NPR reports fourth quarter and full year 2013 financial results

FFO per unit increases 7.7% for the fourth quarter of 2013

CALGARY, March 6, 2014 /CNW/ - Northern Property Real Estate Investment Trust (the "REIT" or "NPR") (NPR.UN - TSX) today announced financial results for the three months and year ended December 31, 2013. NPR reported fourth quarter funds from operations ("FFO") per unit of $0.52. FFO per unit for the year ended December 31, 2013 was $2.23. Excluding income tax, FFO per unit was $0.56 for the fourth quarter of 2013 and $2.27 for the year ended December 31, 2013.

President and COO Todd Cook commented, "We were pleased, at NPR, to finish 2013 with continued progress both financially and on the development front. The significant acquisition and development activities in the last two years have now replaced the income from the seniors portfolio sold in 2012 and our balance sheet is strong."

CEO Jim Britton added, "The success of our recent developments has spurred NPR to continue to expand its development activities. NPR is working towards a development program that will deliver 600 - 800 multi-family units annually. NPR has a long history of building apartments in northern Canada. We now have an opportunity to create unitholder value by deploying these development skills in southern markets"

Mr. Cook continued, "During 2013, we acquired 37 acres of land that allows for approximately two years of development. In the coming months, we will start construction on approximately 400 units which are currently in the development permit approval stage. Our recent acquisition of land in Calgary is NPR's first foray into larger urban markets. We believe there is an opportunity to build into an underserved suburban rental apartment market. The goal will be to start development in Calgary before the end of 2014. We are confident that our development program combined with selective acquisitions will continue to deliver value to unitholders."

Financial Performance Highlights for the Combined Operations
   For the three months ended December 31 For the years ended December 31
  (thousands of dollars except per stapled unit and
percentage amounts)
2013 2012 Change 2013 2012 Change
  Total revenue 45,082 40,689 10.8% 175,325 166,653 5.2%
  NOI 25,971 24,223 7.2% 104,759 103,769 1.0%
  Net and comprehensive income 35,829 220,405 -83.7% 87,070 82,486 5.6%
  FFO 16,512 31,096 -46.9% 71,499 70,851 0.9%
  FFO per stapled unit, diluted $0.52 $0.97 -46.4% $2.23 $2.26 -1.3%
  FFO excluding SIFT and Stapled Unit
current income taxes
           
    FFO 17,845 16,656 7.1% 72,832 70,851 2.8%
    FFO per stapled unit, diluted $0.56 $0.52 7.7% $2.27 $2.26 0.4%
    FFO payout ratio i 70.8% 73.5% -270 bps 68.0% 68.1% -10 bps
  Regular distributions declared 12,628 12,246 3.1% 49,536 48,224 2.7%
  Regular distributions per stapled unit $0.40 $0.38 5.3% $1.55 $1.53 1.3%
  Special distributions declared - 17,929 n/a - 17,929 n/a
  Special distributions per stapled unit  - $0.56 n/a - $0.56 n/a
i Including the special distribution, Q4 2012 FFO payout ratio, excluding SIFT current income taxes, was 181.2% and full year 2012 FFO
payout ratio was 93.4%.

Net operating income ("NOI") and funds from operations ("FFO") are considered non-GAAP measures and do not have any standardized meaning as prescribed by generally accepted accounting principles ("GAAP"). See "Non-GAAP and additional GAAP measures" below.

FFO
FFO for the three months ended December 31, 2013 was $16.5 million or $0.52 per unit compared to $31.1 million or $0.97 for the same period of 2012. The fourth quarter of 2012 included the reversal of SIFT income taxes in the amount of $14.4 million. In the fourth quarter of 2013, $1.3 million of stapled unit income taxes were recorded as a result of the stapled unit legislation being enacted. Excluding the effect of income taxes, FFO for the three months ended December 31, 2013 was $17.8 million or $0.56 per Stapled Unit compared to $16.7 million or $0.52 per Stapled Unit for the same period of 2012. The increase in FFO was a result of higher NOI in the fourth quarter of 2013 from acquisitions and new developments being completed.

FFO for the year ended December 31, 2013 was $71.5 million or $2.23 unit compared to $70.9 million or $2.26 per unit for 2012. Excluding income taxes, FFO for the year ended December 31, 2013 was $72.8 million or $2.27 per Stapled Unit compared to $70.9 million or $2.26 per Stapled Unit for the same period of 2012. FFO increased from 2012 as a result of higher NOI driven by acquisitions and new developments completed in the year partially offset by the seniors' FFO in 2012. In 2012, the majority of the seniors' business segment was sold early in the year and contributed $5.7 million of FFO or $0.18 per unit. For 2013, the one remaining seniors' property contributed $0.3 million of FFO or $0.01 per unit. The cold weather did not have a significant impact on the 2013 financial results, however, it is expected to have a greater impact in the first quarter of 2014.

Residential Vacancy Loss        
   For the three months ended December 31 For the years ended December 31
  Region  2013  2012  2013  2012
  British Columbia 14.6%  10.5% 14.6%  7.1%
  Alberta 4.1%  4.3% 3.2%  5.4%
  Newfoundland and Labrador and Quebec 4.9%  0.9% 3.2%  1.4%
  Northwest Territories 8.9%  7.8% 8.5%  4.4%
  Nunavut 1.9%  4.5% 2.8%  2.4%
  Saskatchewan 6.4%  4.6% 7.0%  10.3%
  Overall 6.7%  6.2% 6.5%  4.6%

Vacancy loss for the three months ended December 31, 2013 was 6.7%, compared to 6.2% for the same period of 2012 and 6.5% for the third quarter of 2013. The increase is due to bringing 118 units on-line in Regina, SK and the acquisition of 97 units in St. John's, NL. Same door vacancy for the three months ended December 31, 2013 was 6.2%.

Residential vacancy loss for the year ended December 31, 2013 was 6.5% compared to 4.6% for the same period of 2012.  Vacancy increases were realized in British Columbia, Northwest Territories and Newfoundland and Labrador.  The vacancy increases were a combination of recent acquisitions and developments and a long-term contract ending in St. John's, NL. Vacancy in Yellowknife, NT increased as a result of new condo supply and a slowdown in the economy. Long term prospects for Yellowknife, NT continue to be strong and management continues to focus on upgrading the apartments and on leasing initiatives.

Acquisitions
2013 saw fewer acquisitions than the previous year as vendor expectations remained high and management adjusted the investment criteria with a focus on higher quality properties that require less initial capital investment. During the year, 382 residential units were acquired bringing the total to 9,792 multi-family units at the end of 2013. The year was highlighted by the entrance into Cambridge Bay, NU, a key regional centre in Nunavut, with 30 units. In addition, NPR expanded its presence in Fort McMurray, AB with 229 units being acquired in August 2013 and also acquired 26 units in Mission, BC. During the year ended December 31, 2013, NPR purchased 29,456 square feet of commercial space in St. John's, NL, the third building of the office park complex in suburban St. John's, NL. In the fourth quarter of 2013 NPR purchased 97 units in St. John's, NL for $6.7 million.

Development
There currently exists a climate where construction of new multi-family residential facilities is possible. The high asking prices for existing apartments and no significant supply of new multi-family residences in certain markets have led to a situation where new construction makes financial sense. While the cost of new construction is higher than the cost of older property, new construction does not require the ongoing significant capital investment required to bring older buildings up to NPR's standard. New properties typically have higher consumer demand and command better rental rates. In addition, stabilized development cap rates are estimated to be 100 - 200 basis points higher than those associated with acquiring older buildings and a potential valuation lift exists on successful lease up. NPR's experience in developing apartments for over 20 years is a strategic advantage. The ability to perform the development with in-house expertise allows the flexibility to ramp up development as opportunities present themselves and to slow development if market conditions require.

As a result of several development successes in 2013, management has continued to expand NPR's development capacity. For 2014, there are 292 multi-family residential units in various stages of development ranging from early planning to under construction. During 2013, 37.3 acres of land was purchased for a total of $21.8 million, including a parcel of land in Calgary, AB. Management believes that new development opportunities also exist in other larger markets where apartments can be built at a cost close to the price of purchasing existing older properties. Management's goal is to start 600 - 800 development units per year.

Portfolio Summary (including joint ventures at 100% and discontinued operations) - December 31, 2013

             
  Region Multi-family Execusuites &
Hotels
Seniors'
(Discontinued
Operations)
Total
Residential
(units)
Commercial
(sq. ft.)
  Alberta 2,468 - - 2,468 83,243
  British Columbia 2,857 - - 2,857 85,952
  Newfoundland and Labrador 1,589 142 54 1,785 166,721
  Northwest Territories 1,305 160 - 1,465 533,483
  Nunavut 1,054 162 - 1,216 197,804
  Saskatchewan 358 - - 358 -
  Quebec 161 - - 161 -
  Total 9,792 464 54 10,310 1,067,203

Financial Strength      
  (thousands of dollars, unless indicated otherwise) For the years ended December 31
  2013 2012 Change
  Total assets $1,516,822 $1,350,072 12.4%
  Debt to gross book value (fair value) 45.0% 41.0% 9.8%
  Interest coverage ratio (times) 3.87 3.65 6.0%
  Debt service coverage ratio (times) 2.20 2.17 1.4%
  Weighted average mortgage interest rate 3.84% 4.37% -12.1%
  Weighted average term to maturity (years) 4.8 4.1 17.1%
  Weighted average capitalization rate 8.01% 8.04% -0.4%

Debt to gross book value, debt service coverage ratio and interest coverage ratio are considered non-GAAP measeures and do not have any standardized meaning as prescribed by GAAP. See "Non-GAAP and additional GAAP measures" below.

Debt to gross book value has increased to 45.0% at December 31, 2013, up from 41.0% at December 31, 2012 as up-financing capacity was used to fund acquisitions and developments.   During the three months ended December 31, 2013, NPR completed $73.4 million in mortgage financings and renewals with a weighted average interest rate of 2.73% and a term to maturity of 5.13 years. For 2013, NPR completed $224.2 million in mortgage financings, renewals and assumptions at a weighted average rate of 3.02% and a weighted average term to maturity of 7.18 years.

Distributions to Stapled Unit holders
During the year ended December 31, 2013, NPR declared monthly cash distributions of $0.1275 for January 2013 to August 2013 and $0.1317 for September 2013 to December 2013 (2012 - $0.1275 each month) per stapled unit. The December 2013 distribution was a dividend declared by NorSerCo Inc.

Tax Matters
Bill C-4, which included stapled securities rules ("Stapled Securities Proposals") originally announced on July 20, 2011, and released as draft legislation on July 25, 2012, received Royal Assent on December 12, 2013, and therefore were enacted for accounting purposes. As at December 31, 2013, NPR's total income tax expense resulting from the Stapled Securities Proposals was $1.3 million, of which $0.9 million relates to 2012 and was paid in July 2013 and recorded to income tax expense in the statement of net and comprehensive income during the fourth quarter of 2013. Early in 2014 NorSerCo was dissolved. Management expects an additional $250,000 of income tax to be recorded in the first quarter of 2014 related to the dissolution.

Financial Statements
NPR's audited combined financial statements and the notes thereto and Management's Discussion and Analysis for the year ended December 31, 2013 can be found on NPR's website at www.npreit.com or on www.sedar.com.

Results Conference Call
NPR's conference call will take place on Friday, March 7, 2014 at 11:00 a.m. Mountain Time, 1:00 p.m. Eastern Time. Participating on the call will be Mr. B. James Britton (Chair), Chief Executive Officer, Mr. Todd Cook, President and Chief Operating Officer, and Mr. Robert Palmer, Chief Financial Officer.

Investors and analysts are invited to participate in the call by calling 1-888-231-8191 or 647-427-7450. You will be required to provide the Conference Call Operator with the Conference ID #59302290 prior to being admitted to the call. A recorded playback of the call will be available from March 7, 2014 to March 14, 2014 by calling 416-849-0833 or 1-855-859-2056, passcode #59302290. The recording will also be available on our website on March 10, 2014.

Corporate Profile
The REIT is an unincorporated open-end real estate investment trust. NPR is primarily a multi-family residential real estate investor, providing a broad spectrum of rental accommodations in Canadian secondary markets with strong economic fundamentals where capitalization rates are somewhat higher and competition somewhat restrained. NPR's residential portfolio is comprised of a multi-family segment: apartments, town homes and single family rental units; and execusuites and hotels, where the rental periods range from a few days to several months. NPR also has a portfolio of commercial buildings focused on government tenancies predominantly located in Canada's far north. Geographically, NPR operates in British Columbia, the Northwest Territories, Alberta, Saskatchewan, Nunavut, Quebec and Newfoundland and Labrador. As at December 31, 2013 NPR has 9,792 residential units and 1,067,203 square feet of commercial space.

Cautionary/forward looking statements
This news release contains forward‐looking statements relating to our growth strategy, acquisition activity, completion of apartments for which development approvals have been obtained, commencement of development of new buildings, prospects for long-term vacancy rates, and federal rules respecting the 10% qualifying exemption for REITs.  These statements are not guarantees of future events, performance or results and will not necessarily be accurate indications of whether, or the times at which, such events, performance or results will be achieved.

Forward-looking statements are based on information available at the time they are made, underlying estimates and assumptions made by management and management's good faith belief with respect to future events, performance and results, and are subject to inherent risks and uncertainties surrounding future expectations generally which could cause actual results to differ materially from what is currently expected. Such risks and uncertainties include, but are not limited to risks associated with investment in and development of real property, competition, financing and refinancing risks, risks related to economic conditions, changes in taxation rules, reliance on key personnel, environmental matters, tenant risks, and other risk factors more particularly described in the our most recent Annual Information Form available on SEDAR at www.sedar.com.  Additional risks and uncertainties not presently known to NPR or that NPR currently believes to be less significant may also adversely affect NPR.

Readers are cautioned that the above list of factors is not exhaustive and that should certain risks or uncertainties materialize, or should underlying estimates or assumptions prove incorrect, actual events, performance and results may vary significantly from those expected. There can be no assurance that the actual results, performance, events or activities anticipated by NPR will be realized or, even if substantially realized, that they will have the expected consequences to, or effect on, NPR.  Readers, therefore, should not place undue importance on forward-looking information.  Further, forward-looking statements speak only as of the date on which such statements are made.  NPR disclaims any intention or obligation to update or revise any forward-looking information, whether as a result of new information, future events or otherwise, except as required under applicable securities laws.

Non-GAAP and additional GAAP measures
Certain measures in this news release do not have any standardized meaning as prescribed by generally accepted accounting principles ("GAAP") and, therefore, are considered non-GAAP measures.  These measures are provided to enhance the reader's overall understanding of our current financial condition.  They are included to provide investors and management with an alternative method for assessing our operating results in a manner that is focused on the performance of our ongoing operations and to provide a more consistent basis for comparison between periods. These measures include widely accepted measures of performance for Canadian real estate investment trusts; however, the measures are not defined by IFRS. In addition, these measures are subject to the interpretation of definitions by the preparers of financial statements and may not be applied consistently between real estate entities.

Please refer to page 34 of our annual MD&A for definitions of non-GAAP measures and additional GAAP measures to their closest GAAP measure, including net operating income ("NOI"), funds from operations ("FFO"), debt to gross book value, debt service coverage and interest coverage.

 

 

 

SOURCE Northern Property Real Estate Investment Trust

For further information:

Robert Palmer, CFO, at 403-531-3545.