NPR reports first quarter 2014 financial results

CALGARY, May 13, 2014 /CNW/ - Northern Property Real Estate Investment Trust (the "REIT" or "NPR") (NPR.UN - TSX) today announced financial results for the three months ended March 31, 2014. NPR reported first quarter funds from operations ("FFO") per unit of $0.49.

Todd Cook, President and CEO commented, "Our financial results for the quarter were negatively impacted by both the severe weather across Canada, weaker hotel and execusuite performance and stubbornly higher vacancy in Yellowknife and Fort McMurray. We remain focused on improving the results of our existing portfolio and have allocated significant resources and efforts to leasing, customer service and the maintenance of our properties.  As we move into the spring and summer months, we are starting to see signs of improvements in the portfolio that should translate into better performance in the upcoming quarters."

Mr. Cook continued, "We completed 110 units in Regina and Iqaluit as part of our development program. The lease up is progressing according to plan and we expect to see these assets contributing positively to the financial performance in the second quarter. The new 39 unit building in Iqaluit was recently leased up with full occupancy on May 15, 2014. These developments continue to be accretive for us on a FFO basis as well as creating asset value. We have also commenced development of 418 units in Lloydminster, Grande Prairie and Fort St John so far this year. We continue to work towards our goal of developing 600 - 800 multi-family units per year."

Financial Performance Highlights      
       For the three months ended March 31
(thousands of dollars except per trust unit and percentage amounts)     2014   2013   Change
Total revenue     45,408   41,911   8.3%
NOI     23,872   23,428   1.9%
Net and comprehensive income     18,113   17,341   4.5%
FFO     15,493   15,877   (2.4%)
FFO per trust unit, diluted     $0.49   $0.50   (2.0%)
FFO payout ratio     81.5%   77.2%   430 bps
Distributions declared     12,620   12,259   2.9%
Distributions per trust unit     $0.40   $0.38   3.3%

Net operating income ("NOI") and 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
For the first quarter of 2014, FFO decreased slightly from 2013 as a result of little quarter over quarter growth in NOI.  NOI was impacted by higher vacancy, mainly in Fort McMurray, AB and Yellowknife, NT, and increased utility costs from a severe winter due mostly to increased consumption. As experienced by most REITs, the harsh weather in the first three months of the year had a negative impact on results with an estimated $0.9 million of additional utility expense or $0.03 of FFO. In addition, financing costs increased when compared to the first quarter of 2013 as mortgage interest expense increased due to the higher number of leveraged properties.

Total residential vacancy loss for the three months ended March 31, 2014 was 8.8% compared to 6.4% for the same period of 2013 and 6.7% in the fourth quarter of 2013.

Stabilized vacancy is a measure used by management to determine the vacancy performance of its stabilized properties.  A property is considered non-stabilized if it's from a recent acquisition, a building that is in the lease up phase of a new development or any property that requires significant capital improvement. All other properties are considered stabilized. Stabilized vacancy for the three months ended March 31, 2014 was 7.8%.  Incentives are being used to attract and retain residents and a significant capital and maintenance program is under way and progress is being made, however, meaningful improvement is not expected until the second half of 2014.

Residential Stabilized Vacancy Loss        
    Region       2014
    British Columbia       14.0%
    Alberta       6.5%
    Newfoundland and Labrador and Quebec       5.0%
    Northwest Territories       11.9%
    Nunavut       1.8%
    Saskatchewan       6.5%
    Overall       7.8%

Acquisitions
During the three months ended March 31, 2014, 5 residential units were acquired in Iqaluit, NU bringing the total to 9,905 multi-family units at the end of the first quarter of 2014. In addition, during the three months ended March 31, 2014, NPR purchased 30,000 square feet of commercial space in St. John's, NL, the fourth building of the office park complex in suburban St. John's, NL.

Development
The first quarter of 2014 saw the completion of the 189 multi-family unit project in Regina, SK with the last 71 units being completed in February. The lease up of the project is progressing with approximately 70% of the total project currently leased. The project was completed for a total cost of $26.7 million or $142,000 per unit and an expected cap rate approaching 8%. On completion, a fair value increase of $5.6 million or $30,000 per unit was recognized for accounting purposes.

In addition, during the first quarter of 2014, NPR completed 39 multi-family units in Iqaluit, NU.  The lease up of the building has started and is expected to be completed during the second quarter of 2014. The building was completed for a total cost of $9.2 million or $235,000 per unit with an expected cap rate of 9.7%.

Portfolio Summary (including joint ventures at 100% and discontinued operations) - March 31, 2014
Province   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   86,238
Newfoundland and Labrador   1,589   142     54   1,785   196,695
Northwest Territories   1,305   160     -   1,465   533,483
Nunavut   1,096   162     -   1,258   197,804
Saskatchewan   429   -     -   429   -
Quebec   161   -     -   161   -
Total   9,905   464     54   10,423   1,097,463

Financial Strength
(thousands of dollars except per trust unit and percentage amounts)   March 31, 2014   December 31, 2013   Change
Total assets   1,538,914   1,516,822   1.5%
Debt to gross book value (fair value)   45.5%   45.0%   1.1%
Interest coverage ratio (times)   3.80   3.87   (1.8%)
Debt service coverage ratio (times)   2.14   2.20   (2.7%)
Weighted average mortgage interest rate   3.83%   3.84%   (0.3%)
Weighted average term to maturity (years)   4.6   4.8   (4.2%)
Weighted average capitalization rate   8.01%   8.01%   0.0%

Debt to gross book value, debt service coverage ratio and interest coverage ratio are considered non-GAAP measures 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 45.5% at March 31, 2014, up from 45.0% at December 31, 2013 as up-financing capacity was used to fund acquisitions and developments.   During the three months ended March 31, 2014, NPR completed $29.6 million in mortgage financings and renewals with a weighted average interest rate of 3.32% and a term to maturity of 5.5 years.  The proceeds were used to repay existing mortgages, and fund acquisitions and developments.

Distributions to Trust Unit holders
During the three months ended March 31, 2014, NPR declared monthly cash distributions of $0.1317 per trust unit. For the first quarter of 2014, NPR declared distributions totaling $12.6 million (March 31, 2013 - $12.2 million). The December 2013 distribution and a portion of the January 2014 distribution, paid in February 2014, were dividends from NorSerCo.

Normal Course Issuer Bid ("NCIB")
During the three months ended March 31, 2014, the REIT purchased and subsequently cancelled 78,000 trust units under its NCIB for total consideration of $2.2 million. Since the commencement of the NCIB in August 2013, 210,000 units have been purchased for a total value of $5.7 million. NPR is authorized to purchase, in a 12 month period, up to 3,067,458 trust units, representing 10% of its public float.

Stapled Unit Structure
NPR terminated its Stapled Unit structure after the close of markets on January 31, 2014, and as a result, the NorSerCo common shares were de-listed (the NorSerCo common shares have traded as part of a Stapled Security) from the TSX. Trust Units are now listed on the TSX in substitution for the Stapled Securities under the trading symbol NPR.UN. Cash taxes in the quarter were $246,000 as a result of the dissolution.

Financial Statements
NPR's unaudited condensed consolidated financial statements and the notes thereto and Management's Discussion and Analysis for the three months ended March 31, 2014 can be found on NPR's website at www.npreit.com or on www.sedar.com.

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 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 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 21 of our first quarter 2014 MD&A for definitions of non-GAAP measures and additional GAAP measures to their closest GAAP measure, including NOI, FFO, debt to gross book value, debt service coverage and interest coverage.

Results Conference Call
NPR's conference call will take place on Wednesday, May 14, 2014 at 11:00 a.m. Mountain Time, 1:00 p.m. Eastern Time. Participating on the call will be Mr. Todd Cook (Chair), President and Chief Executive 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 #26009984 prior to being admitted to the call. A recorded playback of the call will be available from May 14, 2014 to May 21, 2014 by calling 416-849-0833 or 1-855-859-2056, passcode #26009984. The recording will also be available on our website on May 14, 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 March 31, 2014 NPR has 10,423 residential units and 1,097,463 square feet of commercial space.

 

SOURCE Northern Property Real Estate Investment Trust

For further information:


Robert Palmer, CFO, at 403-531-3545