 2016, were 85.1% and 85.9%, respectively
excluding Non-recurring Items, compared to 75.9% and 75.2% for the same period of 2015. For the year ended December 31, 2016, basic FFO
payout ratio and diluted FFO payout ratio were 75.9% and 76.7%, respectively excluding Non-recurring Items, compared to 69.2% and 69.0% for
the same period of 2015. The increase in FFO payout ratio in 2016 was mainly due to weak operating conditions in resource based markets, the
recent equity offering and asset sales completed in 2016.
2016 OPERATING RESULTS
The following section provides a comparison of the financial results for the three months and year ended December 31, 2016, with the same
period of 2015. Operations include residential, commercial, execusuites and hotel business segments.
Management presents geographical segment reporting for Ontario, Western Canada, Atlantic Canada, Northern Canada, and Quebec. The
Ontario and Quebec regions include only the operations of properties located in those respective provinces. The Western Canada segment
includes the operations of properties located in Alberta, British Columbia, and Saskatchewan. The Northern Canada segment includes the
operations of properties located in the Northwest Territories and Nunavut. The Atlantic Canada segment includes the operations of properties
located in Newfoundland and Labrador, New Brunswick, and Nova Scotia.
Rental revenue
(thousands of dollars)
Multi-family residential
Execusuites and hotel
Commercial
Total
Three months ended December 31
Year ended December 31
2016
69,986
2,843
8,700
81,529
2015
59,389
2,837
8,509
70,735
Change
18%
-
2%
15%
2016
286,498
12,683
33,274
332,455
2015
Change
172,361
11,932
33,285
217,578
66%
6%
-
53%
Rental revenue in the multi-family business segment increased by 18% and 66% for the three months and year ended December 31, 2016,
respectively, compared to the same periods of 2015. The increase was due to the completion of the Transaction on October 30, 2015, and the
contribution from developments and VCIs completed in 2016. Rental revenues in the execusuites and hotel, and commercial business segments
for the three months and year ended December 31, 2016, were consistent with the same periods of 2015.
Operating expenses
(thousands of dollars)
Operating expenses
Utilities
Property taxes
Salaries and benefits
Maintenance
Cleaning
Other expenses
Total
Three months ended December 31
Year ended December 31
% of Total
Operating
Expense
27%
21%
14%
11%
5%
22%
100%
% of Total
Operating
Expense
27%
20%
13%
15%
5%
20%
100%
2015
8,466
6,356
4,067
4,769
1,626
6,098
31,382
2016
10,158
8,011
5,121
4,273
1,706
8,257
37,526
% of Total
Operating
Expense
27%
22%
14%
9%
4%
24%
100%
2016
38,999
32,664
20,980
12,958
6,091
35,234
146,926
% of Total
Operating
Expense
26%
18%
14%
13%
7%
22%
100%
2015
23,312
15,976
13,085
11,806
6,232
20,468
90,879
Northview 2016 Annual Report | Page 18
The increase in operating expenses for the three months and year ended December 31, 2016, compared to the same periods of 2015, is due to
the completion of the Transaction on October 30, 2015. For the year ended December 31, 2016, property taxes as a percentage of total operating
costs increased to 22%, from 18% for the same period of 2015. The increase was mainly due to property tax rates being higher in the Ontario
portfolio acquired in the Transaction.
Net operating income
Northview uses NOI as a key indicator to measure the financial performance of a region or business segment. NOI is an additional GAAP
measure. Refer to the audited consolidated statements of net and comprehensive income for NOI calculation.
NOI by business segment
(thousands of dollars)
Multi-family residential
Execusuites and hotel
Commercial
Total
Three months ended December 31
Year ended December 31
2016
37,844
1,128
5,031
44,003
2015
33,263
1,236
4,854
39,353
Change
14%
(9%)
4%
12%
2016
159,250
5,826
20,453
185,529
2015
Change
100,884
5,300
20,515
126,699
58%
10%
-
46%
Multi-family NOI increased 14% and 58% for the three months and year ended December 31, 2016, respectively, primarily driven by the
increased portfolio from the Transaction, compared to the same periods of 2015.
NOI by region
(thousands of dollars)
Ontario
Western Canada
Atlantic Canada
Northern Canada
Quebec
Total
Three months ended December 31
Year ended December 31
2016
12,068
10,708
5,695
13,247
2,285
44,003
2015
7,844
11,104
5,083
13,872
1,450
39,353
Change
54%
(4%)
12%
(5%)
58%
12%
2016
48,856
43,639
23,592
59,857
9,585
2015
7,844
46,157
16,070
54,604
2,024
185,529
126,699
Change
523%
(5%)
47%
10%
374%
46%
The portfolios acquired in the Transaction contributed revenue, operating expense, and NOI of $34.6 million, $17.3 million, and $17.3 million,
respectively, for the fourth quarter of 2016. For the year ended December 31, 2016, the portfolios acquired in the Transaction contributed
revenue, operating expense, and NOI of $139.9 million, $68.1 million, and $71.8 million, respectively.
Same door operating performance
Same door operating performance is calculated as the percentage change in NOI for the current quarter, compared to the same period of the
prior year, for properties owned by Northview for both the current and previous reporting periods. For the purpose of this discussion, properties
that were owned by Northview on or before January 1, 2015, are included in the calculation. Accordingly, no properties acquired as part of the
Transaction have been included. Same door NOI for the three months ended December 31, 2016, decreased $1.6 million or 5.7% compared to
the same period of 2015, led by a 23.1% decrease in Alberta due to lower occupancy and rental rates resulting from current economic conditions
in the region. Same door results for the second, third and fourth quarters of 2016 exclude Non-recurring Items.
Northview 2016 Annual Report | Page 19
Same door NOI quarterly change by business segment
Business Segment
Multi-family
Execusuites and Hotel
Commercial
Q1
2015
(1.1%)
(6.8%)
12.1%
Q2
2015
(2.6%)
30.1%
14.1%
Q3
2015
(5.0%)
1.5%
(8.9%)
Q4
2015
(4.4%)
4.1%
0.8%
2015
(3.3%)
6.5%
4.6%
Q1
2016
(3.5%)
39.5%
2.3%
Q2
2016*
(12.4%)
(11.9%)
(3.9%)
Q3
2016*
(8.6%)
22.0%
0.2%
Q4
2016*
(6.2%)
(8.7%)
3.6%
2016*
(7.9%)
9.9%
(0.3%)
Total
*Represents same door NOI excluding Non-recurring Items. Including Non-recurring Items, Q4 2016 multi-family and total same door NOI decreased 4.4% and
4.3%, respectively, compared to the same period of 2015; for the year ended December 31, 2016, multi-family and total same door NOI decreased 3.3% and 2.4%,
respectively, compared to the same period of 2015.
(11.0%)
(5.7%)
(5.9%)
(1.6%)
(5.3%)
(5.4%)
(0.8%)
(3.1%)
0.9%
1.2%
The same door NOI for the multi-family business segment for the three months and year ended December 31, 2016, decreased by 6.2% and
7.9%, respectively, compared to the same periods of 2015. The decline in same door NOI in the multi-family business segment is due to weak
economic conditions and resulting vacancy in resource based markets. Reduction to market rents and lease incentives were utilized in response
to the declines in occupancy in these markets. The diversity in the portfolios acquired in the Transaction has partially reduced the impact of
natural resource based markets on NOI.
The same door NOI for the execusuites and hotel business segment in the fourth quarter of 2016 decreased by 8.7% compared to the same
period of 2015. The decline in same door NOI is mainly due to lower occupancy throughout the portfolio and higher operating expenses in the
hotel property in Iqaluit, NU during the fourth quarter of 2016. The same door NOI for the year ended December 31, 2016 increased 9.9%
compared to the same period of 2015. The increase in same door NOI is mainly due to higher average occupancy in 2016 than in 2015.
The same door NOI for the commercial business segment for the three months ended December 31, 2016, increased by 3.6%, compared to the
same period of 2015. The same door NOI for the year ended December 31, 2016, decreased by 0.3%, compared to the same period of 2015.
Same door NOI for the commercial business segment in the current year is consistent with prior year.
VCIs
In addition to broadening portfolio diversification, a key driver of the Transaction completed in 2015 was Northview’s enhanced ability to
organically grow FFO. Management has identified several areas that will drive FFO growth over the next three to five years:
(i) Execute high-end renovation program: Management identified properties suitable for significant renovations to increase rental
rates. These renovations involve extensive upgrades to many of the properties’ common areas and high-end suite improvements,
including enhanced landscaping and complete bathroom and kitchen renovations. The target for post renovation increase in rents
is approximately $200 to $300 per month and provides a return of 15% to 20% on the additional capital invested.
(ii) Address below market rents: At the time of the Transaction, monthly average market rents in the portfolios acquired were on
average $32 below market rents. Management is in the process of converting these rents to market levels on turnover, with the
completion of standard renovations.
(iii) Sub-metering program: The sub-metering program in Ontario provides individual electricity meters for each suite, which allows
tenants to pay their electricity bill directly. On tenant turnover, this reduces the utility costs to the landlord, which results in
estimated average monthly savings of $40 per suite. Northview does not incur any cost related to the sub-metering program as
the installation cost of sub-metering is incurred by the third-party energy providers and it is not reimbursed by Northview.
(iv) Above guideline increases: The significant capital that was previously invested in the assets acquired in the Transaction has
enabled management to submit applications to the Ontario Landlord and Tenant Board to increase rents by more than the
regulated annual increase.
(v) Property management internalization: Northview has a history of successfully managing its own properties directly. Management
is currently assessing the options for internalizing the remaining externally managed properties that were acquired in the Transaction.
These properties are located in Nova Scotia, New Brunswick, Quebec, and Ontario and management expects that some of the
remaining properties to be internalized by the fourth quarter of 2017.
Northview 2016 Annual Report | Page 20
The progress made on the VCIs in 2016 was on target with management’s expectations. The following summarizes the progress made in 2016.
VCIs
Initial Five-Year Target
2016 Progress
(thousands of dollars, except
unit amounts)
High-end renovation
program
Annualized NOI
Increase
5,800
Units
Completed
268
Annualized NOI
Increase
614
Units
1,754
Below market rents
n/a
5,200
n/a
1,644
Sub-metering program
5,221
2,500
333
Above guideline increases
n/a
800
n/a
Total
Assumed capitalization rate
Estimated value creation
14,300
5.5%
260,000
181
312
2,751
5.5%
50,000
Comments
The program is achieving an rate of
return of
approximately 15%, with average monthly rent
increase of approximately $200.
Excluding the other VCIs and guideline increases,
management has achieved an $11 increase in
average monthly rents, or $22 increase in average
monthly rent including guideline increases.
As of December 31, 2016, 3,471 units have installed
sub-metering and 1,497 units have enrolled.
In 2016, the increase of average monthly rent of the
including the
2,851 units is approximately 4%,
guideline increase of 2% in Ontario.
Northview internalized the management of approximately 7,600 units in Ontario with annualized NOI increase of $2.1 million in 2016. The
internalization of the remaining 5,086 units in Nova Scotia, New Brunswick, Quebec, and Ontario is being evaluated for completion in the fourth
quarter of 2017.
Multi-family operations
Occupancy by region
Ontario
Western Canada
Atlantic Canada
Northern Canada
Quebec
Overall
Q4 2015
96.2%
84.3%
93.1%
96.5%
90.6%
91.5%
2015
96.2%
84.8%
93.1%
95.8%
92.5%
90.3%
Q1 2016
Q2 2016
Q3 2016
Q4 2016
95.9%
81.9%
92.9%
94.6%
90.7%
90.7%
95.9%
81.3%*
93.5%
95.3%
91.4%
90.8%
96.2%
82.1%
93.0%
94.9%
91.4%
91.1%
96.1%
81.3%
92.0%
93.9%
92.5%
90.4%
2016
96.0%
81.6%
92.8%
94.7%
91.4%
90.7%
*Western Canada occupancy for Q2 2016 has been adjusted to exclude the impact of the mandatory evacuation of Fort McMurray, AB, due to the wildfires.
Occupancy is a measure used by management to evaluate the performance of its properties on a comparable basis.
Northview 2016 Annual Report | Page 21
Ontario operations
Residential Occupancy
Q1 2015
Q2 2015
Q3 2015
Q4 2015
Q1 2016
Q2 2016
Q3 2016
Q4 2016
Southw estern
Eastern
Toronto and Area
Ontario
Total number of units
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
95.1%
97.6%
97.3%
96.2%
8,235
94.8%
96.8%
97.5%
95.9%
8,235
94.5%
97.1%
97.7%
95.9%
8,235
95.5%
96.3%
97.6%
96.2%
7,786
95.6%
96.4%
96.8%
96.1%
7,754
Number of
Units
4,313
1,685
1,756
7,754
Occupancy for the Ontario region was 96.1% for the three months ended December 31, 2016, compared with 96.2% in Q3, 2016 and in the same
period of 2015. The Ontario portfolio continues to deliver high occupancy and average monthly rent increases. Occupancy is temporarily
impacted by the high-end renovation program, which requires units to be vacant for 30 days to complete the upgrades. During the three months
ended December 31, 2016, 59 high-end renovation units were completed.
Residential Operating Results
Three months ended December 31
Year ended December 31
(thousands of dollars)
Revenue
Operating expenses
Net operating income
Net operating income margin
2016
23,369
(11,301)
12,068
51.6%
2015
16,089
(8,245)
7,844
48.8%
Change
45%
37%
54%
6%
2016
95,076
(46,220)
48,856
51.4%
2015
16,089
(8,245)
7,844
48.8%
Change
491%
461%
523%
5%
Revenues for the three months and year ended December 31, 2016, were $23.4 million and $95.1 million, respectively, compared to $16.1 million
for the same periods of 2015. Operating expenses for the three months and year ended December 31, 2016, were $11.3 million and $46.2 million,
respectively, compared to $8.2 million for the same periods of 2015.
NOI for the three months and year ended December 31, 2016, were $12.1 million and $48.9 million, respectively, compared to $7.8 million for the
same periods of 2015. The increase in revenues, operating expenses and NOI for the three months and year ended December 31, 2016,
compared to the same periods of 2015, was due to only two months of operations for the Ontario region included in the three months and year
ended December 31, 2015.
NOI margins for the three months and the year ended December 31, 2016, were 51.6% and 51.4%, respectively, compared to 48.8% for the
same periods of 2015. The increase in NOI margin was largely attributable to the cost savings from internalization.
Western Canada operations
Residential Occupancy
Q1 2015
Q2 2015
Q3 2015
Q4 2015
Q1 2016
Q2 2016
Q3 2016
Q4 2016
Units
Alberta
British Columbia
Saskatchew an
Western Canada
Total number of units
84.5%
86.6%
92.2%
85.8%
6,089
85.2%
82.3%
92.4%
84.7%
6,207
83.3%
84.4%
94.2%
84.5%
6,317
81.8%
87.0%
94.5%
84.3%
7,101
78.5%
86.4%
90.9%
81.9%
7,241
77.5%
85.5%
95.1%
81.3%
7,241
80.0%
83.5%
94.0%
82.1%
7,241
77.8%
86.2%
90.6%
81.3%
7,502
4,306
2,767
429
7,502
Number of
Occupancy for the Western Canada region was 81.3% for the three months ended December 31, 2016, compared to 82.1% in Q3, 2016 and
84.3% in the same period of 2015. The decrease in occupancy is largely attributed to the lower demand for rental accommodation in Lloydminster,
AB, a resource based market and Saskatchewan. Management expects the weakness in the Western Canada region to continue in light of the
economic decline in Western Canada resource based markets, and is actively managing to maintain current occupancy levels through lease
incentives and reduced market rents.
The occupancy in Fort McMurray, AB, has improved by 3.7% to 80.1% since the third quarter of 2016. Dawson Creek and Chetwynd, BC, have
also seen improvements as a result of a recent increase in natural gas and mining operations in the region. The recently completed Airdrie, AB,
development has continued to experience strong demand and reached stabilized occupancy. Occupancy in the Calgary, AB, development
commenced in the fourth quarter of 2016, and leasing to date has been in line with expectation.
Northview 2016 Annual Report | Page 22
Residential Operating Results
Three months ended December 31
Year ended December 31
(thousands of dollars)
Revenue
Operating expenses
Net operating income
Net operating income margin
2016
18,910
(8,414)
10,496
55.5%
2015
18,674
(7,207)
11,467
61.4%
Change
1%
17%
(8%)
(10%)
2016
76,585
2015
75,683
(33,828)
(30,916)
42,757
55.8%
44,767
59.2%
Change
1%
9%
(4%)
(6%)
Revenues for the three months and year ended December 31, 2016, were $18.9 million and $76.6 million, respectively, compared to $18.7 million
and $75.7 million for the same periods of 2015. Excluding the impact of Non-recurring Items, revenue for the quarter was $18.5 million, and $74.7
million for the year ended December 31, 2016. When excluding Non-recurring Items, revenue for the fourth quarter of 2016 was consistent with
revenue for the same period of 2015, and revenue for the year ended December 31, 2016 decreased $1.0 million, compared to revenue for the
same period of 2015. The decrease was mainly due to lower rental revenue levels in the resource based markets in Alberta and northern British
Columbia. These decreases were partially offset by the southern Alberta portfolio that was acquired in the Transaction, along with the newly
developed properties in Alberta.
Operating expenses for the three months and the year ended December 31, 2016, were $8.4 million and $33.8 million, respectively, compared to
$7.2 million and $30.9 million for the same periods of 2015. Excluding the impact of Non-recurring Items, operating expenses for the quarter was
$8.4 million and $32.2 million for the year ended December 31, 2016. While the total number of units in Western Canada in 2016 increased 6%
from the fourth quarter of 2015, through the management of controllable costs, operating expenses for the year ended December 31, 2016
increased by only 4% compared to the same period of 2015 when excluding Non-recurring Items.
For the fourth quarter of 2016, revenues, operating expenses, and NOI for the portfolios acquired in the Transaction were $1.8 million, $1.1
million, and $0.7 million, respectively. For the year ended December 31, 2016, revenues, operating expenses, and NOI for the portfolios acquired
in the Transaction were $7.4 million, $4.0 million, and $3.4 million, respectively.
Excluding Non-recurring Items, NOI for the three months and the year ended December 31, 2016, were $10.1 million and $42.5 million,
respectively, compared to $11.5 million and $44.8 million for the same periods of 2015.
Excluding Non-recurring Items, NOI margin for the three months ended December 31, 2016, was 54.6%, compared to 61.4% in the same period
of 2015, and NOI margin for the year ended December 31, 2016, was 56.8%, compared to 59.2% in the same period of 2015. The decrease in
NOI and NOI margins is due to declining revenues in resource dependent markets in Alberta and northern British Columbia.
Atlantic Canada operations
Residential Occupancy
Q1 2015
Q2 2015
Q3 2015
Q4 2015
Q1 2016
Q2 2016
Q3 2016
Q4 2016
New foundland and Labrador
94.4%
93.7%
91.3%
Nov a Scotia
New Brunsw ick
Atlantic Canada
Total number of units
-
-
-
-
-
-
94.4%
1,728
93.7%
1,728
91.3%
1,728
90.7%
97.1%
95.0%
93.1%
4,179
89.9%
96.7%
94.3%
92.9%
4,179
90.5%
96.5%
95.5%
93.5%
4,151
89.3%
96.5%
95.4%
93.0%
4,151
88.1%
94.9%
95.9%
92.0%
4,152
Number of
Units
1,728
1,286
1,138
4,152
Occupancy for the Atlantic Canada region was 92.0% for the three months ended December 31, 2016, compared to 93.0% in Q3, 2016 and
93.1% in the same period of 2015. The rental market in St. John’s, NL, has softened due to local economic weakness and new supply following
the recent completion of approximately 500 purpose built student housing and multifamily units. Occupancy in St. John’s, NL, was 91.5% for the
three months ended December 31, 2016, compared to 94.3% in Q3, 2016. Management expects the weakness in the St. Johns, NL, market to
continue in light of new supply and current market conditions, and is actively managing to maintain current occupancy levels, through lease
incentives and an active lease renewal program. The higher occupancy in the Nova Scotia and New Brunswick portfolios acquired in the
Transaction have increased the stability of the Atlantic Canada region.
Northview 2016 Annual Report | Page 23
Residential Operating Results
Three months ended December 31
Year ended December 31
(thousands of dollars)
Revenue
Operating expenses
Net operating income
Net operating income margin
2016
8,932
(4,440)
4,492
50.3%
2015
7,512
(3,684)
3,828
51.0%
Change
19%
21%
17%
(1%)
2016
36,055
(17,666)
18,389
51.0%
2015
20,095
(9,093)
11,002
54.7%
Change
79%
94%
67%
(7%)
Revenues for the three months and year ended December 31, 2016, were $9.0 million and $36.1 million, respectively, compared to $7.5 million
and $20.1 million for the same periods of 2015. The increase in revenue for the three months and year ended December 31, 2016, is due to the
portfolios acquired in the Transaction, which contributed $5.0 million and $19.9 million in each period, respectively. The additional revenue from
the portfolios acquired in the Transaction was partially offset by a decrease in rental revenue in Newfoundland and Labrador.
Operating expenses for the three months and year ended December 31, 2016, were $4.5 million and $17.7 million, respectively, compared to
$3.7 million and $9.1 million during the same periods of 2015. The increase is due to the portfolios acquired in the Transaction, where expenses
were $2.7 million and $10.4 million in each period, respectively.
NOI for the three months and year ended December 31, 2016, were $4.5 million and $18.4 million, respectively, compared to $3.8 million and
$11.0 million during the same periods of 2015. The increase in the three months and year ended December 31, 2016, is due to the portfolios
acquired in the Transaction, which contributed $2.3 million and $9.5 million in each period, respectively.
The NOI margin for the three months ended December 31, 2016, was 50.3%, compared to 51.0% in the same period of 2015. NOI margin for the
year ended December 31, 2016, was 51.0%, compared to 54.7% in the same period of 2015. The decrease in NOI margins is due to the Nova
Scotia and New Brunswick portfolios acquired in the Transaction operating at lower margins than Newfoundland and Labrador.
Northern Canada operations
Residential Occupancy
Northw est Territories
Nunav ut
Northern Canada
Total number of units
Q1 2015
88.8%
96.4%
93.1%
2,425
Q2 2015
93.8%
97.9%
96.1%
2,425
Q3 2015
96.2%
98.3%
97.4%
2,423
Q4 2015
94.9%
97.7%
96.5%
2,402
Q1 2016
91.7%
96.8%
94.6%
2,402
Q2 2016
93.6%
96.6%
95.3%
2,402
Q3 2016
92.6%
96.6%
94.9%
2,402
Q4 2016
91.2%
95.9%
93.9%
2,401
Units
1,309
1,092
2,401
Number of
Occupancy for the Northern Canada region was 93.9% for the three months ended December 31, 2016, compared to 94.9% in Q3, 2016 and
96.5% in the same period of 2015. The decrease in occupancy for the three months ended December 31, 2016, was mainly due to the occupancy
decrease in Yellowknife, NT, and Inuvik, NT. The Yellowknife, NT, market has been negatively affected by a reduction in corporate and
construction leases. Further, in Inuvik, NT, leasing has slowed due to local infrastructure projects being completed, which has negatively affected
the market. Nunavut continues to be a strong performing market with high market rents and occupancy of 95.9% in Q4, 2016.
Residential Operating Results
Three months ended December 31
Year ended December 31
(thousands of dollars)
Revenue
Operating expenses
Net operating income
Net operating margin
2016
14,057
(5,554)
8,503
60.5%
2015
13,961
(4,656)
9,305
66.6%
Change
1%
19%
(9%)
(9%)
2016
60,089
2015
56,401
(20,426)
(21,071)
39,663
66.0%
35,330
62.6%
Change
7%
(3%)
12%
5%
Revenues for the three months ended December 31, 2016, were $14.0 million, consistent with the same period of 2015. Revenues were $60.1
million for the year ended December 31, 2016, compared to $56.4 million for the same period of 2015. When excluding the impact of $3.6 million
of Non-recurring Items of insurance proceeds received in the first quarter of 2016, which related to a Yellowknife, NT, property destroyed by a fire
in the second quarter of 2015, revenues for the year ended December 31, 2016, were $56.5 million, consistent with the same period of 2015.
Northview 2016 Annual Report | Page 24
Operating expenses for the three months ended December 31, 2016, were $5.6 million, compared to $4.7 million for the same period of 2015.
The increase in the three months ended December 31, 2016, was mainly due to higher utility usage as a result of colder weather conditions,
compared to the same period of 2015. Operating expenses were $20.4 million for the year ended December 31, 2016, compared to $21.1 million
in same period of 2015. The decrease in operating expenses for the year ended December 31, 2016, compared to the same period of 2015 is
due to utility savings from lower average rates and usage on an annual basis.
NOI for the three months ended December 31, 2016, was $8.5 million, compared to $9.3 million for the same period of 2015. The decrease in the
three months ended December 31, 2016, was mainly due to higher utility expenses as a result of colder weather conditions, compared to the
same period of 2015. NOI was $39.7 million for the year ended December 31, 2016, compared to $35.3 million for the same period of 2015. The
increase in NOI for the year ended December 31, 2016, compared to the same period of 2015 is due to a combination of insurance proceeds and
utility cost savings.
NOI margin for the three months ended December 31, 2016, was 60.5%, compared to 66.6% for the same period of 2015. The decrease in NOI
margins for the three months ended December 31, 2016, was mainly due to higher utility expenses as a result of colder weather conditions,
compared to the same period of 2015. NOI margin for the year ended December 31, 2016, when excluding insurance proceeds of $3.6 million,
was 63.8% compared to 62.6% for the year ended December 31, 2015. The increase in NOI margin is due to cost savings and maintaining
revenue levels.
Quebec operations
Residential Occupancy
Montreal
Sept-Iles
Quebéc
Total number of units
Q1 2015
-
99.6%
99.6%
161
Q2 2015
-
99.0%
99.0%
161
Q3 2015
-
99.3%
99.3%
161
Q4 2015
89.7%
99.4%
90.6%
2,285
Q1 2016
90.2%
97.8%
90.7%
2,285
Q2 2016
91.0%
98.1%
91.4%
2,285
Q3 2016
90.9%
98.4%
91.4%
2,285
Q4 2016
92.1%
97.6%
92.5%
2,285
Units
2,124
161
2,285
Number of
Occupancy for the Quebec region was 92.5% for the three months ended December 31, 2016, compared to 91.4% in Q3, 2016 and 90.6% in the
same period of 2015. Occupancy in the Montreal, QC, portfolio increased to 92.1 % in Q4, 2016, from 90.9% in Q3, 2016 and 89.7% in the same
period of 2015. The improvement in Montreal, QC, occupancy is a result of improved occupancy at a large complex in St. Laurent. Vacancy at
this property improved by 400 basis points in Q4, 2016 compared to Q4, 2015. Sept-Iles, QC, continues to be a strong performing market for
Northview with occupancy of 97.6% in Q4, 2016.
Residential Operating Results
Three months ended December 31
Year ended December 31
(thousands of dollars)
Revenue
Operating expenses
Net operating income
Net operating income margin
2016
4,718
(2,433)
2,285
48.4%
2015
3,176
(1,726)
1,450
45.7%
Change
49%
41%
58%
6%
2016
18,694
(9,109)
9,585
51.3%
2015
4,175
(2,151)
2,024
48.5%
Change
348%
323%
374%
6%
Revenues for the three months and year ended December 31, 2016, were $4.7 million and $18.7 million, respectively, compared to $3.2 million
and $4.2 million in the same periods of 2015. The increase was due to the portfolio acquired in the Transaction, which contributed $4.4 million
and $17.4 million in the three months and year ended December 31, 2016, respectively.
Operating expenses in the three months and year ended December 31, 2016, were $2.4 million and $9.1 million, respectively, compared to $1.7
million and $2.2 million in the same periods of 2015. The increase was due to the portfolio acquired in the Transaction, which incurred $2.2 million
and $8.2 million in the three months and year ended December 31, 2016, respectively. Expenses are consistent with management’s expectations
for the year.
NOI for the three months and year ended December 31, 2016, were $2.3 million and $9.6 million, respectively, compared to $1.5 million and $2.0
million during the same periods of 2015. The increase was due to the portfolios acquired in the Transaction, which contributed $2.2 million and
$9.2 million in each period, respectively.
The NOI margin for the three months and year ended December 31, 2016, were 48.4% and 51.3%, respectively, compared to 45.7% and 48.5%
in the same periods of 2015. The increase in NOI margin in the current year is due to cost savings and higher revenue, as a result of improved
occupancy in the region.
Northview 2016 Annual Report | Page 25
Commercial operations
Commercial Operating Results
Three months ended December 31
Year ended December 31
(thousands of dollars)
Revenue
Operating expenses
Net operating income
2016
8,700
(3,669)
5,031
2015
8,509
(3,655)
4,854
Change
2%
-
4%
2016
33,274
2015
33,285
(12,821)
(12,770)
20,453
20,515
Change
-
-
-
Northview’s commercial properties are located primarily in regions where Northview also has multi-family operations. Commercial properties
consist of office, warehouse, retail, and mixed-use buildings, which are largely leased to federal or territorial governments and other quality
commercial tenants under long-term leases. NOI for the three months and year ended December 31, 2016, were $5.0 million and $20.5 million,
respectively, compared to $4.9 million and $20.5 million during the same periods of 2015. NOI in the current year is consistent with prior year.
Commercial portfolio summary (including joint ventures at 100%) – December 31
Region
Commercial sq. ft.
Three months ended December 31 Year ended December 31
$ Average Rent/sq. ft.
Atlantic Canada
Northern Canada
Quebec
Western Canada
Total / Average
2016
225,000
771,000
3,000
136,000
1,135,000
2015
225,000
779,000
3,000
136,000
1,143,000
2016
18.87
23.96
21.95
12.20
22.97
2015
17.86
24.56
21.89
14.88
21.94
2016 2015
18.84 17.86
23.98 24.56
21.95 21.89
13.22 14.88
21.69 21.94
Commercial occupancy was 95.5% for the year ended December 31, 2016, compared to 96.7% for the same period of 2015. There was
approximately 169,000 square feet of commercial space with leases renewing in 2016, of which approximately 120,000 square feet has been
renewed as of December 31, 2016. The increase in vacancy was mainly due to a lease expiring on a warehouse in Ft. Nelson, BC during the
fourth quarter of 2016.
For the three months and year ended December 31, 2016, the average rents per square foot were $22.97 and $21.69, respectively, compared to
$21.94 for the same periods of 2015. The increase in the average rent per square foot in the Atlantic Canada and Quebec regions was due to
lease renewals and new leases. The decrease in the average rent per square foot in the Northern Canada and Western Canada regions was due
to the sale of a property in Inuvik, NT in 2016, and the sale of a warehouse in Redcliff, AB in 2015, respectively.
Northview has 96,000 commercial square feet maturing in 2017.
Execusuites and hotel operations
Execusuites Operating Results
Three months ended December 31
Year ended December 31
(thousands of dollars)
Revenue
Operating expenses
Net operating income
2016
2,843
(1,715)
1,128
2015
2,837
(1,601)
1,236
Change
-
7%
(9%)
2016
12,683
(6,857)
5,826
2015
11,932
(6,632)
5,300
Change
6%
3%
10%
Northview operates five execusuite and hotel properties: one in Yellowknife, NT; two in Iqaluit, NU; one in St. John’s, NL; and a 50% joint venture
in Inuvik, NT. The execusuite properties consist of four apartment style properties, which are rented for both short and long-term stays. The hotel
property, located in Iqaluit, NU, is a full service hotel with food and beverage operations that are leased to an independent operator.
For the three months ended December 31, 2016, the execusuites and hotel operated at an average occupancy of 52.0%, compared to 52.2% for
the same period of 2015. For the year ended December 31, 2016, the execusuites and hotel operated at an occupancy of 57.3%, compared to
52.2% for the same period of 2015.
Northview 2016 Annual Report | Page 26
NOI for the three months and year ended December 31, 2016, were $1.1 million and $5.8 million, respectively, compared to $1.2 million and $5.3
million during the same periods of 2015. The decline in NOI during the fourth quarter of 2016 is mainly due to lower occupancy throughout the
portfolio and higher operating expenses in the hotel property in Iqaluit, NU. The increase in NOI for the year ended December 31, 2016 is mainly
due to higher revenue from renovated suites returning to inventory at the execusuite property in St. John’s, NL, and higher occupancy in the
properties in Yellowknife, NT, and Iqaluit, NU.
Other expenses (income)
(thousands of dollars)
Financing costs
Administration
Depreciation and amortization
Loss on sale of property, plant and
equipment
Equity income from joint ventures
Bargain purchase gain
Business combination transaction costs
Unrealized fair value changes
Total
Financing costs
Three months ended December 31
Year ended December 31
2016
16,961
2,533
1,180
164
(216)
-
43
(20,630)
35
2015
14,501
2,899
1,408
307
(206)
(50,893)
35,277
14,907
18,200
Change
17%
(13%)
(16%)
(47%)
5%
n/a
(100%)
(238%)
(100%)
2016
68,552
9,830
4,967
722
(864)
-
14,579
10,268
108,054
2015
37,957
8,999
5,030
762
(1,070)
(50,893)
38,959
55,103
94,847
Change
81%
9%
(1%)
(5%)
(19%)
n/a
(63%)
(81%)
14%
Financing costs consist of mortgage interest, deferred financing costs, interest expense on credit facilities, interest expense on Class B LP Units,
and other interest expense. Financing costs were $17.0 million and $68.6 million for the three months and year ended December 31, 2016,
respectively, an increase of 17% and 81% from the same periods of 2015. The increase was a result of the $350 million Bridge Facility used to
fund part of the Transaction and additional mortgages assumed. Higher debt balances were partially offset by the decrease in the weighted
average interest rate to 3.23% at December 31, 2016, from 3.33% at December 31, 2015.
Administration
Administration expense for the three months ended December 31, 2016 was $2.5 million, a decrease of 13% compared to the same period of
2015. Administration expense for the year ended December 31, 2016 was $9.8 million, an increase of 9% compared to the same period of 2015.
The increase was mainly due to additional staff and related costs retained as part of the Transaction, an increase in professional fees and bank
charges, which were partially offset by lower variable incentive compensation costs.
Business combination transaction costs
The costs recorded for business combinations for the three months and year ended December 31, 2016, were costs incurred in the current year
related to the completion of the Transaction on October 30, 2015.
Unrealized fair value changes
(thousands of dollars)
Expense (income)
Unrealized fair value change to investment properties
Sustaining CAPEX
Interest rate swap
2019 Debentures
Unit based payments
Class B LP Units
Net unrealized fair value decrease (increase)
Three months ended
December 31
Twelve months ended
December 31
2016
2015
Change
2016
2015
Change
(21,860)
12,999
(904)
(253)
(87)
(10,525)
(20,630)
1,183
21,462
234
(460)
(166)
(7,346)
14,907
n/a
(39%)
(486%)
(45%)
(48%)
43%
(238%)
(47,779)
44,551
(16)
575
302
12,635
10,268
8,391
54,910
234
(460)
(351)
(7,621)
55,103
(669%)
(19%)
(107%)
(225%)
(186%)
(266%)
(81%)
Northview 2016 Annual Report | Page 27
Management monitors certain trigger events that could indicate a change in an investment property’s fair market value, such as a change in
market conditions, added competition through new supply, sustained changes in market occupancy or rental rates, recent transactions,
independent appraisals, or a long-term change in a property’s NOI.
During 2016, Northview achieved a fair value increase on investment properties of $54 million including $46 million in Ontario and $9 million for
the newly developed properties in Alberta. Of the total $54 million fair value increase achieved in 2016, the unrealized fair value increase was $48
million. In addition, there was a fair value increase in Atlantic Canada, Northern Canada, and Quebec of $34 million, offset by a fair value
decrease in resource based markets of $35 million. These fair value increases reflect the positive operating conditions in Ontario and Northview’s
ability to add value through its development projects.
The decrease in sustaining CAPEX for the three months and year ended December 31, 2016, when compared to the same periods of 2015, is
mainly due to the completion of the “Street to Suite” capital program in 2015.
Class B LP Units are marked to market each reporting period, which is equal to the trading price of Northview Trust Units, with the change in
value being recorded to unrealized fair value gain or loss.
Capital improvements and sustaining CAPEX
(thousands of dollars, except per unit amounts)
Capital improvements
Sustaining CAPEX
Total
Number of multi-family units
Sustaining CAPEX per multi-family unit
Three months ended December 31
Year ended December 31
2016
506
12,999
13,505
24,094
540
2015
330
21,462
21,792
24,202
887
2016
5,700
44,551
50,251
24,094
1,849
2015
3,783
54,910
58,693
24,202
2,269
Capital improvements are expenditures associated with extending the economic life or improving the operating efficiency of the properties, other
than ordinary repairs and maintenance. The high-end renovation program currently underway in the portfolios acquired in the Transaction is
considered to be capital improvements, as the units are being upgraded with amenities exceeding their original condition and the program
enhanced the earnings of the units.
Sustaining CAPEX represents ongoing expenditures required to maintain the operating efficiency of Northview’s portfolio. These include
expenditures to maintain common areas, HVAC systems, building envelopes, investments in boilers, expenditures to reduce energy consumption,
and to refurbish units on resident turnover. Northview’s focus on maintaining the quality of its multi-family buildings through its “Street to Suite”
program was completed in 2015. Of the total $54.9 million Sustaining CAPEX for the year ended December 31, 2015, $23.8 million was related to
the “Street to Suite” program. Sustaining CAPEX per unit for the three months and year ended December 31, 2016, decreased compared to the
same periods of 2015. The decrease is mainly due to the completion of “Street to Suite” program in 2015. Sustaining CAPEX incurred in Ontario
tends to be more expensive on a per unit basis due to the higher cost of materials and labour.
Tax status
Northview is a mutual fund trust for Canadian income tax purposes. In accordance with the Declaration of Trust (“DOT”), distributions to
Unitholders are declared at the discretion of the Board of Trustees (“Trustees”). Pursuant to the DOT, the Trustees may, at their sole discretion,
determine distributions or designate that all taxable income earned, including the taxable part of net realized capital gains, be distributed to Trust
Unitholders and will deduct such distributions and designations for income tax purposes.
The Income Tax Act (Canada) (“Tax Act”) contains rules (the “SIFT Rules”) that impose tax on certain mutual fund trusts and their trust
unitholders at rates that approximate corporate and dividend income tax rates. The SIFT Rules do not apply to any mutual fund trust that qualifies
as a “real estate investment trust” (a “Tax REIT”) as defined in the Tax Act (the “Tax REIT Exemption”). A REIT must hold less than 10% of non-
qualifying assets and earn less than 10% of non-qualifying revenue to keep its status as a Tax REIT. As of December 31, 2016, the REIT met all
the requirements related to the qualification of the REIT as a Tax REIT.
The Tax REIT Exemption does not apply to incorporated subsidiaries of Northview, which are therefore subject to Canadian income taxes.
Northview does not currently hold any income producing property or operations in taxable incorporated subsidiaries. As such, there is currently no
provision for current or deferred income tax expense required in the current reporting period.
Northview 2016 Annual Report | Page 28
SUMMARY OF QUARTERLY RESULTS
The table below summarizes Northview’s financial results for the last eight fiscal quarters:
(thousands of dollars, except per unit
amounts)
2016
2015
Q4
Q3
Q2
Q1
Q4
Q3
Q2
Q1
Total revenue
NOI
Distributions to Trust Unit holders
Distributions per Trust Unit
81,529
44,003
23,188
$0.41
83,507
50,213
21,267
$0.41
81,112
44,330
21,275
$0.41
86,307
46,979
21,276
$0.41
70,735
39,353
18,493
$0.41
48,621
30,965
12,940
$0.41
49,401
30,041
12,940
$0.41
48,821
26,340
12,940
$0.41
FFO – basic(i)
FFO per Trust Unit – basic
FFO payout ratio – basic
27,058
33,896
26,987
30,007
24,371
21,561
20,327
16,574
$0.50
83.9%
$0.65
62.7%
$0.52
78.8%
$0.57
70.9%
$0.54
75.9%
$0.68
60.0%
$0.64
63.7%
$0.52
78.1%
FFO – diluted(i)
FFO per Trust Unit – diluted
FFO payout ratio – diluted
27,371
34,229
27,335
30,337
24,592
21,561
20,327
16,574
$0.49
84.7%
$0.64
63.5%
$0.51
79.6%
$0.57
71.7%
$0.53
75.2%
$0.68
60.0%
$0.64
63.7%
$0.52
78.1%
(i) Q1 2016, Q2 2016, Q3 2016 and Q4 2016 include Non-recurring Items.
Northview’s quarterly financial results have a seasonal component resulting from higher utility costs in the first and fourth quarters of each year.
NOI, basic FFO and diluted FFO for the three months ended December 31, 2016, were $44.0 million, $27.1 million and $27.4 million, increased
by 12%, 11% and 11%, respectively, compared to the same periods of 2015. The increases were primarily due to the growth in Northview’s
portfolio from the Transaction.
On a per unit basis, basic FFO and diluted FFO for three months ended December 31, 2016, were $0.50 and $0.49, respectively, compared to
$0.54 and $0.53 for the same periods of 2015. The decrease in FFO on a per unit basis in the quarter was driven primarily by lower operating
performance in natural resource based markets, dilution from the equity offering completed in October 2016 and higher interest expense from
additional mortgages.
LIQUIDITY AND CAPITAL RESOURCES
Northview’s objective for managing liquidity and capital resources is to ensure adequate liquidity for operating, capital and investment activities as
well as distributions to Unitholders. Northview is able to fund its obligations with cash flow from operations, operating facilities, construction
financing, mortgage debt secured by investment properties, and equity issuances.
At December 31, 2016, Northview had a working capital deficiency of $253 million. In the normal course of operations, a certain portion of
Northview’s borrowings under mortgages and credit facilities will be considered a current liability prior to being replaced with longer-term
financing. Of the total deficiency of $253 million, $161 million related to the current portion of mortgages payable, of which $126 million is
expected to be refinanced with long-term mortgages and $35 million is funded from cash flow from operations; $50 million was the borrowing
amount from construction financing, which is expected to be replaced by long-term mortgages upon the completion of the construction projects;
$18 million was the borrowing amount from an operating facility, which is expected to be replaced by a new operating facility upon maturity. The
balance of the working capital deficiency is $24 million, which will be funded by cash flow from operations in 2017.
Liquidity risk is the risk that Northview is not able to meet its financial obligations as they fall due or can do so only at excessive cost. Northview
manages liquidity risk by managing mortgage and loan maturities. Mortgage maturities normally enable replacement financing with excess capital
available for other purposes. Changes in property NOI impact the borrowing base calculation. Adverse economic conditions may result in a
decrease to the borrowing base which would reduce the amount of liquidity available to Northview. Cash flow projections are completed on a
regular basis to ensure there will be adequate liquidity to maintain operating, capital, investment activities and distributions to Trust Unitholders.
Northview 2016 Annual Report | Page 29
Northview’s long-term target for FFO payout ratio is 70%, which allows the ability to maintain distributions long term. Northview’s current FFO
payout ratio is temporarily higher than target due to weak operating conditions in resource based markets, the recent equity offering and asset
sales completed in 2016. The long-term target for debt to gross book value is between 50% to 55%. With significant progress on leverage
reduction achieved in 2016 through the successful equity offering and asset sales, management will focus on organic growth, capital recycling and
external growth opportunities through developments and limited acquisitions.
The total net proceeds of the equity offering completed on October 31, 2016 was approximately $71.1 million. Northview stated to use the net
proceeds of the equity offering prior to the over-allotment option for the following purpose: (i) $54 million for leverage reduction, including the
repayment of Credit Facilities, (ii) $5 million for VCIs, (iii) $3 million for ongoing development and acquisition opportunities, and (iv) if any, the
remainder for working capital requirements.
Northview used the net proceeds of the equity offering to repay credit facilities in 2016. In 2017, Northview will use a portion of the net proceeds
for VCIs and development opportunities.
Contractual obligations
Contractual obligations at December 31, 2016:
(thousands of dollars)
Mortgages payable
Credit facilities
Trade and other payables
Distributions and Class B LP
interest payable
Liabilities related to asset
held for sale
Convertible debentures
Derivative instruments
Unit based payments
Carrying Amount
1,661,532
133,842
68,106
7,571
18,008
23,460
1,499
1,733
Contractual obligations at December 31, 2015:
Contractual
Cash Flows
1,918,758
133,842
68,106
7,571
18,008
23,460
1,499
1,733
(thousands of dollars)
Mortgages payable
Credit facilities
Trade and other payables
Distributions and Class B LP
interest payable
Convertible debentures
Derivative instruments
Unit based payments
Mortgages
Carrying Amount
1,359,889
483,743
70,467
Contractual Cash
Flows
1,558,717
483,743
70,467
7,089
22,885
1,515
788
7,089
22,885
1,515
788
Up to
1 year
213,537
68,013
68,106
7,571
18,008
-
1,499
-
Up to
1 year
202,098
483,743
70,467
7,089
-
-
-
1 – 5
years
1,084,217
65,829
-
-
-
23,460
-
1,733
1 – 5
years
826,730
-
-
-
22,885
1,515
788
Over 5
years
621,004
-
-
-
-
-
-
-
Over 5
years
529,889
-
-
-
-
-
-
During the three months ended December 31, 2016, Northview completed $32.0 million in mortgage refinancing with a weighted average interest
rate of 2.50% and an average term to maturity of 6.1 years. For the year ended December 31, 2016, Northview completed $501.5 million in
mortgage refinancing with a weighted average interest rate of 2.97% and an average term to maturity of 7.2 years. The proceeds from the
mortgage financings were used to repay existing mortgages, construction financing, operating facilities, and to fund development and capital
improvement activity.
Northview monitors interest rates to identify opportunities for the reduction of its weighted average interest rate. Northview’s weighted average
interest rate on mortgage debt at December 31, 2016, decreased to 3.23%, compared to 3.33% at December 31, 2015. At December 31, 2016,
the weighted average term to maturity was 5.0 years, compared to 5.0 years at December 31, 2015.
Northview 2016 Annual Report | Page 30
Northview utilizes Canada Mortgage and Housing Corporation (“CMHC”) insured mortgage lender financing to obtain loans of up to 75% of
CMHC’s assessed value of a multi-family property. Northview can obtain a lower borrowing cost on properties financed using insured mortgage
lender financing after including the cost of the insurance when compared to conventional financing.
The following table outlines Northview’s mortgages payable maturity schedule as at December 31, 2016, for the next ten years and thereafter.
(thousands of dollars)
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
Thereafter
Credit facilities
Borrowings under credit facilities
Operating facilities(i)
Construction financing(ii)
Land financing(iii)
Bridge facility(iv)
Total
Current
Non-current
Total
Principal
Repayments
Principal on Maturity
During the Year
126,020
47,411
162,811
45,706
175,864
41,337
36,353 174,622
281,179
27,632
52,122
22,332
93,591
20,261
67,241
16,780
153,415
11,461
Total
173,431
208,517
217,201
210,975
308,811
74,454
113,852
84,021
164,876
3,783
2,427
275,483
129,907
-
1,416,772
133,690
2,427
1,692,255
% of Total
10.2%
12.3%
12.8%
12.5%
18.3%
4.4 %
6.7%
5.0%
9.8%
7.9%
0.1%
100.0%
Weighted
Average
Interest Rate
3.85%
3.94%
3.29%
2.73%
3.48%
2.98%
3.11%
3.18%
3.04%
2.46%
3.20%
3.23%
December 31, 2016
73,200
50,013
10,629
-
133,842
December 31, 2015
88,450
39,289
6,004
350,000
483,743
68,013
65,829
133,842
483,743
-
483,743
(i) Effective September 30, 2016, Northview consolidated the $75.0 million and $45.0 million operating facilities into a new $150.0 million
facility. At December 31, 2016, Northview had three operating facilities with credit limits of $150.0 million, $23.0 million, and $30.0 million,
respectively, a total of $203.0 million (December 31, 2015 – $135.0 million) for acquisition, development, and operating purposes.
The $150.0 million facility bears interest at prime plus 0.75% or Bankers’ Acceptance plus 2.00% with a maturity date of May 12, 2018. As
of December 31, 2016, the maximum borrowing capacity was $108.4 million based on the investment properties pledged. At December 31,
2016, $55.2 million had been drawn. Specific investment properties with a fair value of $281.5 million have been pledged as collateral
security for the operating facility. As of December 31, 2016, Northview was in compliance with all financial covenants. Northview also has
$4.1 million (December 31, 2015 – $5.5 million) in Letters of Credit (“LOC”) outstanding as security for construction projects and mortgage
holdbacks which reduces the amount available.
The $23.0 million facility bears interest at prime plus 0.75% or Bankers’ Acceptance plus 2.00% with a maturity date of July 22, 2017. As of
December 31, 2016, the maximum borrowing capacity was $23.0 million (December 31, 2015 – $15.0 million) based on the investment
properties pledged. At December 31, 2016, $18.0 million had been drawn (December 31, 2015 – $7.0 million). Specific investment
properties with a fair value of $38.3 million (December 31, 2015 – $34.5 million) have been pledged as collateral security for the operating
facility. As of December 31, 2016, Northview was in compliance with all financial covenants.
The $30.0 million facility bears interest at prime plus 1.15% or Bankers’ Acceptance plus 2.40% with a maturity date of May 31, 2017. As of
December 31, 2016, the maximum borrowing capacity was $21.7 million (December 31, 2015 – $nil) based on the investment properties
pledged. At December 31, 2016, $nil million had been drawn (December 31, 2015 – $nil). Specific investment properties with a fair value of
$42.7 million (December 31, 2015 – $nil) have been pledged as collateral security for the operating facility. As of December 31, 2016,
Northview was in compliance with all financial covenants.
Northview 2016 Annual Report | Page 31
(ii) At December 31, 2016, Northview had three construction financing loans outstanding relating to the developments in Calgary, AB;
Cambridge Bay, NU; and Bonnyville, AB. Interest rates range from prime plus 0.50% to 1.00% or Banker’s Acceptance plus 2.00% to
2.20%. Maturity dates range from May 31, 2017, to December 31, 2017.
(iii) The land financing relates to land held for development and bears interest at prime plus 0.50% or Bankers’ Acceptance plus 2.00% with a
maturity date of December 31, 2018. Financing is secured by five parcels of land held for development.
(iv) Northview entered into two bridge facilities for a total of $350.0 million to fund the Transaction on October 30, 2015. The first bridge facility
was a two-year senior secured non-revolving term loan facility bearing interest at prime plus 0.7% or Bankers’ Acceptance plus 1.95% for
the amount of $325.0 million with a maturity date of October 30, 2017. The second bridge facility was a six-month term, with a six-month
extension subject to lender approval, senior secured non-revolving equity bridge facility bearing interest at prime plus 1.25% or Bankers’
Acceptance plus 2.50% for the amount of $25.0 million with a maturity date of April 30, 2016. During the first quarter of 2016, the two bridge
facilities were repaid in full.
Capital management
Management monitors Northview’s capital structure on an ongoing basis to determine the appropriate level of mortgages payable to be placed on
specific properties at the time of acquisition or when existing debt matures. Northview follows guidelines which are set out in the DOT. Consistent
with others in the industry, Northview monitors capital on the basis of debt to gross book value ratio. The DOT provides for a maximum debt to
gross book value ratio of 70%. Debt to gross book value as at December 31, 2016 was 57.5% compared to 59.2% as at December 31, 2015.
Interest coverage for December 31, 2016, was 2.98 compared to 3.31 for the year ended December 31, 2015. Debt service coverage for
December 31, 2016, was 1.70 compared to 1.86 for the year ended December 31, 2015. Interest coverage and debt service coverage ratios are
calculated based on the most recently completed four fiscal quarters. Both ratios declined as a result of a reduction in NOI in resource based
markets.
Northview’s credit facilities contain certain financial covenants. The principal financial covenants are debt to gross book value, debt service
coverage, and interest coverage. The debt to gross book value ratio covenant maximum threshold is 70%. The interest coverage ratio and debt
service coverage ratio covenant minimum thresholds are at least 1.90 and 1.50, respectively. As at December 31, 2016, Northview is in
compliance with all financial covenants.
The following debt to gross book value, interest coverage, and debt service coverage excludes the 2019 Debentures and interest expense on the
2019 Debentures:
Debt to gross book value
(thousands of dollars)
Cash
Credit facilities
Mortgages payable
Debt
Investment properties
Property, plant and equipment
Properties held for sale
Accumulated depreciation
Accumulated depreciation on properties held for sale
Gross book value
Debt to gross book value
December 31, 2016
(4,148)
133,842
1,692,255
1,821,949
3,059,825
40,282
39,873
22,493
4,074
3,166,547
57.5%
December 31, 2015
(4,487)
483,743
1,357,215
1,836,471
3,025,468
55,510
-
22,156
-
3,103,134
59.2%
Northview 2016 Annual Report | Page 32
Interest and debt service coverage
(thousands of dollars)
Income before income taxes
Depreciation and amortization
Mortgage interest and deferred financing costs
Interest expense on credit facilities
Interest expense to Class B LP Unitholders
Bargain purchase gain
Business combination transaction costs
Unrealized fair value changes
Adjusted earnings
Mortgage interest and deferred financing costs
Interest expense on credit facilities
Total interest expense excluding interest expense to Class B LP Unitholders
Principal repayments
Debt service payments
Interest coverage
Debt service coverage
EQUITY
Year ended
December 31, 2016
77,475
4,967
53,004
6,043
9,822
-
14,579
10,268
Year ended
December 31, 2015
31,852
5,030
32,250
3,315
2,213
(50,893)
38,959
55,103
176,158
53,004
6,043
59,047
44,590
103,637
2.98
1.70
117,829
32,250
3,315
35,565
27,757
63,322
3.31
1.86
Northview’s issued and outstanding Trust Units, along with Trust Units potentially issuable, are as follows:
(number of units)
Issued and outstanding
Trust Units
Class B LP Units
Trust Units potentially issuable
LTIP units
LTI units
Deferred units
2019 Debentures
Total Trust Units potentially issuable
Total outstanding and potentially issuable Trust Units
December 31, 2016
December 31, 2015
49,942,379
5,814,664
55,757,043
2,370
146,179
31,843
966,386
1,146,778
56,903,821
44,410,640
7,809,539
52,220,179
2,980
72,910
10,026
966,386
1,052,302
53,272,481
During the year ended December 31, 2016, 1,994,875 Class B LP Units and special voting units of Northview (“Special Voting Units”) (December
31, 2015 – nil), subject to conversion in accordance with their terms, were exchanged for Trust Units, with a fair value of $33.1 million, of which
1,910,853 Class B LP Units and Special Voting Units, subject to conversion in accordance with their terms, were exchanged for Trust Units, with
a fair value of $31.3 million by a Trustee, a related party. The exchange of Class B LP Units and Special Voting Units to Trust Units does not
affect the Trustee’s total ownership.
Northview 2016 Annual Report | Page 33
Normal Course Issuer Bid (“NCIB”)
On May 27, 2016, the TSX approved Northview’s notice of intention to renew the NCIB for its Trust Units. Northview’s NCIB will be made in
accordance with the policies of the TSX. Northview may purchase Trust Units during the period from June 1, 2016 to May 31, 2017, or an earlier
date should Northview complete its maximum purchases. Northview will pay the market price at the time of acquisition for any Trust Units in
accordance with the rules and policies of the TSX and applicable securities laws. Purchases under the NCIB will be funded out of Northview’s
working capital. Northview is not obligated to make any purchases pursuant to the NCIB. Northview is authorized to purchase, in a 12 month
period, up to 3,852,249 Trust Units, representing 10% of its public float as at May 26, 2016, through the facilities of the TSX and other Canadian
trading platforms. On any trading day, Northview will not purchase more than 32,646 Trust Units, which is equal to 25% of Northview’s average
daily trading volume on the TSX for the most recently completed six calendar months preceding May 27, 2016, the date of acceptance of the
NCIB by the TSX, except where such purchases are made in accordance with the block purchase exemptions under the TSX rules.
During the year ended December 31, 2016, Northview did not purchase any Trust Units under its NCIB.
Distributions to Trust and Class B LP Unitholders
Pursuant to the DOT, Unitholders are entitled to receive distributions made on each distribution date as approved by the Trustees. During the
year ended December 31, 2016, Northview declared monthly cash distributions of $0.1358 per Unit, totaling $88.4 million (December 31, 2015 –
$57.3 million). The 2016 increase in distributions relates to the additional units issued in the Transaction and the equity offering completed in
October 2016. The Class B LP Units are treated as a financial liability for accounting purposes, and distributions on the Class B LP Units are
recorded as a financing cost.
For the three months ended December 31, 2016, total distributions of $23.2 million were paid to Trust Unitholders from $26.3 million of cash flow
from operations in the same period. For the year ended December 31, 2016, total distributions of $88.4 million were paid to Trust Unitholders from
$97.7 million of cash flow from operations in the same period. In any given financial period, total distributions may differ from cash flow from
operations, primarily due to the short-term fluctuations in non-cash working capital and the temporary fluctuations of earnings. Temporary
deficiencies in operating cash flow may be funded by revolving operating facilities, construction financing, mortgage debt secured by investment
properties, equity issuances, and asset sales. If Northview were unable to raise additional funds or renew existing maturing debt on acceptable
terms, then capital expenditures and acquisition or development activities may be reduced, or asset sales increased. Management expects cash
flow from operations to continue to exceed distributions paid in future years.
RELATED PARTY TRANSACTIONS
Related party transactions are conducted in the normal course of operations and are made on terms equivalent to those used in arm’s length
transactions.
Northview has engaged Starlight to perform certain services, as outlined below. Starlight is a related party as it is controlled by a Trustee and
significant Unitholder of Northview. Pursuant to the Transitional Services Agreement dated October 30, 2015, Starlight is to provide transitional
services of an asset management nature for a monthly fee equal to 0.125% of the sum of: (i) the agreed upon allocated values of the properties
acquired from True North and its affiliates in connection with the Transaction; (ii) the third party appraised values of the private portfolio acquired
by Northview in connection with the Transaction; (iii) the purchase price of new sourced properties; (iv) the third party appraised values of added
properties; and (v) the cost of any capital expenditures incurred by Northview or any of its affiliates in respect of the properties since the closing
date of the Transaction. This agreement is for a term of three years ending October 30, 2018, with Northview having the option to exclude the
New Brunswick and Nova Scotia properties from the agreement after October 30, 2017. At Northview’s option, the term may be renewed for two
additional one year terms. On October 31, 2016, Northview provided notice to Starlight terminating asset management services for the properties
located in New Brunswick and Nova Scotia, effective October 31, 2017.
For year ended December 31, 2016, the costs of these services aggregated to $1.9 million. Of this amount, $1.5 million has been capitalized,
while the remaining $0.4 million has been recognized as administration expenses in the consolidated statements of net and comprehensive
income. Balance outstanding and payable to Northview from Starlight as at December 31, 2016, is $0.4 million and is included in accounts
receivable in the consolidated statements of financial position. Balance outstanding and payable to Starlight from Northview as at December 31,
2016, is $0.2 million and is included in trade and other payables in the consolidated statements of financial position.
Northview 2016 Annual Report | Page 34
During the period, revenue from associates related to management fees and maintenance service fees received from Inuvik Commercial
Properties Zheh Gwizu’ Limited Partnership (“ICP”) and Inuvik Capital Suites Zheh Gwizuh Limited Partnership (“ICS”), and receipt of services
from associates related to rent paid by Northview to ICP, were as follows:
(thousands of dollars)
Revenue from associates
Receipt of services from associates
Transactions for the three
months ended December 31
Transactions for the years
ended December 31
2016
93
13
2015
141
13
2016
370
53
2015
379
53
Balance Outstanding as at
December 31
2016
7
32
2015
118
1
During the third quarter of 2016, Northview sold two properties to Starlight for a total cash proceeds of $15.5 million. The properties were sold at a
value consistent with the internal assessment of the fair value of the properties. Fair value was calculated using expected net operating income of
that property divided by the market capitalization rate at the time of the valuation. This internal assessment of fair value is consistent with
Northview’s method and policy when assessing fair value of properties for period end reporting and third party sales.
During the year ended December 31, 2016, 1,910,853 Class B LP and Special Voting Units, subject to conversion in accordance with their terms,
were exchanged for Trust Units with a fair value of $31.3 million by a Trustee, a related party. Exchange of Class B LP Units to Trust Units does
not affect the Trustee’s total ownership.
CRITICAL ACCOUNTING POLICIES, ESTIMATES and JUDGMENTS
The preparation of consolidated financial statements in accordance with IFRS requires management to make estimates and judgments that affect
the reported amounts of assets, liabilities, income and expenses. Estimates and judgments are evaluated each period and based on historical
experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Accounting
estimates will, by definition, differ from the actual results. The following discussion sets forth management’s most critical estimates and
assumptions in determining the value of assets and liabilities and management’s most critical judgments in applying accounting policies. Actual
results may differ from these estimates.
Estimates
(i) Fair value of investment properties
Northview carries its investment properties at fair value. Significant estimates used in determining the fair value of Northview’s investment
properties include Cap Rates and NOI. A change to either of these inputs could significantly alter the fair value of an investment property.
(ii) Depreciation and amortization
Depreciation and amortization are calculated to write off the cost, less estimated residual value, of assets on a systematic and rational basis
over their expected useful lives. Estimates of useful lives are based on data and information from various sources including industry practice
and company-specific history. Expected useful lives and residual values are reviewed periodically for any change to estimates and
assumptions.
(iii) Accrued liabilities
Northview must estimate accrued liabilities when invoices have not been received in order to ensure all expenditures have been recognized.
If future expenditures differ from estimates, future income would be affected. Accrued liabilities, including an estimate of any applicable
taxes, are included in Trade and other payables.
(iv) Capital adequacy
Northview prepares estimated cash flow projections on a regular basis to ensure there will be adequate liquidity to maintain operating,
capital and investment activities and uses these estimates to assess capital adequacy. Management reviews the current financial results and
the annual business plan in determining appropriate capital adequacy and uses this to determine distribution levels. Changes in these
estimates affect distributions to the Unitholders and Northview’s cost of capital.
Income taxes
(v)
Under current tax legislation, a real estate investment trust is not liable to pay Canadian income taxes provided that its taxable income is
fully distributed to Unitholders during the year. Northview is a real estate investment trust if it meets prescribed conditions under the Tax Act
relating to the nature of its assets and revenue (the "REIT Conditions"). Northview has reviewed the REIT Conditions and has assessed
their interpretation and application to Northview's assets and revenue, and it has determined that it qualifies as a real estate investment trust.
Northview expects to qualify as a real estate investment trust under the Tax Act. Should it no longer qualify, it would not be able to
flow-through its taxable income to Unitholders and would be subject to tax.
Northview 2016 Annual Report | Page 35
Judgments
(i) Purchase of investment properties
Northview reviews its purchases of investment property to determine whether or not the purchase is part of a business combination, as IFRS
requires differing treatment of property acquisitions depending on whether or not the purchase is part of a business combination. Judgment
is involved in determining whether or not a purchase forms part of a business combination or an asset acquisition. Should the purchase form
part of a business combination, closing costs, such as appraisal and legal fees, are expensed immediately and earnings are affected. If the
purchase is an asset acquisition, these costs form part of the purchase price and earnings are not immediately affected.
(ii) Fair value of investment properties
While investment properties are recorded at fair value on a quarterly basis, not every property is independently appraised every year.
Significant judgment is applied in arriving at these fair values, particularly as the properties are in smaller communities with limited trading
activity. Changes in the value of the investment properties affect income.
(iii) Financial instrument
Northview’s accounting policies and risk management relating to financial instrument are described in note 2 (j) and note 18 to the
consolidated financial statements for the years ended December 31, 2016, and 2015. Critical judgments inherent in these policies related to
applying the criteria set out in IAS 39 to designate financial instruments into categories, and determine the identification of embedded
derivatives, if any.
(iv) Componentization
The componentization of Northview’s property, plant and equipment, namely buildings, are based on management’s judgment of what
components constitute a significant cost in relation to the total cost of an asset and whether these components have similar or dissimilar
patterns of consumption and useful lives for purposes of calculating depreciation and amortization.
Impairment
(v)
Assessment of impairment is based on management’s judgment of whether there are sufficient internal and external factors that would
indicate that an asset or Cash Generating Unit (“CGU”) is impaired. The determination of CGUs is also based on management’s judgment
and is an assessment of the smallest group of assets that generate cash inflows independently of other assets. Factors considered include
whether an active market exists for the output produced by the asset or group of assets, as well as how management monitors and makes
decisions about Northview’s operations.
(vi) Classification of ICP and ICS as joint ventures
The ownership of ICS is for the purpose of investing in an income producing execusuite property in Inuvik, NT, and the ownership of ICP is
for the purpose of investing in a portfolio of commercial and mixed-use income producing properties in Inuvik, NT. Furthermore, there is no
contractual arrangement or any other facts and circumstances that indicate that the parties to the joint arrangement have rights to the assets
and obligations for the liabilities of the joint arrangement. Accordingly, ICP and ICS are classified as joint ventures.
Northview 2016 Annual Report | Page 36
New accounting standards and interpretations
Northview has applied the following new and revised IFRS issued by the International Accounting Standards Board (“IASB”) that is mandatorily
effective for an accounting period that begins on January 1, 2016.
New Standard
Description
Previous Standard
Impact of Application
Amendments to IFRS 11 –
Arrangement:
Joint
Accounting for Acquisitions
of Interests
The amendments to IFRS 11 require an acquirer
of an interest in a joint operation in which the
activity constitutes a business combination as
defined in IFRS 3 – Business Combinations to
apply the relevant principles on accounting for
business combinations in IFRS 3 and other
standards.
No direct replacement.
No material recognition or
measurement impact on
the consolidated financial
statements.
Recent accounting pronouncements
The IASB has issued the following standards that have not been applied in preparing the audited consolidated financial statements as their
effective dates fall within annual periods subsequent to the current reporting period.
Proposed Standard
Description
Possible Impact
Effective Date
IFRS 15 – Revenue from
Contracts with Customers
Introduces a principle to report information about
nature, timing, and uncertainty of revenue from
single,
contracts with
customers
comprehensive revenue recognition model.
in a
IFRS
Instruments
9
–
Financial
IAS
40
Properties
–
Investment
IFRS 16 – Leases
replaces
The IASB has undertaken a three-phase project
to replace IAS 39 with IFRS 9. The new
current multiple
standard
the
classification and measurement models
for
financial assets and liabilities with a single model
that has only
two classification categories:
amortized cost and fair value; and introduces a
new hedge accounting model. The standard was
finalized in July 2014.
During December 2016, the IASB issued an
amendment to IAS 40 to state that an entity shall
transfer a property to, or from, investment
property when, and only when, there is evidence
of a change in use. A change in use occurs if
property meets, or ceases to meet, the definition
of investment property. A change in
management’s intentions for the use of a
property by itself does not constitute evidence of
a change in use.
The IASB issued IFRS 16 – Leases, which
provides a single lessee accounting model,
requiring
to recognize assets and
liabilities for all leases unless the lease term is
12 months or less or the underlying asset has a
low value.
lessees
Effective date for annual
periods beginning on or
after January 1, 2018.
Effective date for annual
periods beginning on or
after January 1, 2018.
Effective date for annual
periods beginning on or
after January 1, 2018.
Effective date for annual
periods beginning on or
after January 1, 2019.
Northview is in the process
of assessing the impact of
IFRS 15 may have on the
financial
consolidated
statements and plans
to
adopt the new standard on
the effective date. Northview
does not expect significant
impact on the consolidated
financial statements.
Northview is in the process
of assessing the impact of
IFRS 9 may have on the
financial
consolidated
statements and plans
to
adopt the new standard on
the effective date. Northview
does not expect significant
impact on the consolidated
financial statements.
Northview is in the process
of assessing the impact of
amendment to IAS 40 may
the consolidated
have on
statements and
financial
the new
plans
standard on
the effective
date. Northview does not
expect significant impact on
the consolidated
financial
statements.
to adopt
Northview is in the process
of assessing the impact of
IFRS 16 may have on the
financial
consolidated
statements and plans
to
adopt the new standard on
the effective date. Northview
will determine the potential
impact on the consolidated
financial statement.
Northview 2016 Annual Report | Page 37 Management continues to evaluate the potential qualitative and quantitative impact of these new standards on Northview’s financial statement
measurements and disclosures. Northview is not early adopting these standards.
CONTROLS AND PROCEDURES
Disclosure controls and procedures
As at December 31, 2016, the Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO") have designed, or caused it to be designed
under their supervision, disclosure controls and procedures (“DC&P”), as defined in National Instrument 52-109 Certification of Disclosure in
Issuers’ Annual and Interim Filings (“NI 52-109”), to provide reasonable assurance that (i) material information relating to Northview is made
known to the CEO and the CFO by others, particularly during the period in which the annual filings are being prepared; and (ii) information
required to be disclosed by Northview in its annual filings, interim filings or other reports filed or submitted by Northview under securities
legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation.
As at December 31, 2016, management conducted an evaluation of the design and operating effectiveness of Northview’s DC&P under the
supervision of the CEO and the CFO. Based on the evaluation, the CEO and the CFO concluded that Northview’s DC&P were effective as at
December 31, 2016.
Internal control over financial reporting
As at December 31, 2016, the CEO and the CFO have designed, or caused it to be designed under their supervision, internal control over
financial reporting (“ICFR”), as defined in NI 52-109, to provide reasonable assurance regarding the reliability of Northview’s financial reporting
and the preparation of financial statements for external purposes in accordance with IFRS.
The control framework used to design Northview’s ICFR is the framework set forth in Internal Control – Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission in 2013.
As at December 31, 2016, management conducted an evaluation of the design and operating effectiveness of Northview’s ICFR under the
supervision of the CEO and the CFO. Based on the evaluation, the CEO and the CFO concluded that Northview’s ICFR was effective as at
December 31, 2016. It should be noted that a control system, no matter how well designed and operated, can provide only reasonable, not
absolute, assurance that the objectives of the control system will be met and it should not be expected that the control system will prevent all
errors and fraud.
During the fourth quarter of 2016, there were no changes in Northview's ICFR that have materially affected, or are reasonably likely to materially
affect, Northview's ICFR.
SUBSEQUENT EVENTS
Between January 1, 2017, and March 9, 2017, Northview disposed of four non-core properties with a fair value of $23.4 million.
Between January 1, 2017, and March 9, 2017, Northview completed new financing and renewals of $7.4 million with interest rates between 2.50%
and 3.60% and terms to maturity of approximately 1 to 10 years. Proceeds were used to pay down existing debt and credit facilities.
Northview 2016 Annual Report | Page 38 NON-GAAP AND ADDITIONAL GAAP MEASURES
The following non-GAAP and additional GAAP measures are used to monitor Northview’s financial performance. All non-GAAP measures do not
have any standardized meaning prescribed by GAAP and are therefore unlikely to be comparable to similar measures presented by other issuers.
Net operating income: NOI is calculated by deducting the direct operating costs of maintaining and operating investment properties from the
revenue which they generate. The most significant direct operating costs affecting NOI are: utilities, property taxes, insurance, cleaning, and
repairs and maintenance. Refer to the audited consolidated statements of net and comprehensive income for NOI calculation.
Same door NOI: measured as the annual change in NOI from properties that have been owned by Northview for both the current and prior year
reporting periods.
Funds from operations: FFO is calculated as prescribed by RealPAC’s White Paper. FFO measures operating performance by adjusting net
and comprehensive income.
FFO payout ratio: calculated as distributions declared during the period divided by FFO for the same period.
Debt: the sum of credit facilities and mortgages payable less cash (bank indebtedness).
Gross book value: the book value of the assets of Northview and its consolidated subsidiaries.
Debt to gross book value: calculated as debt as a percentage of gross book value and is a measure of leverage.
Interest coverage: calculated as net income before interest divided by total interest expense.
Debt service coverage: calculated as net income before interest divided by the debt service payments.
Northview 2016 Annual Report | Page 39 MANAGEMENT’S REPORT
To the Unitholders of Northview Apartment Real Estate Investment Trust:
The accompanying consolidated financial statements of Northview Apartment Real Estate Investment Trust (“Northview”) (formerly Northern
Property Real Estate Investment Trust) were prepared by management in accordance with the accounting policies in the notes to the consolidated
financial statements. The management of Northview is responsible for the integrity and objectivity of the information presented in the consolidated
financial statements including the amounts based on estimates and judgments. The consolidated financial statements have been prepared by
management in accordance with International Financial Reporting Standards (“IFRS”) appropriate in the circumstances. Financial information
contained in Management’s Discussion and Analysis is consistent with these consolidated financial statements.
To fulfill its responsibility, Northview maintains appropriate systems of internal control, policies, and procedures to ensure that its’ reporting practices
and accounting and administrative procedures are of high quality. Northview’s internal controls are designed to provide reasonable assurance that
transactions are authorized, assets are safeguarded, and proper records are maintained.
The Board of Trustees oversees management’s responsibility for financial reporting through an Audit and Risk Management Committee which is
comprised of four independent trustees. The Audit and Risk Management Committee reviews the consolidated financial statements and
recommends them for approval to the Board of Trustees. The consolidated financial statements have been further reviewed by the Board of Trustees
of Northview prior to their approval.
Deloitte LLP, the auditors appointed by the Unitholders, has examined the consolidated financial statements in accordance with Canadian generally
accepted auditing standards to enable them to express to the Unitholders their opinion on the consolidated financial statements. Their report as
auditors is set forth herein. The auditors have direct and full access to the Audit and Risk Management Committee to discuss their audit and related
findings.
“Signed”
“Signed”
Todd R. Cook
Chief Executive Officer
Travis Beatty
Chief Financial Officer
Northview 2016 Annual Report | Page 40 Deloitte LLP
700, 850 - 2nd Street S.W.
Calgary AB T2P 0R8
Canada
Tel: (403) 267-1700
Fax: (587) 774-5379
www.deloitte.ca
INDEPENDENT AUDITOR’S REPORT
To the Unitholders of Northview Apartment Real Estate Investment Trust
We have audited the accompanying consolidated financial statements of Northview Apartment Real Estate Investment Trust, which comprise the
consolidated statements of financial position as at December 31, 2016, and 2015, and the consolidated statements of net and comprehensive
income, consolidated statements of changes in Unitholders’ equity and consolidated statements of cash flows for the years then ended, and a
summary of significant accounting policies and other explanatory information.
Management’s Responsibility for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International
Financial Reporting Standards, and for such internal control as management determines is necessary to enable the preparation of consolidated
financial statements that are free from material misstatement, whether due to fraud or error.
Auditor’s Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance
with Canadian generally accepted auditing standards. Those standards require that we comply with ethical requirements and plan and perform the
audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The
procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated financial
statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation
and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness
of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation
of the consolidated financial statements.
We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of Northview Apartment Real Estate
Investment Trust as at December 31, 2016, and 2015, and its financial performance and its cash flows for the years then ended in accordance with
International Financial Reporting Standards.
Chartered Professional Accountants
March 9, 2017
Calgary, Alberta
Northview 2016 Annual Report | Page 41
Northview Apartment Real Estate Investment Trust
Consolidated Statements of Financial Position
(thousands of Canadian dollars)
Note
December 31, 2016
December 31, 2015
5
6
8
8
18(b)(ii)
25
15(b)
10
12
11
10
13
10
12
10
25
Assets
Non-current assets
Investment properties
Property, plant and equipment
Other long-term assets
Investment in joint ventures
Loans receivable
Current assets
Loans receivable
Prepaid expenses and other assets
Accounts receivable
Restricted cash
Cash
Assets held for sale
Liabilities
Non-current liabilities
Class B LP Units
Mortgages payable
Credit facilities
Convertible debentures
Derivative instruments
Unit based payments
Current liabilities
Mortgages payable
Credit facilities
Trade and other payables
Derivative instruments
Distributions and Class B LP interest payable
Liabilities related to assets held for sale
Unitholders’ equity
Equity attributable to Unitholders
Non-controlling interests
Total equity
See accompanying notes to the consolidated financial statements.
Guarantees, commitments and contingencies (Note 17).
Subsequent events (Note 28).
3,059,825
40,282
6,150
6,274
2,190
3,114,721
3,061
3,187
9,428
11,254
4,148
39,873
70,951
3,185,672
116,701
1,500,688
65,829
23,460
-
1,733
1,708,411
160,844
68,013
68,106
1,499
7,571
18,008
324,041
2,032,452
1,152,010
1,210
1,153,220
3,185,672
3,025,468
55,510
6,113
6,210
6,922
3,100,223
992
4,760
12,417
9,738
4,487
-
32,394
3,132,617
137,135
1,228,857
-
22,885
1,515
788
1,391,180
131,032
483,743
70,467
-
7,089
-
692,331
2,083,511
1,047,296
1,810
1,049,106
3,132,617
Northview 2016 Annual Report | Page 42
Northview Apartment Real Estate Investment Trust
Consolidated Statements of Net and Comprehensive Income
Years ended December 31
(thousands of Canadian dollars)
Revenue
Rental revenue
Other revenue
Operating expenses
Net operating income
Other expense (income)
Financing costs
Administration
Depreciation and amortization
Loss on sale of properties
Equity income from joint ventures
Bargain purchase gain
Business combination transaction costs
Unrealized fair value changes
Net and comprehensive income
Net and comprehensive income attributable to:
Unitholders
Non-controlling interests
Net and comprehensive income
See accompanying notes to the consolidated financial statements.
Note
21
4
22
2016
313,667
18,788
332,455
146,926
185,529
68,552
9,830
4,967
722
(864)
-
14,579
10,268
108,054
77,475
77,285
190
77,475
2015
211,182
6,396
217,578
90,879
126,699
37,957
8,999
5,030
762
(1,070)
(50,893)
38,959
55,103
94,847
31,852
31,698
154
31,852
Northview 2016 Annual Report | Page 43
Northview Apartment Real Estate Investment Trust
Consolidated Statements of Changes in Unitholders’ Equity
Years ended December 31
(thousands of Canadian dollars)
Note
15
Units
Balance, January 1
Long-term incentive plan units issued
Units issued, net of issue costs
Balance, December 31
Retained earnings
Cumulative net income
Balance, January 1
Net and comprehensive income attributable to Unitholders
Balance, December 31
Cumulative distributions to Unitholders
Balance, January 1
Distributions declared to Unitholders
Balance, December 31
Cumulative deficit, December 31
Equity attributable to Unitholders
Non-controlling interests
Balance, January 1
Net and comprehensive income
Distributions to non-controlling interests
Balance, December 31
Total Unitholders’ equity
See accompanying notes to the consolidated financial statements.
2016
1,053,626
12
104,136
1,157,774
282,804
77,285
360,089
(289,134)
(76,719)
(365,853)
(5,764)
1,152,010
1,810
190
(790)
1,210
1,153,220
2015
818,041
715
234,870
1,053,626
251,106
31,698
282,804
(234,034)
(55,100)
(289,134)
(6,330)
1,047,296
1,868
154
(212)
1,810
1,049,106
Northview 2016 Annual Report | Page 44
Northview Apartment Real Estate Investment Trust
Consolidated Statements of Cash Flows
Years ended December 31
(thousands of Canadian dollars)
Operating activities:
Net and comprehensive income
Adjustments:
Depreciation and amortization
Mortgage and credit facilities interest expense
Mortgage and credit facilities interest paid
Interest expense to Class B LP Unitholders
Distribution interest paid to Class B LP Unitholders
Interest expense on convertible debentures
Interest paid on convertible debentures
Unrealized fair value changes
Loss on sale of properties
Equity income from joint ventures
Long term incentive plan compensation
Bargain purchase gain
Changes in non-cash working capital
Financing activities:
Proceeds from mortgages
Repayment of mortgages
Repayment (borrowing) of credit facilities, net
Payments to non-controlling interests
Units issued
Distributions paid to Unitholders
Investing activities:
Acquisition of investment properties and land for future development
Acquisition of Starlight and IMH portfolios
Cash acquired in True North acquisition
Investment properties under development
Investment property improvements
Proceeds from sale of assets and investment properties, net
Acquisition of property, plant and equipment
Distributions received from equity investees
Acquisition of intangible assets
Changes in non-cash working capital
Net (decrease) increase in cash
Cash, beginning of year
Cash, end of year
See accompanying notes to the consolidated financial statements.
Note
22
23
15c
5
4
4
5
5
6
23
2016
77,475
4,967
59,047
(59,302)
9,822
(10,093)
1,324
(1,328)
10,268
722
(864)
654
-
5,018
97,710
461,412
(141,507)
(349,902)
(790)
71,066
(75,965)
(35,686)
(5,630)
-
-
(48,965)
(50,251)
47,241
(4,218)
800
-
(1,340)
(62,363)
(339)
4,487
4,148
2015
31,852
5,030
35,570
(33,752)
2,213
(1,162)
221
(667)
55,103
762
(1,070)
1,255
(50,893)
7,436
51,898
162,549
(103,986)
394,690
(212)
-
(53,371)
399,670
(34,322)
(317,136)
1,582
(45,424)
(58,694)
15,745
(6,401)
170
(21)
(2,580)
(447,081)
4,487
-
4,487
Northview 2016 Annual Report | Page 45
Northview Apartment Real Estate Investment Trust
Notes to the Consolidated Financial Statements
Years ended December 31, 2016 and 2015
(Tabular amounts expressed in thousands of Canadian dollars except where indicated)
1. Description of the consolidated entities
Northview Apartment Real Estate Investment Trust (“Northview” or the “REIT” or the “Trust”) (formerly Northern Property Real Estate Investment
Trust (“NPR”)) is an unincorporated, open-ended real estate investment trust created pursuant to a declaration of trust (“DOT”) dated January 2,
2002, and last amended May 5, 2016, under the laws of the Province of Alberta (and the federal laws of Canada applicable therein). Northview is
primarily a multi-family residential real estate investor and operator, providing a broad spectrum of rental accommodations with a portfolio of
approximately 24,000 quality residential suites in more than 60 markets across eight provinces and two territories, which provides Northview the
means to deliver stable and growing profitability and distributions to Unitholders. Northview’s registered office is located at 200, 6131 6th Street SE,
Calgary, Alberta.
On October 30, 2015, through a plan of arrangement, NPR acquired all of the assets and properties of True North Apartment Real Estate Investment
Trust ("TN" or “True North”) in exchange for NPR trust units (“NPR Trust Units”) and NPR special voting units (“NPR Special Voting Units” and
together with NPR Trust Units, the “NPR Units”). In addition, NPR acquired seven apartment properties held by Starlight Investment Ltd. (“SL” or
“Starlight”) and 26 apartment properties from a joint venture between affiliates of SL and affiliates of the Public Sector Pension Investment Board,
collectively the “Transaction”.
Upon completion of the Transaction, NPR changed its name to Northview Apartment Real Estate Investment Trust. NPR units were delisted from
the Toronto Stock Exchange (“TSX”) under the trading symbol NPR.UN. On November 5, 2015, Northview was listed and began trading on the
TSX under the symbol “NVU.UN”. Northview continues to qualify as a real estate investment trust for tax purposes.
2. Significant accounting policies
a) Basis of preparation and statement of compliance
The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by
the International Accounting Standards Board (“IASB”) and approved by the Canadian Accounting Standards Board (“AcSB”).
These consolidated financial statements have been prepared on a going concern basis and are presented in Canadian dollars rounded to the
nearest thousand except where indicated. The accounting policies set out below have been applied consistently to all periods presented in these
consolidated financial statements. These consolidated financial statements reflect all normal and recurring adjustments which are, in the opinion of
management, necessary for a fair presentation of the respective years presented.
The consolidated financial statements were approved by the Trustees of Northview (the “Trustees”) on March 9, 2017.
Reclassification of prior year presentation
Certain prior year amounts have been reclassified for consistency with current year presentations. During the first quarter of 2016, Northview
concluded it was appropriate to reclassify instalment notes receivable as loans receivable due to being similar in nature. The prior year amounts
for the year ended December 31, 2015, current instalment notes receivable of $0.7 million and non-current instalment notes receivable of $1.1
million, were reclassified to loans receivable. Unit based payments as at December 31, 2015, was reclassified from current liabilities to non-current
liabilities in 2016. These reclassifications had no effect on the reported results of operations and did not impact Northview’s cash flows.
b) Principles of consolidation
These consolidated financial statements include the accounts of Northview, wholly-owned subsidiaries, partially owned partnerships, and joint
arrangements (collectively “Northview”). Subsidiaries are entities controlled by Northview. The financial transactions of subsidiaries are included in
the consolidated financial statements to the date that control ceases. The accounting policies of subsidiaries, partially owned partnerships, and
joint arrangements are the same as those of the Trust. Northview has no controlling entity.
Investment properties
c)
Northview’s investment properties include residential and commercial properties held to earn rental income, held for capital appreciation, or
properties that are being constructed, developed, or redeveloped for future use as investment properties.
Investment properties are measured initially at cost, including transaction costs, unless the acquisition is part of a business combination. Subsequent
to initial recognition, investment properties are measured at fair value, in accordance with International Accounting Standard 40 – Investment
Property (“IAS 40”).
The fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants
at the measurement date. In estimating the fair value of the investment properties, the highest and best use of the investment properties is their
current use. Northview reviews the fair value of its investment property each reporting period and revises the carrying value when market
circumstances change the underlying variables used to fair value investment properties. The fair value of investment property is based on valuations
by a combination of management estimates including any capital additions since the date of the most recent appraisal, and independent appraisers,
who hold a recognized and relevant professional qualification and have recent experience in the location and category of the investment property
being valued. External appraisals of investment property are performed throughout each year and continue to be used to verify certain variables
used in the internal calculation of investment property values. Management uses the external investment property appraisals to verify its assessment
Northview 2016 Annual Report | Page 46
Northview Apartment Real Estate Investment Trust
Notes to the Consolidated Financial Statements
Years ended December 31, 2016 and 2015
(Tabular amounts expressed in thousands of Canadian dollars except where indicated)
of regional vacancy, management overhead and Capitalization Rate (“Cap Rate”) information which is then applied to the stabilized net operating
income, which is projected annual net operating income that an investment property is likely to experience over the holding period, to calculate the
fair value of the remainder of Northview’s investment properties within the region. Where increases or decreases are warranted, Northview adjusts
the fair value of its investment properties. Unrealized gains and losses arising from changes in the fair value of investment properties are included
in the consolidated statements of net and comprehensive income in the period in which they arise. There has been no change to the valuation
technique during the year.
In accordance with IFRS 5 – Non-current Assets Held for Sale and Discontinued Operations (“IFRS 5”), investment properties are reclassified to
“Assets held for sale” when certain criteria are met. An investment property is derecognized upon disposal or when the investment property is
permanently withdrawn from use and no future economic benefits are expected from the disposal. Any gain or loss arising on derecognition of the
property (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the consolidated
statements of net and comprehensive income in the period in which the property is sold.
Investment properties are segregated into the following categories: (i) residential (apartments, townhouses, duplexes, single family, and mixed use)
and (ii) commercial (office, industrial, and retail).
Investment property consists of several separate components which are included in the estimation of fair value for each property. Residential
investment property includes prepaid land equity leases ranging in terms from 15 to 30 years, asset acquisition costs, furniture and fixtures, and
sustaining CAPEX. In addition, commercial investment property includes above and below market leases, in-place leases, prepaid tenant
improvements, and direct leasing costs.
Land held for development is measured initially at cost, and subsequently measured at fair value. Initial costs that are capitalized include any costs
associated with the purchase of the land. Unrealized gains and losses arising from changes in the fair value of land held for development are
included in the consolidated statements of net and comprehensive income in the period in which they arise.
Sustaining CAPEX represents ongoing expenditures required to maintain the productive capacity of Northview’s portfolio. These include capital
expenditures to maintain and renew common areas, heating ventilating and air conditioning (“HVAC”) systems, building envelopes, investment in
wood pellet boilers, expenditures to reduce energy consumption, and to refurbish interior finishes in units on tenant turnover.
Capital improvements are capital repairs or additions, improvements to the properties to meet investment requirements, and expenditures made in
the 18 months following the acquisition of a property to complete any deferred maintenance.
Tenant inducements include cash payments made to tenants where no specific obligation exists on how the payment is utilized by the tenant.
Tenant inducements are considered in the cash inflows modeled to measure the fair value of a commercial investment property.
d) Asset acquisition / Business combination
In accordance with IFRS 3 – Business Combination (“IFRS 3”), a transaction is recorded as a business combination if the significant assets,
liabilities, or activities in addition to property and related mortgage debt assumed constitute a business. A business is defined as an integrated set
of activities and assets, capable of being conducted and managed for the purpose of providing a return, lower costs, or other economic benefits.
Where there are no such integrated activities, the transaction is treated as an asset acquisition.
Residential and commercial properties, developments and redevelopments are measured initially at cost. Cost includes all amounts relating to the
acquisition, including transaction costs (except transaction costs related to a business combination) and improvement of the properties.
Costs that are directly attributable to investment properties under development or redevelopment are capitalized. These costs include direct
development costs, realty taxes, borrowing costs directly attributable to the development, and upgrading and extending the economic life of the
existing facilities, other than ordinary repairs and maintenance.
e) Borrowing costs
Borrowing costs associated with direct expenditures on investment properties under development or redevelopment are capitalized. Borrowing
costs are also capitalized on the purchase cost of a site or property acquired specifically for redevelopment in the short-term but only where activities
necessary to prepare the asset for development or redevelopment are in progress. The amount of borrowing costs capitalized is determined first
by reference to borrowings specific to the project, where relevant, and otherwise by applying a weighted average cost of borrowings to eligible
expenditures after adjusting for borrowings associated with other specific developments. Where borrowings are associated with specific
developments, the amount capitalized is the gross cost incurred on those borrowings less any investment income arising on their temporary
investment. Borrowing costs are capitalized from the commencement of the development until the date of substantial completion, normally the
receipt of an occupancy permit. The capitalization of borrowing costs is suspended if there are prolonged periods when development activity is
interrupted.
Northview 2016 Annual Report | Page 47
Northview Apartment Real Estate Investment Trust
Notes to the Consolidated Financial Statements
Years ended December 31, 2016 and 2015
(Tabular amounts expressed in thousands of Canadian dollars except where indicated)
Property, plant and equipment
f)
Land and buildings used by Northview as administrative offices and warehouse properties, as well as the execusuites and hotels, are classified as
property, plant and equipment (“PP&E”) in accordance with IAS 16 – Property, Plant and Equipment (“IAS 16”). PP&E is initially measured using
the cost model. PP&E is measured and carried at cost less accumulated depreciation and any accumulated impairment losses.
PP&E is recorded at cost and depreciated using the following annual rates and methods:
Buildings
Parking lot
Roof
HVAC
CAPEX
Furniture, fixtures and equipment
Automotive
Computer
maximum 50 years
20 years
15 years
15 years
5 years
5 years
5 years
4 years
straight-line basis
straight-line basis
straight-line basis
straight-line basis
straight-line basis
straight-line basis
straight-line basis
straight-line basis
Cost includes expenditures that are directly attributable to the acquisition of the asset. The cost initially recognized with respect to a building is
further allocated amongst its significant component parts with each part being depreciated separately. Northview has identified the significant
components of a building to be the parking lot, roof, HVAC, and CAPEX which is defined as interior finishing including wallpaper, paint, flooring or
carpeting, cabinets, and bathroom fixtures. The method of depreciation, estimated economic lives of tangible assets, and PP&E are evaluated
annually by management and any changes in these estimates are accounted for on a prospective basis in accordance with IAS 8 – Accounting
Policies, Changes in Accounting Estimates and Errors (“IAS 8”).
Gains and losses on disposal of an item of PP&E are determined by comparing the proceeds from disposal with the carrying amount of PP&E, and
are recognized net within expenses and other income.
g) Transfers between investment property and PP&E
Transfers between investment property and PP&E are based on change in use from earning passive income to serving an administrative purpose
and vice versa. The change in use is tracked only for units which actively serve an administrative purpose. Northview reviews this allocation on an
annual basis. Northview does not revise these allocations unless a significant change in the number of units or square footage occupied occurs.
Property transfers from investment property to PP&E are transferred at the fair value of the asset at the time of transfer. Differences in the fair
value are recorded in net income.
Property transfers from PP&E to investment property are transferred at the fair value of the asset at the time of transfer. Differences in the fair
value are recorded in other comprehensive income for fair value increases. Differences in the fair value are recorded in net income for fair value
decreases.
Impairment
h)
Significant assumptions are used in assessing PP&E for impairment including estimates of future operating cash flows, the time period over which
they will occur, a discount rate and growth rates.
The carrying amounts of Northview’s assets, other than investment property, are reviewed at each reporting date to determine whether there is any
indication of impairment. If any such indication exists, then the asset’s recoverable amount is estimated. The recoverable amount is the higher of
an asset’s fair value less cost to sell or its value in use. Northview estimates fair value based upon current prices for similar assets. In assessing
value-in-use, the estimated future cash flows are discounted to their present value using the asset’s original effective interest rate.
An impairment loss is recognized in the consolidated statement of net and comprehensive income in the amount by which the carrying amount of
the asset exceeds the recoverable amount determined. When a subsequent event causes the amount of impairment loss to decrease, the decrease
in impairment loss is reversed through income.
Impairment losses are evaluated for potential reversals when events or changes in circumstances warrant such consideration.
Assets held for sale and discontinued operations
i)
Non-current assets (or disposal groups) are classified as held for sale if their carrying amount will be recovered principally through a sale transaction
rather than through continuing use. Amounts related to the disposal of non-current assets are classified as “Assets held for sale”, and the results
of operations and cash flows associated with the assets held for sale are reported separately as being related to assets held for sale or discontinued
operations, less applicable income taxes. A non-current asset is classified as an “Asset held for sale” at the point in time when it is available for
immediate sale, management has committed to a plan to sell the asset and is actively seeking a buyer for the asset at a sales price that is reasonable
in relation to the current fair value of the asset, and the sale is probable and is expected to be completed within a one-year period. For unsolicited
interest in a non-current asset, the asset is classified as held for sale only if all the conditions of the purchase and sale agreement have been met,
a sufficient purchaser deposit has been received and the sale is probable and expected to be completed shortly after the end of the current period.
Northview 2016 Annual Report | Page 48
Northview Apartment Real Estate Investment Trust
Notes to the Consolidated Financial Statements
Years ended December 31, 2016 and 2015
(Tabular amounts expressed in thousands of Canadian dollars except where indicated)
A discontinued operation is a component of an entity that either has been disposed of, or is classified as held for sale, and
(a)
(b)
(c)
represents a separate major line of business or geographical area of operations;
is part of a single coordinated plan to dispose of a separate major line of business or geographical area of operations; or
is a subsidiary acquired exclusively with a view to resale.
The component will have been a cash-generating unit (“CGU”) or group of CGUs while being held for use. Profits and gains or losses related to the
disposal of discontinued operations are measured based on fair value less cost to sell, except for investment property which is valued at fair value,
or on the disposal of assets and are presented in the consolidated financial statements on an after tax basis in accordance with IFRS 5. Comparative
figures are restated to reflect retrospective application of discontinued operations.
Financial instruments
j)
Financial assets and financial liabilities are recognized when Northview becomes a party to the contractual provisions of the instrument. Financial
assets and financial liabilities are initially recognized at fair value and are subsequently accounted for based on their classification as described
below:
Financial assets at fair value through profit or loss (“FVTPL”)
i)
Financial assets are classified as FVTPL when acquired principally for the purpose of trading, if so designated by management (fair
value option), or if they are derivative assets. Financial assets classified as FVTPL are measured at fair value, with changes recognized
in the consolidated statement of net and comprehensive income.
Loans and receivables
ii)
Loans and receivables are non-derivative financial assets that have fixed or determinable payments and are not quoted in an active
market. Subsequent to initial recognition, loans and receivables are carried at amortized cost, using the effective interest method, less a
provision for impairment. A provision for impairment is established when there is objective evidence that collection will not be possible
under the original terms of the contract. Indicators of impairment include delinquency of payment and significant financial difficulty of the
holder. The carrying amount of the financial asset is reduced through an allowance account and the amount of loss is recognized in the
consolidated statement of net and comprehensive income. Financial instruments that are subsequently measured at amortized cost are
subject to testing for impairment each reporting period. Any subsequent reversal of an impairment loss is recognized in profit or loss.
iii) Financial liabilities at FVTPL
Financial liabilities are classified as FVTPL if they are designated as such by management, or they are derivative liabilities. Financial
liabilities classified as FVTPL are measured at fair value, with changes recognized in the consolidated statement of net and
comprehensive income.
iv) Other financial liabilities
Other financial liabilities are financial liabilities that are not classified as FVTPL. Subsequent to initial recognition, other financial liabilities
are measured at amortized cost using the effective interest method. The effective interest method is a method of calculating the amortized
cost of an instrument and of allocating interest income over the relevant period. The effective interest rate is the rate that exactly discounts
estimated future cash receipts (including all transaction costs and other premiums or discounts) through the expected life of the debt
instrument to the net carrying amount on initial recognition.
Fair value measurements recognized in the consolidated statement of financial position are categorized using a fair value hierarchy that reflects the
significance of inputs used in determining the fair value:
i)
ii)
Level 1: Quoted prices in active markets for identical assets or liabilities.
Level 2: Quoted prices in active markets for similar assets or liabilities or valuation techniques where significant inputs are based
on observable market data.
iii) Level 3: Valuation techniques for which any significant input is not based on observable market data.
Each type of fair value is categorized based on the lowest level input that is significant to the fair value measurement in its entirety.
Northview 2016 Annual Report | Page 49
Northview Apartment Real Estate Investment Trust
Notes to the Consolidated Financial Statements
Years ended December 31, 2016 and 2015
(Tabular amounts expressed in thousands of Canadian dollars except where indicated)
Classification and measurement of financial assets and liabilities:
Financial asset or financial liability
Financial assets
Non-current financial assets
Other long-term assets
Loans receivable
Instalment notes receivable
Current financial assets
Accounts receivable
Restricted cash
Cash
Financial liabilities
Non-current financial liabilities
Mortgages payable
Convertible debentures
Derivative instruments
Class B LP Units
Current financial liabilities
Distributions payable
Trade and other payables
Unit based payments
Bank indebtedness
Credit facilities
Classification
Measurement
Loans and receivables
Loans and receivables
Loans and receivables
Loans and receivables
FVTPL
FVTPL
Other financial liabilities
FVTPL
FVTPL
FVTPL
Other financial liabilities
Other financial liabilities
FVTPL
FVTPL
Other financial liabilities
Amortized cost
Amortized cost
Amortized cost
Amortized cost
Fair value
Fair value
Amortized cost
Fair value
Fair value
Fair value
Amortized cost
Amortized cost
Fair value
Fair value
Amortized cost
Cash is comprised of cash balances and all deposits used in operations. Restricted cash is comprised of cash balances not available for immediate
and general use by Northview related to security deposits paid by residential tenants. Security deposits are returned to the tenant upon move out
net of any additional charges. Bank indebtedness, repayable on demand and forming an integral part of Northview’s cash management, is included
as a component of cash for the purpose of the statement of cash flows. Distributions or dividends payable declared on units with a record date of
or prior to Northview’s reporting date are recorded as a financial liability.
Transaction costs that are directly attributable to the acquisition or issuance of financial assets or liabilities, other than financial assets and liabilities
measured at FVTPL, are accounted for as part of the carrying amount of the respective asset or liability at inception. Transaction costs on financial
assets and liabilities measured at FVTPL are expensed in the period incurred. Transaction costs related to financial instruments measured at
amortized cost are amortized using the effective interest rate over the anticipated life of the related instrument.
Derivative instruments are recorded in the consolidated statement of financial position at fair value, including those derivatives that are embedded
in financial or non
financial contracts and which are not closely related to the host contract.
‐
Income taxes
k)
Northview is taxed as a “mutual fund trust” for income tax purposes. Pursuant to the DOT, the trustees of Northview (the “Trustees”) may, at their
sole discretion, determine distributions or designate all taxable income earned, including the taxable part of net realized capital gains, to Northview
unitholders (“Unitholders”) and will deduct such distributions and designations for income tax purposes. Northview meets the definition of a Real
Estate Investment Trust under the Tax Act and is not subject to entity level income taxation provided that all of its taxable income is distributed to
its Unitholders.
Northview follows the liability method for determining deferred income taxes. Under this method, deferred taxes are recognized on temporary
differences between the carrying values of assets and liabilities in the consolidated financial statements and the corresponding tax carrying values
for the same assets and liabilities. Deferred tax assets are recognized for all deductible temporary differences to the extent it is probable that
taxable income will be available against which the deductible temporary differences can be utilized. Deferred tax liabilities are recognized for all
taxable temporary differences. Deferred tax liabilities are not recognized for the temporary differences from investments in all subsidiaries and joint
arrangements to the extent that:
i)
ii)
Northview is able to control the timing of the reversal of the temporary differences; and
the temporary difference will not reverse in the foreseeable future.
Deferred tax assets and liabilities are measured based on enacted or substantively enacted tax rates and laws at the date of the financial statements
for the years in which these temporary differences are expected to reverse, and adjustments are recognized in earnings as they occur.
Northview 2016 Annual Report | Page 50
Northview Apartment Real Estate Investment Trust
Notes to the Consolidated Financial Statements
Years ended December 31, 2016 and 2015
(Tabular amounts expressed in thousands of Canadian dollars except where indicated)
l)
Unit based payments
(i) Unit award plan
Northview issues units to executives and key personnel under a unit award plan and a Long-Term Incentive Plan (“LTIP”). The unit
award plan is comprised of a Long-term Incentive (“LTI”) plan, whereby performance units (“Performance Units”) are issued to executives
and key personnel of Northview. Under these plans, the fair value of the units granted to executives and key personnel is recognized as
compensation expense with an offsetting amount to unit based payments based on the market price at the time of vesting. Northview
records compensation expense and unit based payments based on the fair values of the units over the vesting period, less an estimated
forfeiture rate. The estimated forfeiture rate is based on the historical forfeiture rate. As units are forfeited or issued, this estimate is
adjusted to actual over the vesting period. The impact of the revision of the original estimates, if any, is recognized in the consolidated
statements of net and comprehensive income prospectively such that the cumulative expense reflects the revised estimate. Upon issue,
the market value of the units is credited to capital with a corresponding reduction to unit based payments. In accordance with IAS 32 –
Financial Instruments: Presentation (“IAS 32”), the units are presented as a liability on the consolidated statement of financial position
as the Trust is obliged to provide the holder with trust units (“Trust Units”) once the units vest. Under IAS 39 – Financial Instruments:
Recognition and Measurement (“IAS 39”), the units are classified as ‘fair value through profit or loss’ and are measured at each reporting
period at fair value with changes in fair value recognized in the consolidated statements of net and comprehensive income. Fair value
of the units is calculated based on the observable market price of Trust Units.
(ii) Deferred unit plan ("DUP")
Northview has a DUP whereby the Trustees receive a portion of their annual retainer in the form of deferred units ("Deferred Units") that
vest immediately when granted. Deferred Units are redeemable upon the Trustee’s retirement from Northview. The Deferred Units are
equivalent in value to Trust Units and accumulate additional Deferred Units at the same rate that distributions are paid on Trust Units.
Northview measures Deferred Units as a liability at their fair value which is equivalent to the fair value of Trust Units with changes in fair
value being recognized in the consolidated statements of net and comprehensive income.
Investment in joint ventures
m)
Under IFRS 11 – Joint Arrangements (“IFRS 11”), there are two types of joint arrangements – joint operations and joint ventures. Joint arrangements
are determined based on the rights and obligations of parties to the joint arrangements by considering the structure, the legal form of the
arrangements, the contractual terms agreed by the parties to the arrangement, and, when relevant, other facts and circumstances. A joint operation
is a joint arrangement whereby the parties that have joint control of the arrangement (i.e. joint operators) have rights to the assets, and obligations
for the liabilities, relating to the arrangement. A joint venture is a joint arrangement whereby the parties that have joint control of the arrangement
(i.e. joint venturers) have rights to the net assets of the arrangement.
Northview classifies its joint arrangements as joint ventures and accounts for them using the equity method. Under the equity method, investments
in joint ventures are carried in the consolidated statement of financial position at cost as adjusted for Northview’s proportionate share of post-
acquisition changes in the net assets of the joint ventures, or for post-acquisition changes in any excess of Northview’s carrying amount over the
net assets of the joint ventures, less any identified impairment loss. When Northview’s share of losses of a joint venture equals or exceeds its
interest in that joint venture, Northview discontinues recognizing its share of further losses. An additional share of losses is provided for and a
liability is recognized only to the extent that Northview has incurred legal or constructive obligations to fund the entity or made payments on behalf
of that entity.
Where a group entity transacts with a joint venture of Northview, profits and losses are eliminated to the extent of the Trust’s interest in the relevant
joint venture. Balances outstanding between Northview and jointly controlled entities are not eliminated in the consolidated statement of financial
position.
n) Subsidiaries and associates
Subsidiaries and associates are consolidated when Northview has the power to govern the financial and operating policies of the entity so as to
obtain benefits from its activities. Subsidiary accounting policies are consistent with those of Northview and reporting dates are the same as
Northview. The subsidiary financial statements are consolidated line by line, adding assets, liabilities, equity, revenue and expenses of similar types.
Intercompany balances, transactions, income, and expense are eliminated and gains or losses on intercompany transactions are eliminated. Where
Northview does not own 100% of the subsidiary or associate, non-controlling interest is classified as a component of equity.
Intangible assets
o)
Intangible assets with finite useful lives that are acquired separately are carried at cost less accumulated amortization and accumulated impairment
losses. Amortization is recognized on a straight-line basis over the intangible assets’ estimated useful lives. The estimated useful life and
amortization method are reviewed at the end of each reporting period, with the effect of any changes in estimate being accounted for on a
prospective basis.
p) Revenue recognition
Revenue from an income producing property is recognized when a tenant commences occupancy of a property and rent is due. Northview retains
all benefits and risks of ownership of its investment properties and, therefore, accounts for leases with its tenants as operating leases. Rental
revenue includes rent and other sundry revenue recoveries. Rental revenue to be received from leases with rental rates varying over the term of
Northview 2016 Annual Report | Page 51
Northview Apartment Real Estate Investment Trust
Notes to the Consolidated Financial Statements
Years ended December 31, 2016 and 2015
(Tabular amounts expressed in thousands of Canadian dollars except where indicated)
the lease is recorded on a straight-line basis over the term of the associated lease. Accordingly, the difference between the rental revenue recorded
on a straight line basis and the rent that is contractually due from the tenant has been recorded as deferred rent receivable for accounting purposes.
Operational cost recoveries (“OCR”) for commercial tenants and on selected residential leases are accrued monthly on a leased square footage
based on budgeted operating costs. Operating costs are verified annually, usually within 90 days after year end, tenant accounts are reconciled
and additional amounts are either invoiced or rebated. Deferred recoverable costs are recorded as other long-term assets and charged against
expenses.
Tenant inducements for commercial tenants are recorded as other long-term assets and charged against revenue on a straight-line basis over the
lease term.
q) Class B LP Units
The Class B LP units (“Class B LP Units”) are exchangeable into Trust Units at the option of the holder. The Trust Units are puttable and, therefore,
the Class B LP Units meet the definition of a financial liability under IAS 32. Further, the Class B LP Units are designated as FVTPL financial
liabilities and are measured at fair value at each reporting period with any changes in fair value recorded in the consolidated statements of net and
comprehensive income. The distributions paid on the Class B LP Units are accounted for as financing costs.
r) Unit capital
The Trust Units are redeemable at the option of the holder and, therefore, are considered puttable instruments in accordance with IAS 32. Puttable
instruments are required to be accounted for as financial liabilities, except where certain conditions are met in accordance with IAS 32, in which
case, the puttable instruments may be presented as Unitholders' equity. The Trust Units meet the conditions of IAS 32 and are, therefore, presented
as Unitholders' equity.
As a result of the redemption feature of Trust Units, these units are considered financial liabilities under IAS 33 – Earnings Per Share, and they
may not be considered as equity for the purposes of calculating net and comprehensive income on a per unit basis. Consequently, Northview has
elected not to report an Earnings Per Unit calculation, as permitted under IFRS.
s) Unit repurchases
If Northview repurchases its own Trust Units, those Trust Units are deducted from Unitholders' equity and the associated Trust Units are cancelled.
No gain or loss is recognized and the consideration paid, including any directly attributable incremental costs, is recognized in Unitholders' equity.
t) Distributions to Unitholders and Class B LP Unitholders
Unitholders at the close of business on each distribution record date (the last day of the month) are entitled to receive distributions from Northview
as declared by the Trustees for such month. The distributions are accrued and will be paid on the distribution date (usually the 15th of the following
month). Where the Trustees determine that Northview does not have sufficient cash to pay distributions, the payment may, at the Trustees’
discretion, include the issuance of additional units.
Distributions declared to Class B LP Unitholders are classified as financing costs for reporting purposes because the units are treated as financial
liabilities.
u) Convertible debentures
The convertible debentures are convertible into Trust Units. As the Trust Units are redeemable at the option of the holder and are considered
puttable instruments in accordance with IAS 32, the convertible debentures are considered a financial liability containing liability-classified
embedded derivatives. Northview has elected to reflect the full outstanding amount of each convertible debenture at its fair value and are designated
as FVTPL with the changes in fair value being recognized in the consolidated statements of net and comprehensive income. The interests paid on
the convertible debentures are accounted for as financing costs.
v) Finance cost and finance income
Interest earned from financial assets is recognized by applying the effective interest rate to the principal outstanding when it is probable that
economic benefits will flow to Northview. Mortgage interest and interest on credit facilities is recognized by applying the effective interest rate to the
principal outstanding.
w) Critical accounting estimates and judgments
The preparation of financial statements requires management to make estimates and judgments about the future. Estimates and judgments are
continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be
reasonable under the circumstances. Accounting estimates will, by definition, differ from the actual results. The following discussion sets forth
management’s most critical estimates and assumptions in determining the value of assets and liabilities and management’s most critical judgments
in applying accounting policies. Actual results may differ from these estimates.
Northview 2016 Annual Report | Page 52
Northview Apartment Real Estate Investment Trust
Notes to the Consolidated Financial Statements
Years ended December 31, 2016 and 2015
(Tabular amounts expressed in thousands of Canadian dollars except where indicated)
Estimates
(i) Fair value of investment properties
Northview carries its investment properties at fair value. Significant estimates used in determining the fair value of Northview’s investment
properties include capitalization rates and net operating income (which is influenced by inflation rates and vacancy rates). A change to any
one of these inputs could significantly alter the fair value of an investment property.
(ii) Depreciation and amortization
Depreciation and amortization are calculated to write off the cost, less estimated residual value, of assets on a systematic and rational basis
over their expected useful lives. Estimates of useful lives are based on data and information from various sources including industry practice
and company-specific history. Expected useful lives and residual values are reviewed annually for any change to estimates and assumptions.
(iii) Allowance for doubtful accounts
Northview must make an assessment of whether accounts receivable are collectible from tenants. Accordingly, management establishes an
allowance for estimated losses arising from non-payment, taking into consideration customer creditworthiness, current economic trends, and
past experience. If future collections differ from estimates, future income would be affected.
(iv) Accrued liabilities
Northview must estimate accrued liabilities when invoices have not been received in order to ensure all expenditures have been recognized.
If future expenditures differ from estimates, future income would be affected. Accrued liabilities are included in trade and other payables.
(v) Capital adequacy
Northview prepares estimated cash flow projections on a regular basis to ensure there will be adequate liquidity to maintain operating, capital
and investment activities and uses these estimates to assess capital adequacy. Management reviews the current financial results and the
annual business plan in determining appropriate capital adequacy and uses this to determine distribution levels. Changes in these estimates
affect distributions to the Unitholders and Northview’s cost of capital, which in turn affects income.
Income taxes
(vi)
Under current tax legislation, a real estate investment trust is not liable to pay Canadian income taxes provided that its taxable income is fully
distributed to Unitholders during the year. Northview is a real estate investment trust if it meets prescribed conditions under the Income Tax
Act (Canada) relating to the nature of its assets and revenue (the "REIT Conditions"). Northview has reviewed the REIT Conditions and has
assessed their interpretation and application to Northview's assets and revenue, and it has determined that it qualifies as a real estate
investment trust.
Northview expects to qualify as a real estate investment trust under the Income Tax Act (Canada); however, should it no longer qualify, it
would not be able to flow-through its taxable income to Unitholders and Northview would, therefore, be subject to tax.
Judgments
(i) Purchase of investment properties
Northview reviews its purchases of investment property to determine whether or not the purchase is part of a business combination as IFRS
requires differing treatment of property acquisitions depending on whether or not the purchase is part of a business combination. Judgment
is involved in determining whether or not a purchase forms part of a business combination or an asset acquisition. Should the purchase form
part of a business combination, closing costs, such as appraisal and legal fees, are expensed immediately and earnings are affected. If the
purchase is an asset acquisition, these costs form part of the purchase price and earnings are not immediately affected.
(ii) Fair value of investment properties
While investment properties are recorded at fair value on a quarterly basis, not every property is independently appraised every year.
Significant judgment is applied in arriving at these fair values, particularly as the properties are in smaller communities with limited trading
activity. Changes in the value of the investment properties affect income.
(iii) Componentization
The componentization of Northview’s PP&E, namely buildings, is based on management’s judgment of what components constitute a
significant cost in relation to the total cost of an asset and whether these components have similar or dissimilar patterns of consumption and
useful lives for purposes of calculating depreciation and amortization.
Impairment
(iv)
Assessment of impairment is based on management’s judgment of whether there are sufficient internal and external factors that would indicate
that an asset or cash generating unit (“CGU”) is impaired. The determination of CGUs is also based on management’s judgment and is an
assessment of the smallest group of assets that generate cash inflows independently of other assets. Factors considered include whether an
active market exists for the output produced by the asset or group of assets as well as how management monitors and makes decisions about
Northview’s operations.
Northview 2016 Annual Report | Page 53
Northview Apartment Real Estate Investment Trust
Notes to the Consolidated Financial Statements
Years ended December 31, 2016 and 2015
(Tabular amounts expressed in thousands of Canadian dollars except where indicated)
(v) Classification of Inuvik Commercial Properties Zheh Gwizu’ Limited Partnership (“ICP”) and Inuvik Capital Suites Zheh Gwizuh Limited
Partnership (“ICS”) as joint ventures
Note 7 describes that the ownership of ICS is for the purpose of investing in an income producing execusuite property in the Northwest
Territories and the ownership of ICP is for the purpose of investing in a portfolio of commercial and mixed-use income producing properties in
the Northwest Territories. Furthermore, there is no contractual arrangement or any other facts and circumstances that indicate that the parties
to the joint arrangement have rights to the assets and obligations for the liabilities of the joint arrangement. Accordingly, ICP and ICS are
classified as joint ventures for Northview.
3. Application of new and revised IFRSs
a) New accounting standards and interpretations
Northview has applied a new and revised IFRSs issued by the IASB that are mandatorily effective for an accounting period that begins on January
1, 2016.
New Standard
Description
Previous Standard
Impact of Application
Amendments to IFRS 11 –
Joint
Arrangement:
Accounting for Acquisitions
of Interests
The amendments to IFRS 11 require an acquirer
of an interest in a joint operation in which the
activity constitutes a business combination, as
defined in IFRS 3 – Business Combinations, to
apply the relevant principles on accounting for
business combinations in IFRS 3 and other
standards.
No direct replacement.
No material recognition or
measurement impact on
the consolidated financial
statements.
b) Recent accounting pronouncements
The IASB has issued the following standards that have not been applied in preparing these consolidated financial statements as their effective
dates fall within annual periods subsequent to the current reporting period.
Proposed Standard
IFRS 15 – Revenue from
Contracts with Customers
Description
Introduces a principle to report information about
the nature, timing, and uncertainty of revenue
from contracts with customers in a single,
comprehensive revenue recognition model.
IFRS 9 – Financial
Instruments
IAS 40 – Investment
Properties
The IASB has undertaken a three-phase project
to replace IAS 39 with IFRS 9. The new
standard replaces the current multiple
classification and measurement models for
financial assets and liabilities with a single model
that has only two classification categories:
amortized cost and fair value; and introduces a
new hedge accounting model. The standard was
finalized in July 2014.
During December 2016, the IASB issued an
amendment to IAS 40 to state that an entity shall
transfer a property to, or from, investment
property when, and only when, there is evidence
of a change in use. A change in use occurs if
property meets, or ceases to meet, the definition
of investment property. A change in
management’s intentions for the use of a
property by itself does not constitute evidence of
a change in use.
Effective Date
Effective date for annual
periods beginning on or
after January 1, 2018.
Effective date for annual
periods beginning on or
after January 1, 2018.
Effective date for annual
periods beginning on or
after January 1, 2018.
Possible Impact
Northview is in the process
of assessing the impact of
IFRS 15 may have on the
consolidated financial
statements and plans to
adopt the new standard on
the effective date. Northview
does not expect significant
impact on the consolidated
financial statements.
Northview is in the process
of assessing the impact of
IFRS 9 may have on the
consolidated financial
statements and plans to
adopt the new standard on
the effective date. Northview
does not expect significant
impact on the consolidated
financial statements.
Northview is in the process
of assessing the impact of
amendment to IAS 40 may
have on the consolidated
financial statements and
plans to adopt the new
standard on the effective
date. Northview does not
expect significant impact on
Northview 2016 Annual Report | Page 54
Northview Apartment Real Estate Investment Trust
Notes to the Consolidated Financial Statements
Years ended December 31, 2016 and 2015
(Tabular amounts expressed in thousands of Canadian dollars except where indicated)
IFRS 16 – Leases
The IASB issued IFRS 16 – Leases, which
provides a single lessee accounting model,
requiring
to recognize assets and
liabilities for all leases unless the lease term is 12
months or less or the underlying asset has a low
value.
lessees
the consolidated financial
statements.
Northview is in the process of
assessing the impact of IFRS
the
16 may have on
financial
consolidated
statements and plans
to
adopt the new standard on
the effective date. Northview
will determine the potential
impact on the consolidated
financial statement.
Effective date for annual
periods beginning on or
after January 1, 2019.
Management continues to evaluate the potential qualitative and quantitative impact of these new standards on Northview’s financial statement
measurements and disclosures. Northview is not early adopting these standards.
4. Business combinations
a) True North acquisition
On October 30, 2015, NPR acquired 100% of the outstanding trust units (“TN Trust Units”) and Class B LP units (“TN Class B LP Units”) of TN, a
real estate investment trust listed on the TSX. TN held a portfolio of residential rental apartments in Alberta, Ontario, Quebec, Nova Scotia, and
New Brunswick, and the acquisition provided NPR with a unique opportunity to achieve scale and diversification in central and eastern Canada,
and access to those rental markets. The existing strategic management functions and associated processes were acquired with the properties and,
as such, this transaction constitutes the acquisition of a business rather than an asset acquisition.
The fair value of the identifiable assets and liabilities of TN as at the date of acquisition:
Fair value recognized on TN acquisition
Assets acquired:
Cash
Restricted cash
Accounts receivable
Prepaid expenses and other assets
Instalment notes receivable
Other long-term assets
Property, plant, and equipment
Investment property
Fair value of assets obtained
Liabilities assumed:
Trade and other payables
Derivative instruments
Credit facilities
Convertible debentures
Mortgages and loans payable
Fair value of liabilities assumed
Fair value of net assets
Fair value of purchase consideration transferred
Bargain purchase gain
1,582
3,681
686
2,568
1,917
919
886
846,959
859,198
22,202
1,280
37,000
23,345
513,658
597,485
261,713
240,984
20,729
The TN acquisition was funded through a unit exchange, where each of the outstanding TN Trust Units and TN Class B LP Units were exchanged
for 0.3908 NPR Trust Units and NPR Special Voting Units, respectively. NPR issued to each holder of TN Class B LP Units, for each TN special
voting unit held by such holder, such number of NPR Special Voting Units that was equal to the product obtained by multiplying the number of TN
Northview 2016 Annual Report | Page 55
Northview Apartment Real Estate Investment Trust
Notes to the Consolidated Financial Statements
Years ended December 31, 2016 and 2015
(Tabular amounts expressed in thousands of Canadian dollars except where indicated)
Class B LP Units held by such holder by the exchange ratio of 0.3908. The 7,587,375 NPR Trust Units and 5,445,820 NPR Special Voting Units
issued as consideration are measured at fair value using the closing market price on the date of acquisition.
The net asset value after fair value adjustments exceeded the purchase consideration transferred, and the resulting bargain purchase gain of
$20,729 is recognized as bargain purchase gain in the REIT’s consolidated statements of net and comprehensive income on the acquisition date.
The transaction resulted in a gain primarily due to the decrease in market price of the equity considerations issued, observed between the agreement
date and acquisition date. The decrease in NPR Units’ market price is primarily attributable to the economic downturn of the energy market and the
market responding to the acquisitions. The investment properties acquired were not impaired as favourable Canadian real estate market conditions
continue to support their fair valuation.
During the year ended December 31, 2015, the transaction costs of $28.5 million incurred in connection with the TN acquisition have been expensed
in the consolidated statements of net and comprehensive income.
The fair value at the date of acquisition of the accounts receivable amounted to $686, of which $442 was tenant rent receivable net of allowance
for doubtful accounts, and $244 was other receivables. The gross amounts of the tenant rent receivable and other receivables are $4,086 and $244,
respectively. None of the accounts receivables have been impaired and it is expected that the full contractual amounts can be collected.
Excluding the transaction costs incurred in the period, for the year ended December 31, 2016, the TN acquisition has contributed $37.3 million to
the net and comprehensive income, and $86.3 million to revenues.
b) Starlight and IMH acquisitions
On October 30, 2015, NPR acquired the undivided interest of seven investment properties from Starlight (the “SL Portfolio”) and 26 investment
properties from a joint venture between Public Sector Pension Investment Board and Starlight Investments Ltd., together with its affiliates (the “IMH
Portfolio”), collectively the “Portfolio Acquisitions”. The portfolios consist of residential rental apartments in Ontario, Nova Scotia, and New
Brunswick, and the acquisition provided NPR a unique opportunity to achieve scale and diversification in central and eastern Canada and access
to those rental markets. The existing strategic management functions and associated processes were acquired with the properties and, as such,
this transaction constitutes the acquisition of a business rather than an asset acquisition.
The fair value of the identifiable assets and liabilities of the SL Portfolio as at the date of acquisition:
Fair value recognized on SL acquisition
Assets acquired:
Investment property
Property, plant, and equipment
Prepaid expenses and other assets
Fair value of assets obtained
Liabilities assumed:
Mortgages and loans payable
Trade and other payables
Fair value of liabilities assumed
Fair value of net assets
Fair value of purchase consideration transferred
Bargain purchase gain
108,318
238
843
109,399
16,927
790
17,717
91,682
88,350
3,332
Northview 2016 Annual Report | Page 56
Northview Apartment Real Estate Investment Trust
Notes to the Consolidated Financial Statements
Years ended December 31, 2016 and 2015
(Tabular amounts expressed in thousands of Canadian dollars except where indicated)
The fair value of the identifiable assets and liabilities of the IMH Portfolio as at the date of acquisition:
Fair value recognized on IMH acquisition
Assets acquired:
Investment property
Prepaid expenses and other assets
Fair value of assets obtained
Liabilities assumed:
Mortgages and loans payable
Trade and other payables
Fair value of liabilities assumed
Fair value of net assets
Fair value of purchase consideration transferred
Bargain purchase gain
429,810
1,948
431,758
35,002
4,107
39,109
392,649
365,817
26,832
The acquisition of the SL Portfolio was funded through a combination of (i) issuance of 879,053 of NPR Special Voting Units with an agreed upon
value of $23.03 per unit to satisfy $20.2 million of the purchase price, and (ii) cash consideration of $72.1 million funded by a new credit facility.
Excluding the transaction costs incurred in the period, for the year ended December 31, 2016, the SL Portfolio has contributed $6.3 million to the
net and comprehensive income, and $10.4 million to revenues.
The acquisition of the IMH Portfolio was funded through a combination of (i) issuance of 5,115,190 of NPR Trust Units with an agreed upon value
of $23.03 per unit to satisfy $117.8 million of purchase price, (ii) issuance of 1,416,870 of NPR Special Voting Units with an agreed upon value of
$23.03 per unit to satisfy $32.6 million of purchase price, and (iii) cash consideration of $245.0 million funded by a new credit facility. Excluding the
transaction costs incurred in the period, for the year ended December 31, 2016, the IMH Portfolio has contributed $26.0 million to the net and
comprehensive income, and $43.2 million to revenues.
During the year ended December 31, 2015, the transaction costs of $2.1 million and $8.4 million incurred in connection with the respective SL
Portfolio and IMH Portfolio acquisitions have been expensed in the consolidated statements of net and comprehensive income.
During the year ended December 31, 2016, transaction costs of $14.6 million incurred in connection with the Transaction have been expensed in
the consolidated statements of net and comprehensive income.
5.
Investment properties
Investment properties
Investment properties under development
Land held for development
2016
3,010,817
14,471
34,537
3,059,825
2015
2,956,571
38,490
30,407
3,025,468
Northview 2016 Annual Report | Page 57
Northview Apartment Real Estate Investment Trust
Notes to the Consolidated Financial Statements
Years ended December 31, 2016 and 2015
(Tabular amounts expressed in thousands of Canadian dollars except where indicated)
Changes to investment properties for the years:
Balance, January 1
Acquisitions of investment properties
Acquisitions of land for future development
Business combinations (Note 4)
Disposals
Transfers to property, plant and equipment
Transfers to assets held for sale
Investment properties under development
Investment property improvements
Unrealized fair value changes
Balance, end of year
2016
3,025,468
-
5,630
-
-
(303)
(73,414)
48,965
50,251
3,228
3,059,825
2015
1,582,011
19,299
15,023
1,385,087
(16,010)
(759)
-
45,424
58,694
(63,301)
3,025,468
During the year ended December 31, 2016, Northview transferred $73.0 million (December 31, 2015 – $38.8 million) from investment properties
under development to investment properties for development projects completed during period.
As at December 31, 2016, Northview capitalized borrowing costs of $0.8 million (as at December 31, 2015 – $0.9 million) to investment properties
under development.
During the year ended December 31, 2016, 4 acres of land were purchased for a total of $5.6 million (December 31, 2015 – 18.4 acres were
purchased for a total of $15.0 million).
During the year ended December 31, 2016, Northview disposed of eleven investment properties previously classified as assets held for sale. See
Note 26 for assets held for sale disposals. During the year ended December 31, 2015, Northview disposed of the last seniors’ property for proceeds
which equaled its fair value of $2.3 million and a parcel of land in St. John’s, NL, for $3.7 million.
For the year ended December 31, 2016, Northview did not acquire any properties.
Acquisitions for the year ended December 31, 2015, other than those acquired through business combinations, were as follows:
Property Type
Multi-family
Commercial
Mutli-family
Commercial(i)
Units
/ sq ft
139
29,400
1
2,800
140 / 32,200
Region
Atlantic Canada
Atlantic Canada
Northern Canada
Northern Canada
Total Acquisition Costs
11,732
6,801
82
684
19,299
(i) Northview acquired the commercial building for its own use as administrative space
On October 30, 2015, Northview acquired 13,558 multi-family units and 7,095 commercial square footage in various regions as part of the
Transaction, as discussed in Note 4.
Northview uses the capitalization rate (“Cap Rate”) method to value investment properties. As at December 31, 2016, Cap Rates ranging from
4.25% to 13.00% (December 31, 2015 – 4.35% to 13.00%) were applied to a projected stabilized net operating income (“NOI”). The weighted
average Cap Rate applied to fair value Northview’s investment properties as at December 31, 2016, is 6.67% (December 31, 2015 – 6.83%).
Northview 2016 Annual Report | Page 58
Northview Apartment Real Estate Investment Trust
Notes to the Consolidated Financial Statements
Years ended December 31, 2016 and 2015
(Tabular amounts expressed in thousands of Canadian dollars except where indicated)
A summary of the Cap Rates used for the December 31, 2016, and December 31, 2015, valuations is as follows:
Regions
Atlantic Canada
Northern Canada
Ontario
Quebec
Western Canada
Overall
2016
Maximum
9.50%
13.00%
6.00%
7.55%
11.00%
13.00%
Minimum
5.50%
6.86%
4.25%
5.85%
4.75%
4.25%
Effective
Weighted
Average
6.82%
9.13%
5.12%
6.06%
6.92%
6.67%
Minimum
5.50%
6.86%
4.35%
5.85%
4.75%
4.35%
2015
Maximum
9.50%
13.00%
6.00%
7.55%
11.00%
13.00%
Effective
Weighted
Average
6.85%
9.20%
5.30%
6.07%
7.19%
6.83%
The impact of a 10 basis point change in Cap Rates used to value the investment properties would affect the fair value as follows:
Regions
Atlantic Canada
Northern Canada
Ontario
Quebec
Western Canada
Overall
Effective
Weighted
Average
6.82%
9.13%
5.12%
6.06%
6.92%
6.67%
2016
2015
Increase
(5,644)
(6,446)
(18,710)
(2,960)
(13,469)
(47,230)
Decrease
5,812
6,588
19,457
3,060
13,864
48,781
Effective
Weighted
Average
6.85%
9.20%
5.30%
6.07%
7.19%
6.83%
Increase
(5,460)
(6,206)
(18,072)
(2,771)
(12,695)
(45,204)
Decrease
5,622
6,343
18,767
2,864
13,050
46,646
The impact of a 1% change in stabilized NOI used to value the investment properties would increase or decrease the fair value as follows:
Regions
Atlantic Canada
Northern Canada
Ontario
Quebec
Western Canada
Overall
2016
3,905
5,949
9,758
1,823
9,459
30,894
2015
3,797
5,771
9,764
1,710
9,258
30,300
Northview 2016 Annual Report | Page 59
Northview Apartment Real Estate Investment Trust
Notes to the Consolidated Financial Statements
Years ended December 31, 2016 and 2015
(Tabular amounts expressed in thousands of Canadian dollars except where indicated)
6. Property, plant and equipment
Cost or deemed cost
Balance at January 1, 2015
Additions for the year
Business combinations
Transfers from investment property
Disposals for the year
Balance at December 31, 2015
Additions for the year
Transfers from investment property
Transfers to assets held for sale
Disposals for the year
Balance at December 31, 2016
Accumulated depreciation
Balance at January 1, 2015
Depreciation for the year
Disposals for the year
Balance at December 31, 2015
Depreciation for the year
Transfers to assets held for sale
Disposals for the year
Balance at December 31, 2016
Carrying amounts
December 31, 2015
December 31, 2016
Land
Buildings
Fixtures Automotive
Furniture &
Other
Assets
1,870
-
22
294
(1)
2,185
-
6
(57)
-
2,134
-
-
-
-
-
-
-
-
2,185
2,134
59,924
5,322
697
465
(25)
66,383
3,753
295
(18,532)
(33)
51,866
12,694
3,202
-
15,896
3,483
(3,600)
(33)
15,746
50,487
36,120
2,568
82
11
-
-
2,661
153
2
(561)
-
2,255
1,596
519
-
2,115
414
(474)
-
2,055
546
200
2,991
381
-
-
(185)
3,187
104
-
-
(156)
3,135
2,016
400
(148)
2,268
352
-
(149)
2,471
919
664
2,707
616
394
-
(467)
3,250
208
-
-
(72)
3,386
1,979
315
(417)
1,877
410
-
(65)
2,222
1,373
1,164
Total
70,060
6,401
1,124
759
(678)
77,666
4,218
303
(19,150)
(261)
62,776
18,285
4,436
(565)
22,156
4,659
(4,074)
(247)
22,494
55,510
40,282
Northview 2016 Annual Report | Page 60
Northview Apartment Real Estate Investment Trust
Notes to the Consolidated Financial Statements
Years ended December 31, 2016 and 2015
(Tabular amounts expressed in thousands of Canadian dollars except where indicated)
7.
Investment in joint ventures
Northview has a 50% interest in ICS and a 50% interest in ICP. The ownership of ICS is between the Zheh Gwizu’ Limited Partnership and NPR
Limited Partnership (“NPRLP”) for the purpose of investing in an income producing execusuite property in the Northwest Territories. The ownership
of ICP is between the Zheh Gwizu’ Limited Partnership and NPRLP for the purpose of investing in a portfolio of commercial and mixed use income
producing properties in the Northwest Territories.
The table below summarizes key financial position balances, revenue and expenses as well as Northview’s share for the periods noted.
Current
assets
Non-current
assets Total assets
Current
liabilities
Non-current
liabilities
Total
liabilities
Net assets
Northview
share of net
assets
December 31, 2016
ICP
ICS
Total
December 31, 2015
ICP
ICS
Total
2,162
831
2,993
2,539
582
3,121
Years ended December 31
2016
ICP
ICS
Total
2015
ICP
ICS
Total
15,213
5,407
20,620
16,604
5,556
22,160
17,375
6,238
23,163
19,143
6,138
25,281
1,538
375
1,913
6,551
397
6,948
6,213
2,940
9,153
2,742
3,171
5,913
7,751
3,315
11,066
9,293
3,568
12,861
9,624
2,923
12,547
9,850
2,570
12,420
4,812
1,462
6,274
4,925
1,285
6,210
Revenue
Expenses
Net Income
Northview
share of net
income
3,716
2,167
5,883
3,929
2,207
6,136
2,741
1,414
4,155
2,465
1,531
3,996
975
753
1,728
1,464
676
2,140
487
377
864
732
338
1,070
There has been no change in Northview’s 50% ownership and voting interests in these joint ventures for the reported periods.
8. Loans receivable
Loans receivable consists of instalment notes receivable, tenant inducement loans and vendor take back loans (“VTB”) on disposals of investment
properties as follows:
Balance, January 1
Present value of instalment notes receivable – October 2015
Fair value adjustment on instalment notes receivable
Amortization of instalment note premium
Tenant inducement loans additions
VTB loans additions
Repayments received
Balance, end of year
Current
Non-current
Balance, end of year
2016
7,914
-
-
(33)
-
-
(2,630)
5,251
3,061
2,190
5,251
2015
4,796
1,794
123
(5)
1,150
1,720
(1,664)
7,914
992
6,922
7,914
Northview 2016 Annual Report | Page 61
Northview Apartment Real Estate Investment Trust
Notes to the Consolidated Financial Statements
Years ended December 31, 2016 and 2015
(Tabular amounts expressed in thousands of Canadian dollars except where indicated)
VTB receivable on asset disposals are receivable over terms of 3 to 10 years at interest rates of between 6.0% and 10.0%, maturing between
March 1, 2017, and January 31, 2022. Loans are secured by investment properties which had a fair value of $9.5 million at the time of sale. Should
the purchasers default on the loans, Northview has the option to reacquire the properties as settlement of the outstanding VTB loans balance. At
December 31, 2016, there are $2.4 million in VTB loans (December 31, 2015 – $4.1 million).
Tenant inducement loans are repayable over terms of 5 to 10 years, matching the lease terms, at interest rates of between 0.0% to 10.0%, maturing
between September 1, 2017, and March 1, 2024. At December 31, 2016, there are $1.8 million in tenant inducement loans outstanding (December
31, 2015 – $2.0 million).
Pursuant to the acquisition of TN, Northview acquired certain non-interest bearing instalment notes, with a present value of $1.8 million. At
December 31, 2016, there is $1.1 million in instalment notes receivable outstanding (December 31, 2015 – $1.8 million). These instalment notes
extend over the maturity dates of the assumed mortgages, expiring on various dates between June 1, 2017, and December 1, 2022.
9.
Income taxes
Northview is a mutual fund trust for Canadian income tax purposes. In accordance with the DOT, distributions to Unitholders are declared at the
discretion of the Trustees. Pursuant to the DOT, the Trustees may, at their sole discretion, determine distributions or designate that all taxable
income earned, including the taxable part of net realized capital gains, be distributed to Unitholders and will deduct such distributions and
designations for income tax purposes.
The Tax Act contains rules (the “SIFT Rules”) that impose tax on certain mutual fund trusts and their Unitholders at rates that approximate corporate
and dividend income tax rates. A real estate investment trust (“REIT”) must hold less than 10% of non-qualifying assets and earn less than 10% of
non-qualifying revenue to keep its status as a Tax REIT (as defined below). The SIFT Rules do not apply to any mutual fund trust that qualifies as
a “real estate investment trust” (a “Tax REIT”) as defined in the Tax Act (the “Tax REIT Exemption”). As of December 31, 2016, Northview met all
the requirements of a REIT under the Tax Act and is not subject to entity level income taxation provided that all of its taxable income is distributed
to its Unitholders.
The Tax REIT Exemption does not apply to corporate subsidiaries of Northview, which are therefore subject to Canadian income taxes.
10. Mortgages payable
Mortgages payable
Fair value adjustment upon assumption
Deferred financing costs
Mortgages related to assets held for sale
Total
Current
Non-current
Total
2016
1,692,255
14,685
(27,400)
1,679,540
(18,008)
1,661,532
160,844
1,500,688
1,661,532
2015
1,357,215
20,838
(18,164)
1,359,889
-
1,359,889
131,032
1,228,857
1,359,889
Mortgages payable bear interest at rates ranging from 1.41% to 6.48% (December 31, 2015 – 1.41% to 6.48%) and have a weighted average rate
of 3.23% as at December 31, 2016 (December 31, 2015 – 3.33%). Mortgages are payable in monthly installments of blended principal and interest
of approximately $8.6 million (December 31, 2015 – $6.7 million). The mortgages mature between 2017 and 2031 (December 31, 2015 – 2016 and
2025) and are secured by charges against specific properties. Land and buildings with a carrying value of $2.8 billion (December 31, 2015 – $2.3
billion) have been pledged to secure the mortgages payable of Northview.
The fair value of mortgages payable at December 31, 2016, is approximately $1.7 billion (December 31, 2015 – $1.4 billion). The fair value is
determined by discounting the future cash payments by the current market borrowing rate. Most of the mortgages on Northview’s investment
properties are insured by Canada Mortgage and Housing Corporation (“CMHC”). Pursuant to standard mortgage terms, each mortgagee has a first
position security interest in the specified property funded with mortgage proceeds. As well, there are some mortgagees with a second position
security interest. In addition, certain investment properties are cross-securitized providing the lender with preferential security rights to those
properties.
Northview 2016 Annual Report | Page 62
Northview Apartment Real Estate Investment Trust
Notes to the Consolidated Financial Statements
Years ended December 31, 2016 and 2015
(Tabular amounts expressed in thousands of Canadian dollars except where indicated)
The following table summarizes Northview’s mortgages as at December 31, 2016:
(thousands of dollars)
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
Thereafter
Principal
Repayments
Principal on Maturity
During the Year
126,020
47,411
162,811
45,706
175,864
41,337
36,353 174,622
281,179
27,632
52,122
22,332
93,591
20,261
67,241
16,780
153,415
11,461
129,907
3,783
-
2,427
Total
173,431
208,517
217,201
210,975
308,811
74,454
113,852
84,021
164,876
133,690
2,427
% of Total
10.2%
12.3%
12.8%
12.5%
18.3%
4.4 %
6.7%
5.0%
9.8%
7.9%
0.1%
275,483
1,416,772
1,692,255
100.0%
Weighted
Average
Interest Rate
3.85%
3.94%
3.29%
2.73%
3.48%
2.98%
3.11%
3.18%
3.04%
2.46%
3.20%
3.23%
Northview may, from time to time, enter into derivative financial instruments to mitigate interest rate risk. Pursuant to the acquisition of TN, Northview
acquired interest rate swaps. At December 31, 2016, Northview held one cash-settled interest rate swap contract for $35.0 million of mortgages
payable maturing in July 2017. The contract carries a fixed swap rate of 2.44% per annum maturing in July 2017. Hedge accounting is not being
applied to this swap contract. At December 31, 2016, the liability related to the interest rate swap is $1,499 (December 31, 2015 - $1,515).
During the year ended December 31, 2016, the fair value adjustment of the interest rate swap was $16 (December 31, 2015 - $234) has been
recognized as unrealized fair value (Note 22) in the consolidated statements of net and comprehensive income.
11. Convertible debentures
Pursuant to the acquisition of TN, Northview acquired a $23,000 principal amount of convertible unsecured subordinated debentures at par (the
“2019 Debentures”). The 2019 Debentures bear interest at 5.75% per annum, are payable semi-annually in arrears, and mature on June 30, 2019
(the "Maturity Date"). The 2019 Debentures are convertible with each $1,000 (actual dollars) of face value being convertible into 42.0 Trust Units,
being 107.5 TN Trust Units multiplied by an exchange ratio of 0.3908 of a Trust Unit for each TN Trust Unit, representing a conversion price of
$23.80 per Trust Unit, for a total of 966,386 Trust Units.
On and after June 30, 2017, but prior to June 30, 2018, the 2019 Debentures will be redeemable, in whole or in part, at par plus accrued and unpaid
interest, at the sole option of Northview, on not more than 60-day and not less than 30-day prior notice, provided that the market price of a Unit,
calculated with reference to the date on which notice of redemption is given, is not less than 125% of the conversion price.
On and after June 30, 2018, but prior to the Maturity Date, the 2019 Debentures are redeemable, in whole or in part, at par plus accrued and unpaid
interest, at the sole option of Northview, on not more than 60-day and not less than 30-day prior notice.
Northview may, at its sole option, subject to certain restrictions, elect to satisfy its obligation to pay all or any portion of the principal amount on the
2019 Debentures by delivering to debenture holders on the redemption date that number of Trust Units obtained by dividing the principal amount
redeemed by 95% of the current market price of the Trust Units on the redemption date.
During the year ended December 31, 2016, interest on the 2019 Debentures was $1,324 (December 31, 2015 - $221), and has been recognized as
finance costs (Note 21) in the consolidated statements of net and comprehensive income.
Northview 2016 Annual Report | Page 63
Northview Apartment Real Estate Investment Trust
Notes to the Consolidated Financial Statements
Years ended December 31, 2016 and 2015
(Tabular amounts expressed in thousands of Canadian dollars except where indicated)
The following table summarizes the changes in the 2019 Debentures during the year ended December 31, 2016:
Convertible Debentures
Principal
Outstanding, January 1, 2015
Issued, October 30, 2015
Fair value adjustment
Outstanding, December 31, 2015
Fair value adjustment
Outstanding, December 31, 2016
The following table reconciles the face value of the 2019 Debentures to their fair value:
Face value
Fair value adjustment
Fair value
12. Credit facilities
Borrowings under credit facilities
Operating facilities(i)
Construction financing(ii)
Land financing(iii)
Bridge facility(iv)
Total
Current
Non-current
Total
-
23,000
-
23,000
-
23,000
2016
23,000
460
23,460
2016
73,200
50,013
10,629
-
133,842
68,013
65,829
133,842
Amount
-
23,345
(460)
22,885
575
23,460
2015
23,000
(115)
22,885
2015
88,450
39,289
6,004
350,000
483,743
483,743
-
483,743
(i) Effective September 30, 2016, Northview finalized the consolidation of the drawn balances under the $75.0 million and $45.0 million operating
facilities into a new $150.0 million facility. At December 31, 2016, Northview had three operating facilities with credit limits of $150.0 million,
$23.0 million, and $30.0 million, respectively, a total of $203.0 million (December 31, 2015 – $135.0 million) for acquisition, development, and
operating purposes.
The $150.0 million facility bears interest at prime plus 0.75% or Bankers’ Acceptance plus 2.00% with a maturity date of May 12, 2018. As of
December 31, 2016, the maximum borrowing capacity was $108.4 million based on the investment properties pledged. At December 31,
2016, $55.2 million had been drawn. Specific investment properties with a fair value of $281.5 million have been pledged as collateral security
for the operating facility. This facility is subject to certain financial covenants. As of December 31, 2016, Northview was in compliance with all
financial covenants. Northview also has $4.1 million (December 31, 2015 – $5.5 million) in Letters of Credit (“LOC”) outstanding as security
for construction projects and mortgage holdbacks. The LOC reduces the amount available under the $150.0 million operating facility.
The $23.0 million facility bears interest at prime plus 0.75% or Bankers’ Acceptance plus 2.00% with a maturity date of July 22, 2017. As of
December 31, 2016, the maximum borrowing capacity was $23.0 million (December 31, 2015 – $15.0 million) based on the investment
properties pledged. At December 31, 2016, $18.0 million had been drawn (December 31, 2015 – $7.0 million). Specific investment properties
with a fair value of $38.3 million (December 31, 2015 – $34.5 million) have been pledged as collateral security for the operating facility. This
facility is subject to certain financial covenants. As of December 31, 2016, Northview was in compliance with all financial covenants.
The $30.0 million facility bears interest at prime plus 1.15% or Bankers’ Acceptance plus 2.40% with a maturity date of May 31, 2017. As of
December 31, 2016, the maximum borrowing capacity was $21.7 million (December 31, 2015 – $nil) based on the investment properties
pledged. At December 31, 2016, $nil million had been drawn (December 31, 2015 – $nil). Specific investment properties with a fair value of
$42.7 million (December 31, 2015 – $nil) have been pledged as collateral security for the operating facility. This facility is subject to certain
financial covenants. As of December 31, 2016, Northview was in compliance with all financial covenants.
Northview 2016 Annual Report | Page 64
Northview Apartment Real Estate Investment Trust
Notes to the Consolidated Financial Statements
Years ended December 31, 2016 and 2015
(Tabular amounts expressed in thousands of Canadian dollars except where indicated)
(ii) At December 31, 2016, Northview had three construction financing loans outstanding relating to the developments in Calgary, AB; Cambridge
Bay, NU; and Bonnyville, AB. Interest rates range from prime plus 0.50% to 1.00% or Banker’s Acceptance plus 2.00% to 2.20%. Maturity
dates range from May 31, 2017, to December 31, 2017.
(iii) The land financing relates to land held for development and bears interest at prime plus 0.50% or Bankers’ Acceptance plus 2.00% with a
maturity date of December 31, 2018. Financing is secured by five parcels of land held for development.
(iv) Northview entered into two bridge facilities for a total of $350.0 million to fund the Transaction on October 30, 2015. The first bridge facility
was a two-year senior secured non-revolving term loan facility bearing interest at prime plus 0.7% or Bankers’ Acceptance plus 1.95% for the
amount of $325.0 million with a maturity date of October 30, 2017. The second bridge facility was a six-month term, with a six-month extension
subject to lender approval, senior secured non-revolving equity bridge facility bearing interest at prime plus 1.25% or Bankers’ Acceptance
plus 2.50% for the amount of $25.0 million with a maturity date of April 30, 2016. During the first quarter of 2016, the two bridge facilities were
repaid in full.
13. Unit based payments
a) Performance Units
On May 6, 2015, the Trustees approved a unit award plan comprised of a Long Term Incentive (“an LTI”) plan, whereby Performance Units are
issued to executives and key personnel of Northview. The LTI plan is being used in place of the former Long Term Incentive Plan (“LTIP”). Each
Performance Unit entitles the employees to receive payment upon vesting in the form of Trust Units of Northview. Performance Units vest over a
period of up to three years and incorporate performance criteria established at the time of grant. Performance Units accumulate additional
Performance Units at the same rate that distributions are paid on units from the time of granting until vesting. Northview intends to settle all
Performance Units with units either through the purchase of Trust Units on the open market or the issuance of new units from treasury; however,
wholly at its own discretion, Northview may settle the units in cash. Compensation expense is recognized in net and comprehensive income over
the service period.
Total Performance Units granted and cancelled under the LTI plan are as follows:
Balance, January 1
Units granted
Units cancelled
Balance, end of year
2016
Number of Units
2015
Number of Units
72,910
120,831
(47,562)
146,179
-
74,535
(1,625)
72,910
Key management personnel are comprised of Trustees and the Trust’s executive officers. Performance Units granted and cancelled under the LTI
plan to key management personnel (also included in the above table) are as follows:
Balance, January 1
Units granted
Units cancelled
Balance, end of year
2016
Number of Units
2015
Number of Units
33,266
50,885
(14,658)
69,493
-
33,266
-
33,266
Northview 2016 Annual Report | Page 65
Northview Apartment Real Estate Investment Trust
Notes to the Consolidated Financial Statements
Years ended December 31, 2016 and 2015
(Tabular amounts expressed in thousands of Canadian dollars except where indicated)
Long-term incentive plan (“LTIP”)
b)
Prior to 2015, Northview had an LTIP for the executives and key personnel, based on the results of each fiscal year. This plan was replaced with
the LTI plan described in Note 13(a). As such, Northview does not intend to grant any additional securities under the LTIP. The total amount of LTIP
awards are determined at the end of each fiscal year by the Trustees based on an assessment of the performance of Northview and the individual
performance of the executives and key personnel. The number of Trust Units granted is based on the weighted average trading price on December
31 of each year. Pursuant to the policy, rights to Trust Units generally vest in 1/3 tranches: immediately upon award, then 12 and 24 months
following.
Total Trust Units issued under the LTIP are as follows:
Balance, January 1
Units issued
Balance, end of year
2016
Number of Units
2,980
(610)
2,370
Issue Price
-
$19.96
-
2015
Number of Units
36,895
(33,915)
2,980
Issue Price
-
$21.06
-
Key management personnel are comprised of Trustees and the Trust’s executive officers. Trust Units issued under the LTIP to key management
personnel (also included in the above table) are as follows:
Balance, January 1
Units issued
Change in key management personnel
Balance, end of year
2016
Number of Units
1,293
(325)
(323)
645
Issue Price
-
$18.46
-
-
2015
Number of Units
16,052
(14,759)
-
1,293
Issue Price
-
$20.92
-
-
Deferred Units
c)
On May 6, 2015, the Unitholders approved a deferred unit award plan (“the DUP”), whereby Deferred Units are issued to Trustees. The DUP is a
form of compensation for non-executive Trustees. Total compensation expense is recognized at the time of grant. Deferred Units accumulate
additional Deferred Units at the same rate that distributions are paid on Trust Units from the time of granting until vesting. Fluctuations in the market
value are recognized in fair value in the consolidated statements of net and comprehensive income in the period in which the fluctuations occur.
Deferred Units are redeemable upon the Trustee’s retirement from Northview. The carrying amount of the liability, included in unit based payments,
relating to the cash-settled Deferred Units at December 31, 2016 is $0.6 million and at December 31, 2015 is $0.2 million.
Total Deferred Units granted under the DUP are as follows:
Balance, January 1
Units granted
Balance, end of year
14. Employee unit purchase plan
2016
2015
Number of Units
Number of Units
10,026
21,817
31,843
-
10,026
10,026
Changes to the Employee Unit Purchase Plan (the “EUPP”) were approved by the Board and made effective May 11, 2012. Under the terms of the
EUPP, employees may invest a maximum of 5% of their salary in Northview units and Northview contributes one unit for every four units acquired
by an employee. The units are purchased on the TSX at market prices. During the year ended December 31, 2016, employees invested a total of
$348 (December 31, 2015 – $284) and Northview contributed $87 (December 31, 2015 – $71). During the year ended December 31, 2016, 25,007
units (December 31, 2015 – 18,076 units) were purchased at an average cost of $19.60 per unit (December 31, 2015 – $21.56).
Northview 2016 Annual Report | Page 66
Northview Apartment Real Estate Investment Trust
Notes to the Consolidated Financial Statements
Years ended December 31, 2016 and 2015
(Tabular amounts expressed in thousands of Canadian dollars except where indicated)
15. Unitholders’ equity
a) Trust Units
The aggregate number of Trust Units and special voting units of Northview (“Special Voting Units”) which are authorized and may be issued is
unlimited.
Each Trust Unit represents an equal undivided beneficial interest in any distributions from Northview, and in any of the net assets of Northview in
the event of termination or winding up of Northview. All Trust Units are of the same class with equal rights and privileges and are not subject to
future calls or assessments. Each Trust Unit entitles the holder of record thereof to one vote for each whole Trust Unit held at all meetings of Trust
Unitholders. Except as set out under “Redemption Rights” below, the Trust Units have no conversion, retraction, redemption or pre-emptive rights.
The Trust Units should not be viewed by potential investors as shares in Northview. A Unitholder has substantially all of the same protections,
rights and remedies as a shareholder would have under the Canada Business Corporations Act (“CBCA”), except that Unitholders will not have the
statutory rights normally associated with ownership of shares of a CBCA corporation including, for example, “dissent rights” in respect of certain
corporate transactions and fundamental changes, rights to submit shareholder proposals at shareholder meetings, or the right to bring “derivative”
or “oppression” actions. The Trustees have powers, responsibilities and duties analogous to those of a board of directors of a corporation governed
by the CBCA. The protections, rights and remedies available to a Unitholder are contained in the DOT.
Transfer of Trust Units
Pursuant to the DOT, the Trust Units are freely transferable.
Repurchase of Trust Units
Northview shall be entitled to purchase for cancellation at any time the whole or from time to time any part of the outstanding Trust Units, at a price
per Trust Unit and on a basis to be determined by the Trustees in compliance with all applicable securities regulatory laws, regulations or policies
or the policies of any applicable stock exchange.
Redemption Rights
Trust Units are redeemable at any time on demand by the holders. A Unitholder not otherwise holding a fully registered Trust Unit certificate who
wishes to exercise the redemption right is required to obtain a written redemption notice (the “Redemption Notice”) from his or her investment dealer
who is then required to deliver the completed Redemption Notice to Northview. Upon receipt by Northview of the Redemption Notice, the Unitholder
shall thereafter cease to have any rights with respect to the Trust Units tendered for redemption (other than to receive the redemption payment
thereof) including the right to receive any distributions thereon which are declared payable to the Unitholders of record on a date which is subsequent
to the day of receipt by Northview of such notice. Trust Units shall be considered to be tendered for redemption on the date that Northview has, to
the satisfaction of the Trustees, received the Redemption Notice and all other required documents or evidence.
Upon receipt of the Redemption Notice by Northview, the holder of the Trust Units tendered for redemption shall be entitled to receive a price per
Trust Unit (the “Redemption Price”) equal to the lesser of:
a)
b)
90% of the “market price” of the Trust Units on the principal market on which the units are quoted for trading during the 20 trading day
period commencing immediately subsequent to the day on which the units were surrendered to Northview for redemption (the
“Redemption Date”); and
100% of the “closing market price” on the principal market on which the Trust Units are quoted for trading on the Redemption Date.
For the purposes of calculating the Redemption Price, “market price” shall be an amount equal to the weighted average of the closing price of the
Trust Units for each of the trading days on which there was a closing price; provided that if the applicable exchange or market does not provide a
closing price, but only provides the highest and lowest prices of the Trust Units traded on a particular day, the “market price” shall be an amount
equal to the average of the highest and lowest prices for each of the trading days on which there was a trade; and provided further that if there was
trading on the applicable exchange or market for fewer than five of the 20 trading days, the “market price” shall be the weighted average of the
following prices established for each of the 20 trading days:
(i)
(ii)
(iii)
the weighted average of the last bid and last asking prices for the Trust Units for each day on which there was no trading;
the closing price of the Trust Units for each day that there was trading if the exchange or market provides a closing price; and
the weighted average of the highest and lowest prices of the Trust Units for each day that there was trading if the market provides
only the highest and lowest prices of Trust Units traded on a particular day.
Where the holder of Trust Units tendered for redemption is entitled to receive a price per unit equal to 100% of the “closing market price” on the
principal market on which the units are quoted for trading on the Redemption Date, the “closing market price” shall be:
(i)
(ii)
(iii)
an amount equal to the closing price of the Trust Units if there was a trade on the date and the exchange or market provides a
closing price;
an amount equal to the weighted average of the highest and lowest prices of Trust Units if there was trading on the date and the
exchange or other market provides only the highest and lowest trading prices of Trust Units traded on a particular day; and
the weighted average of the last bid and last asking prices of the Trust Units if there was no trading on the date.
Northview 2016 Annual Report | Page 67
Northview Apartment Real Estate Investment Trust
Notes to the Consolidated Financial Statements
Years ended December 31, 2016 and 2015
(Tabular amounts expressed in thousands of Canadian dollars except where indicated)
The aggregate Redemption Price payable by Northview in respect of any Trust Units surrendered for redemption during any calendar month shall
be satisfied by way of a cash payment no later than the last day of the calendar month following the month in which the 20 trading day period referred
to above ended, provided that there is no entitlement for Unitholders to receive cash upon the redemption of their Trust Units if:
(i)
(ii)
(iii)
the total amount payable by Northview in respect of such Trust Units and all other Trust Units tendered for redemption in the same
calendar month exceeds $50,000; provided that the Trustees may, in their sole discretion, waive such limitation in respect of all
Trust Units tendered for redemption in any particular calendar month. Trust Units tendered for redemption in any calendar month
in which the total amount payable by Northview exceeds the Monthly Limit will be redeemed for cash and, subject to any applicable
regulatory approvals, by a distribution in specie of securities on a pro rata basis;
at the time the Trust Units are tendered for redemption, the outstanding Trust Units (or, as applicable, instalment receipts) are not
listed on a stock exchange or traded or quoted on another market which the Trustees consider, in their sole discretion, provides
representative fair market value prices for the Trust Units (or, as applicable, instalment receipts); or
the normal trading of the outstanding Trust Units (or, as applicable, instalment receipts) is suspended or halted on any stock
exchange on which the Trust Units (or, as applicable, instalment receipts) are listed for trading or, if not so listed, on any market on
which the Trust Units (or, as applicable, instalment receipts) are quoted for trading, on the Redemption Date or for more than five
trading days during the 20 trading day period commencing immediately after the Redemption Date.
If a Unitholder is not entitled to receive cash upon the redemption of Trust Units as a result of any one of the foregoing limitations, then the
Redemption Price per Trust Unit to which the Unitholder is entitled shall be the fair market value thereof as determined by the Trustees and, subject
to any applicable regulatory approvals, shall be paid out and satisfied by way of a distribution in specie consisting of such assets of Northview as
the Trustees determine.
Based on historic information over the past year, redemption levels are expected to be nil. However, the actual level of redemptions may differ
significantly from historic experience.
Special Voting Units
The DOT provide for the issuance of the Special Voting Units which have no economic entitlement in Northview or in the distribution or assets of
Northview, but are used to provide voting rights proportionate to the votes of the Trust Units to holders of securities exchangeable into Trust Units,
including the Class B LP Units. Each Special Voting Unit is not transferable separately from the Class B LP Unit to which it is attached and will be
automatically redeemed and cancelled upon exchange of the attached Class B LP Unit into a Unit. Each Special Voting Unit will entitle the holder
to one vote, either in person or by proxy, at the meeting of Unitholders as if he or she was a Unitholder.
The number of Trust Units issued and outstanding at December 31, 2016, and December 31, 2015, is as follows:
Balance, January 1
LTIP units issued
Units issued
Balance, end of year
2016
Number of Units
44,410,640
610
5,531,125
49,942,375
Amount
1,053,626
12
104,136
1,157,774
2015
Number of Units
31,674,160
33,915
12,702,565
44,410,640
Amount
818,041
715
234,870
1,053,626
b) Class B LP Units and Special Voting Units
The Class B LP Units are units issued by subsidiaries of Northview and can be issued in conjunction with property acquisitions. The Class B LP
Units can be exchanged for Trust Units at any time at the option of the holder. Each Class B LP Unit will have a Special Voting Unit attached to it,
which will entitle the holder to one vote, either in person or by proxy, at the meeting of Unitholders as if he or she was a Unitholder.
Subsidiaries of Northview are authorized to issue Class B LP Units and Special Voting Units. The ability to exchange Class B LP Units for Trust
Units implies a liability element exists because it imposes an unavoidable obligation to deliver units of the Trust (i.e., a financial instrument of another
entity). Therefore, Class B LP Units are classified as financial liabilities on the consolidated statements of financial position.
The total number of Class B LP Units and Special Voting Units outstanding as at December 31, 2016 is 5,814,664 (December 31, 2015 – 7,809,539)
with a corresponding liability of $116.7 million (December 31, 2015 – $137.1 million). During, 2016, 1,994,875 Class B LP Units and Special Voting
Units (December 31, 2015 – nil), subject to conversion in accordance with their terms, were exchanged for Trust Units with a fair value of $33.1
million, of which 1,910,853 Class B LP Units and Special Voting Units were exchanged for Trust Units with a fair value of $31.3 million, by a Trustee,
a related party.
On October 30, 2015, pursuant to the Transaction, as discussed in Note 4, Northview issued 5,445,820 NPR Special Voting Units, 879,053 NPR
Special Voting Units, and 1,416,870 NPR Special Voting Units as part of the consideration for the TN acquisition, acquisition of the SL portfolio,
and IMH portfolio, respectively.
Northview 2016 Annual Report | Page 68
Northview Apartment Real Estate Investment Trust
Notes to the Consolidated Financial Statements
Years ended December 31, 2016 and 2015
(Tabular amounts expressed in thousands of Canadian dollars except where indicated)
The continuity schedule for the Class B LP and Special Voting Units classified as liabilities is as follows:
Date
Description
January 1, 2015
Q1, 2015
Q2, 2015
Q3, 2015
October 30, 2015
Q4, 2015
December 31, 2015
February 11, 2016
Q1, 2016
Q2, 2016
August 29, 2016
September 26, 2016
Q3 2016
Q4 2016
December 31, 2016
Fair value adjustment
Fair value adjustment
Fair value adjustment
Issuance of Class B LP and Special Voting Units
Fair value adjustment
Exchange of Class B LP and Special Voting Units
Fair value adjustment
Fair value adjustment
Exchange of Class B LP and Special Voting Units
Exchange of Class B LP and Special Voting Units
Fair value adjustment
Fair value adjustment
Issue Price/
Call Price
$23.77
$23.58
$22.38
$19.73
$18.49
$17.56
$17.56
$16.38
$18.68
$22.43
$20.48
$21.33
$21.88
$20.07
$20.07
Number of
Units
67,796
-
-
-
7,741,743
-
7,809,539
(1,910,853)
-
-
(25,402)
(58,620)
-
-
5,814,664
Amount
1,612
(13)
(81)
(180)
143,144
(7,347)
137,135
(31,300)
4,369
22,104
(520)
(1,250)
(3,314)
(10,523)
116,701
c) Distributions to Unitholders
Pursuant to the DOT, holders of Trust Units and Class B LP Units are entitled to receive distributions made on each distribution date as approved
by the Trustees. During the year ended December 31, 2016, Northview declared monthly cash distributions of $0.1358 per Unit. For the year ended
December 31, 2016, Northview declared distributions totaling $88.4 million (December 31, 2015 – $57.3 million).
d) Normal course issuer bid (“NCIB”)
On May 27, 2016, the TSX approved Northview’s notice of intention to renew the NCIB for its Trust Units. Northview’s NCIB will be made in
accordance with the policies of the TSX. Northview may purchase Trust Units during the period from June 1, 2016 to May 31, 2017, or an earlier
date should Northview complete its maximum purchases. Northview will pay the market price at the time of acquisition for any Trust Units in
accordance with the rules and policies of the TSX and applicable securities laws. Purchases under the NCIB will be funded out of Northview’s
working capital. Northview is not obligated to make any purchases pursuant to the NCIB. Northview is authorized to purchase, in a 12 month period,
up to 3,852,249 Trust Units, representing 10% of its public float, through the facilities of the TSX and other Canadian trading platforms. On any
trading day, Northview will not purchase more than 32,646 Trust Units, which is equal to 25% of Northview’s average daily trading volume over the
last six months, except where such purchases are made in accordance with the block purchase exemptions under the TSX rules.
During the year ended December 31, 2016, Northview did not purchase or subsequently cancel any Trust Units under its NCIB.
16. Non-controlling interests
Northview holds investments in a joint operation. Northview owns 55% of GoGa Cho Building Limited Partnership and, accordingly, consolidates
the operations and records a 45% non-controlling interest. Northview manages all aspects of the joint operation, prepares budgets which follow
Northview operating policies and determines whether distributions should be paid to the joint venture partners. Due to the inherent control over the
joint operation, Northview consolidates their operations and records non-controlling interests.
Northview 2016 Annual Report | Page 69
Northview Apartment Real Estate Investment Trust
Notes to the Consolidated Financial Statements
Years ended December 31, 2016 and 2015
(Tabular amounts expressed in thousands of Canadian dollars except where indicated)
17. Guarantees, commitments and contingencies
In the normal course of operations, Northview may provide indemnification commitments to counterparties in transactions such as credit facilities,
leasing transactions, service arrangements, director and officer indemnification agreements, and sales of assets. These indemnification agreements
may require Northview to compensate the counterparties for costs incurred as a result of changes in laws and regulations (including tax legislation)
or as a result of litigation claims or statutory sanctions that may be suffered by counterparties as a consequence of the transaction. The terms of
these indemnification agreements vary based on the contract and do not provide any limit on the maximum potential liability. To date, Northview
has not made any payments under such indemnifications and no amount has been accrued in the consolidated financial statements with respect to
these indemnification commitments.
In the normal course of operations, from time to time, Northview becomes subject to various legal and other claims. Management and its legal
counsel evaluate these claims and, where required, accrue the best estimate of costs relating to these claims. Management believes the outcome
of claims of this nature at December 31, 2016 will not have a material impact on Northview.
During the normal course of operations, Northview provided guarantees for mortgages payable relating to investments in corporations and joint
ventures where Northview owns less than 100%. The mortgages payable are secured by specific charges against the properties owned by the
corporations and joint ventures. In the event of a default of the corporation or joint venture, Northview may be liable for up to 100% of the outstanding
balances of these mortgages payable.
At December 31, 2016, Northview has provided guarantees on mortgages secured by investment properties totaling $10.6 million (December 31,
2015 – $12.0 million) of its equity accounted joint ventures, ICP and ICS. These mortgages bear interest at rates ranging from 3.01% to 5.50% and
mature between July 2017 and December 2020 (December 31, 2015 – 2.43% to 5.50% and mature between January 2016 and March 2020). As
at December 31, 2016, land and buildings with a carrying value of $23.4 million have been pledged to secure these mortgages payable (December
31, 2015 – $16.2 million). Due to the equity accounting of ICP and ICS, the mortgage balances have not been recorded in Northview’s consolidated
financial statements. Management believes no default will occur and, accordingly, no amount has been recorded by Northview in these consolidated
financial statements.
18. Financial instruments and risk management
a) Fair value of financial assets and financial liabilities
Northview’s financial assets and financial liabilities are carried at amortized cost, which approximates fair value, or at fair value through profit or
loss as applicable. Such fair value estimates are not necessarily indicative of the amounts Northview might pay or receive in actual market
transactions.
The tables below present the fair value of Northview's assets and liabilities, as at December 31, 2016 and December 31, 2015:
Assets
Investment properties
Cash
Restricted cash
Assets held for sale
Liabilities
Mortgages payable
Convertible debentures
Class B LP Units
Derivative instruments
Unit based payments
2016
2015
Level 1
Level 2
Level 3
Level 1
Level 2
Level 3
-
4,148
11,254
-
-
23,460
-
-
-
-
-
-
-
3,059,825
-
-
24,797
1,692,821
-
116,701
1,499
1,733
-
-
-
-
-
-
4,487
9,738
-
-
22,885
-
-
-
-
-
-
-
3,025,468
-
-
-
1,394,358
-
137,135
1,515
788
-
-
-
-
-
Northview had no embedded derivatives requiring separate recognition as at December 31, 2016, or December 31, 2015.
Transfers between levels in the fair value hierarchy are recognized on the date of the event or change in circumstances that caused the transfer.
During the year ended December 31, 2016, and year ended December 31, 2015, there were no transfers between Level 1, Level 2 and Level 3
classified assets and liabilities. Northview had no credit derivatives over financial assets at December 31, 2016, or December 31, 2015, and
throughout the intervening periods.
Northview 2016 Annual Report | Page 70
Northview Apartment Real Estate Investment Trust
Notes to the Consolidated Financial Statements
Years ended December 31, 2016 and 2015
(Tabular amounts expressed in thousands of Canadian dollars except where indicated)
The following summarizes the significant methods and assumptions used in estimating fair values of Northview's assets and liabilities measured at
fair value and other financial instruments:
Investment properties
(i)
Northview determined the fair value of each investment property using the valuation methodology and key assumptions described in Note 4.
(ii) Mortgages payable
The fair value of mortgages payable is estimated based on the present value of future payments, discounted at the yield on a Government of
Canada bond with the nearest maturity date to the underlying mortgage, plus an estimated credit spread at the reporting date for a comparable
mortgage or the yield of a comparable mortgage. The spread rates used at December 31, 2016, ranged from 1.01% to 2.59% (December 31, 2015
- 1.04% to 2.24%), depending on the nature and terms of the respective mortgages.
Convertible debentures
(iii)
The fair value of the convertible debentures is determined based on the market trading prices of the convertible debentures as at the valuation date.
As allowed under IFRS 13, Fair Value Measurement ("IFRS 13"), if an asset or liability measured at fair value has a bid and an ask price, the price
within the bid-ask spread that is most representative of fair value in the circumstances shall be used to determine fair value. Northview has chosen
to use the closing price at the end of the period of the convertible debentures as the fair value for the convertible debentures.
(iv) Class B LP Units
The fair value of the Class B LP Units is estimated based on the market trading prices of the Trust Units at the valuation date. As allowed under
IFRS 13, if an asset or liability measured at fair value has a bid price and an ask price, the price within the bid-ask spread that is most representative
of fair value in the circumstances shall be used to determine fair value. Northview has chosen to use the closing price of its Trust Units for fair value
measurement for its Class B LP Units.
(v) Derivative instruments
The fair value of the interest rate swap is determined using widely accepted valuation techniques including discounted cash flow analysis on the
expected cash flows of the derivatives. The fair value is determined using the market standard methodology of netting the discounted future fixed
cash payments and the discounted expected variable cash receipts. The variable cash receipts are based on expectation of future interest rates
(forward curves) derived from observable market rate curves. The fixed cash payments are based on the rates disclosed in Note 11.
(vi) Unit based payments
Northview determines the fair value of unit based payments and deferred units using the valuation methodology and key assumptions described in
Note 2(l) of the consolidated financial statements for the year ended December 31, 2016.
(vii) Other financial assets and financial liabilities
The fair values of Northview's other financial assets, which include cash, restricted cash, accounts receivable, prepaid expenses and other assets,
as well as Northview's other financial liabilities, which include credit facilities, trade and other payables, and distributions and Class B LP interest
payable, approximate their recorded values due to their short-term nature.
b) Risk management related to financial instruments
Northview is exposed to utility, credit, interest rate, and liquidity risks associated with its financial assets and liabilities. The Trustees have
responsibility for the establishment and approval of Northview’s overall risk management policies, including those related to financial instruments.
Management performs continuous assessments so that all significant risks related to financial instruments are reviewed and addressed in light of
changes to market conditions and Northview’s operating activities.
(i) Utility cost risk
Utility cost risk is the potential financial loss Northview may experience as a result of higher resource prices or lack of supply. Northview is exposed
to utility cost risk from the fluctuation in retail prices for fuel oil, natural gas, and electricity, the primary utilities used to heat its properties. The
exposure to utility cost risk is restricted primarily to the multi-family rental and execusuites and hotel portfolios. The leases in the commercial portfolio
generally provide for recovery of operating costs from tenants, including utilities. Due to the northern locations of a significant portion of Northview’s
portfolio, the exposure to utility price fluctuations is more pronounced in the first and last fiscal quarters of the year. Northview manages its exposure
to utility risk through a number of preventative measures, including retrofitting properties with energy efficient appliances, fixtures, and windows.
Northview may utilize hedges or forward contracts to manage exposure to utility cost risk.
Northview continues to implement a sub-metering program in properties located in Ontario. Sub-metering provides individual electric meters for
each multi-family rental unit, allowing tenants to pay their electricity bills directly. This reduces utility costs to the landlord. As a result, Northview’s
exposure to utility price fluctuations is minimized in Ontario.
Heating oil is the primary source of fuel for heating properties located in Nunavut and Yellowknife, NT.
Northview 2016 Annual Report | Page 71
Northview Apartment Real Estate Investment Trust
Notes to the Consolidated Financial Statements
Years ended December 31, 2016 and 2015
(Tabular amounts expressed in thousands of Canadian dollars except where indicated)
Natural gas is the main source of fuel for heating properties located in Alberta, parts of British Columbia, New Brunswick, Nova Scotia, Ontario,
Quebec, Saskatchewan, and Inuvik, NT. Natural gas prices in Alberta, British Columbia, and Ontario are not subject to regulated price control.
Northview does not use financial instruments to manage the exposure to the utility cost risk.
Management prepared a sensitivity analysis of the impact of price changes in the cost of heating oil and natural gas. A 10% change in the combined
average price of heating oil and natural gas would impact Northview’s net income by approximately $1.0 million for the year ended December 31,
2016 (December 31, 2015 – $1.2 million).
Electricity is the primary source for heating properties located in Newfoundland and Labrador, as well as parts of British Columbia. In Newfoundland
and Labrador and British Columbia, electricity is purchased from the provincially regulated utilities and is directly paid by the residents for a significant
portion of Northview’s multi-family rental units. As a result, there is no significant risk to Northview regarding the price of electricity in Newfoundland
and Labrador and British Columbia.
(ii) Credit risk
Credit risk is the risk that one party to a financial instrument will cause a financial loss for the other party by failing to discharge an obligation.
Northview’s credit risk primarily arises from the possibility that residents may not be able to fulfill their lease commitments. Loan receivables consist
mainly of amounts due from commercial tenants. Given Northview’s collection history and the nature of these tenants, credit risk is assessed as
low. Accounts receivable consists mainly of resident receivables. Resident receivables are comprised of a large number of residents spread across
the geographic areas in which Northview operates. There are no significant exposures to single residents with the exception of the Governments
of Canada, Nunavut and the Northwest Territories, which lease a large number of residential units and commercial space in the Northwest Territories
and Nunavut.
Northview mitigates credit risk through conducting thorough credit checks on prospective residents, requiring rental payments on the first of the
month, obtaining security deposits approximating one month’s rent from residents where legislation permits, and geographic diversification in its
portfolio. Northview records a specific bad debt provision on balances owed from past residents and provides an allowance for receivables, net of
security deposits, from current residents where the expected amount to be collected is less than the actual accounts receivable. The aging of current
residents and resident receivables is net of allowance for doubtful accounts from current and past residents.
Northview classifies residents as past residents on the date of their move out from a residential unit. Any subsequent recovery of balances owed
from past residents is recorded as a reduction in the bad debt provision for the period. The amounts disclosed on the consolidated statements of
financial position are net of allowances for uncollectible accounts from current and past residents and other receivables, estimated by management
based on prior experience and current economic conditions.
The following is an aging of current residents and other receivables:
0-30 days
31-60 days
61-90 days
Over 90 days
Resident receivables
Other receivables
2016
1,866
441
144
1,979
4,430
4,998
9,428
2015
1,519
429
310
2,057
4,315
8,102
12,417
Other receivables consist of goods and services tax rebates, mortgage holdbacks, insurance claims, and miscellaneous receivables.
(iii) Interest rate risk
Interest rate risk is the risk that the value of future cash flows of a financial instrument will fluctuate as a result of changes in market interest rates.
Northview is exposed to interest rate risk on mortgages payable and its credit facilities and does not hold any financial instruments to mitigate that
risk. In the current economic environment, it is difficult to predict what future interest rates will be and, as such, Northview may not be able to
continue to renew mortgage loans with interest rates that are lower than those currently in place. Northview utilizes both fixed and floating rate debt.
Interest rate risk related to floating interest rates is limited primarily to the utilization of credit facilities. Management mitigates interest rate risk by
utilizing fixed rate mortgages, ensuring access to a number of sources of funding, and staggering mortgage maturities with the objective of achieving
relatively even annual debt maturities. To the extent possible, Northview maximizes the amount of mortgages on residential rental properties where
it is possible to lower interest rates through CMHC mortgage insurance.
A sensitivity analysis on floating rate debt has been completed based on the exposure to interest rates at the statement of financial position date.
Floating rate debt includes all mortgages payable which are not subject to fixed interest rates and the credit facilities. A 0.50% change in interest
rates, keeping all other variables constant, would change Northview’s net income for the year ended December 31, 2016, by approximately $0.7
million (December 31, 2015 – $0.5 million). For the year ended December 31, 2016, the average floating rate debt was $10.2 million and the average
Northview 2016 Annual Report | Page 72
Northview Apartment Real Estate Investment Trust
Notes to the Consolidated Financial Statements
Years ended December 31, 2016 and 2015
(Tabular amounts expressed in thousands of Canadian dollars except where indicated)
credit facilities balance was $82.2 million (December 31, 2015 – average floating rate debt was $4.2 million and the average credit facilities balance
was $240.0 million). During the first quarter of 2016, the two bridge facilities with a total of $350.0 million were repaid in full.
(iv) Liquidity risk
Liquidity risk is the risk that Northview is not able to meet its financial obligations as they fall due or can do so only at excessive cost. Northview
manages liquidity risk by managing mortgage and loan maturities to ensure a relatively even amount of mortgage maturities in each year. Cash
flow projections are completed on a regular basis to ensure there will be adequate liquidity to maintain operating, capital, and investment activities
in addition to making monthly distributions to Unitholders. The Trustees review the current financial results and the annual business plan in
determining appropriate distribution levels.
Contractual maturity for non-derivative financial liabilities at December 31, 2016:
Mortgages payable
Credit facilities
Trade and other payables (i)
Distributions and Class B LP
interest payable
Carrying Amount
1,661,532
133,842
68,106
Contractual
Cash Flows
1,918,758
133,842
68,106
7,571
7,571
Up to
1 year
213,537
68,013
68,106
7,571
Liabilities related to asset
held for sale
(i) Security deposits payable are included in trade and other payables.
18,008
18,008
18,008
Contractual maturity for derivative financial liabilities at December 31, 2016:
Convertible debentures
Derivative instruments
Unit based payments
Carrying Amount
23,460
1,499
1,733
Contractual
Cash Flows
23,460
1,499
1,733
Up to
1 year
-
1,499
-
Contractual maturity for non-derivative financial liabilities at December 31, 2015:
Mortgages payable
Credit facilities
Trade and other payables (i)
Carrying Amount
1,359,889
483,743
70,467
Contractual Cash Flows
1,558,717
483,743
70,467
Distributions and Class B LP
interest payable
(i) Security deposits payable are included in trade and other payables.
7,089
7,089
Contractual maturity for derivative financial liabilities at December 31, 2015:
Convertible debentures
Derivative instruments
Unit based payments
Carrying Amount
22,885
Contractual Cash Flows
22,885
1,515
788
1,515
788
Up to
1 year
202,098
483,743
70,467
7,089
Up to
1 year
-
-
-
1 – 5
years
1,084,217
65,829
-
-
-
1 – 5
years
23,460
-
1,733
1 – 5
years
826,730
-
-
Over 5
years
621,004
-
-
-
-
Over 5
years
-
-
-
Over 5
years
529,889
-
-
-
-
1 – 5
years
22,885
1,515
788
Over 5
years
-
-
-
Management believes that future cash flows from operations, mortgage refinancing, and cash available under the current operating facilities provide
sufficient available funds through the foreseeable future to support these financial liabilities.
Northview 2016 Annual Report | Page 73
Northview Apartment Real Estate Investment Trust
Notes to the Consolidated Financial Statements
Years ended December 31, 2016 and 2015
(Tabular amounts expressed in thousands of Canadian dollars except where indicated)
19. Capital management
Northview’s objectives when managing its capital are to safeguard its assets while maximizing the growth of its business, returns to Unitholders,
and maintaining the sustainability of cash distributions. Northview’s capital consists of mortgages payable, credit facilities, Trust Units, and Class B
LP Units.
Management monitors Northview’s capital structure on an ongoing basis to determine the appropriate level of mortgages payable to be placed on
specific properties at the time of acquisition or when existing debt matures. Northview follows conservative guidelines which are set out in the DOT.
In determining the most appropriate debt, consideration is given to strength of cash flow generated from the specific property, interest rate,
amortization period, maturity of the debt in relation to the existing debt of Northview, interest and debt service ratios, and limits on the amount of
floating rate debt. Northview has credit facilities which are used to fund acquisitions, development, and capital expenditures until specific mortgage
debt is placed or additional equity is raised. Consistent with others in the industry, Northview monitors capital on the basis of debt to gross book
value ratio. The DOT provides for a maximum debt to gross book value ratio of 70%. For the purposes of these consolidated financial statements,
Debt to Gross Book Value is calculated on the consolidated entities.
Northview’s calculations of its adherence to financial covenants are considered non-GAAP measures. As at December 31, 2016 and December 31,
2015, Northview was in compliance with all financial covenants.
The following debt to gross book value, interest coverage, and debt service coverage excludes the 2019 Debentures and interest expenses on
2019 Debentures.
2016
2015
Debt to gross book value
Cash
Credit facilities
Mortgages payable
Debt
Investment properties
Property, plant and equipment
Properties held for sale
Accumulated depreciation
Accumulated depreciation for properties held for sale
Gross book value
Debt to gross book value
Interest coverage and debt service coverage
Income before income taxes
Depreciation and amortization
Mortgage interest and deferred financing costs
Interest expense on credit facilities
Interest expense to Class B LP Unitholders
Bargain purchase gain
Business combination transaction costs
Unrealized fair value changes
Adjusted earnings
Mortgage interest and deferred financing costs
Interest expense on credit facilities
Total interest expense excluding interest expense to Class B LP Unitholders
Principal repayment
Debt service payments
Interest coverage
Debt service coverage
(4,148)
133,842
1,692,255
1,821,949
3,059,825
40,282
39,873
22,493
4,074
3,166,547
57.5%
2016
77,475
4,967
53,004
6,043
9,822
-
14,579
10,268
176,158
53,004
6,043
59,047
44,590
103,637
2.98
1.70
(4,487)
483,743
1,357,215
1,836,471
3,025,468
55,510
-
22,156
-
3,103,134
59.2%
2015
31,852
5,030
32,250
3,315
2,213
(50,893)
38,959
55,103
117,829
32,250
3,315
35,565
27,757
63,322
3.31
1.86
Northview 2016 Annual Report | Page 74
Northview Apartment Real Estate Investment Trust
Notes to the Consolidated Financial Statements
Years ended December 31, 2016 and 2015
(Tabular amounts expressed in thousands of Canadian dollars except where indicated)
Northview’s operating facilities contain certain financial covenants. The interest coverage ratio and debt service coverage ratio covenant minimum
threshold is of at least 1.90 and 1.50, respectively. Interest coverage and debt service coverage are calculated based on the most recently completed
four fiscal quarters.
Debt to gross book value, interest coverage, and debt service coverage including the 2019 Debentures and interest expenses on 2019 Debentures
is 58.3%, 2.94, and 1.69, respectively (December 31, 2015 – 59.9%, 3.30, and 1.86, respectively).
20. Personnel costs
Salaries, wages and benefits
Equity settled unit based compensation
Personnel costs capitalized to investment properties
21. Financing costs
Mortgage interest
Deferred financing costs
Interest expense on 2019 debentures
Interest expense on credit facilities
Interest expense to Class B LP Unitholders
Interest and other income
(Gain) loss on extinguishment of debt
22. Unrealized fair value changes
Unrealized fair value change to investment properties
Sustaining CAPEX
Interest rate swap
2019 debentures
Unit based payments
Class B LP Units
Net unrealized fair value decrease
2016
45,988
103
46,091
(8,406)
37,685
2016
48,928
4,076
1,324
6,043
9,822
(886)
(755)
68,552
2016
(47,779)
44,551
(16)
575
302
12,635
10,268
2015
37,861
715
38,576
(12,731)
25,845
2015
29,761
2,489
221
3,315
2,213
(832)
790
37,957
2015
8,391
54,910
234
(460)
(351)
(7,621)
55,103
Northview 2016 Annual Report | Page 75
Northview Apartment Real Estate Investment Trust
Notes to the Consolidated Financial Statements
Years ended December 31, 2016 and 2015
(Tabular amounts expressed in thousands of Canadian dollars except where indicated)
23. Changes in non-cash working capital
Restricted cash
Accounts receivable
Prepaid expenses and other assets
Loans receivable
Other long term assets
Trade and other payables
Changes in non-cash working capital from operating activities
2016
281
3,333
1,219
2,629
(345)
(2,099)
5,018
2015
404
(5,568)
2,068
(1,206)
582
11,156
7,436
The changes in non-cash working capital from investing activities for the year ended December 31, 2016, of $1.3 million cash outflow (December
31, 2015 – $2.6 million cash outflow) is due to the change in trade and other payables related to work in progress with respect to investment property
improvements and land held for development.
24. Operating leases
As lessor, Northview leases commercial investment property held under operating leases. Commercial property operating leases have lease terms
of between 1 to 15 years, with an option to extend for a further period. All commercial operating lease contracts contain market review clauses in
the event that the lessee exercises its option to renew.
The future minimum lease payments receivable on commercial investment properties are as follows:
Less than 1 year
Between 1 and 5 years
More than 5 years
25. Assets held for sale
2016
20,063
60,299
22,228
102,590
2015
20,370
59,758
31,341
111,469
As at December 31, 2016, there are six (6) non-core properties across the portfolio classified as ‘Assets held for sale’ with a fair value of $24.8
million and property, plant, and equipment with a book value of $15.1 million which are expected to be disposed of within twelve (12) months. The
associated mortgages on these properties in the amount of $18.0 million have been reclassified from mortgages payables to ‘Liabilities related to
assets held for sale’. The revenue and expense for these properties are reported in net and comprehensive income in the consolidated statements
of net and comprehensive income.
Dispositions of non-core properties for the year ended December 31, 2016, were as follows:
Property
Type
Multi-family
Multi-family
Multi-family
Units
28
2
489
519
Dispositions for the year ended December 31, 2015, were as follows:
Property
Type
Multi-family
Multi-family
Commercial
Multi-family
Units
/ sq ft
54
2
37,540
189
245 / 37,540
Region
Atlantic Canada
Northern Canada
Ontario
Region
Atlantic Canada
Northern Canada
Western Canada
Western Canada
Gross Proceeds
1,770
300
46,500
48,570
Gross Proceeds
2,300
110
3,800
6,100
12,310
Northview 2016 Annual Report | Page 76
Northview Apartment Real Estate Investment Trust
Notes to the Consolidated Financial Statements
Years ended December 31, 2016 and 2015
(Tabular amounts expressed in thousands of Canadian dollars except where indicated)
The results of the assets held for sale included in the consolidated statements of financial position are set out below:
Statement of financial position from assets held for sale
Assets
Investment properties
Property, plant and equipment
2016
24,797
15,076
39,873
Liabilities
Mortgages payable
Net assets held for sale
26. Related parties
a) Key management personnel
18,008
18,008
21,865
2015
-
-
-
-
-
-
Key management personnel are comprised of Trustees and the Trust’s executive officers. The remuneration of Northview’s key management
personnel is as follows:
Salaries, wages and benefits
Equity settled unit based compensation
b) Related party transactions
2016
1,805
429
2,234
2015
2,327
504
2,831
Related party transactions are conducted in the normal course of operations and are made on terms equivalent to arm’s length transactions.
During the year, revenue from associates related to management fees and maintenance service fees received from ICP and ICS and receipt of
services from associates related to rent paid by Northview to ICP, as follows:
Revenue from associates
Receipt of services from associates
Transactions for the years ended
December 31
2016
370
53
2015
379
53
Balance Outstanding
December 31
2016
7
32
2015
118
1
Pursuant to the Transitional Services Agreement dated October 30, 2015, Starlight is to provide transitional services of an asset management nature for a
monthly fee equal to 0.125% of the sum of: (i) the agreed upon allocated values of the properties acquired from True North and its affiliates in connection
with the Transaction; (ii) the third party appraised values of the private portfolio acquired by Northview in connection with the Transaction; (iii) the purchase
price of new sourced properties; (iv) the third party appraised values of added properties; and (v) the cost of any capital expenditures incurred by
Northview or any of its affiliates in respect of the properties since the closing date of the Transaction. This agreement is for a term of three years ending
October 30, 2018, with Northview having the option to exclude the New Brunswick and Nova Scotia properties from the agreement after October 30, 2017.
At Northview’s option, the term may be renewed for two additional one year terms. On October 31, 2016, Northview provided notice to Starlight terminating
asset management services for the properties located in New Brunswick and Nova Scotia, effective October 31, 2017.
For the year ended December 31, 2016, the costs of these services aggregated to $1.9 million. Of this amount, $1.5 million has been capitalized,
while the remaining $0.4 million has been recognized as administration expenses in the consolidated statements of net and comprehensive income.
Balance outstanding and payable to Northview from Starlight as at December 31, 2016, is $0.4 million and is included in accounts receivable in the
consolidated statements of financial position.
Balance outstanding and payable to Starlight from Northview as at December 31, 2016, is $0.2 million and is included in trade and other payables
in the consolidated statements of financial position.
Northview 2016 Annual Report | Page 77
Northview Apartment Real Estate Investment Trust
Notes to the Consolidated Financial Statements
Years ended December 31, 2016 and 2015
(Tabular amounts expressed in thousands of Canadian dollars except where indicated)
During the third quarter of 2016, Northview sold two properties to Starlight for a total cash proceeds of $15.5 million. The properties were sold at a
value consistent with the internal assessment of the fair value of the properties. Fair value was calculated using expected net operating income of
that property divided by the market capitalization rate at the time of the valuation. This internal assessment of fair value is consistent with Northview’s
method and policy when assessing fair value of properties for period end reporting and third party sales.
During the year ended December 31, 2016, 1,910,853 Class B LP and Special Voting Units, subject to conversion in accordance with their terms,
were exchanged for Trust Units with a fair value of $31.3 million by a Trustee, a related party. Exchange of Class B LP and Special Voting Units to
Trust Units does not affect the Trustee’s total ownership.
27. Segmented information
Management uses geographic segments (i.e. groups of provinces and territories) to manage the properties. The geographic segments consist of
Atlantic Canada (Newfoundland and Labrador, Nova Scotia, and New Brunswick), Northern Canada (Northwest Territories and Nunavut), Ontario,
Quebec, and Western Canada (Alberta, British Columbia, and Saskatchewan). In addition, due to the differences between the commercial and the
residential markets, management also reviews operations by market segment. Within the residential property market, execusuites and hotel are
reviewed and managed as separate sub-segments.
Northview’s residential portfolio is comprised of a multi-family segment: apartments, town homes, and single family rental units; and an execusuites
and hotel segment where the rental period ranges from a few days to several months. The commercial business segment is comprised of office,
industrial, and retail properties primarily in areas where Northview has residential operations.
a) Geographic Segments
Year ended
December 31, 2016
Rental revenue
Other revenue
Operating expense
Net operating income
As at December 31, 2016
Total assets
Investment properties
Total liabilities
Year ended
December 31, 2015
Rental revenue
Other revenue
Operating expense
Net operating income
As at December 31, 2015
Total assets
Investment properties
Total liabilities
Atlantic
Canada
Northern
Canada
Ontario
Quebec
Western
Canada
Total
45,061
955
(22,424)
23,592
408,728
383,722
230,359
Atlantic
Canada
28,896
682
(13,508)
16,070
397,842
378,434
195,385
88,255
5,644
(34,042)
59,857
626,385
594,599
302,467
Northern
Canada
87,216
2,308
(34,920)
54,604
624,109
576,806
305,734
89,725
5,351
(46,220)
48,856
986,206
970,131
602,885
18,401
293
(9,109)
9,585
184,192
181,856
135,371
Ontario
Quebec
15,561
528
(8,245)
7,844
981,084
975,821
343,364
4,141
34
(2,151)
2,024
172,993
170,562
141,541
72,225
6,545
(35,131)
43,639
949,714
929,517
443,300
Western
Canada
75,368
2,844
(32,055)
46,157
928,606
923,845
436,343
313,667
18,788
(146,926)
185,529
3,155,225
3,059,825
1,714,382
Total
211,182
6,396
(90,879)
126,699
3,104,634
3,025,468
1,422,367
Northview 2016 Annual Report | Page 78
Northview Apartment Real Estate Investment Trust
Notes to the Consolidated Financial Statements
Years ended December 31, 2016 and 2015
(Tabular amounts expressed in thousands of Canadian dollars except where indicated)
b) Market Segments
Year ended
December 31, 2016
Rental revenue
Other revenue
Operating expense
Net operating income
As at December 31, 2016
Total assets
Investment properties
Total liabilities
Year ended
December 31, 2015
Rental revenue
Other revenue
Operating expense
Net operating income
As at December 31, 2015
Total assets
Investment properties
Total liabilities
Multi-family
Execusuites &
Hotel
Total
Residential
Commercial
Total
268,668
17,830
(127,249)
159,249
2,875,882
2,821,454
1,569,525
12,484
199
(6,856)
5,827
31,007
-
16,668
281,152
18,029
(134,105)
165,076
2,906,889
2,821,454
1,586,193
32,515
759
(12,821)
20,453
248,336
238,371
128,189
313,667
18,788
(146,926)
185,529
3,155,225
3,059,825
1,714,382
Multi-family
Execusuites &
Hotel
Total
Residential
Commercial
Total
167,104
5,257
(71,477)
100,884
2,809,539
2,787,123
1,267,209
11,791
141
(6,632)
5,300
46,483
-
25,941
178,895
5,398
(78,109)
106,184
2,856,022
2,787,123
1,293,150
32,287
998
(12,770)
20,515
248,612
238,345
129,217
211,182
6,396
(90,879)
126,699
3,104,634
3,025,468
1,422,367
Northview 2016 Annual Report | Page 79
Northview Apartment Real Estate Investment Trust
Notes to the Consolidated Financial Statements
Years ended December 31, 2016 and 2015
(Tabular amounts expressed in thousands of Canadian dollars except where indicated)
c) Reconciliation of reportable segment net income
Total net operating income for reportable segments
Financing costs
Administration
Depreciation and amortization
Loss on sale of properties
Equity income from joint ventures
Bargain purchase gain
Business combination transaction costs
Unrealized fair value changes
Net and comprehensive income
d) Reconciliation of reportable segment assets
Total assets for reportable segments
Property, plant and equipment
Investment in joint ventures
Other long-term assets
Loans receivable
Prepaid expenses and other assets
Accounts receivable
Restricted cash
Cash
Assets held for sale
Total assets
e) Reconciliation of reportable segment liabilities
Total liabilities for reportable segments
Class B LP Units
Convertible debentures
Derivative instruments
Credit facilities
Trade and other payables
Distributions and Class B LP interest payable
Unit based payments
Liabilities related to assets held for sale
Total liabilities
28. Subsequent events
2016
185,529
(68,552)
(9,830)
(4,967)
(722)
864
-
(14,579)
(10,268)
77,475
2016
3,155,225
427
6,274
(413)
3,284
(1,458)
536
7,758
(1,037)
15,076
3,185,672
2016
1,714,381
115,971
23,460
1,499
133,842
15,975
7,583
1,733
18,008
2,032,452
2015
126,699
(37,957)
(8,999)
(5,030)
(762)
1,070
50,893
(38,959)
(55,103)
31,852
2015
3,104,634
329
6,210
(383)
5,743
(146)
5,682
8,743
1,805
-
3,132,617
2015
1,422,367
137,135
22,885
1,515
483,743
7,989
7,089
788
-
2,083,511
Between January 1, 2017, and March 9, 2017, Northview disposed of four non-core properties with a fair value of $23.4 million.
Between January 1, 2017, and March 9, 2017, Northview completed new financing and renewals of $7.4 million with interest rates between 2.50%
and 3.60% and terms to maturity of approximately 1 to 10 years. Proceeds were used to pay down existing debt and credit facilities.
Northview 2016 Annual Report | Page 80
Officers
Todd R. Cook, CPA, CA
President and Chief Executive Officer
Travis Beatty, CPA, CA, CFA
Chief Financial Officer
Leslie Veiner, CPA, CA
Chief Operating Officer
Richard Anda
Vice President, Business Development
Louise Elsey
Corporate Secretary
Bo Rasmussen
Vice President, Property Development
Lizaine Wheeler
Vice President, Residential Operations
Trustees
Douglas H. Mitchell, CM, AOE, QC
Trustee and Chairman of the Board
Todd R. Cook, CPA, CA
President, Chief Executive Officer, and Trustee
Daniel Drimmer
Trustee
Kevin E. Grayston, CPA, CA, ICD.D
Trustee
Dennis J. Hoffman, FCPA, FCA, ICD.D
Trustee
Christine McGinley, CPA, CA, ICD.D
Trustee
Terrance L. McKibbon, ICD.D
Trustee
Graham L. Rosenberg, CPA, CA
Trustee
Scott Thon, ICD.D
Trustee
Corporate Information
ANNUAL GENERAL AND SPECIAL MEETING
Tuesday, May 9, 2017
3:00 p.m. MT, 5:00 p.m. ET
Card Room,
The Petroleum Club
319 – 5th Avenue SW
Calgary, AB T2P 0L6
STOCK EXCHANGE
Toronto Stock Exchange (TSX)
Trading Symbol: NVU.UN
LEGAL COUNSEL
Borden Ladner Gervais LLP
AUDITORS
Deloitte LLP
REGISTRAR AND TRANSFER AGENT
Computershare Trust Company of Canada
CORPORATE OFFICE
200, 6131 – 6th Street SE
Calgary, AB T2H 1L9
Tel: 403.531.0720
Fax: 403.531.0727
Email: info@northviewreit.com
www.northviewreit.com
Northview 2016 Annual Report | Page 81