Northview Apartment REIT: Profit From Oil's Weakness With Near-10% Yield And Dividend Strength

| About: NORTHVIEW APT (NPRUF)

Summary

Northview Apartment REIT has dropped about 25% in price in less than a year.

This drop is mainly due to the price of oil being seen as a major headwind, but company earnings have been stable, even with low oil prices affecting vacancy.

This REIT currently offers a yield of almost 10% and has a stable dividend history.

Northview Apartment Real Estate Investment Trust (TSX: NVU.UN) (OTC:NPRUF), is Canada's third-largest publicly traded multi-family REIT. It was formed in 2015 following a transaction in which Northern Property REIT (TSX: NPR.UN) acquired True North Apartment REIT and a number of privately held residential properties. In this article for historical information before the creation of Northview, we will be using information from Northern Property REIT. Unless otherwise stated, the numbers below will be in Canadian Dollars as this is the currency the REIT reports in.

As you can see in the graph below, this REIT has taken a serious beating during the past year. The REIT sector in general has been weak but the decrease in price of natural resources, mainly crude oil, has also affected this REIT's performance. This is simply because a significant portion of their assets are located in regions such as Alberta and Northern British Columbia, which are dependent on oil & gas and other natural resources for their economy. According to their investor presentation released in January 2016, these two regions combined account for 22% of their net operating income.

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(Source)

Recent Financial Results

However, the financial performance of the company hasn't suffered nearly as much as the market seems to have assumed. In fact, judging from the Q3 2015 financial report, the company has been improving their financial results despite these strong headwinds. For the nine months ended September 30, 2015, their funds from operations (FFO) increased by 3.6% compared to the same period in 2014. FFO per trust unit increased 4.0% from $1.77 to $1.84. Rental revenue increased 4.7%.

Let's take a closer look at Alberta, one of their main markets and one that has been significantly affected by the natural resources prices. (amounts expressed in thousands of Canadian dollars). Rental revenue of 31,911 vs. 30,104. Net Operating income 19,940 vs. 20,730. While these numbers show very little change, we will notice the effects of the natural resource weakness when looking at vacancy. In the chart below, you will see how Alberta is suffering from increased vacancy and how it affects the overall vacancy of the REIT.

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(Source - slide 10)

Risks

Continued weakness in natural resource prices could have a long-term effect on the employment rates in key areas. This would negatively impact demand for housing and could lead to higher vacancy and lower rental income.

As this company is based in Canada, it reports in Canadian dollars and its distributions are declared in Canadian dollars. Investors should take this currency risk into account before making any investments.

The Distribution

The current distribution paid by the REIT is $0.1358 per month, or ~$1.63 per year, bringing the yield to 9.7% for the closing price on the day this article was written. The distribution history also looks promising. Though the company does not have a history of raising their distribution each and every year, we can see a clear pattern of stable and growing distributions for over a decade. The monthly dividend has jumped from $0.1094 to the current $0.1358 over the past 10 years, bringing their 10-year dividend growth to an average of 2.19% per year. The 5-year dividend increase has been from $0.1233 to $0.1358 per month, an increase of 1.95% per year. The FFO payout percentage for the nine months ended September 30 is 66.4%, a slight improvement from 67.0% in the same period in 2014.

Conclusion

Though the sustained low natural resource prices have affected the vacancy in key markets, the financial results have not been severely affected for the moment. The future effects, should the natural resource prices continue at these low levels, will be further countered by the additional diversification provided by the new assets gained in the transformation of Northern Properties into Northview. Due to the current headwinds I do not expect an increase in distributions during 2016, but the company looks to be well positioned to continue with their current monthly distribution of $0.1358, making this a worthwhile option if you are looking to add a high-yielder into your dividend portfolio.

Disclosure: I am/we are long NPRUF.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Editor's Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.