Northern Property reports 2009 financial results

CALGARY, March 17 /CNW/ - Northern Property REIT (NPR.UN - TSX) announced its financial results for the 3 and 12 months ended December 31, 2009.

    
    HIGHLIGHTS:
    -   2009 FFO of $2.20 per unit up 3.5% from $2.12 for 2008
    -   Q4 2009 FFO declined 6.0% from same quarter of 2008 to $0.52
    -   2.9% same door revenue decline between full year 2008 to 2009
    -   higher vacancy, lower rents, accelerated maintenance and capex costs
        in Alberta apartments
    -   NPR's western apartment rental markets improving in late 2009
    -   2009 DIPU payout ratio 68.3%

    FINANCIAL PERFORMANCE AT A GLANCE:

    -------------------------------------------------------------------------
    In $000's except                        Three Months          Year Ended
    per unit amounts                   Ended December 31         December 31
    -------------------------------------------------------------------------
                                          2009      2008      2009      2008
    -------------------------------------------------------------------------
    Total revenue                       33,200    32,515   134,232   127,759
    Net operating income "(NOI")        20,760    21,424    86,793    84,305
    Earnings before taxes                5,483     6,803    25,929    26,417
    Net earnings                           653     6,427    21,316    22,702
    Net earnings per unit, basic        $0.026    $0.257    $0.850    $0.907
    Distribution to unitholders          9,286     9,260    37,100    37,037
    Distributions per unit              $0.370    $0.370    $1.480    $1.480

    Distributable Income ("DI")         12,792    13,560    54,336    52,139
    DI per unit, basic                  $0.510    $0.542    $2.166    $2.083
    Payout ratio                         72.6%     68.3%     68.3%     71.0%

    Funds from operation ("FFO")        12,969    13,758    55,107    53,079
    FFO per unit, basic                 $0.517    $0.550    $2.196    $2.121
    FFO payout ratio                     71.6%     67.3%     67.3%     69.8%
    -------------------------------------------------------------------------
    

"As we expected, NPR's Q4 results declined as the full financial impact of recessionary conditions was experienced. A weak rental market in northern Alberta was the principal culprit. Higher vacancy, lower rents and extraordinary costs associated with a push to catch up with needed maintenance and capex investment took place in these markets during the year," said Jim Britton, NPR's President and CEO.

"Fortunately, outside of Alberta our portfolios weathered the recession very well. We were helped by lower heating oil costs, lower mortgage interest rates and decreased trust administration expense. And the REIT is now experiencing apartment rental market improvement across our system."

Multi-family rental market conditions for NPR began to weaken early in 2009. Apartment vacancy rates increased every month between January and August. The increase was most evident in the northern Alberta cities of Fort McMurray, Grande Prairie and Lloydminster which suffered employment losses due to the sharp decline in activity in the oil and natural gas industries. Business conditions were also more challenging in the NWT, particularly execusuite operations in Yellowknife and Inuvik.

NPR's residential rental operations in Nunavut and Newfoundland showed strength throughout the year. Northeastern British Columbia operations also performed above expectations. Seniors' property leases remained in good standing in 2009 and commercial property occupancy remained consistent with prior years.

The REIT continued to operate in a fiscally conservative fashion during 2009 maintaining a payout ratio of 68.3% of distributable income. Weighted average interest rates decreased to 4.87% compared to 5.13% at the end of 2008. Debt to gross book value was 57.7%, the same as a year ago. Interest service coverage was among the best of Canadian REITs at 3.01 times.

NPR made a sharply higher sustaining capex investment of $11.8 million in 2009, double that of 2008. Much of this investment was directed to improving apartment buildings in northern Alberta, work which had been impossible to carry out in the low vacancy, boom conditions of the years prior to 2009. The accelerated capex investment was accompanied by a marked increase in building maintenance activity which had been deferred because of labour shortages during the boom years. The higher level of capex investment has been expensed for tax purposes in 2009 but amortized for accounting purposes over 5 years resulting in a non-cash, future tax charge of $4.2 million. 2009 cash distributions on trust units will be subject to lower taxation as a result of the temporarily higher capex expense. Approximately 68% of trust unit distributions are tax deferred for 2009, compared to 53% for 2008.

"While 2009 was challenging both operationally and financially, so far 2010 has been a much brighter story," Mr. Britton went on to say. "Apartment occupancy has strengthened every month since September. We are experiencing robust rental market performance in Nunavut, Newfoundland and recently in Yellowknife. Fort McMurray is beginning to improve. We also expect to conclude a modest amount of accretive apartment purchasing activity as the year goes on. We are pleased that NPR's low payout ratio has enabled us to get through a difficult year without conducting a dilutive equity issue."

    
    NORTHERN PROPERTY REAL ESTATE INVESTMENT TRUST

    Consolidated Balance Sheets
    At December 31
    (Thousands of dollars)
    -------------------------------------------------------------------------
                                                            2009        2008
    -------------------------------------------------------------------------
    ASSETS

    Rental properties and other capital assets (Note 4)  836,251     833,967
    Capital improvements in progress                       7,046       3,773
    Capital assets under development                      20,423       8,996
    Prepaid expenses and other assets (Note 5)             5,088       5,664
    Cash                                                       -         731
    Accounts receivable (Note 17)                          4,158       5,085
    Tenant security deposits                               3,555       3,575
    Deferred rent receivable                               4,539       3,248
    Loans receivable                                       2,456       1,742
    Intangible assets (Note 6)                             4,851       6,141
    -------------------------------------------------------------------------
                                                         888,367     872,922
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    LIABILITIES

    Mortgages and loans payable (Note 7)                 498,996     482,800
    Operating facilities (Note 8)                         33,698      26,600
    Bank indebtedness                                      1,820           -
    Accounts payable and accrued liabilities (Note 17)    15,555      15,111
    Distributions payable                                  3,096       3,092
    Future income tax liability (Note 11)                 43,751      39,489
    Intangible liabilities (Note 6)                           94         279
    Non-controlling interest                                 464         441
    -------------------------------------------------------------------------
                                                         597,474     567,812
    -------------------------------------------------------------------------

    UNITHOLDERS' EQUITY                                  290,893     305,110
    -------------------------------------------------------------------------
                                                         888,367     872,922
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    See accompanying notes to the consolidated financial statements.

    Guarantees, commitments and contingencies (Note 14)


    APPROVED BY THE BOARD
    ---------------------

      Trustee "Signed" B. James Britton

      Trustee "Signed" Dennis J. Hoffman


    NORTHERN PROPERTY REAL ESTATE INVESTMENT TRUST

    Consolidated Statements of Earnings and Comprehensive Earnings
    Years ended December 31
    (Thousands of dollars, except per unit amounts)
    -------------------------------------------------------------------------
                                                            2009        2008
    -------------------------------------------------------------------------
    REVENUE
    Rental revenue                                       130,767     124,626
    Other property income                                  3,465       3,133
    -------------------------------------------------------------------------
                                                         134,232     127,759
    Operating expenses                                   (47,439)    (43,454)
    -------------------------------------------------------------------------
                                                          86,793      84,305
    -------------------------------------------------------------------------
    OTHER EXPENSES
    Interest on mortgages and loans                      (26,435)    (24,499)
    Amortization                                         (28,789)    (26,447)
    -------------------------------------------------------------------------
                                                         (55,224)    (50,946)
    -------------------------------------------------------------------------
    EARNINGS BEFORE THE UNDERNOTED                        31,569      33,359
    -------------------------------------------------------------------------
    Trust administration                                  (5,619)     (6,796)
    Interest on operating facilities                        (755)     (1,286)
    Interest and other income                                458         509
    Gain on settlement of debt                               130         558
    Gain on sale of rental properties                        246         136
    Non-controlling interest                                (100)        (63)
    -------------------------------------------------------------------------
                                                          (5,640)     (6,942)
    -------------------------------------------------------------------------
    EARNINGS BEFORE INCOME TAXES                          25,929      26,417
    -------------------------------------------------------------------------
    INCOME TAXES (Note 11)
    Current                                                 (373)       (409)
    Future                                                (4,240)     (3,306)
    -------------------------------------------------------------------------
                                                          (4,613)     (3,715)
    -------------------------------------------------------------------------
    NET EARNINGS                                          21,316      22,702
    Other comprehensive earnings (loss)                     (123)         68
    -------------------------------------------------------------------------
    COMPREHENSIVE EARNINGS                                21,193      22,770
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Net earnings per unit (Note 13)
    Basic                                                 $0.850      $0.907
    Diluted                                               $0.847      $0.906
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    See accompanying notes to the consolidated financial statements.


    NORTHERN PROPERTY REAL ESTATE INVESTMENT TRUST

    Consolidated Statements of Unitholders' Equity
    Year ended December 31
    (Thousands of dollars)
    -------------------------------------------------------------------------
                                                            2009        2008
    -------------------------------------------------------------------------
    TRUST UNITS (Note 12)
    Balance, beginning of year                           367,446     366,789
    Issuance of units                                         65           -
    Exercise of unit options                                 528           -
    Units cancelled                                          (13)          -
    Issue costs                                               (2)         (8)
    Long term incentive plan units issued                    666         665
    -------------------------------------------------------------------------
    Balance, December 31                                 368,690     367,446
    -------------------------------------------------------------------------

    CONTRIBUTED SURPLUS
    Balance, beginning of year                             1,676       1,023
    Unit-based compensation                                  504         631
    Exercise of unit options                                 (39)          -
    Long term incentive plan units granted                   634         687
    Long term incentive plan units issued                   (666)       (665)
    -------------------------------------------------------------------------
    Balance, December 31                                   2,109       1,676
    -------------------------------------------------------------------------

    CUMULATIVE DEFICIT
      CUMULATIVE NET EARNINGS
      Balance, beginning of year                          86,056      63,354
      Units cancelled                                         13           -
      Net earnings                                        21,316      22,702
    -------------------------------------------------------------------------
      Balance, December 31                               107,385      86,056
    -------------------------------------------------------------------------

      CUMULATIVE DISTRIBUTIONS TO UNITHOLDERS
      Balance, beginning of year                        (150,191)   (113,154)
      Distributions declared to unitholders              (37,100)    (37,037)
    -------------------------------------------------------------------------
      Balance, December 31                              (187,291)   (150,191)
    -------------------------------------------------------------------------

    CUMULATIVE DEFICIT, December 31                      (79,906)    (64,135)
    -------------------------------------------------------------------------

    ACCUMULATED OTHER COMPREHENSIVE EARNINGS (LOSS)
    Balance, beginning of year                               123          55
    Other comprehensive (loss) earnings                     (123)         68
    -------------------------------------------------------------------------
    Balance, December 31                                       -         123
    -------------------------------------------------------------------------

    TOTAL UNITHOLDERS' EQUITY                            290,893     305,110
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    See accompanying notes to the consolidated financial statements.


    NORTHERN PROPERTY REAL ESTATE INVESTMENT TRUST

    Consolidated Statements of Cash Flows
    Year ended December 31
    (Thousands of dollars)
    -------------------------------------------------------------------------
                                                            2009        2008
    -------------------------------------------------------------------------
    CASH FLOWS RELATED TO THE FOLLOWING ACTIVITIES:
      OPERATING
      Net earnings                                        21,316      22,702
      Adjustments for:
      Deferred rental revenue                             (1,292)     (1,209)
      Amortization                                        28,789      26,447
      Amortization of fair value of debt                     681         560
      Amortization of above and below market leases         (160)       (291)
      Amortization of deferred financing fees              1,078         547
      Gain on settlement of debt                            (130)       (558)
      Gain on sale of rental properties                     (246)       (136)
      Non-controlling interest                               100          63
      Unit-based compensation                              1,138       1,318
      Future income tax expense                            4,240       3,306
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
                                                          55,514      52,749
      Changes in non-cash working capital                    679         885
    -------------------------------------------------------------------------
                                                          56,193      53,634
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
      FINANCING
      Proceeds from mortgages and loans                   56,563     144,603
      Repayment of mortgages and loans                   (41,716)    (58,659)
      Proceeds from operating facilities                   7,098       1,400
      Payments (to) from non-controlling interest            (76)        377
      Units issued under option plan                         489           -
      Unit issue costs                                        (2)         (8)
      Distributions paid to unitholders                  (37,096)    (37,029)
    -------------------------------------------------------------------------
                                                         (14,740)     50,684
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
      INVESTING
      Acquisition of rental properties and other assets  (12,764)    (65,645)
      Proceeds from sale of rental properties                992         395
      Capital assets under development                   (11,426)    (25,450)
      Building capital maintenance                       (11,235)     (5,902)
      Capital improvements                                (9,571)     (6,881)
    -------------------------------------------------------------------------
                                                         (44,004)   (103,483)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
      NET (DECREASE) INCREASE IN CASH                     (2,551)        835
      CASH (BANK INDEBTEDNESS), BEGINNING OF YEAR            731        (104)
    -------------------------------------------------------------------------
      (BANK INDEBTEDNESS) CASH, END OF YEAR               (1,820)        731
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
      SUPPLEMENTARY INFORMATION
      Interest paid                                       25,346      24,444
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
      Interest received                                      282         371
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
      Income taxes paid                                      214         727
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    See accompanying notes to the consolidated financial statements.


    NORTHERN PROPERTY REAL ESTATE INVESTMENT TRUST
    Notes to the Consolidated Financial Statements
    Year ended December 31, 2009 and 2008
    (Columnar amounts expressed in thousands of dollars except where
    indicated)

    1.  DESCRIPTION OF THE TRUST

    Northern Property Real Estate Investment Trust ("NPR" or the "REIT") is
    an unincorporated open-ended real estate investment trust that invests in
    and owns a portfolio of residential and commercial income producing
    properties.

    2.  SIGNIFICANT ACCOUNTING POLICIES

    Basis of presentation

    NPR's consolidated financial statements are prepared in conformity with
    Canadian generally accepted accounting principles ("GAAP").

    Principles of consolidation

    The consolidated financial statements include the accounts of NPR and its
    wholly-owned subsidiary, together with the proportionate share of the
    assets, liabilities, revenue and expenses of joint ventures.

    Use of estimates

    The preparation of consolidated financial statements in conformity with
    GAAP requires management to make estimates and assumptions that affect
    the reported amounts of assets and liabilities, and to make disclosure of
    contingent assets and liabilities at the date of the consolidated
    financial statements and revenue and expenses for the consolidated
    reported period. Actual results could differ from those estimates.
    Estimates are used to determine amounts reported as allowance for
    doubtful accounts, estimated useful lives and values of rental
    properties, intangible and other assets, accrued liabilities and capital
    adequacy. Actual amounts could differ from those estimates.

    Capital assets

    Rental properties, capital improvements in progress and capital assets
    under development are stated at the lower of cost less accumulated
    amortization and fair value. Cost of the properties includes the original
    acquisition costs of the property and other acquisition related costs.
    Costs associated with upgrading the existing facilities, other than
    ordinary repairs and maintenance, are capitalized as project
    improvements. The fair value represents the undiscounted, estimated
    future net cash flow expected to be received from the ongoing use of the
    property plus its residual worth and is intended to determine recovery of
    an investment and is not an expression of a property's fair market value.

    All capital assets are recorded at cost and are amortized using the
    following annual rates and methods:

    Buildings                30 - 40 years        straight-line basis
    Furniture, fixtures and
     equipment               20% - 30%            declining-balance
    Vehicles                 20% - 30%            declining-balance
    Capital and leasehold
     improvements            3 - 20 years         straight-line basis

    Revenue and expenses associated with properties under development are
    capitalized until the properties achieve a satisfactory level of
    occupancy.

    Estimated useful lives of capital assets are periodically evaluated by
    management and any changes in these estimates are accounted for on a
    prospective basis.

    NPR reviews its capital assets and, if it is determined that the carrying
    value of a building exceeds the undiscounted estimated future net cash
    flow expected to be received from the ongoing use and residual worth of
    the property, the carrying value of the building is reduced to its fair
    value. Based on this review, a provision for impairment of $nil has been
    recorded for the year ended December 31, 2009 (December 31, 2008 - $nil).

    Disposal of long-lived assets

    When management considers transactions to be material, amounts related to
    the disposal of long-lived assets are classified as held for sale, and
    the results of operations and cash flows associated with the assets
    disposed are reported separately as discontinued operations, less
    applicable income taxes. A long-lived 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 are
    actively locating 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 long-lived 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.

    Land equity leases

    Prepaid land equity leases are amortized over the remaining lives of the
    related leases ranging from 15 to 30 years.

    Deferred financing costs

    Deferred financing costs are amortized using the effective interest
    method over the amortization period of the related mortgages and loans
    payable.

    Income taxes

    NPR is taxed as a "mutual fund trust" for income tax purposes. Pursuant
    to the Declaration of Trust, the trustees of NPR will make distributions
    or designate all taxable income earned; including the taxable part of net
    realized capital gains, to unitholders and will deduct such distributions
    and designations for income tax purposes.

    Income taxes are accounted for using the liability method. Under this
    method, future income taxes are recognized for the expected future tax
    consequences of differences between the carrying amount of balance sheet
    items and their corresponding tax values. Future income taxes are
    computed using substantively enacted corporate income tax rates for the
    years in which tax and accounting basis differences are expected to
    reverse.

    Future income tax liabilities are primarily in relation to tax and
    accounting base differences in corporate subsidiaries of the REIT.

    Revenue recognition

    Revenue from a rental property is recognized when a tenant commences
    occupancy of a property and rent is due. NPR retains all benefits and
    risk of ownership of its rental 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 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.

    Intangible assets and liabilities

    NPR allocates the purchase price of real property to land, building, and
    intangible assets and liabilities, such as the value of above-market and
    below-market leases, in-place leases and lease origination costs, if any.
    Intangible assets and liabilities are recorded at cost and amortized over
    their estimated useful lives ranging from 1 year to 18 years.

    The values of above-market and below-market leases for acquired
    properties are determined based on the present value of the difference
    between the contractual base rentals under the lease and fair market
    lease rates for similar in-place leases, measured from the date of
    acquisition to the end of the remaining lease term.

    The values of in-place leases are calculated as the present value of the
    net operating income lost during a hypothetical expected lease-up period
    required to replace the existing leases at the date of purchase.

    Intangible assets and liabilities associated with the acquisition of real
    property are amortized over the remaining term of the associated lease.
    Above and below market leases are amortized to rental revenue. The
    amortization of the remaining intangible assets is included in
    amortization expense.

    Financial Instruments

    Management has determined that the majority of the NPR's financial assets
    are designated as loans and receivables, as defined by Section 3855 of
    the CICA Handbook, and are carried at amortized cost. Management has also
    determined that all of its financial liabilities have been designated as
    other financial liabilities and are carried at amortized cost utilizing
    the effective interest method. Financial instruments include loans
    receivable, accounts receivable, tenant security deposits, mortgages and
    loans payable, operating facilities, distributions payable, accounts
    payable and accrued liabilities and bank indebtedness. Except for
    mortgages and loans payable, the fair value of financial instruments
    approximated carrying values due to the short-term nature of the
    financial instruments. The fair value of mortgages and loans payable is
    disclosed in note 7.

    Under NPR's Long Term Incentive Plan, the fair value of the units granted
    to trustees, officers and employees is recognized as compensation expense
    with an offsetting amount to contributed surplus based on the closing
    price of NPR's trust units on December 31 of the fiscal year. Upon
    issuance in accordance with the vesting policy, the units issued are
    credited to capital with an offsetting amount to contributed surplus
    based on the fair value of the units at the time of the grant.

    Unit-based compensation

    Under NPR's Unit Option Plan, options to acquire units are granted to
    trustees, officers and employees from time to time at exercise prices not
    less than the market value of the shares at the date of the grant.
    Options granted by NPR are accounted for in accordance with the fair-
    value method of accounting for stock-based compensation, and as such, the
    calculated fair value of the option is recognized as compensation expense
    with an offsetting amount recorded to contributed surplus, based on an
    estimate of the fair value using a Black-Scholes option-pricing model.
    Compensation expense is recognized over the vesting period of the related
    options.

    Upon exercise of the options, consideration paid, which approximates the
    market value of the shares on grant date, is credited to capital. In
    addition, contributed surplus, representing the calculated fair value of
    the options exercised, is reclassified to capital. Forfeitures of options
    are accounted for as they occur.

    3. CHANGE IN ACCOUNTING POLICY AND RECENT ACCOUNTING PRONOUNCEMENTS

    Change in accounting policy

    On January 1, 2009, NPR adopted the June 2009 amendments to the Canadian
    Institute of Chartered Accountants ("CICA"), Handbook Section 3862,
    Financial Instruments - Disclosures. The amendments include enhanced
    disclosures related to the fair value of financial instruments and the
    liquidity risk associated with financial instruments. The amendment
    requires a three level hierarchy that reflects the significance of the
    inputs used in making the fair value measurements. The amendments will be
    effective for annual financial statements for fiscal years ending after
    September 30, 2009. The amendments are consistent with recent amendments
    to financial instrument disclosure standards in International Financial
    Reporting Standards ("IFRS").

    On January 1, 2009 NPR adopted the August 2009 amendments to CICA
    Handbook Section 3855, Financial Instruments - Recognition and
    Measurement, relating to the impairment of financial assets. Amendments
    to this Section have revised the guidance on the assessment of embedded
    derivatives on reclassification of financial assets from the held-for-
    trading and available-for-sale categories into the loans and receivables
    category. The amendment also requires the use of the credit loss model
    when assessing instruments held to maturity for impairment.

    On January 1, 2009, NPR adopted EIC-173, Credit risk and the fair value
    of financial assets and financial liabilities. This abstract requires
    that an entity's own credit risk (for financial liabilities) and the
    credit risk of the counterparty (for financial assets) should be taken
    into account in determining the fair value of financial assets and
    financial liabilities, including derivative instruments.

    Effective January 1, 2009, NPR adopted CICA Handbook Section 3064,
    Goodwill and Intangible Assets. These new pronouncements establish
    standards for the recognition, measurement, presentation and disclosure
    of goodwill subsequent to its initial recognition and of intangible
    assets by profit-oriented enterprises.

    The new standards had no impact on NPR's consolidated financial
    statements.

    Recent Accounting Pronouncements

    On January 5, 2009, the AcSB released Handbook Section 1582 Business
    Combinations, Section 1601, Consolidated Financial Statements and Section
    1602 Non-Controlling Interest which supersedes Section 1581, Business
    Combinations and Section 1600, Consolidated Financial Statements. The
    released sections apply to interim and annual consolidated financial
    statements relating to fiscal years beginning on or after January 1,
    2011, and prospectively to business combinations for which the
    acquisition date is on or after the beginning of the first annual
    reporting period beginning on or after January 1, 2011. The Sections are
    consistent with IFRS standards. Early application and adoption are
    permitted.

    On February 13, 2008 the Accounting Standards Board ("AcSB") confirmed
    that the transition date to IFRS from Canadian GAAP would be January 1,
    2011 for all publicly accountable enterprises. In April 2008, the AcSB
    issued an exposure draft proposing to incorporate IFRS into the CICA
    Handbook as a replacement for current Canadian GAAP for most publicly
    accountable enterprises including the REIT. NPR will adopt IFRS as the
    basis for preparing its consolidated financial statements and will
    provide comparative financial information for the previous fiscal year
    using IFRS beginning with the quarter ending March 31, 2011.

    The impact of the adoption of IFRS on the consolidated financial
    statements of NPR is expected to be significant. NPR continues to
    evaluate the potential impact of IFRS to its consolidated financial
    statements. This is an ongoing process as the International Accounting
    Standards Board and the AcSB issue new standards and recommendations.

    4. RENTAL PROPERTIES AND OTHER CAPITAL ASSETS

    -------------------------------------------------------------------------
                                   2009                       2008
                              Accumulated     Net        Accumulated     Net
                                 Amortiz-    Book           Amortiz-    Book
                           Cost    ation    Value     Cost    ation    Value
    -------------------------------------------------------------------------
    Land                 90,906        -   90,906   90,676        -   90,676
    Buildings           815,985   98,983  717,002  800,612   76,187  724,425
    Furniture, fixtures
     and equipment       10,326    4,956    5,370    9,006    3,757    5,249
    Vehicles              1,307      674      633    1,193      732      461
    Capital and leasehold
     improvements        36,491   14,151   22,340   23,026    9,870   13,156
    -------------------------------------------------------------------------
                        955,015  118,764  836,251  924,513   90,546  833,967
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    NPR acquired properties and completed development projects in the year
    ended December 31, 2009 for a total purchase price of $11.7 million (2008
    - $80.4 million). During the year, NPR completed the sale of three non-
    core assets for gross proceeds of $992,000 (2008 - $395,000) and a gain
    on sale of $246,000 (2008 - $136,000). Acquisitions and development
    projects were financed as follows:

    -------------------------------------------------------------------------
                                                            2009        2008
    -------------------------------------------------------------------------
    Cash paid                                              9,800      80,391
    Mortgages payable                                      1,788           -
    Class B LP Units issued                                   65           -
    -------------------------------------------------------------------------
    Total                                                 11,653      80,391
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Residential rental units                                  40         724
    Seniors' units                                           111          94
    -------------------------------------------------------------------------
    Units acquired                                           151         818
    -------------------------------------------------------------------------
    Commercial square feet                                     -      40,233
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    5.  PREPAID EXPENSES AND OTHER ASSETS
    -------------------------------------------------------------------------
                                                            2009        2008
    -------------------------------------------------------------------------
    Prepaid expenses                                       2,543       2,812
    Prepaid equity leases                                  1,997       2,167
    Other                                                    548         500
    Refundable deposits and mortgage proceeds held in
     trust                                                     -         185
    -------------------------------------------------------------------------
                                                           5,088       5,664
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    6.  INTANGIBLE ASSETS AND LIABILITIES
    -------------------------------------------------------------------------
                                   2009                       2008
                              Accumulated     Net        Accumulated     Net
                                 Amortiz-    Book           Amortiz-    Book
                           Cost    ation    Value     Cost    ation    Value
    -------------------------------------------------------------------------
    Above-market leases     173     (139)      34      173     (114)      59
    In-place leases       6,474   (2,466)   4,008    6,565   (1,588)   4,977
    Lease origination
     costs                1,643     (834)     809    1,669     (564)   1,105
    -------------------------------------------------------------------------
                          8,290   (3,439)   4,851    8,407   (2,266)   6,141
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Below-market leases   1,220   (1,126)      94    1,220     (941)     279
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Intangible assets are comprised of the value of above-market leases, in-
    place leases and lease origination costs for rental property acquisitions
    completed. Intangible liabilities are comprised of the value of below-
    market leases for rental property acquisitions completed.

    7.  MORTGAGES AND LOANS PAYABLE

    -------------------------------------------------------------------------
                                                            2009        2008
    -------------------------------------------------------------------------
    Mortgages and loans payable                          518,912     502,277
    Fair value adjustment                                 (8,217)     (8,574)
    Deferred financing costs                             (11,699)    (10,903)
    -------------------------------------------------------------------------
                                                         498,996     482,800
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Mortgages and loans payable bear interest at rates ranging from 2.31% to
    12.13% and have a weighted average rate of 4.87% as at December 31, 2009
    (December 31, 2008 - 5.13%). Mortgages and loans are payable in monthly
    installments of blended principal and interest of approximately $3.5
    million. The mortgages mature between 2010 and 2025 and are secured by
    charges against specific properties. Land and buildings with a carrying
    value of $679 million have been pledged to secure mortgages and loans
    payable of NPR. The fair value of mortgages and loans payable at December
    31, 2009 is approximately $535.0 million (December 31, 2008 - $517.7
    million).

    Minimum required future principal repayments, including maturities, are
    as follows:
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
    2010                                                              46,541
    2011                                                              44,882
    2012                                                              50,281
    2013                                                              91,003
    2014                                                              78,218
    Subsequent                                                       207,987
    -------------------------------------------------------------------------
                                                                     518,912
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    8.  OPERATING FACILITIES

    NPR has two revolving credit facilities totaling $57.5 million (December
    31, 2008 - $50.0 million) for acquisition and operating purposes. The
    $50.0 million facility bears interest at prime plus 1.50% or bankers'
    acceptance plus 3.00% with a maturity date of May 21, 2010. The $7.5
    million facility bears interest at prime plus 1.50% or bankers'
    acceptance plus 3.00% with a maturity date of July 31, 2010. Specific
    properties with a carrying value of $92.9 million have been pledged as
    collateral security for the operating facilities. At December 31, 2009
    NPR had utilized $33.7 million (December 31, 2008 - $26.6 million) of the
    operating facilities.

    9.  LONG-TERM INCENTIVE PLAN AND UNIT OPTION PLAN

    NPR has a Long-Term Incentive Plan ("LTIP") for the executives of NPR,
    based on the results of each fiscal year. Units granted and issued under
    the LTIP are as follows:

    -------------------------------------------------------------------------
                                                                      Number
                                                                    of Units
    -------------------------------------------------------------------------
    Balance - December 31, 2008                                       56,440
    Units vested and issued - January, 2009                           (8,408)
    Units vested and issued - February, 2009                         (28,509)
    Units granted - December 31, 2009                                 28,950
    -------------------------------------------------------------------------
    Balance - December 31, 2009                                       48,473
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    The total amount of LTIP awards are determined at the end of each fiscal
    year by the Board of Trustees based on an assessment of the performance
    of NPR and the individual performance of the executives. The number of
    units issued is based on the trading price on December 31 of each year.
    Pursuant to the policy, rights to units generally vest in 1/3 tranches:
    immediately upon award, then 12 and 24 months following. As at December
    31, 2009, a total of 192,136 LTIP units had vested and been issued
    (December 31, 2008 - 155,219).

    NPR has a Unit Option Plan (the "Option Plan"), which is subject to the
    rules of the Toronto Stock Exchange ("TSX"). In accordance with the
    Option Plan, NPR may grant options to acquire units up to a total of
    1,830,429 units. All options to acquire units expire after 5 years and
    vest as determined by the Governance and Compensation Committee of NPR.
    The exercise price is determined using the weighted average trading price
    of the units on the five days prior to the options being granted. The
    following table summarized the outstanding unit options as at December
    31, 2009:

    -------------------------------------------------------------------------
                               Weighted-
                                Average    Weighted-                Weighted-
                 Number        Remaining    Average      Number      Average
    Exercise  Outstanding at  Contractual  Exercise  Exercisable at  Exercise
     Price     December 31   Life In Years   Price    December 31     Price
    -------------------------------------------------------------------------
    $23.12      735,000           3.4       $23.12      489,999      $23.12
    $15.05      124,997           4.2       $15.05       20,004      $15.05
    -------------------------------------------------------------------------
                859,997           3.7       $21.95      510,003      $22.80
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    On May 20, 2008, 735,000 options with an exercise price of $23.12 and
    expiring on May 20, 2013 were granted to trustees and officers. 245,002
    options vested immediately, 245,001 options vested on May 20, 2009 and
    244,997 will vest on May 20, 2010.

    On March 12, 2009, 157,500 options with an exercise price of $15.05 and
    expiring on March 12, 2014 were granted to trustees and officers. 52,507
    options vested immediately, 52,497 options will vest on March 12, 2010
    and 52,496 will vest on March 12, 2011. During the year ended December
    31, 2009, 32,503 options were exercised at an exercise price of $15.05
    per unit.

    The REIT accounts for its Option Plan using the fair value method, under
    which compensation expense is measured at the date the options are
    granted using the Black-Scholes model and recognized over the vesting
    period. The following assumptions were used in calculating the fair value
    of the options granted on May 20, 2008; expected annual dividend rate of
    6.40%, expected volatility of 18%, risk-free rate of return of 3.10% and
    expected life of 5 years. The following assumptions were used in
    calculating the fair value of the options granted on March 12, 2009;
    expected annual dividend rate of 9.83%, expected volatility of 28.8%,
    risk-free rate of return of 1.75% and expected life of 5 years.
    Compensation expense for the year ended December 31, 2009 relating to
    options granted was $504,000 (2008 - $631,000).

    10. EMPLOYEE UNIT PURCHASE PLAN

    Under the terms of the Employee Unit Purchase Plan (the "EUPP"),
    employees may invest a maximum of 5% of their salary in NPR trust units
    and NPR contributes one unit for every three units acquired by an
    employee. The units are purchased on the TSX at market prices. During the
    year ended December 31, 2009, employees invested a total of $117,434
    (2008 - $115,562) and NPR contributed $39,166 (2008 - $38,555). During
    the year ended December 31, 2009, 8,955 units (2008 - 7,974 units) were
    purchased at an average cost of $18.71 per unit (2008 - $20.65 per unit).

    11. INCOME TAXES

    NPR has certain corporate subsidiaries which are subject to income tax on
    their respective taxable income at the applicable legislated tax rates.

    On October 31, 2006, a "Distribution Tax" on publicly traded investment
    trusts and publicly listed partnerships was announced by the federal
    Minister of Finance. The announcement created a new tax regime for
    Specified Investment Flow Throughs ("SIFTs"), which include certain
    publicly listed income trusts and publicly listed partnerships. These
    entities will be taxed in effect as corporations (at a rate comparable to
    the general combined federal/provincial corporate income tax rate).
    Certain real estate investment trusts are excluded from the SIFT
    definition and therefore are not subject to the new regime.

    The legislation provides for a transition period for publicly traded
    entities that existed prior to November 1, 2006 and is not expected to
    apply to NPR until 2011, The new tax regime, does not apply to entities
    that qualify for the REIT Exemption. Where an entity does not qualify for
    the REIT Exemption certain distributions will not be deductible in
    computing income for tax purposes and will be subject to tax on such
    distributions at a rate comparable to the general corporate income tax
    rate. At December 31, 2009, NPR does not appear to qualify for the REIT
    exemption.

    GAAP requires NPR to recognize future income tax assets and liabilities
    based on estimated temporary differences expected as at January 1, 2011.
    Under the current legislation, NPR does not appear to qualify for the
    REIT Exemption. The future income tax provision arises from temporary
    differences between the estimated accounting and tax values of NPR's
    assets and liabilities at January 1, 2011 and has been calculated using
    the expected tax rates of 19.13% to 28.4% (December 31, 2008 - 19.63% to
    29.5%).

    The future tax liabilities arise from the temporary differences
    summarized below:
    -------------------------------------------------------------------------
                                                            2009        2008
    -------------------------------------------------------------------------
    Future tax liabilities arising from temporary
     differences between accounting and tax basis of:
      Rental property assets in corporate subsidiaries     9,304       9,614
      Rental properties                                   28,868      24,963
      Deferred financing costs                             1,574         981
      Other assets                                         4,005       3,931
    -------------------------------------------------------------------------
                                                          43,751      39,489
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    The provision for income taxes differs from the results which would be
    obtained by applying the combined federal and provincial income tax rate
    to net income before taxes. The provision for income taxes is comprised
    of the following:

    -------------------------------------------------------------------------
                                                            2009        2008
    -------------------------------------------------------------------------
      Current income tax expense                             373         409
      Future income tax expense                            4,240       3,306
    -------------------------------------------------------------------------
      Total income tax expense                             4,613       3,715
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    The provision for income taxes differs from the results which would be
    obtained by applying the combined federal and provincial income tax rate
    to net income before taxes. The difference results from the following:

    -------------------------------------------------------------------------
                                                            2009        2008
    -------------------------------------------------------------------------
    Earnings from before income taxes                     25,929      26,417

    Less income attributable to NPR not subject to
     future income tax                                   (23,999)    (24,529)
    -------------------------------------------------------------------------
    Income in corporate subsidiaries                       1,930       1,888

    Income tax rate based on basic and weighted
     average rates                                        19.13%      19.63%
    -------------------------------------------------------------------------
    Expected income tax expense from statutory income
     tax rate                                                369         371

    Increase (decrease) in current taxes resulting from:
      Non-deductible expenses                                 57         (88)
      Sale of rental properties                               48           9
      Other                                                 (101)        117
    -------------------------------------------------------------------------
    Current income tax expense                               373         409
    -------------------------------------------------------------------------
    Increase (decrease) in future taxes resulting from:
      Future income taxes - corporate subsidiaries          (310)       (394)
      Decrease in future income tax rates                 (1,250)          -
      Future income taxes relating to Bill-C52             5,800       3,700
    -------------------------------------------------------------------------
    Future income tax expense                              4,240       3,306
    -------------------------------------------------------------------------
    Total income tax expense                               4,613       3,715
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    12. UNITHOLDERS' CAPITAL

    Trust units

    The total authorized number of trust units is unlimited. The total number
    of trust units of the REIT outstanding as at December 31, 2009 is
    23,020,538 (December 31, 2008 - 22,755,010) representing a net book value
    of $343.3 million (December 31, 2008 - $338.3 million), net of issue
    costs.

    Class B Exchangeable Limited Partnership Units and Special Voting Units

    The Class B Units can be exchanged for trust units at any time at the
    option of the holder of the Class B units. Each Class B unit has a
    "Special Voting Unit" attached to it, which entitles the holder to one
    vote, either in person or by proxy at the meeting of unitholders of the
    trust as if he or she was a unitholder of the trust. Total number of
    Class B LP Units and special voting units of Northern Property Limited
    Partnership, a controlled limited partnership, outstanding as at December
    31, 2009, is 2,085,090 (December 31, 2008 - 2,278,635) representing a net
    book value of $25.4 million (December 31, 2008 - $29.1 million).

    Distributions to Unitholders

    Pursuant to the Trust Declaration, holders of Trust units and Class B
    units are entitled to receive distributions made on each distribution
    date as approved by the Trustees. Distributions for the year are required
    to be at least equal to the net income as determined in accordance with
    the Income Tax Act.

    The total number of NPR Trust units and Class B units issued, as the
    result of an exchange of Class B limited partnership units of Northern
    Property Limited Partnership (the "Class B LP Units"), outstanding and
    eligible for distributions at December 31, 2009 is 25,105,628 (December
    31, 2008 - 25,033,645), representing net proceeds of $368.7 million, net
    of issue costs of $19.6 million (December 31, 2008 - $367.5 million, net
    of issue costs of $19.6 million). The number of units issued and
    outstanding is as follows:

    -------------------------------------------------------------------------
                                              Trust                    Class
                                              Units       Issue         B LP
    -------------------------------------------------------------------------
    December 31,
     2007                                22,536,988                2,467,101

    January 02,        LTIP units
     2008               issued                6,033      $23.12            -
    February 16,       LTIP units
     2008               issued               11,592      $22.35            -
    May 26, 2008       LTIP units
                        issued               11,931      $22.35            -
                       Issue costs                -           -            -
    Class B LP units
     exchanged                              188,466           -     (188,466)
    -------------------------------------------------------------------------
    December 31,
     2008                                22,755,010           -    2,278,635
    -------------------------------------------------------------------------
    January 2,         LTIP units
     2009               issued                8,408      $24.20            -
    January 6,         Property
     2009               acquisition               -           -        3,833
    February 5,        LTIP units
     2009               issued               28,509      $16.21            -
                       Options exercised     32,503      $15.05            -
    July 24, 2009      Units cancelled       (1,270)     $10.00            -
    Issue costs                                   -           -            -
    Class B LP units
     exchanged                              197,378           -     (197,378)
    -------------------------------------------------------------------------
    December 31,
     2009                                23,020,538                2,085,090
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    -------------------------------------------------------------------------
                                              Issue             Total
    -------------------------------------------------------------------------
    December 31,
     2007                                            25,004,089      366,789

    January 02,        LTIP units
     2008               issued                    -       6,033          139
    February 16,       LTIP units
     2008               issued                    -      11,592          259
    May 26, 2008       LTIP units
                        issued                    -      11,931          267
                       Issue costs                -           -           (8)
    Class B LP units
     exchanged                                    -           -            -
    -------------------------------------------------------------------------
    December 31,
     2008                                         -  25,033,645      367,446
    -------------------------------------------------------------------------
    January 2,         LTIP units
     2009               issued                    -       8,408          204
    January 6,         Property
     2009               acquisition          $16.91       3,833           65
    February 5,        LTIP units
     2009               issued                    -      28,509          462
                       Options exercised          -      32,503          528
    July 24, 2009      Units cancelled            -      (1,270)         (13)
    Issue costs                                   -           -           (2)
    Class B LP units
     exchanged                                    -           -            -
    -------------------------------------------------------------------------
    December 31,
     2009                                            25,105,628      368,690
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    13. NET EARNINGS PER UNIT

    -------------------------------------------------------------------------
                                                          2009          2008
    -------------------------------------------------------------------------
    Net earnings                                        21,316        22,702
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Weighted average units for basic net
     earnings per unit                              25,088,584    25,027,697
    Dilutive effect of units to be issued
     under the LTIP                                     22,280        19,978
    Dilutive effect of Option Plan                      44,264        13,270
    -------------------------------------------------------------------------
    Weighted average units for diluted net
     earnings per unit                              25,155,128    25,060,945
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Net earnings per unit:
      Basic                                             $0.850        $0.907
      Diluted                                           $0.847        $0.906
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    14. GUARANTEES, COMMITMENTS AND CONTINGENCIES

    In the ordinary course of business, NPR 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 NPR 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 may vary based
    on the contract and do not provide any limit on the maximum potential
    liability. To date, NPR has not made any significant payments under such
    indemnifications and no amount has been accrued in the financial
    statements with respect to these indemnification commitments. In the
    normal course of operations, NPR 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, 2009 will not have a material impact on NPR.

    During the normal course of operations, NPR provided guarantees for
    mortgages and loans payable relating to investments in corporations and
    joint ventures where NPR owns less than 100%. The mortgages and loans
    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, NPR may be liable for 100% of the
    outstanding balances of these mortgages and loans payable. At December
    31, 2009, NPR has provided guarantees totaling $6.1 million (December 31,
    2008 - $10.4 million). The mortgages bear interest at rates ranging from
    3.06% to 6.10% and mature July 2010 to December 2013 (December 2008 -
    4.54% to 7.90% and mature June 2009 to December 2013). As at December 31,
    2009, land and buildings with a carrying value of $6.3 million have been
    pledged to secure these mortgage and loans payable (December 2008 - $6.5
    million).

    NPR has included its proportionate share of its joint ventures' mortgages
    and loans payable totaling $4.9 million at December 31, 2009 (December
    31, 2008 - $5.2 million) in these consolidated financial statements.

    In connection with the acquisition of certain seniors' properties in
    Newfoundland, the tenants have agreed to expand certain properties
    purchased by NPR. NPR has entered into agreements to purchase these
    expansions once completed. In total, NPR has commitments totalling $2.0
    million.

    15. SEGMENTED INFORMATION

    The primary business segments used by management are geographic segments
    (i.e. provinces and territories). NPR operates in 5 geographic segments,
    British Columbia, Alberta, the Northwest Territories, Nunavut and
    Newfoundland. Within its geographic business segments, NPR has two
    business operating segments: residential and commercial income producing
    properties. The REIT's residential properties are comprised of three
    components: apartments, townhomes and single family rental units;
    execusuite apartment rental units, where the rental periods range from a
    few days to several months; and seniors' properties where the properties
    are leased on a long term basis to qualified operators who provide
    services to individual residents. The commercial business segment is
    comprised of office, industrial and retail properties in areas where NPR
    has residential operations. All items, except gain on sale of rental
    properties and gain on settlement of debt which are related only to the
    REIT and are included in the Consolidated Statement of Earnings, are not
    allocated to the defined segments. As such, NPR has not provided a
    reconciliation of Earnings before Other Items to Net Earnings. In 2008,
    gain on sale of rental properties was earned in the residential rental
    and commercial business segments in Nunavut and the Northwest
    Territories, respectively. Gain on settlement of debt was earned in the
    residential business segments in all geographic segments. Segmented
    information for NPR is provided below:

    Total Assets
    -------------------------------------------------------------------------

    December 31, 2009        BC  Alberta      NWT  Nunavut     Nfld    Total
    -------------------------------------------------------------------------
    Residential
      Multi-family       92,488  176,982   85,046  113,105   58,392  526,013
      Execusuites             -        -   10,470    9,537    9,428   29,435
      Seniors'           16,230  121,691        -        -   49,610  187,531
    -------------------------------------------------------------------------
                        108,718  298,673   95,516  122,642  117,430  742,979
      Commercial         21,289    9,083   90,388   19,660    1,192  141,612
      Trust                   -    3,776        -        -        -    3,776
    -------------------------------------------------------------------------
    TOTAL ASSETS        130,007  311,532  185,904  142,302  118,622  888,367
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Total Assets
    -------------------------------------------------------------------------

    December 31, 2008        BC  Alberta      NWT  Nunavut     Nfld    Total
    -------------------------------------------------------------------------
    Residential
      Multi-family       90,384  161,176   86,323  115,131   56,109  509,123
      Execusuites             -        -    8,019    9,853    9,495   27,367
      Seniors'           15,710  123,794        -        -   40,965  180,469
    -------------------------------------------------------------------------
                        106,094  284,970   94,342  124,984  106,569  716,959
    Commercial           21,409    8,912   97,868   20,992    1,222  150,403
    Trust                     -    5,560        -        -        -    5,560
    -------------------------------------------------------------------------
    TOTAL ASSETS        127,503  299,442  192,210  145,976  107,791  872,922
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Geographic Segments
    -------------------------------------------------------------------------
    Year ended
    December 31, 2009        BC  Alberta      NWT  Nunavut     Nfld    Total
    -------------------------------------------------------------------------

    Rental revenue       16,169   33,963   36,364   25,812   18,459  130,767
    Other income            462      943    1,106      553      401    3,465
    Operating expenses   (6,292)  (9,816) (16,495)  (8,596)  (6,240) (47,439)
    -------------------------------------------------------------------------
                         10,339   25,090   20,975   17,769   12,620   86,793
    Interest on
     mortgages           (3,002) (10,978)  (5,908)  (3,867)  (2,680) (26,435)
    Amortization         (4,085)  (7,500)  (7,899)  (5,715)  (3,590) (28,789)
    -------------------------------------------------------------------------
    EARNINGS BEFORE
     OTHER ITEMS          3,252    6,612    7,168    8,187    6,350   31,569
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Geographic Segments
    -------------------------------------------------------------------------
    Year ended
    December 31, 2008        BC  Alberta      NWT  Nunavut     Nfld    Total
    -------------------------------------------------------------------------

    Rental revenue       14,082   32,875   36,556   24,861   16,252  124,626
    Other income            427      830    1,097      347      432    3,133
    Operating expenses   (6,145)  (6,960) (16,851)  (7,597)  (5,901) (43,454)
    -------------------------------------------------------------------------
                          8,364   26,745   20,802   17,611   10,783   84,305
    Interest on
     mortgages           (2,452)  (9,814)  (5,464)  (4,397)  (2,372) (24,499)
    Amortization         (3,254)  (6,940)  (7,246)  (5,797)  (3,210) (26,447)
    -------------------------------------------------------------------------
    EARNINGS BEFORE
     OTHER ITEMS          2,658    9,991    8,092    7,417    5,201   33,359
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Business Segments
    -------------------------------------------------------------------------
                                                     Total
    Year ended            Multi-   Execu-          Residen-  Commer-
    December 31, 2009    family   suites  Seniors'    tial     cial    Total
    -------------------------------------------------------------------------

    Rental revenue       82,352    8,190   17,486  108,028   22,739  130,767
    Other income          2,942      208        -    3,150      315    3,465
    Operating expenses  (33,935)  (4,334)     (24) (38,293)  (9,146) (47,439)
    -------------------------------------------------------------------------
                         51,359    4,064   17,462   72,885   13,908   86,793
    Interest on
     mortgages          (16,670)    (969)  (6,130) (23,769)  (2,666) (26,435)
    Amortization        (18,062)  (1,305)  (4,460) (23,827)  (4,962) (28,789)
    -------------------------------------------------------------------------
    EARNINGS BEFORE
     OTHER ITEMS         16,627    1,790    6,872   25,289    6,280   31,569
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Business Segments
    -------------------------------------------------------------------------
                                                     Total
    Year ended            Multi-   Execu-          Residen-  Commer-
    December 31, 2008    family   suites  Seniors'    tial     cial    Total
    -------------------------------------------------------------------------

    Rental revenue       77,162    8,369   16,494  102,025   22,601  124,626
    Other income          2,677      128        -    2,805      328    3,133
    Operating expenses  (30,389)  (4,270)     (23) (34,682)  (8,772) (43,454)
    -------------------------------------------------------------------------
                         49,450    4,227   16,471   70,148   14,157   84,305
    Interest on
     mortgages          (14,631)    (872)  (6,286) (21,789)  (2,710) (24,499)
    Amortization        (16,374)  (1,035)  (4,217) (21,626)  (4,821) (26,447)
    -------------------------------------------------------------------------
    EARNINGS BEFORE
     OTHER ITEMS         18,445    2,320    5,968   26,733    6,626   33,359
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    16. RELATED PARTY TRANSACTIONS

    Related party transactions are conducted in the normal course of
    operations and are measured at the exchange amount, which is the amount
    of consideration established and agreed upon by the related parties. A
    Trustee of NPR is the Chairman of AgeCare Investment Ltd. ("AgeCare"),
    which leases six seniors' properties from NPR. For the year ended
    December 31, 2009, NPR earned rental income, including rental revenue
    earned on a straight-line basis over the term of the lease, totaling
    $12.6 million (2008 - $12.6 million) from AgeCare. Amounts outstanding in
    accounts receivable pertaining to this lease were $nil at December 31,
    2009 (December 31, 2008 - $nil). In addition, AgeCare is paid an annual
    fee for advisory services provided to NPR respecting prospective
    acquisitions of seniors' properties. For the year ended December 31,
    2009, NPR paid $120,000 for these services (2008 - $120,000).

    During the first quarter of 2009, NPR completed renovations totaling
    $2.15 million to a seniors' facility in BC which is leased to AgeCare. At
    December 31, 2009, In accordance with the lease agreement, AgeCare is
    repaying this amount over 15 years. Interest revenue of $112,800 was
    earned for the year ended December 31, 2009 (2008 - $nil) relating to
    this receivable. Amounts outstanding at December 31, 2009 was $2.1
    million (December 31, 2008 - $nil).

    A company owned by a Trustee of NPR leases commercial space from NPR
    under normal commercial terms. NPR earned rental revenue from that
    arrangement of $481,000 for the year ended December 31, 2009 (2008 -
    $454,000). Amounts outstanding in accounts receivable pertaining to this
    lease were $nil at December 31, 2009 (December 31, 2008 - $nil).

    17. FINANCIAL INSTRUMENTS

    NPR's accounts and loans receivable and other financial liabilities are
    substantially carried at amortized cost, which approximates fair value.
    Such fair value estimates are not necessarily indicative of the amounts
    the Trust might pay or receive in actual market transactions.

    The fair value hierarchy of financial instruments measured at fair value
    on the balance sheet is as follows:

    -------------------------------------------------------------------------
                           December 31, 2009           December 31, 2008

                       Level 1  Level 2  Level 3   Level 1  Level 2  Level 3
    -------------------------------------------------------------------------
    Financial assets
     and liabilities:

      Cash                   -        -        -       731        -        -

      Bank
       indebtedness      1,820        -        -         -        -        -
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    The three levels of the fair value hierarchy are described as follows:

      Level 1: Values based on unadjusted quoted prices in active markets
      that are accessible at the measurement date for identical assets or
      liabilities.

      Level 2: Values based on quoted prices in markets that are not active
      or model inputs that are observable either directly or indirectly for
      substantially the full term of the asset or liability.

      Level 3: Values based on prices or valuation techniques that require
      inputs that are both unobservable and significant to the overall fair
      value measurement.

    NPR had no embedded derivatives requiring separate recognition for the
    years ended December 31, 2009 and 2008.

    Utility cost risk

    NPR is exposed to utility cost risk, which results from the fluctuation
    in utility prices for fuel oil, natural gas and electricity, the primary
    utilities used to heat the REITs properties. The exposure to utility cost
    risk is restricted primarily to the REIT's residential rental and
    execusuites portfolio. The leases in the remainder of the portfolio
    generally provide for recovery of operating costs, including utilities.
    Because of the northern location of a portion of NPR's portfolio, the
    exposure to utility price fluctuations is more pronounced in the first
    and last fiscal quarter of the year.NPR manages its exposure to utility
    risk through a number of preventative measures, including retrofitting
    properties with energy efficient appliances, fixtures and windows. With
    the exception of a fixed price utility contract in place for certain
    residential rental units in Alberta, NPR does not utilize hedges or
    forward contracts to manage exposure to utility cost risk.

    Heating oil is the primary source of fuel for heating properties located
    in Nunavut and the Northwest Territories. Over the last two years, NPR
    converted heating systems for certain properties in Yellowknife from fuel
    oil based boilers to wood pellet boilers. The investment in these
    environmentally friendly boilers continues to reduce NPR's exposure to
    volatile heating oil prices. Exposure to increases in the cost of heating
    oil is partially offset by the ability to recover these increases from a
    significant proportion of its commercial and some residential tenants.

    Natural gas is the significant source of fuel for heating properties
    located in Alberta, BC and Inuvik, NWT. NPR has fixed price contracts for
    certain of its properties which accounts for approximately 31% of the
    REIT's usage in Alberta. During 2009, NPR received approximately $40,000
    in rebates under the Natural Gas Rebate Program which provided for
    rebates to consumers when natural gas prices exceeded $5.50 per gigajoule
    from October to March. The government of Alberta did not renew the
    Natural Gas Rebate Program for the 2009-2010 heating season. Natural gas
    prices in Inuvik and BC are not subject to regulated price control and
    the REIT does not use financial instruments to manage the exposure to the
    price risk.

    Management prepared a sensitivity analysis on the impact of price changes
    in the cost of heating oil and natural gas. A 10% change over the average
    price of heating oil and natural gas would impact NPR's net earnings by
    $283,000 for the year ended December 31, 2009.

    Electricity is the primary source of fuel for heating properties located
    in Newfoundland as well as parts of north eastern BC. In Newfoundland,
    electricity is purchased from the provincially regulated utility and is
    directly paid by the tenants for a significant portion of the REIT's
    multi-family rental units. As there is not a significant direct risk to
    NPR regarding the price of electricity, a sensitivity analysis has not
    been prepared.

    Liquidity risk

    Ultimate responsibility for monitoring liquidity risk management lies
    with management and the Board of Trustees of the REIT. The REIT moderates
    liquidity risk by managing mortgage and loan maturities to ensure a
    relatively even amount of mortgage maturities in each year. At December
    31, 2009 the REIT has operating facilities totaling $57.5 million
    (December 31, 2008 - $50.0 million). At December 31, 2009, $33.7 million
    of the operating facilities were utilized (December 31, 2008 - $26.6
    million). Cash flow projections are completed on a regular basis to
    ensure there will be adequate liquidity to maintain operating and
    investment activities in addition to making monthly distributions to
    unitholders. The Board of Trustees reviews current financial results and
    the annual business plan in determining appropriate distribution levels.

    Credit risk

    NPR's credit risk primarily arises from the possibility that tenants may
    not be able to fulfill their lease commitments. Tenant receivables are
    comprised of a large number of tenants spread across the geographic areas
    in which the REIT operates. There are no significant exposures to single
    tenants with the exception of AgeCare Investments Ltd. (See note 16),
    which leases seniors' properties in Alberta and BC from the REIT, and the
    Governments of Canada, the Northwest Territories and Nunavut, which
    leases a large number of residential units and commercial property in the
    Northwest Territories and Nunavut.

    NPR mitigates this risk through conducting thorough credit checks on
    prospective tenants, requiring rental payments on the first of the month,
    obtaining security deposits approximating one month's rent from tenants
    where legislation permits, and geographic diversification in its
    portfolio. Tenants are required to pay rent on the first of each month,
    with the exception of certain government leases where rent is due at the
    end of the month and certain commercial tenants where operating cost
    recoveries are billed in arrears. As such, the majority of tenant
    receivables are past due at the balance sheet date.

    The following is an aging of current tenant and other receivables:

    -------------------------------------------------------------------------
                                                          2009          2008
    -------------------------------------------------------------------------

    0-30 days                                            1,405           987
    31-60 days                                             221           267
    61-90 days                                              58           130
    Over 90 days                                           730           722
    -------------------------------------------------------------------------
    Tenant receivables                                   2,414         2,106
    Other receivables                                    2,094         3,329
    Allowance for doubtful accounts                       (350)         (350)
    -------------------------------------------------------------------------
                                                         4,158         5,085
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    NPR classifies tenants as past tenants on the date of their move out from
    a residential unit. NPR records a specific allowance for doubtful
    accounts on all balances owed by past tenants. Any subsequent recovery of
    balances owed from past tenants is recorded as a reduction in the bad
    debt provision for the period. In addition, NPR records an allowance for
    doubtful accounts from current tenants and other receivables where the
    expected amount to be collected is less than the actual accounts
    receivable. The amounts disclosed on the balance sheet are net of
    allowances for uncollectible accounts from current and past tenants and
    other receivables, estimated by Management based on prior experience and
    current economic conditions.

    The reconciliation of changes in allowance for doubtful accounts is as
    follows:

    -------------------------------------------------------------------------
                                                          2009          2008
    -------------------------------------------------------------------------

    Balance, beginning of period                           350           250
    Accounts receivable written off                       (532)         (690)
    Accounts recovered                                     590           355
    Increase (decrease) in allowance                       (58)          435
    -------------------------------------------------------------------------
    Balance, December 31                                   350           350
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    The following is an aging of accounts payable and accrued liabilities:

    -------------------------------------------------------------------------
                                                          2009          2008
    -------------------------------------------------------------------------

    0-6 months                                          10,629         9,916
    6 months to 1 year                                   1,193         1,251
    Over 1 year                                            212            51
    -------------------------------------------------------------------------
                                                        12,034        11,218
    Tenant security deposits                             3,521         3,893
    -------------------------------------------------------------------------
                                                        15,555        15,111
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Management believes that future cash flows from operations and
    availability under the current operating facilities provide sufficient
    available funds through the foreseeable future to support these financial
    liabilities.

    Interest rate risk

    NPR is exposed to interest rate risk on mortgages and loans payable and
    does not hold any financial instruments to mitigate that risk. NPR
    utilizes both fixed and floating rate debt. Interest rate risk related to
    floating interest rates is limited primarily to the utilization of
    operating 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,
    NPR maximizes the amount of mortgages on residential rental properties
    where it is possible to lower interest rates through Canada Mortgage and
    Housing Corporation mortgage insurance.

    The sensitivity analysis for floating rate debt has been completed based
    on the exposure to interest rates at the balance sheet date. Floating
    rate debt includes all mortgage and loans payable which are not subject
    to fixed interest rates and the revolving line of credit. If interest
    rates changed by 0.50% and all other variables remained constant, NPR's
    net earnings for the year ended December 31, 2009 would have changed by
    $228,000.

    18. CAPITAL MANAGEMENT

    NPR's objective when managing its capital is to safeguard its assets
    while maximizing the growth of its business, returns to unitholders and
    maintaining the sustainability of cash distributions. NPR's capital
    consists of mortgages and loans payable, operating and acquisition
    facilities, Trust Units and Class B LP Units.

    Management monitors the REIT's capital structure on an ongoing basis to
    determine the appropriate level of mortgage debt and loans payable to be
    placed on specific properties at the time of acquisition or when existing
    debt matures. NPR follows conservative guidelines which are set out in
    the Trust Declaration. 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 the REIT, interest and debt
    service ratios, and limits on the amount of floating rate debt. NPR has
    operating facilities which is used to fund acquisitions and capital
    expenditures until specific mortgage debt is placed or additional equity
    is raised.

    Consistent with others in the industry, NPR monitors capital on the basis
    of debt to gross book value ratio. The Declaration of Trust provides for
    a maximum debt to gross book value ratio of 70%. The REIT does not
    anticipate operating above a debt to gross book value ratio of 60%. NPR's
    debt to gross book value is as follows:

    -------------------------------------------------------------------------
                                                   December 31,  December 31,
                                                          2009          2008
    -------------------------------------------------------------------------
    Bank indebtedness (cash)                             1,820          (731)
    Operating facilities                                33,698        26,600
    Mortgages and loans payable                        518,912       502,277
    -------------------------------------------------------------------------
    Debt                                               554,430       528,146
    -------------------------------------------------------------------------

    Rental properties and other capital assets         836,251       833,967
    Capital assets improvements in progress              7,046         3,773
    Capital assets under development                    20,423         8,996
    Refundable deposits and mortgage proceeds
     held in trust                                           -           185
    Accumulated amortization                           118,764        90,546
    Future income taxes on acquisitions                (21,647)      (21,625)
    -------------------------------------------------------------------------
    Gross Book Value                                   960,837       915,842
    -------------------------------------------------------------------------

    Debt to Gross Book Value                             57.7%         57.7%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    NPR is subject to three principal financial covenants in its mortgage and
    loans payable and operating facilities. The financial covenants are
    described as follows:

    -   Debt Service Coverage - calculated as Net earnings before interest,
        taxes and amortization divided by the debt service payments (total
        interest expense and principal repayments);
    -   Interest Coverage - calculated as Net earnings before interest, taxes
        and amortization divided by total interest expense;
    -   Debt to Gross Book Value as calculated above.

    -------------------------------------------------------------------------
                                                          2009          2008
    -------------------------------------------------------------------------
    Earnings from continuing operations before taxes    25,929        26,417
    Amortization                                        28,789        26,447
    Interest on mortgages                               26,435        24,499
    Interest on operating facilities                       755         1,286
    -------------------------------------------------------------------------
    Net earnings before interest, taxes and
     amortization                                       81,908        78,649
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Interest on mortgages                               26,435        24,499
    Interest on operating facilities                       755         1,286
    -------------------------------------------------------------------------
    Total Interest Expense                              27,190        25,785
    Principal repayments                                16,198        14,983
    -------------------------------------------------------------------------
    Debt Service Payments                               43,388        40,768
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Interest Coverage                                     3.01          3.05
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Debt Service Coverage                                 1.89          1.93
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    As at and during the year ended December 31, 2009, NPR complied with all
    externally imposed capital requirements and all covenants relating to its
    debt facilities.

    19. SUBSEQUENT EVENTS

    Between January 1, 2010 and March 17, 2010 NPR completed mortgage
    financings and renewals totalling $22.4 million with interest rates from
    2.97% to 6.05% and terms to maturity from 6 months to 10 years. Proceeds
    from the mortgage financings were used to repay existing mortgage debt
    and a portion of the operating facility.
    

SOURCE Northern Property Real Estate Investment Trust

For further information: For further information: contact Todd Cook, Chief Financial Officer, at (403) 531-0720

Organization Profile

Northern Property Real Estate Investment Trust

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