Northern Property reports Q1 2010 financial results

CALGARY, May 11 /CNW/ - Northern Property REIT (NPR.UN - TSX) announced its financial results for the 3 months ended March 31, 2010.

HIGHLIGHTS:

    
    -  Apartment occupancy strong in the North and Newfoundland
    -  Occupancy continues to improve in Alberta; BC solid
    -  FFO of $0.50 per unit, down from $0.54 for same quarter of 2009
    -  Same door NOI declines 2.9% compared to same period of 2009
    -  Payout ratio remains positive at 73.4% of FFO

    FINANCIAL PERFORMANCE AT A GLANCE:

    -------------------------------------------------------------------------
                                                  Three Months  Three Months
                                                         Ended         Ended
    In $000's except per unit amounts                 March 31      March 31
    -------------------------------------------------------------------------
                                                          2010          2009

    Total revenue                                       33,963        34,039
    Net operating income ("NOI")                        20,831        21,304
    Net earnings                                         3,388         7,101
    Net earnings per unit, basic                        $0.135        $0.283

    Distribution to unitholders                          9,301         9,266
    Distributions per unit                              $0.370        $0.370
    Distributable Income ("DI")                         12,515        13,321
    DI per unit, basic                                  $0.498        $0.532
    Payout ratio                                         74.3%         69.6%

    Funds from operation ("FFO")                        12,664        13,514
    FFO per unit, basic                                 $0.504        $0.539
    FFO payout ratio                                     73.4%         68.6%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

"Northern Property is pleased that business conditions continued to improve during Q1. Four of our five regions are enjoying strong apartment rental performance. We are now beginning to see some steady improvement in northern Alberta as oil patch activity picks up," said Jim Britton, NPR's President and CEO.

Multi-family rental market conditions for NPR began to recover in the fourth quarter of 2009 and continued through the first quarter of 2010. NPR's overall apartment vacancy declined to 7.3% for the quarter, down from 8.7% for the final quarter of 2009. However, vacancy is still above the 6.1% experienced by the REIT in Q1 of 2009. Seniors' property leases remained in good standing and commercial property occupancy remained consistent with prior years.

The REIT continued to operate in a fiscally conservative fashion during Q1 2010, maintaining a pay-out ratio of 73.4% of funds from operations. This payout ratio was achieved notwithstanding Q1 being NPR's winter heating season. Moreover, higher than normal maintenance costs weighed down earnings as the REIT carried out deferred maintenance on buildings in Fort McMurray and Lloydminster.

Weighted average interest rates decreased slightly to 4.86%. Interest coverage was 2.82 times EBIDTA for the quarter.

NPR resumed its acquisition program in Q1, acquiring a total of 180 apartment units in Yellowknife and St. Paul in transactions which closed in April.

"Apartment acquisition activity is particularly difficult at the moment", Jim Britton said. "Vendors are unmotivated to sell and we are reluctant to conclude deals which are not accretive. Until the stalemate ends, we plan to focus on acquisitions when possible, some development possibilities on land we control in existing markets and on maximizing the performance of the portfolio we already possess".

"Financial results tend to lag behind operational performance," Mr. Britton went on to say. "We expect that the significant improvement in vacancy that we have been experiencing since September will become more evident in our financial results as the year goes on."

NPR expects to incur significant one-time costs during the remainder of the year associated with the requirement to implement international accounting standards and a re-organization in consequence of the SIFT legislation. Professional fees associated with International Fiancial Reporting Standards (IFRS) are expected to cost approximately $500,000. The re-organization forced by the Government of Canada's SIFT legislation in order to preserve the integrity of a REIT's status is expected to cost all REITs a considerable amount of money by the end of calendar 2010; in NPR's case this amount is expected to be approximately $2,000,000.

    
    NORTHERN PROPERTY REAL ESTATE INVESTMENT TRUST

    Unaudited Consolidated Balance Sheets

    (Thousands of dollars)

    -------------------------------------------------------------------------
                                                      March 31,  December 31,
                                                          2010          2009
    -------------------------------------------------------------------------

    ASSETS

    Rental properties and other capital assets
     (Note 4)                                          835,250       836,251
    Capital improvements in progress                     8,576         7,046
    Capital assets under development                    20,541        20,423
    Prepaid expenses and other assets (Note 5)          10,176         5,088
    Accounts receivable (Note 17)                        4,443         4,158
    Tenant security deposits                             3,713         3,555
    Deferred rent receivable                             4,857         4,539
    Loans receivable                                     2,385         2,456
    Intangible assets (Note 6)                           4,531         4,851
    -------------------------------------------------------------------------
                                                       894,472       888,367
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    LIABILITIES

    Mortgages payable (Note 7)                         506,530       498,996
    Operating facilities (Note 8)                       36,498        33,698
    Bank indebtedness                                      718         1,820
    Accounts payable and accrued liabilities (Note 17)  16,677        15,555
    Distributions payable                                3,102         3,096
    Future income tax liability (Note 11)               44,975        43,751
    Intangible liabilities (Note 6)                         74            94
    Non-controlling interest                               471           464
    -------------------------------------------------------------------------
                                                       609,045       597,474
    -------------------------------------------------------------------------

    UNITHOLDERS' EQUITY                                285,427       290,893
    -------------------------------------------------------------------------
                                                       894,472       888,367
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    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)
    -------------------------------------------------------------------------
                                                          2010          2009
    -------------------------------------------------------------------------
    REVENUE
    Rental revenue                                      33,021        32,992
    Other property income                                  942         1,047
    -------------------------------------------------------------------------
                                                        33,963        34,039
    Operating expenses                                 (13,132)      (12,735)
    -------------------------------------------------------------------------
                                                        20,831        21,304
    -------------------------------------------------------------------------
    OTHER EXPENSES
    Interest on mortgages                               (6,586)       (6,556)
    Amortization                                        (7,738)       (7,114)
    -------------------------------------------------------------------------
                                                       (14,324)      (13,670)
    -------------------------------------------------------------------------
    EARNINGS BEFORE THE UNDERNOTED                       6,507         7,634
    -------------------------------------------------------------------------
    Trust administration                                (1,616)       (1,395)
    Interest on operating facilities                      (235)         (149)
    Interest and other income                               68           109
    Non-controlling interest                               (26)           (9)
    -------------------------------------------------------------------------
                                                        (1,809)       (1,444)
    -------------------------------------------------------------------------
    EARNINGS BEFORE INCOME TAXES                         4,698         6,190
    -------------------------------------------------------------------------
    INCOME TAXES (Note 11)
    Current                                                (86)         (104)
    Future (expense) recovery                           (1,224)        1,015
    -------------------------------------------------------------------------
                                                        (1,310)          911
    -------------------------------------------------------------------------
    NET EARNINGS                                         3,388         7,101
    Other comprehensive loss                                 -          (143)
    -------------------------------------------------------------------------
    COMPREHENSIVE EARNINGS                               3,388         6,958
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Net earnings per unit (Note 13)
    Basic                                               $0.135        $0.283
    Diluted                                             $0.134        $0.283
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    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)
    -------------------------------------------------------------------------
                                                          2010          2009
    -------------------------------------------------------------------------
    TRUST UNITS (Note 12)
    Balance, January 1                                 368,690       367,446
    Issuance of units                                      333            65
    Exercise of unit options                                24             -
    Issue costs                                              -            (2)
    Long term incentive plan units issued                  667           666
    -------------------------------------------------------------------------
    Balance, March 31                                  369,714       368,175
    -------------------------------------------------------------------------

    CONTRIBUTED SURPLUS
    Balance, January 1                                   2,109         1,676
    Unit-based compensation                                114           164
    Exercise of unit options                               (24)            -
    Long term incentive plan units issued                 (667)         (666)
    -------------------------------------------------------------------------
    Balance, March 31                                    1,532         1,174
    -------------------------------------------------------------------------

    CUMULATIVE DEFICIT
      CUMULATIVE NET EARNINGS
      Balance, January 1                               107,385        86,056
      Net earnings                                       3,388         7,101
    -------------------------------------------------------------------------
      Balance, March 31                                110,773        93,157
    -------------------------------------------------------------------------

      CUMULATIVE DISTRIBUTIONS TO UNITHOLDERS
      Balance, January 1                              (187,291)     (150,191)
      Distributions declared to unitholders             (9,301)       (9,266)
    -------------------------------------------------------------------------
      Balance, March 31                               (196,592)     (159,457)
    -------------------------------------------------------------------------

    CUMULATIVE DEFICIT, March 31                       (85,819)      (66,300)
    -------------------------------------------------------------------------

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

    TOTAL UNITHOLDERS' EQUITY                          285,427       303,029
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    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)
    -------------------------------------------------------------------------
                                                          2010          2009
    -------------------------------------------------------------------------
    CASH FLOWS RELATED TO THE FOLLOWING ACTIVITIES:
      OPERATING
      Net earnings                                       3,388         7,101
      Adjustments for:
      Deferred rental revenue                             (318)         (304)
      Amortization                                       7,738         7,114
      Amortization of fair value of debt                   183           160
      Amortization of above and below market leases        (14)          (49)
      Amortization of deferred financing fees              202           179
      Non-controlling interest                              26             9
      Unit-based compensation                              314           314
      Future income tax expense (recovery)               1,224        (1,015)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
                                                        12,743        13,509
      Changes in non-cash working capital               (5,555)          603
    -------------------------------------------------------------------------
                                                         7,188        14,112
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
      FINANCING
      Proceeds from mortgages                           19,527         8,001
      Repayment of mortgages                           (11,824)       (8,179)
      Proceeds from operating facilities, net            2,800         8,100
      Payments to non-controlling interest                 (19)          (20)
      Units issued under Option Plan                       333             -
      Unit issue costs                                       -            (2)
      Distributions paid to unitholders                 (9,294)       (9,266)
    -------------------------------------------------------------------------
                                                         1,523        (1,366)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
      INVESTING
      Acquisition of rental properties and other assets (1,367)       (6,338)
      Capital assets under development                     (99)       (6,073)
      Building capital maintenance                      (4,266)       (1,389)
      Capital improvements                              (1,877)       (2,003)
    -------------------------------------------------------------------------
                                                        (7,609)      (15,803)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
      NET (DECREASE) INCREASE IN CASH                    1,102        (3,057)
      CASH (BANK INDEBTEDNESS), BEGINNING OF PERIOD     (1,820)          731
    -------------------------------------------------------------------------
      BANK INDEBTEDNESS END OF PERIOD                     (718)       (2,326)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
      SUPPLEMENTARY INFORMATION
      Interest paid                                      6,385         6,357
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
      Interest received                                     40            88
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
      Income taxes paid                                     98           146
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    See accompanying notes to the consolidated financial statements.


    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

    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, 2009, 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, 2009 audited consolidated financial
    statements.

    The consolidated financial statements include the accounts of NPR and its
    wholly-owned subsidiaries, 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.  RECENT ACCOUNTING PRONOUNCEMENTS

    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 International Financial Reporting Standards ("IFRS").
    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 NPR. 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.

    4.  RENTAL PROPERTIES AND OTHER CAPITAL ASSETS

    -------------------------------------------------------------------------
                             March 31, 2010            December 31, 2009

                              Accumulated     Net        Accumulated     Net
                                 Amortiz-    Book           Amortiz-    Book
                           Cost    ation    Value     Cost    ation    Value
    -------------------------------------------------------------------------
    Land                 90,906        -   90,906   90,906        -   90,906
    Buildings           816,265  104,524  711,741  815,985   98,983  717,002
    Furniture, fixtures
     and equipment       11,059    5,253    5,806   10,326    4,956    5,370
    Vehicles              1,350      724      626    1,307      674      633
    Capital and
     leasehold
     improvements        41,856   15,685   26,171   36,491   14,151   22,340
    -------------------------------------------------------------------------
                        961,436  126,186  835,250  955,015  118,764  836,251
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    NPR acquired a site for future development in the three months ended
    March 31, 2010 for a total purchase price of $217,000 (2009 -
    $7.4 million). Acquisitions and development projects were financed as
    follows:

    -------------------------------------------------------------------------
                                                  Three Months  Three Months
                                                         Ended         Ended
                                                      March 31      March 31
    -------------------------------------------------------------------------
                                                          2010          2009
    -------------------------------------------------------------------------
    Cash paid                                              217         5,550
    Mortgages payable                                        -         1,788
    Class B LP Units issued                                  -            65
    -------------------------------------------------------------------------
    Total                                                  217         7,403
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Residential rental units                                 -            40
    Seniors' units                                           -            52
    -------------------------------------------------------------------------
    Units acquired                                           -            92
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    5.  PREPAID EXPENSES AND OTHER ASSETS

    -------------------------------------------------------------------------
                                                      March 31,  December 31,
                                                          2010          2009
    -------------------------------------------------------------------------
    Refundable deposits                                  5,165             -
    Prepaid expenses                                     2,499         2,543
    Prepaid equity leases                                1,974         1,997
    Other                                                  538           548
    -------------------------------------------------------------------------
                                                        10,176         5,088
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    6.  INTANGIBLE ASSETS AND LIABILITIES

    -------------------------------------------------------------------------
                             March 31, 2010            December 31, 2009

                              Accumulated     Net        Accumulated     Net
                                 Amortiz-    Book           Amortiz-    Book
                           Cost    ation    Value     Cost    ation    Value
    -------------------------------------------------------------------------
    Above-market leases     173      144       29      173      139       34
    In-place leases       6,474    2,719    3,755    6,474    2,466    4,008
    Lease origination
     costs                1,643      896      747    1,643      834      809
    -------------------------------------------------------------------------
                          8,290    3,759    4,531    8,290    3,439    4,851
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Below-market leases   1,220    1,146       74    1,220    1,126       94
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    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 PAYABLE

    -------------------------------------------------------------------------
                                                      March 31,  December 31,
                                                          2010          2009
    -------------------------------------------------------------------------

    Mortgages payable                                  526,616       518,912
    Fair value adjustment                               (8,035)       (8,217)
    Deferred financing costs                           (12,051)      (11,699)
    -------------------------------------------------------------------------
                                                       506,530       498,996
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Mortgages payable bear interest at rates ranging from 2.34% to 12.13% and
    have a weighted average rate of 4.86% as at March 31, 2010 (December 31,
    2009 - 4.87%). Mortgages 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 $703.9 million
    have been pledged to secure mortgages payable of NPR. The fair value of
    mortgages payable at March 31, 2010 is approximately $544.3 million
    (December 31, 2009 - $535.0 million).

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

    -------------------------------------------------------------------------
    2010                                                              34,804
    2011                                                              45,343
    2012                                                              50,765
    2013                                                              91,572
    2014                                                              78,693
    Subsequent                                                       225,439
    -------------------------------------------------------------------------
                                                                     526,616
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    8.  OPERATING FACILITIES

    NPR has two revolving credit facilities totaling $57.5 million
    (December 31, 2009 - $57.5 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.
    NPR has extended the maturity date of this facility to July 31, 2010 to
    allow for the lenders to complete underwriting due diligence on the
    rental properties securing the facility. 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 $92.1 million have been pledged as collateral security for the
    operating facilities. At March 31, 2010 NPR had utilized $36.5 million
    (December 31, 2009 - $33.7 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, 2009                                       48,473
    Units vested and issued - January, 2010                          (31,650)
    Units vested and issued - February, 2010                            (662)
    -------------------------------------------------------------------------
    Balance - March 31, 2010                                          16,161
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    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 March 31,
    2010, a total of 224,448 LTIP units had vested and been issued
    (December 31, 2009 - 192,136).

    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
    March 31, 2010:

    -------------------------------------------------------------------------
                                Weighted-
                   Number        Average   Weighted-      Number    Weighted-
              Outstanding      Remaining    Average  Exercisable     Average
    Exercise  at March 31,   Contractual   Exercise  at March 31,   Exercise
    Price            2010  Life In Years      Price         2010       Price
    -------------------------------------------------------------------------
    $23.12        726,000            3.1     $23.12      480,999      $23.12
    $15.05        116,664            4.0     $15.05       64,167      $15.05
    -------------------------------------------------------------------------
                  842,664            3.5     $22.00      545,166      $22.17
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Compensation expense for the three months ended March 31, 2010 relating
    to options granted was $114,000 (2009 - $164,000). During the first
    quarter of 2010, 9,000 options with an exercise price of $23.12 and
    8,333 options with an exercise price of $15.05 were exercised.

    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, 2010, employees invested a total of $30,420
    (2009 - $25,400) and NPR contributed $10,140 (2009 - $8,500). During the
    three months ended March 31, 2010, 1,590 units (2009 - 1,800 units) were
    purchased at an average cost of $22.39 per unit (2009 - $16.32 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 March 31, 2010, 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 19.63% to 28.40% (December 31, 2009 - 19.63% to
    28.40%).

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

    -------------------------------------------------------------------------
                                                      March 31,  December 31,
                                                          2010          2009
    -------------------------------------------------------------------------
    Future tax liabilities arising from temporary
     differences between accounting and tax basis of:
      Rental property assets in corporate subsidiaries   9,278         9,304
      Rental properties                                 30,105        28,868
      Deferred financing costs                           1,700         1,574
      Other assets                                       3,892         4,005
    -------------------------------------------------------------------------
                                                        44,975        43,751
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    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 Months  Three Months
                                                         Ended         Ended
                                                      March 31      March 31
    -------------------------------------------------------------------------
                                                          2010          2009
    -------------------------------------------------------------------------

    Current                                                 86           104
    Future expense (recovery)                            1,224        (1,015)
    -------------------------------------------------------------------------
                                                         1,310          (911)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    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 March 31, 2010 is 23,129,619
    (December 31, 2009 - 23,020,538) representing a net book value of
    $345.6 million (December 31, 2009 - $343.3 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
    March 31, 2010, is 2,025,654 (December 31, 2009 - 2,085,090) representing
    a net book value of $24.1 million (December 31, 2009 - $25.4 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 March 31, 2010 is 25,155,273 (December 31,
    2009 - 25,105,628), representing net proceeds of $369.7 million, net of
    issue costs of $19.6 million (December 31, 2009 - $368.7 million, net of
    issue costs of $19.6 million). The number of units issued and outstanding
    is as follows:

    -------------------------------------------------------------------------
    Date                                      Trust       Issue      Class B
                                              Units       Price     LP Units
    -------------------------------------------------------------------------
    December 31, 2009                    23,020,538           -    2,085,090
    -------------------------------------------------------------------------
    January 4, 2010    LTIP units issued     12,941      $18.88            -
    January 6, 2010    LTIP units issued     18,709      $21.90            -
    February 8, 2010   LTIP units issued        662      $19.16            -
    March 31, 2010     Options exercised      9,000      $23.12            -
    March 31, 2010     Options exercised      8,333      $15.05            -
    Class B LP units
     exchanged                               59,436           -      (59,436)
    -------------------------------------------------------------------------
    March 31, 2010                       23,129,619           -    2,025,654
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    -------------------------------------------------------------------------
    Date                                      Issue       Total      $(000's)
                                              Price
    -------------------------------------------------------------------------
    December 31, 2009                                25,105,628      368,690
    -------------------------------------------------------------------------
    January 4, 2010    LTIP units issued          -      12,941          244
    January 6, 2010    LTIP units issued          -      18,709          410
    February 8, 2010   LTIP units issued          -         662           13
    March 31, 2010     Options exercised          -       9,000          222
    March 31, 2010     Options exercised          -       8,333          135
    Class B LP units
     exchanged                                    -           -            -
    -------------------------------------------------------------------------
    March 31, 2010                                -  25,155,273      369,714
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    13. NET EARNINGS PER UNIT

    -------------------------------------------------------------------------
                                                  Three Months   Three Month
                                                         Ended         Ended
                                                      March 31      March 31
    -------------------------------------------------------------------------
                                                          2010          2009
    -------------------------------------------------------------------------
    Net earnings                                         3,388         7,101
    -------------------------------------------------------------------------

    Weighted average units for basic net earnings
     per unit                                       25,136,575    25,063,002
    Dilutive effect of units to be issued under
     the LTIP                                           17,911        30,703
    Dilutive effect of Option Plan                      47,439        41,855
    -------------------------------------------------------------------------
    Weighted average units for diluted net
     earnings per unit                              25,201,925    25,135,560
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Net earnings per unit:
      Basic                                             $0.135        $0.283
      Diluted                                           $0.134        $0.283
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    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, 2010 will not have a material impact on NPR.

    During the normal course of operations, NPR provided guarantees for
    mortgages payable relating to investments in corporations and joint
    ventures where NPR owns less than 100%. The mortgages 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 payable. At March 31, 2010, NPR has provided guarantees
    totaling $6.0 million (December 31, 2009 - $6.1 million). The mortgages
    bear interest at rates ranging from 3.06% to 6.10% and mature July 2010
    to December 2013 (December 2009 - 3.06% to 6.10% and mature July 2010 to
    December 2013). As at March 31, 2010, land and buildings with a carrying
    value of $6.2 million have been pledged to secure these mortgages payable
    (December 2009 - $6.3 million).

    NPR has included its proportionate share of its joint ventures' mortgages
    payable totaling $4.7 million at March 31, 2010 (December 31, 2009 -
    $4.9 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 2009,
    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, 2010           BC  Alberta      NWT  Nunavut     Nfld    Total
    -------------------------------------------------------------------------
    Residential
      Multi-family       93,264  180,679   86,781  112,109   58,629  531,462
      Execusuites             -        -   10,370    9,387    9,612   29,369
      Seniors'           16,177  120,988        -        -   49,389  186,554
    -------------------------------------------------------------------------
                        109,441  301,667   97,151  121,496  117,630  747,385
    Commercial           21,060    9,057   91,919   19,401    1,182  142,619
    Trust                     -    4,468        -        -        -    4,468
    -------------------------------------------------------------------------
    TOTAL ASSETS        130,501  315,192  189,070  140,897  118,812  894,472
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

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

    Geographic Segments
    -------------------------------------------------------------------------
    Three months ended
    March 31, 2010           BC  Alberta      NWT  Nunavut     Nfld    Total
    -------------------------------------------------------------------------

    Rental revenue        4,210    8,156    9,626    6,314    4,715   33,021
    Other income            117      182      377      122      144      942
    Operating expense    (1,859)  (2,968)  (4,566)  (1,999)  (1,740) (13,132)
    -------------------------------------------------------------------------
                          2,468    5,370    5,437    4,437    3,119   20,831
    Interest on mortgages  (803)  (2,688)  (1,421)    (960)    (714)  (6,586)
    Amortization         (1,142)  (2,028)  (2,099)  (1,511)    (958)  (7,738)
    -------------------------------------------------------------------------
    EARNINGS BEFORE
     OTHER ITEMS            523      654    1,917    1,966    1,447    6,507
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

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

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

    Business Segments
    -------------------------------------------------------------------------
                                                     Total
    Three months ended    Multi-   Execu-          Residen-  Commer-
    March 31, 2010       family   suites  Seniors'    tial     cial    Total
    -------------------------------------------------------------------------

    Rental revenue       20,507    1,964    4,439   26,910    6,111   33,021
    Other income            718       31        -      749      193      942
    Operating expenses   (9,595)  (1,126)      (6) (10,727)  (2,405) (13,132)
    -------------------------------------------------------------------------
                         11,630      869    4,433   16,932    3,899   20,831
    Interest on
     mortgages           (4,138)    (285)  (1,514)  (5,937)    (649)  (6,586)
    Amortization         (4,923)    (352)  (1,140)  (6,415)  (1,323)  (7,738)
    -------------------------------------------------------------------------
    EARNINGS BEFORE
     OTHER ITEMS          2,569      232    1,779    4,580    1,927    6,507
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Business Segments
    -------------------------------------------------------------------------
                                                     Total
    Three months ended    Multi-   Execu-          Residen-  Commer-
    March 31, 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
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    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. For the three months ended
    March 31, 2010, NPR earned rental income, including rental revenue earned
    on a straight-line basis over the term of the lease, totaling
    $3.2 million (2009 - $3.2 million) from AgeCare. Amounts outstanding in
    accounts receivable pertaining to this lease were $nil at March 31, 2010
    (December 31, 2009 - $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, 2010, NPR
    paid $30,000 for these services (2009 - $30,000).

    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 $30,000 was
    earned for the three months ended March 31, 2010 (2009 - $15,000)
    relating to this receivable. Amounts outstanding at March 31, 2010 was
    $2.0 million (December 31, 2009 - $2.1 million).

    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 $125,000 for the three months ended March 31, 2010
    (2009 - $113,500). Amounts outstanding in accounts receivable pertaining
    to this lease were $nil at March 31, 2010 (December 31, 2009 - $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:

    -------------------------------------------------------------------------
                             March 31, 2010            December 31, 2009

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

      Bank indebtedness     718        -        -    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.

    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 NPR's 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 18% 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 in the average
    price of heating oil and natural gas would impact NPR's net earnings by
    $154,000 for the three months ended March 31, 2010.

    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 March 31,
    2010 the REIT has operating facilities totaling $57.5 million
    (December 31, 2009 - $57.5 million). At March 31, 2010, $36.5 million of
    the operating facilities were utilized (December 31, 2009 -
    $33.7 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 (See note 16), which leases
    seniors' properties in Alberta and BC and the Governments of Canada, the
    Northwest Territories and Nunavut, which lease 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:

    -------------------------------------------------------------------------
                                                      March 31,  December 31,
                                                          2010          2009
    -------------------------------------------------------------------------

    0-30 days                                            1,361         1,405
    31-60 days                                             295           221
    61-90 days                                             462            58
    Over 90 days                                           403           730
    -------------------------------------------------------------------------
    Tenant receivables                                   2,521         2,414
    Other receivables                                    2,272         2,094
    Allowance for doubtful accounts                       (350)         (350)
    -------------------------------------------------------------------------
                                                         4,443         4,158
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    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:

    -------------------------------------------------------------------------
                                                  Three Months  Three Months
                                                         Ended         Ended
                                                      March 31      March 31
    -------------------------------------------------------------------------
                                                          2010          2009
    -------------------------------------------------------------------------

    Balance, beginning of period                           350           350
    Accounts receivable written off                        (12)          (44)
    Accounts recovered                                     171            84
    Decrease in allowance                                 (159)          (40)
    -------------------------------------------------------------------------
    Balance, December 31                                   350           350
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

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

    -------------------------------------------------------------------------
                                                      March 31,  December 31,
                                                          2010          2009
    -------------------------------------------------------------------------

    0-6 months                                          11,731        10,629
    6 months to 1 year                                   1,124         1,193
    Over 1 year                                            176           212
    -------------------------------------------------------------------------
                                                        13,031        12,034
    Tenant security deposits                             3,646         3,521
    -------------------------------------------------------------------------
                                                        16,677        15,555
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    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 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 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 three months ended March 31, 2010 would have changed by
    $65,000.

    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 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 mortgages 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:

    -------------------------------------------------------------------------
                                                  Three Months
                                                         Ended    Year Ended
                                                      March 31,  December 31,
                                                          2010          2009
    -------------------------------------------------------------------------
    Bank indebtedness                                      718         1,820
    Operating facilities                                36,498        33,698
    Mortgages payable                                  526,616       518,912
    -------------------------------------------------------------------------
    Debt                                               563,832       554,430
    -------------------------------------------------------------------------

    Rental properties and other capital assets         835,250       836,251
    Capital assets improvements in progress              8,576         7,046
    Capital assets under development                    20,541        20,423
    Refundable deposits and mortgage proceeds
     held in trust                                       5,165             -
    Accumulated amortization                           126,186       118,764
    Future income taxes on acquisitions                (21,647)      (21,647)
    -------------------------------------------------------------------------
    Gross Book Value                                   974,071       960,837
    -------------------------------------------------------------------------

    Debt to Gross Book Value                             57.9%         57.7%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    NPR is subject to three principal financial covenants in its mortgage
    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.

    -------------------------------------------------------------------------
                                                  Three Months
                                                         Ended    Year Ended
                                                      March 31,  December 31,
                                                          2010          2009
    -------------------------------------------------------------------------
    Earnings from continuing operations before taxes     4,698        25,929
    Amortization                                         7,738        28,789
    Interest on mortgages                                6,586        26,435
    Interest on operating facilities                       235           755
    -------------------------------------------------------------------------
    Net earnings before interest, taxes and
     amortization                                       19,257        81,908
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Interest on mortgages                                6,586        26,435
    Interest on operating facilities                       235           755
    -------------------------------------------------------------------------
    Total Interest Expense                               6,821        27,190
    Principal repayments                                 4,141        16,198
    -------------------------------------------------------------------------
    Debt Service Payments                               10,962        43,388
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Interest Coverage                                     2.82          3.01
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Debt Service Coverage                                 1.76          1.89
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    As at and during the three month period ended March 31, 2010, NPR
    complied with all externally imposed capital requirements and all
    covenants relating to its debt facilities.

    19. SUBSEQUENT EVENTS

    Between April 1, 2010 and May 11, 2010 NPR completed mortgage financings
    and renewals totalling $13.5 million with interest rates from 3.75% to
    4.58% and terms to maturity from 1 to 10 years. Proceeds from the
    mortgage financings were used to fund new acquisitions, repay existing
    mortgage debt and a portion of the operating facility.

    Subsequent to March 31, 2010, NPR completed the acquisition of
    100 residential units in Yellowknife, NWT and 80 residential units in
    St. Paul, Alberta for total consideration of approximately $13.9 million.
    The acquisitions were financed through a combination mortgages payable
    and the operating facilities.
    

SOURCE Northern Property Real Estate Investment Trust

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

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Northern Property Real Estate Investment Trust

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