Northern Property reports Q1 2009 results



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

    
    HIGHLIGHTS:

    -   Revenue increased by 11.6% to 34.0 million
    -   Net earnings increased to $7.1 million from $5.9 million in Q1 2008
    -   Q1, 2009 FFO of $0.54 compared to $0.47 in Q1, 2008
    -   Increased vacancy, seasonal costs contribute to negative same door
        growth of 0.6%
    -   Weighted average interest rate declines to 5.02%
    -   Low payout ratio remains intact
    -   Positive interest coverage position of 2.98 times

    FINANCIAL PERFORMANCE AT A GLANCE
    -------------------------------------------------------------------------
                                                         Three         Three
                                                        Months        Months
                                                         Ended         Ended
    In $000's except per unit amounts                 March 31      March 31
    -------------------------------------------------------------------------
                                                          2009          2008
    -------------------------------------------------------------------------
    Total revenue                                       34,039        30,510
    Net operating income ("NOI")                        21,304        19,753
    Net earnings                                         7,101         5,881

    Distributable Income ("DI")                         13,321        11,501
    DI per unit(*)                                      $0.532        $0.460
    Distribution to unitholders                          9,266         9,254
    Distributions per unit                              $0.370        $0.370
    DI Payout ratio                                      69.6%         80.5%

    Funds from Operations ("FFO")                       13,514        11,783
    FFO per unit                                        $0.539        $0.471
    FFO payout ration                                    68.6%         78.6%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    "Northern Property continued to post very satisfactory financial results
in Q1, 2009," reported President and CEO Jim Britton, "although we have begun
to experience increased vacancy in some markets related to the recession.
Notwithstanding our concerns about the business environment, the REIT is
operating on a fundamentally sound basis with a payout ratio for the quarter
of 69.6% of distributable income."
    Rental market conditions were stable for the REIT in its commercial and
master leased seniors housing portfolio in Q1. However, apartment vacancy loss
increased by 1.5% to 6.1%. Most of this change is related to higher vacancy
loss in Fort McMurray (up to 4.2% from 1.4% in Q4, 2008) and Yellowknife (up
to 4.3% from 3.0% the previous quarter). Executive suite sales declined in the
quarter in both Inuvik and Yellowknife Capital Suites. NPR's apartment and
execusuites results continued to be strong in Newfoundland and Nunavut.
    "It can be no surprise that our residential occupancy in the West is
starting to reflect the sharp decline in oil prices and the current weakness
in natural gas, mining and forestry resources," Mr. Britton went on to say.
"We have come off exceptionally tight rental market conditions to more normal
levels of occupancy. We will use this period to carry out some of the needed
capex work which has been difficult to get done in the last couple of years
while buildings were 100% occupied and skilled labour difficult to find due to
labour shortages."
    The REIT experienced a challenging Q1 relative to operating costs, with
harsh winter weather conditions contributing to utility and snow clearing
overruns, particularly in the West and Far North. Fuel costs were especially
high in Nunavut as a result of the government's procurement of the winter's
heating fuel at the peak oil prices in the summer of 2008.
    Acquisition activity was limited to $7.4 million of additional property
during the quarter and included a 40 suite apartment building and 52 master
leased seniors units in Newfoundland. Development continued on the 189
apartment unit Westmore Estates project in Grande Prairie. One of three
buildings was completed near the end of April with the remaining two expected
by the end of May. Acquisition and development activity has been curtailed by
NPR as a result of rental market uncertainties and the high cost of raising
new capital.
    The weighted average interest cost continued to decline to 5.02% compared
to 5.13% in Q4, 2008. Debt to Gross Book value was up slightly to 58.1% from
57.7% at the end of 2008 because acquisition and development activity has
taken place without issuing additional equity. Northern Property REIT's payout
ratio was 69.6% of distributable income for Q1.
    "NPR's focus in the next few months is to ensure that the value and
service that we offer is at the highest possible level. This involves
continued investment in our property and making sure that our leasing efforts
are as effective as they can be," Mr. Britton said. "The buffer between the
cash we generate and the unit-holder distributions we pay enables us to do so
and also prepares the REIT to succeed when conditions of economic growth
return."

    
    NORTHERN PROPERTY REAL ESTATE INVESTMENT TRUST
    Unaudited Consolidated Balance Sheets
    (Thousands of dollars)
    -------------------------------------------------------------------------
                                                      March 31,  December 31,
                                                          2009          2008
    -------------------------------------------------------------------------

    ASSETS

    Rental properties and other capital
     assets (Note 4)                                   837,636       833,967
    Capital improvements in progress                     2,733         3,773
    Capital assets under development                    15,070         8,996
    Prepaid expenses and other assets (Note 5)           5,566         5,664
    Cash                                                     -           731
    Accounts receivable (Note 17)                        5,930         5,085
    Tenant security deposits                             3,707         3,575
    Deferred rent receivable                             3,551         3,248
    Loans receivable                                     4,308         1,742
    Intangible assets (Note 6)                           5,824         6,141
    -------------------------------------------------------------------------
                                                       884,325       872,922
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    LIABILITIES

    Mortgages and loans payable (Note 7)               484,458       482,800
    Operating facilities (Note 8)                       34,700        26,600
    Bank indebtedness                                    2,326             -
    Accounts payable and accrued liabilities            17,591        15,111
    Distributions payable                                3,092         3,092
    Future income tax liability (Note 11)               38,474        39,489
    Intangible liabilities (Note 6)                        224           279
    Non-controlling interest                               431           441
    -------------------------------------------------------------------------
                                                       581,296       567,812
    -------------------------------------------------------------------------

    UNITHOLDERS' EQUITY                                303,029       305,110
    -------------------------------------------------------------------------
                                                       884,325       872,922
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    See accompanying notes to the consolidated financial statements.

    Guarantees, commitments and contingencies (Note 14)


    APPROVED BY THE BOARD

                          Trustee

                          Trustee



    NORTHERN PROPERTY REAL ESTATE INVESTMENT TRUST
    Unaudited Consolidated Statements of Earnings and Comprehensive Earnings
    Three Months Ended March 31
    (Thousands of dollars, except per unit amounts)
    -------------------------------------------------------------------------
                                                          2009          2008
    -------------------------------------------------------------------------
    REVENUE
    Rental revenue                                      32,992        29,852
    Other property income                                1,047           658
    -------------------------------------------------------------------------
                                                        34,039        30,510
    Operating expenses                                 (12,735)      (10,757)
    -------------------------------------------------------------------------
                                                        21,304        19,753
    -------------------------------------------------------------------------
    OTHER EXPENSES
    Interest on mortgages                               (6,556)       (5,944)
    Amortization                                        (7,114)       (6,487)
    -------------------------------------------------------------------------
                                                       (13,670)      (12,431)
    -------------------------------------------------------------------------
    EARNINGS BEFORE THE UNDERNOTED                       7,634         7,322
    -------------------------------------------------------------------------
    Trust administration                                (1,395)       (1,869)
    Interest on operating facilities                      (149)         (450)
    Interest and other income                              109           186
    Gain on settlement of debt                               -           577
    Gain on sale of rental properties                        -           136
    Non-controlling interest                                (9)          (15)
    -------------------------------------------------------------------------
    EARNINGS BEFORE INCOME TAXES                         6,190         5,887
    -------------------------------------------------------------------------
    Current taxes (Note 11)                               (104)          (86)
    Future tax recovery (Note 11)                        1,015            80
    -------------------------------------------------------------------------
                                                           911            (6)
    -------------------------------------------------------------------------
    NET EARNINGS                                         7,101         5,881

    Other comprehensive earnings (loss)                   (143)          182
    -------------------------------------------------------------------------
    COMPREHENSIVE EARNINGS                               6,958         6,063
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Net earnings per unit (Note 13)
    Basic                                               $0.283        $0.235
    Diluted                                             $0.283        $0.235
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    See accompanying notes to the consolidated financial statements.



    NORTHERN PROPERTY REAL ESTATE INVESTMENT TRUST
    Unaudited Consolidated Statements of Unitholders' Equity
    Three Months Ended March 31
    (Thousands of dollars)
    -------------------------------------------------------------------------

                                                          2009          2008
    -------------------------------------------------------------------------
    TRUST UNITS (Note 12)
    Balance, January 1                                 367,446       366,789
    Issuance of units                                       65             -
    Issue costs                                             (2)            -
    Long term incentive plan units issued                  666           398
    -------------------------------------------------------------------------
    Balance, March 31                                  368,175       367,187
    -------------------------------------------------------------------------

    CONTRIBUTED SURPLUS
    Balance, January 1                                   1,676         1,023
    Unit-based compensation                                164             -
    Long term incentive plan units granted                   -             -
    Long term incentive plan units issued                 (666)         (398)
    -------------------------------------------------------------------------
    Balance, March 31                                    1,174           625
    -------------------------------------------------------------------------

    CUMULATIVE DEFICIT
      CUMULATIVE NET EARNINGS
      Balance, January 1                                86,056        63,354
      Net earnings                                       7,101         5,881
    -------------------------------------------------------------------------
      Balance, March 31                                 93,157        69,235
    -------------------------------------------------------------------------

      CUMULATIVE DISTRIBUTIONS TO UNITHOLDERS
      Balance, January 1                              (150,191)    (113,154)
      Distributions declared to unitholders             (9,266)      (9,254)
    -------------------------------------------------------------------------
      Balance, January 1                              (159,457)    (122,408)
    -------------------------------------------------------------------------

    CUMULATIVE DEFICIT, March 31                       (66,300)     (53,173)
    -------------------------------------------------------------------------

    ACCUMULATED OTHER COMPREHENSIVE EARNINGS (LOSS)
    Balance, January 1                                     123           55
    Other comprehensive earnings (loss)                   (143)         182
    -------------------------------------------------------------------------
    Balance, March 31                                      (20)         237
    -------------------------------------------------------------------------

    TOTAL UNITHOLDERS' EQUITY                          303,029      314,876
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    See accompanying notes to the consolidated financial statements.



    NORTHERN PROPERTY REAL ESTATE INVESTMENT TRUST
    Unaudited Consolidated Statements of Cash Flows
    Three Months Ended March 31
    (Thousands of dollars)
    -------------------------------------------------------------------------

                                                          2009          2008
    -------------------------------------------------------------------------
    CASH FLOWS RELATED TO THE FOLLOWING ACTIVITIES:
      OPERATING
      Net earnings from continuing operations            7,101         5,881
      Adjustments for:
      Deferred rental revenue                             (304)         (341)
      Amortization                                       7,114         6,487
      Amortization of fair value of debt                   160           118
      Amortization of above and below market leases        (49)          (59)
      Gain on settlement of debt                             -          (577)
      Gain on sale of rental properties                      -          (136)
      Non-controlling interest                               9            15
      Unit-based compensation                              314           208
      Future income tax recovery                        (1,015)          (80)
    -------------------------------------------------------------------------
                                                        13,330        11,516
      Changes in non-cash working capital                  782         2,266
    -------------------------------------------------------------------------
                                                        14,112        13,782
    -------------------------------------------------------------------------
      FINANCING
      Issue costs                                           (2)            -
      Proceeds from mortgages and loans                  8,001        38,958
      Proceeds from operating facilities                 8,100        11,500
      Payments from non-controlling interest               (20)          740
      Repayment of mortgages and loans payable          (8,179)      (21,286)
      Distributions paid to unitholders                 (9,266)       (9,252)
    -------------------------------------------------------------------------
                                                        (1,366)       20,660
    -------------------------------------------------------------------------
      INVESTING
      Acquisition of rental properties and
       other assets                                     (6,338)      (30,852)
      Proceeds from sale of rental properties                -           395
      Capital assets under development                  (6,073)       (3,791)
      Building capital maintenance                      (1,389)         (978)
      Capital improvements                              (2,003)         (951)
    -------------------------------------------------------------------------
                                                       (15,803)      (36,177)
    -------------------------------------------------------------------------
      NET DECREASE IN CASH                              (3,057)       (1,735)
      CASH (BANK INDEBTEDNESS), BEGINNING OF PERIOD        731          (104)
    -------------------------------------------------------------------------
      BANK INDEBTEDNESS, END OF PERIOD                  (2,326)       (1,839)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
      SUPPLEMENTARY INFORMATION
      Interest paid                                      6,357         6,126
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
      Interest received                                     88           126
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
      Income taxes paid                                    146            80
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    See accompanying notes to the consolidated financial statements.



    NORTHERN PROPERTY REAL ESTATE INVESTMENT TRUST
    Notes to the Consolidated Financial Statements (unaudited)
    Three Months Ended March 31, 2008 and 2007
    (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.  BASIS OF PRESENTATION

    Basis of presentation

    These unaudited interim consolidated financial statements of NPR have
    been prepared in accordance with the recommendations of the Handbook of
    the Canadian Institute of Chartered Accountants ("CICA") that are
    consistent with those used in the audited consolidated financial
    statements as at and for the year ended December 31, 2008, except as
    disclosed in Note 3. These unaudited interim consolidated financial
    statements do not include all of the disclosures required by Canadian
    generally accepted accounting principles ("Canadian GAAP") applicable to
    annual financial statements; therefore, they should be read in
    conjunction with the December 31, 2008 audited consolidated financial
    statements.

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

    The preparation of financial statements in accordance with Canadian 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 financial
    statements, and to make estimates and assumptions that affect the
    reported amounts of revenues and expenses during the reported period.
    Actual results may differ from those estimates.

    3.  CHANGE IN ACCOUNTING POLICY AND RECENT ACCOUNTING PRONOUNCEMENTS

    Change in accounting policy

    Effective January 1, 2009, NPR adopted CICA Handbook Section 3064,
    Goodwill and Intangible Assets. The new Section establishes standards for
    the recognition, measurement, presentation and disclosure of goodwill
    subsequent to its initial recognition and of intangible assets by profit-
    oriented enterprises. Standards concerning goodwill are unchanged from
    the standards included in the previous Section 3062.

    This new standard has no material impact on the REIT's consolidated
    financial statements beyond additional disclosure in the notes to the
    financial statements.

    Recent accounting pronouncements

    New accounting standards are anticipated regarding the accounting for
    business combinations. The proposed CICA Exposure draft regarding
    business combinations may result in a decrease in NPR's earnings during
    periods in which acquisitions are completed as the proposed accounting
    standards would require the expensing of acquisition costs (such as legal
    costs) in connection with a business combination in the period in which
    they are incurred. Currently these costs are allocated to the cost of the
    assets acquired under the business combination and amortized over the
    expected useful life of the assets.

    Section 1582 - Business Combinations will replace the current Section
    1581 - Business Combinations and Section 1601 - Consolidated Financial
    Statements and Section 1602 - Non-controlling Interests will replace the
    current section 1600 - Consolidated Financial Statements. These new
    Sections will be applicable to financial statements relating to fiscal
    years beginning on or after January 1, 2011. The new standards will
    require net assets, non-controlling interest and goodwill acquired in a
    business combination to be recorded at fair value and non-controlling
    interests will be reported as a component of equity. In addition, the
    definition of a business is expanded such that transactions currently
    accounted for as an asset acquisition may come within the scope of these
    Sections. Acquisition costs will no longer be accounted for as part of
    the consideration and will be expensed when incurred. Management expects
    that more acquisition transactions will be considered business
    combinations and acquisition costs will be expensed in the statement of
    net earnings when this section is adopted.

    4.  RENTAL PROPERTIES AND OTHER CAPITAL ASSETS
    -------------------------------------------------------------------------
                                 March 31,               December 31,
                                     2009                       2008
                              Accumulated     Net        Accumulated     Net
                                 Amortiz-    Book           Amortiz-    Book
                           Cost    ation    Value     Cost    ation    Value
    -------------------------------------------------------------------------

    Land                 91,116        -   91,116   90,676        -   90,676

    Buildings           807,749  (81,698) 726,051  800,612  (76,187) 724,425
    Furniture, fixtures
     and equipment        9,337   (4,041)   5,296    9,006   (3,757)   5,249

    Vehicles              1,205     (766)     439    1,193     (732)     461
    Capital and
     leasehold
     improvements        25,579  (10,845)  14,734   23,026   (9,870)  13,156
    Equipment under
     capital lease          212     (212)       -      212     (212)       -
    -------------------------------------------------------------------------
                        935,198  (97,562) 837,636  924,725  (90,758) 833,967
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    NPR periodically reviews the carrying value of its rental properties 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 estimated fair value. No provision was
    recorded in 2008 or 2009.

    NPR acquired properties and completed development projects in the three
    months ended March 31, 2009 for a total purchase price of $7.4 million
    (2008 - $30.3 million). The acquisitions and development projects were
    financed as follows:

    -------------------------------------------------------------------------
                                                         Three         Three
                                                        Months        Months
                                                         Ended         Ended
                                                      March 31      March 31
    -------------------------------------------------------------------------
                                                          2009          2008
    -------------------------------------------------------------------------
    Cash paid                                            5,550        30,343
    Mortgages and debt assumed                           1,788             -
    Class B LP Units issued                                 65             -
    -------------------------------------------------------------------------
    Total                                                7,403        30,343
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Residential rental units                                40           263
    Seniors' units                                          52            48
    -------------------------------------------------------------------------
                                                            92           311
    -------------------------------------------------------------------------
    Commercial square feet                                   -        25,124
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    5.  PREPAID EXPENSES AND OTHER ASSETS
    -------------------------------------------------------------------------
                                                      March 31,  December 31,
                                                          2009          2008
    -------------------------------------------------------------------------
    Prepaid expenses                                     2,866         2,812
    Prepaid equity leases                                2,125         2,167
    Other                                                  500           500
    Refundable deposits and mortgage proceeds
     held in trust                                          75           185
    -------------------------------------------------------------------------
                                                         5,566         5,664
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    6.  INTANGIBLE ASSETS AND LIABILITIES
    -------------------------------------------------------------------------
                                 March 31,               December 31,
                                     2009                       2008
                              Accumulated     Net        Accumulated     Net
                                 Amortiz-    Book           Amortiz-    Book
                           Cost    ation    Value     Cost    ation    Value
    -------------------------------------------------------------------------
    Above-market leases     173     (120)      53      173     (114)      59
    In-place leases       6,565   (1,818)   4,747    6,565   (1,588)   4,977
    Lease origination
     costs                1,669     (645)   1,024    1,669     (564)   1,105
    -------------------------------------------------------------------------
                          8,407   (2,583)   5,824    8,407   (2,266)   6,141
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Below-market leases   1,220     (996)     224    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
    -------------------------------------------------------------------------
                                                      March 31,  December 31,
                                                          2009          2008
    -------------------------------------------------------------------------

    Mortgages and loans payable                        503,888       502,277
    Fair value adjustment                               (8,416)       (8,574)
    Deferred financing costs                           (11,014)      (10,903)
    -------------------------------------------------------------------------
                                                       484,458       482,800
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Mortgages and loans payable bear interest at rates ranging from 3.06% to
    12.13% and have a weighted average rate of 5.02% as at March 31, 2009
    (December 31, 2008 - 5.13%). Mortgages and loans are payable in monthly
    installments of blended principal and interest of approximately
    $3.4 million. The mortgages mature between 2009 and 2025 and are secured
    by charges against specific properties. Land and buildings with a
    carrying value of $681.3 million have been pledged to secure mortgages
    and loans payable of the REIT. The fair value of mortgages payable at
    March 31, 2009 is approximately $518.9 million (December 31, 2008 -
    $517.7 million).

    Minimum required future principal payments are as follows:

    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
    2009                                                              42,545
    2010                                                              40,713
    2011                                                              37,239
    2012                                                              46,097
    2013                                                              90,437
    Subsequent                                                       246,857
    -------------------------------------------------------------------------
                                                                     503,888
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    8.  OPERATING FACILITIES

    NPR has revolving credit facilities totaling $57.5 million (December 31,
    2008 - $50.0 million) for acquisition and operating purposes, bearing
    interest at prime or bankers' acceptance rate with a maturity dates
    between May 21, 2009 and July 31, 2009. Specific properties with a
    carrying value of $97.7 million have been pledged as collateral security
    for the credit facilities. At March 31, 2009 NPR had utilized
    $34.7 million (December 31, 2008 - $26.6 million).

    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)
    -------------------------------------------------------------------------
    Balance - March 31, 2009                                          19,523
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    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 the REIT 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
    March 31, 2009, a total of 192,136 LTIP units had vested and been issued
    (December 31, 2008 - 155,219).

    The REIT 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, the REIT 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 the
    REIT. 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 March
    31, 2009:

    -------------------------------------------------------------------------
                             Weighted-
                               average
                   Number    Remaining   Weighted-       Number    Weighted-
              Outstanding  Contractual     Average  Exercisable      Average
    Exercise     at March      Life In    Exercise     at March     Exercise
       Price     31, 2009        Years       Price     31, 2009        Price
    -------------------------------------------------------------------------
     $23.12       735,000          4.1      $23.12      245,002       $23.12
     $15.05       157,500          5.0      $15.05       52,507       $15.05
    -------------------------------------------------------------------------
                  892,500          4.3      $21.70      297,509       $21.70
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    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 will vest on May 20, 2009 and
    244,997 will vest on May 20, 2010. All options remain outstanding at
    March 31, 2009.

    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. All options remain outstanding at
    March 31, 2009.

    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 three months ended March 31, 2009 relating
    to options granted was $164,000 (2008 - $nil).

    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
    three months ended March 31, 2009, employees invested a total of $25,400
    (2008 - $25,900) and NPR contributed $8,500 (2008 - $8,600). During the
    three months ended March 31, 2009, 1,800 units (2008 - 1,795 units) were
    purchased at an average cost of $16.32 per unit (2008 - $20.57 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 Invest 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 an entity
    that qualifies 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.

    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%).

    NPR has certain capital assets which have a lower tax value than their
    applicable accounting value. NPR has therefore recorded a future tax
    liability of $38.5 million (December 31, 2008 - $39.5 million) using an
    expected income tax rate ranging from 19.13% to 28.4% (2008 - 19.63% to
    29.5%).

    The future tax liabilities arise from the temporary differences
    summarized below:

    -------------------------------------------------------------------------
                                                      March 31,  December 31,
                                                          2009          2008
    -------------------------------------------------------------------------
    Future tax liabilities arising from temporary
     differences between accounting and tax basis of:

      Rental property assets in corporate subsidiaries   9,499         9,614
      Rental properties                                 23,904        24,963
      Prepaid mortgages                                  1,138           981
      Other assets                                       3,933         3,931
    -------------------------------------------------------------------------
                                                        38,474        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:

    -------------------------------------------------------------------------
                                                         Three         Three
                                                        Months        Months
                                                         Ended         Ended
                                                      March 31      March 31
    -------------------------------------------------------------------------
                                                          2009          2008
    -------------------------------------------------------------------------

      Current income taxes                                 104            86
      Future income taxes (recovery)                    (1,015)          (80)
    -------------------------------------------------------------------------
      Total income tax expense (recovery)                 (911)            6
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    12. UNITHOLDERS' CAPITAL

    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 March 31, 2009 is 25,074,395 (December 31,
    2008 - 25,033,645), representing net proceeds of $368.2 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        Issue        Class B
    Date           Description             Units        Price       LP Units
    -------------------------------------------------------------------------
    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              -
    Issue costs                                -            -              -
    Class B LP units exchanged            74,083            -        (74,083)
    -------------------------------------------------------------------------
    March 31,
     2009                             22,866,010                   2,208,385
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    -------------------------------------------------------------------------
                                           Issue
    Date           Description             Price  Total Units        $(000's)
    -------------------------------------------------------------------------
    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
    Issue costs                                -            -             (2)
    Class B LP units exchanged                 -            -              -
    -------------------------------------------------------------------------
    March 31,
     2009                                          25,074,395        368,175
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Trust units

    The total authorized number of trust units is unlimited. The total number
    of trust units of the REIT outstanding as at March 31, 2009 is 22,866,010
    (December 31, 2008 - 22,755,010) representing a net book value of
    $340.3 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 units 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 unitholders 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 March
    31, 2009, is 2,208,385 (December 31, 2008 - 2,278,635) representing a net
    book value of $27.9 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.

    13.  NET EARNINGS PER UNIT
    -------------------------------------------------------------------------
                                                          2009          2008
    -------------------------------------------------------------------------

      Net earnings                                       7,101         5,881
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

      Weighted average units for basic
       earnings per unit                            25,063,002    25,016,934
      Dilutive effect of units to be issued
       under the LTIP                                   30,703        30,741
      Dilutive effect of Option Plan                    41,855             -
    -------------------------------------------------------------------------
      Weighted average units for diluted
      Earnings per unit                             25,135,560    25,047,675
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
      Net Earnings per unit:
        Basic                                           $0.283        $0.235
        Diluted                                         $0.283        $0.235
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    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 March
    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 March 31,
    2009, NPR has provided guarantees totaling $10.3 million (December 31,
    2008 - $10.4 million). Of this amount, $5.1 million has been included in
    mortgages and loans payable (December 31, 2008 - $5.2 million). The
    mortgages bear interest at rates ranging from 3.06% to 6.1% and mature
    June 2009 to December 2013 (December 2008 - 4.54% to 7.90% and mature
    June 2009 to December 2013). As at March 31, 2009, land and buildings
    with a carrying value of $6.6 million have been pledged to secure these
    mortgage and loans payable (December 2008 - $6.5 million).

    NPR commenced the development of 189 multi-family residential rental
    units located in Grande Prairie, Alberta. The estimated total cost of
    construction is approximately $22.9 million. Costs incurred to March 31,
    2009 are $17.9 million.

    In connection with the acquisition of certain seniors' properties in
    Newfoundland, the tenants have agreed to expand or renovate certain
    properties purchased by NPR. NPR has entered into agreements to purchase
    these capital improvements and expansions once completed. In total, NPR
    has commitments totalling $6.2 million, which are expected to be
    completed in 2009.

    15. SEGMENTED INFORMATION

    NPR considers residential multi-family, execusuites, seniors' and
    commercial income producing properties to be separate segments operating
    in five provinces and territories in Canada. The accounting policies of
    the segments are as described in Note 2. All items, except gain on sale
    of rental properties and gain on settlement of debt, included in the
    Consolidated Statement of Earnings are related only to the REIT and 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
    -------------------------------------------------------------------------
    March 31,
    2009                Alberta       BC     Nfld      NWT  Nunavut    Total
    -------------------------------------------------------------------------
    Residential
      Multi-family      166,879   90,553   58,383   88,484  120,445  524,744
      Execusuites             -        -    9,444    7,832    9,785   27,061
      Seniors'          123,192   16,014   45,917        -        -  185,123
    -------------------------------------------------------------------------
                        290,071  106,567  113,744   96,316  130,230  736,928

    Commercial            9,287   21,313    1,212   90,092   21,689  143,593
    Trust                 3,804        -        -        -        -    3,804
    -------------------------------------------------------------------------
    TOTAL ASSETS        303,162  127,880  114,956  186,408  151,919  884,325
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



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



    Geographic Segments
    -------------------------------------------------------------------------
    Three months ended
    March 31,
    2009                Alberta       BC     Nfld      NWT  Nunavut    Total
    -------------------------------------------------------------------------

    Rental revenue        9,085    4,052    4,189    9,018    6,648   32,992
    Other income            255      115      121      328      228    1,047
    Operating
     expenses            (2,467)  (1,602)  (1,695)  (4,524)  (2,447) (12,735)
    -------------------------------------------------------------------------
                          6,873    2,565    2,615    4,822    4,429   21,304
    Interest on
     mortgages           (2,686)    (728)    (766)  (1,359)  (1,017)  (6,556)
    Amortization         (1,906)    (965)    (858)  (1,947)  (1,438)  (7,114)
    -------------------------------------------------------------------------
    EARNINGS BEFORE
     OTHER ITEMS          2,281      872      991    1,516    1,974    7,634
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    Geographic Segments
    -------------------------------------------------------------------------
    Three months ended
    March 31,
    2008                Alberta       BC     Nfld      NWT  Nunavut    Total
    -------------------------------------------------------------------------

    Rental revenue        7,943    3,202    3,618   8,909     6,180   29,852
    Other income            166       81      100     266        45      658
    Operating expenses   (1,692)  (1,381)  (1,421) (4,449)   (1,814) (10,757)
    -------------------------------------------------------------------------
    Net operating
     income               6,417    1,902    2,297   4,726     4,411   19,753
    Interest on
     mortgages           (2,290)    (521)    (600) (1,362)   (1,171)  (5,944)
    Amortization         (1,709)    (789)    (789) (1,758)   (1,442)  (6,487)
    -------------------------------------------------------------------------
    EARNINGS BEFORE
     OTHER ITEMS          2,418      592      908   1,606     1,798    7,322
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    Business Segments
    -------------------------------------------------------------------------
    Three months
    ended                                            Total
    March 31,            Multi-   Execu-           Residen-  Commer-
    2009                 family   suites  Seniors'    tial     cial    Total
    -------------------------------------------------------------------------

    Rental revenue       21,253    1,788    4,292   27,333    5,659   32,992
    Other income            864      113        -      977       70    1,047
    Operating expenses   (9,233)  (1,089)      (6) (10,328)  (2,407) (12,735)
    -------------------------------------------------------------------------
                         12,884      812    4,286   17,982    3,322   21,304
    Interest on
     mortgages           (4,044)    (265)  (1,560)  (5,869)    (687)  (6,556)
    Amortization         (4,453)    (287)  (1,096)  (5,836)  (1,278)  (7,114)
    -------------------------------------------------------------------------
    EARNINGS BEFORE
     OTHER ITEMS          4,387      260    1,630    6,277    1,357    7,634
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    Business Segments
    -------------------------------------------------------------------------
    Three months
    ended                                            Total
    March 31,            Multi-   Execu-           Residen-  Commer-
    2008                 family   suites  Seniors'    tial     cial    Total
    -------------------------------------------------------------------------
    Rental revenue       18,505    1,929    3,979   24,413    5,439   29,852
    Other income            529       32        -      561       97      658
    Operating expenses   (7,578)  (1,016)      (5)  (8,599)  (2,158) (10,757)
    -------------------------------------------------------------------------
                         11,456      945    3,974   16,375    3,378   19,753
    Interest on
     mortgages           (3,468)    (208)  (1,603)  (5,279)    (665)  (5,944)
    Amortization         (3,990)    (281)  (1,030)  (5,301)  (1,186)  (6,487)
    -------------------------------------------------------------------------
    EARNINGS BEFORE
     OTHER ITEMS          3,998      456    1,341    5,795    1,527    7,322
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    16. RELATED PARTY TRANSACTIONS

    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 $113,500 for the three months ended March 31, 2009 (2008 -
    $119,200). Amounts outstanding in accounts receivable pertaining to this
    lease were $nil at March 31, 2009 (December 31, 2008 - $nil).

    A Trustee of NPR is the Chairman of AgeCare, which leases six seniors'
    properties from NPR. For the three months ended March 31, 2009, NPR
    earned rental income, including rental revenue earned on a straight-line
    basis over the term of the lease, totaling $3.2 million (2008 -
    $3.2 million) from AgeCare. Amounts outstanding in accounts receivable
    pertaining to this lease were $nil at March 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 three months ended March 31, 2009, NPR paid $30,000
    for these services (2008 - $30,000).

    During the first quarter of 2009, the REIT completed renovations totaling
    $2.15 million to a seniors' facility in BC which is leased to AgeCare. At
    March 31, 2009, In accordance with the lease agreement, AgeCare is
    repaying this amount over 15 years. Interest revenue of $15,000 was
    earned for the three months ended March 31, 2009 (2008 - $nil) relating
    to this receivable.

    A Trustee of NPR is a senior partner of a law firm that provides legal
    services to NPR in the ordinary course of business. Fees paid for the
    three months ended March 31, 2009 were $9,000 (2008 - $9,000).

    17. 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
    payable, loans payable, accounts payable and accrued liabilities and bank
    indebtedness. Unless otherwise specified, the fair value of these
    instruments approximates their carrying values.

    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 on certain residential rental units in Alberta,
    NPR does not utilize hedges or forward contracts to manage exposure to
    utility cost risk. 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.
    Management continues to review the feasibility of converting more
    buildings in Yellowknife to wood pellet boilers.

    Heating oil is the primary source of fuel for heating properties located
    in Nunavut and the Northwest Territories. 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 27% of the
    REIT's usage in Alberta. The Alberta provincial government's Natural Gas
    Rebate Program provides for refunds of $1.50 per gigajoule to consumers
    when natural gas prices exceed $5.50 per gigajoule from October through
    March. During the first quarter of 2009, NPR received $40,000 in rebates.
    Recently, the Alberta provincial government has indicated that the
    Natural Gas Rebate Program will not be renewed 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
    $115,000 for the three months ended March 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 liquidity risk management lies with
    management and the Board of Trustees of the REIT. The REIT manages
    liquidity risk by managing mortgage and loan maturities to ensure a
    relatively even amount of mortgage maturities in each year. At March 31,
    2009 the REIT has revolving credit facilities totaling $57.5 million
    (December 31, 2008 - $50.0 million). At March 31, 2009, $34.7 million of
    the credit 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 the current financial results and the
    annual business plan in determining appropriate distribution levels.

    Credit risk

    Credit risk arises from the possibility that tenants may not be able to
    fulfill their lease commitments. The REIT's credit risk is primarily
    attributable to tenant receivables. 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, 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 rental units 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:

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

    0-30 days                                            1,702           987
    31-60 days                                             479           267
    61-90 days                                              82           130
    Over 90 days                                           582           722
    -------------------------------------------------------------------------
    Tenant receivables                                   2,845         2,106
    Other receivables                                    3,435         3,329
    Allowance for doubtful accounts                       (350)         (350)
    -------------------------------------------------------------------------
                                                         5,930         5,085
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    NPR classifies tenants as past tenants on the date of their move out from
    a residential unit. Effective January 1, 2008 NPR began recording a
    specific bad debt provision 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 bad debt 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 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:

    -------------------------------------------------------------------------
                                                         Three         Three
                                                        Months        Months
                                                         Ended         Ended
                                                      March 31      March 31
    -------------------------------------------------------------------------
                                                          2009          2008
    -------------------------------------------------------------------------

      Balance, January 1                                   350           250
      Accounts receivable written off                      (44)          (33)
      Accounts recovered                                    84            92
      Additional allowance                                 (40)          (59)
    -------------------------------------------------------------------------
                                                           350           250
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    The following is an aging of accounts payable and accrued liabilities:

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

    0-6 months                                          12,269         9,916
    6 months to 1 year                                   1,371         1,251
    Over 1 year                                            338            51
    -------------------------------------------------------------------------
                                                        13,978        11,218
    Tenant security deposits                             3,613         3,893
    -------------------------------------------------------------------------
                                                        17,591        15,111
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    NPR has operating facilities to ensure it has sufficient available funds
    to meet current and foreseeable financial requirements. Management
    believes that future cash flows from operations and availability under
    the current credit facilities will be adequate to support these financial
    liabilities.

    Interest rate risk

    The REIT is exposed to interest rate risk on mortgages and loans payable
    and does not hold any financial instruments to mitigate that risk. The
    REIT utilizes both fixed and floating rate debt. Interest rate risk
    related to floating interest rates is limited primarily to the
    utilization of the credit facilities. Management mitigates interest rate
    risk by utilizing fixed rate mortgages, ensuring access to a number of
    sources of funding and staggering mortgage maturities with the objective
    of achieving relatively even annual debt maturities. To the extent
    possible, the REIT 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, the
    REIT's net earnings for the three months ended March 31, 2009 would have
    changed by $51,000.

    18. CAPITAL MANAGEMENT

    The REIT'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. The REIT'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. The REIT 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. The REIT
    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, the REIT 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%. The REIT's debt to gross book value is as follows:

    -------------------------------------------------------------------------
                                                         Three         Three
                                                        Months        Months
                                                         Ended         Ended
                                                      March 31   December 31
                                                          2009          2008
    -------------------------------------------------------------------------
    Bank indebtedness (cash)                             2,326          (731)
    Operating facilities                                34,700        26,600
    Mortgages and loans payable                        503,888       502,277
    -------------------------------------------------------------------------
    Debt                                               540,914       528,146
    -------------------------------------------------------------------------

    Rental properties and other capital assets         837,636       833,967
    Capital assets improvements in progress              2,733         3,773
    Capital assets under development                    15,070         8,996
    Refundable deposits and mortgage proceeds
     held in trust                                          75           185
    Accumulated amortization                            97,562        90,758
    Future income taxes on acquisitions                (21,625)      (21,625)
    -------------------------------------------------------------------------
    Gross Book Value                                   931,451       916,054
    -------------------------------------------------------------------------

    Debt to Gross Book Value                             58.1%         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 Ratio - calculated as Net earnings before
           interest, taxes and amortization divided by the debt service
           payments (interest expense and principal repayments);
        -  Interest Coverage Ratio - calculated as Net earnings before
           interest, taxes and amortization divided by the interest expense;
        -  Debt to Gross Book Value as calculated above.

    -------------------------------------------------------------------------
                                                         Three         Three
                                                        Months        Months
                                                         Ended         Ended
                                                      March 31   December 31
                                                          2009          2008
    -------------------------------------------------------------------------
      Earnings from continuing operations
       before taxes                                      6,190        26,417
      Amortization                                       7,114        26,447
      Interest on mortgages                              6,556        24,499
      Interest on operating facilities                     149         1,286
    -------------------------------------------------------------------------
      Net earnings before interest, taxes
       and amortization                                 20,009        78,649
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

      Interest on mortgages                              6,556        24,499
      Interest on operating facilities                     149         1,286
    -------------------------------------------------------------------------
      Total Interest                                     6,705        25,785
      Principal repayments                               3,961        14,983
    -------------------------------------------------------------------------
      Debt Service Payments                             10,666        40,768
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

      Interest Coverage Ratio                             2.98          3.05
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

      Debt Service Coverage Ratio                         1.88          1.93
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    As at and during the three months ended March 31, 2009, the REIT complied
    with all externally imposed capital requirements and all covenants
    relating to its debt facilities.
    





For further information:

For further information: Mr. Todd R. Cook, CFO, at (403) 531-0720

Organization Profile

Northern Property Real Estate Investment Trust

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