Northern Property reports Q2 2009 results



    CALGARY, Aug. 6 /CNW/ - Northern Property REIT (NPR.UN - TSX) announced
its financial results for the 3 and 6 months ended June 30, 2009.

    
    HIGHLIGHTS:
    -   Q2, 2009 FFO of $0.57 compared to $0.53 in Q2, 2008
    -   Sharp increase in residential vacancy in areas with oil and gas
        exposure
    -   Solid rental market performance in Far North and Newfoundland
    -   Operating cost savings and seasonal factors help offset higher
        vacancy
    -   Weighted average interest rate declines to 4.95%
    -   Low payout ratio remains intact

    FINANCIAL PERFORMANCE AT A GLANCE
    -------------------------------------------------------------------------
    In $000's except per           Three Months Ended       Six Months Ended
     unit amounts                       June 30                 June 30
    -------------------------------------------------------------------------
                                    2009        2008        2009        2008
    -------------------------------------------------------------------------
    Total revenue                 33,711      32,056      67,750      62,566
    Net operating income
     ("NOI")                      22,268      20,941      43,572      40,694
    Net earnings                   6,733       5,710      13,834      11,591

    Distribution to
     unitholders                   9,279       9,259      18,545      18,513
    Distributions per unit   $     0.370 $     0.370 $     0.740 $     0.740

    Distributable Income
     ("DI")(*)                    14,057      12,950      27,378      24,451
    DI per unit              $     0.560 $     0.518 $     1.092 $     0.977
    Payout ratio                    66.0%       71.5%       67.7%       75.7%

    Funds from operation
     ("FFO")(*)                   14,268      13,172      27,782      24,955
    FFO per unit             $     0.569 $     0.526 $     1.108 $     0.997
    FFO payout ratio                65.0%       70.3%       66.8%       74.2%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    


    "Northern Property enjoyed positive financial results in Q2
notwithstanding an increase in apartment vacancy in northern Alberta,"
reported President and CEO Jim Britton. "This has been the first quarter in
which the recession has had much impact on us. We expect that its financial
impact will be more pronounced for the remainder of the year."
    Through the first six months of 2009, the REIT's financial metrics
continued to be conservative with a distributable income payout ratio of
67.7%. NPR successfully renewed its operating facilities during the quarter. A
vigorous program of mortgage refinancing has resulted in its weighted average
interest costs declining below the 5% mark for the first time to 4.95% at the
end of Q2. Overall debt is at 57.8% of Gross Book Value, consistent with
December 31, 2008. A healthy interest coverage ratio of 3.01% was maintained
over the first 6 months of 2009.
    "Cost savings were important in NPR achieving its Q2 financial targets,"
Mr. Britton went on to say. "We are experiencing significant savings in the
cost of heating, interest costs and in certain trust administration expenses.
These are helping us deal with the recent softness in the apartment business
in northern Alberta."
    Apartment rental market conditions in Newfoundland and Nunavut remained
robust for Northern Property during Q2 with vacancies at low levels and
background business conditions remaining sound. Northwest Territories
apartment rental market conditions remain stable, even in the face of weaker
fundamentals in the diamond and oil and gas industries. Results in northern BC
apartment rentals were mixed with some locations such as Fort Nelson
performing better and others such as Dawson Creek declining.
    NPR's commercial portfolio performed well in Q1 and Q2 with vacancy of
37,400 square feet or 4.1%. Approximately half of that vacancy is related to
the repositioning of the YK Center East building in Yellowknife which is 100%
leased effective January 1, 2010. The master leased seniors' buildings in
Alberta, British Columbia and Newfoundland performed according to expectations
year to date with 100% of rents having been received.
    Apartment vacancy loss in Grande Prairie, Fort McMurray and Lloydminster
more than doubled between Q1 and Q2 of 2009, increasing from 4.9% to 11.8%.
The cities are heavily levered to activity in the oil and gas industries. "It
has taken some time for the sudden decline in oil prices and weakness in the
natural gas industry to be translated into apartment vacancy. These Alberta
cities have all recently come off 'boom' conditions," Jim Britton went on to
say. "Most local businesses, including NPR, prospered from the unsustainably
strong economic conditions of the last few years and must now adjust to the
current conditions, and the likelihood that the oil and gas economy will take
time to recover.
    No acquisition activity was recorded by the REIT during Q2, 2009. One of
three buildings under development in the Westmore apartment complex in Grande
Prairie was completed during the quarter. Rental progress is slow with 19 of
its 63 apartments leased to date.
    The REIT will focus on ensuring that tenant value and service are at the
highest possible levels. It has recently become possible in locations such as
Fort McMurray to hire qualified staff and contractors to carry out capex work
which was impossible in the overheated employment markets of a few months ago.
The REIT plans to act competitively offering incentives and suite rental
pricing designed to ensure that it maintains market share.
    Jim Britton concluded by saying, "NPR has a specific approach to dealing
with rental market volatility - we are diversified into several geographic
regions, have a portfolio diversified by property type and maintain a low
payout ratio with a view to keeping our current unitholder distribution levels
sustainable through the business cycle. Our approach will be tested in the
remainder of the year, but we believe NPR is well positioned to emerge in good
condition as recessionary conditions fade."

    
    NORTHERN PROPERTY REAL ESTATE INVESTMENT TRUST
    Unaudited Consolidated Balance Sheets
    (Thousands of dollars)
    -------------------------------------------------------------------------
                                                        June 30, December 31,
                                                           2009         2008
    -------------------------------------------------------------------------
    ASSETS

    Rental properties and other capital assets (Note 4) 833,237      833,967
    Capital improvements in progress                      4,187        3,773
    Capital assets under development                     18,092        8,996
    Prepaid expenses and other assets (Note 5)            4,964        5,664
    Cash                                                      -          731
    Accounts receivable (Note 17)                         4,761        5,085
    Tenant security deposits                              3,556        3,575
    Deferred rent receivable                              3,876        3,248
    Loans receivable                                      4,470        1,742
    Intangible assets (Note 6)                            5,509        6,141
    -------------------------------------------------------------------------
                                                        882,652      872,922
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    LIABILITIES

    Mortgages and loans payable (Note 7)                495,892      482,800
    Operating facilities (Note 8)                        26,198       26,600
    Bank indebtedness                                       197            -
    Accounts payable and accrued liabilities (Note 17)   16,971       15,111
    Distributions payable                                 3,095        3,092
    Future income tax liability (Note 11)                38,700       39,489
    Intangible liabilities (Note 6)                         170          279
    Non-controlling interest                                435          441
    -------------------------------------------------------------------------
                                                        581,658      567,812
    -------------------------------------------------------------------------

    UNITHOLDERS' EQUITY                                 300,994      305,110
    -------------------------------------------------------------------------
                                                        882,652      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
    (Thousands of dollars, except per unit amounts)
    -------------------------------------------------------------------------
                                  Three Months Ended        Six Months Ended
                                        June 30                 June 30
                                    2009        2008        2009        2008
    -------------------------------------------------------------------------
    REVENUE
    Rental revenue                32,844      31,211      65,836      61,063
    Other property income            867         845       1,914       1,503
    -------------------------------------------------------------------------
                                  33,711      32,056      67,750      62,566
    Operating expenses           (11,443)    (11,115)    (24,178)    (21,872)
    -------------------------------------------------------------------------
                                  22,268      20,941      43,572      40,694
    -------------------------------------------------------------------------
    OTHER EXPENSES
    Interest on mortgages         (6,738)     (6,159)    (13,294)    (12,103)
    Amortization                  (7,130)     (6,489)    (14,244)    (12,976)
    -------------------------------------------------------------------------
                                 (13,868)    (12,648)    (27,538)    (25,079)
    -------------------------------------------------------------------------
    EARNINGS BEFORE THE
     UNDERNOTED                    8,400       8,293      16,034      15,615
    -------------------------------------------------------------------------
    Trust administration          (1,316)     (1,976)     (2,711)     (3,845)
    Interest on operating
     facilities                     (224)       (283)       (373)       (733)
    Interest and other income        135         116         244         302
    Gain (loss) on settlement
     of debt                          84         (13)         84         564
    Gain on sale of rental
     properties                        -           -           -         136
    Non-controlling interest         (23)        (17)        (32)        (32)
    -------------------------------------------------------------------------
    EARNINGS BEFORE INCOME TAXES   7,056       6,120      13,246      12,007
    -------------------------------------------------------------------------
    Current taxes (Note 11)          (98)        (92)       (202)       (178)
    Future tax recovery (expense)
     (Note 11)                      (225)       (318)        790        (238)
    -------------------------------------------------------------------------
                                    (323)       (410)        588        (416)
    -------------------------------------------------------------------------
    NET EARNINGS                   6,733       5,710      13,834      11,591
    Other comprehensive earnings
     (loss)                          (42)        242        (185)        424
    -------------------------------------------------------------------------
    COMPREHENSIVE EARNINGS         6,691       5,952      13,649      12,015
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Net earnings per unit
     (Note 13)
    Basic                    $     0.268 $     0.228 $     0.552 $     0.463
    Diluted                  $     0.268 $     0.228 $     0.550 $     0.462
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    See accompanying notes to the consolidated financial statements.



    NORTHERN PROPERTY REAL ESTATE INVESTMENT TRUST
    Unaudited Consolidated Statements of Unitholders' Equity
    (Thousands of dollars)
    -------------------------------------------------------------------------
                                  Three Months Ended       Six Months Ended
                                        June 30                 June 30
                                    2009        2008        2009        2008
    -------------------------------------------------------------------------
    TRUST UNITS (Note 12)
    Balance, beginning of
     period                      368,175     367,187     367,446     366,789
    Issuance of units                439           -         504           -
    Exercise of unit options          35           -          35           -
    Issue costs                        -          (8)         (2)         (8)
    Long term incentive plan
     units issued                      -         267         666         665
    -------------------------------------------------------------------------
    Balance, June 30             368,649     367,446     368,649     367,446
    -------------------------------------------------------------------------

    CONTRIBUTED SURPLUS
    Balance, beginning of
     period                        1,174         625       1,676       1,023
    Unit-based compensation          114         435         278         435
    Exercise of unit options         (35)          -         (35)          -
    Long term incentive plan
     units granted                     -           -           -           -
    Long term incentive plan
     units issued                      -        (267)       (666)       (665)
    -------------------------------------------------------------------------
    Balance, June 30               1,253         793       1,253         793
    -------------------------------------------------------------------------

    CUMULATIVE DEFICIT
      CUMULATIVE NET EARNINGS
      Balance, beginning of
       period                     93,157      69,235      86,056      63,354
      Net earnings                 6,733       5,710      13,834      11,591
    -------------------------------------------------------------------------
      Balance, June 30            99,890      74,945      99,890      74,945
    -------------------------------------------------------------------------

      CUMULATIVE DISTRIBUTIONS
       TO UNITHOLDERS
      Balance, beginning of
       period                   (159,457)   (122,408)   (150,191)   (113,154)
      Distributions declared
       to unitholders             (9,279)     (9,259)    (18,545)    (18,513)
    -------------------------------------------------------------------------
      Balance, June 30          (168,736)   (131,667)   (168,736)   (131,667)
    -------------------------------------------------------------------------

    CUMULATIVE DEFICIT,
     June 30                     (68,846)    (56,722)    (68,846)    (56,722)
    -------------------------------------------------------------------------

    ACCUMULATED OTHER
     COMPREHENSIVE EARNINGS
     (LOSS)
    Balance, beginning of
     period                          (20)        237         123          55
    Other comprehensive
     earnings (loss)                 (42)        242        (185)        424
    -------------------------------------------------------------------------
    Balance, June 30                 (62)        479         (62)        479
    -------------------------------------------------------------------------

    TOTAL UNITHOLDERS'
     EQUITY                      300,994     311,996     300,994     311,996
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    See accompanying notes to the consolidated financial statements.



    NORTHERN PROPERTY REAL ESTATE INVESTMENT TRUST
    Unaudited Consolidated Statements of Cash Flows
    (Thousands of dollars)
    -------------------------------------------------------------------------
                                  Three Months Ended       Six Months Ended
                                        June 30                 June 30
                                    2009        2008        2009        2008
    -------------------------------------------------------------------------
    CASH FLOWS RELATED TO THE
     FOLLOWING ACTIVITIES:
      OPERATING
      Net earnings                 6,733       5,710      13,834      11,591
      Adjustments for:
      Deferred rental revenue       (325)       (290)       (629)       (631)
      Amortization                 7,130       6,489      14,244      12,976
      Amortization of fair
       value of debt                 162         137         322         255
      Amortization of above
       and below market leases       (48)        (69)        (97)       (128)
      Loss (gain) on
       settlement of debt            (84)         13         (84)       (564)
      Gain on sale of rental
       properties                      -           -           -        (136)
      Non-controlling interest        23          17          32          32
      Unit-based compensation        264         642         578         850
      Future income tax
       recovery                      225         318        (790)        238
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
                                  14,080      12,967      27,410      24,483
      Changes in non-cash
       working capital               285        (549)      1,067       1,717
    -------------------------------------------------------------------------
                                  14,365      12,418      28,477      26,200
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
      FINANCING
      Issue costs                      -          (8)         (2)         (8)
      Proceeds from mortgages
       and loans                  29,355      42,607      37,356      81,565
      Repayment of mortgages
       and loans                 (17,351)    (19,238)    (25,530)    (40,524)
      (Repayment of) proceeds
       from operating
       facilities                 (8,502)     (9,400)       (402)      2,100
      Payments from (to)
       non-controlling
       interest                      (19)       (342)        (39)        398
      Units issued under
       option plan                   439           -         439           -
      Distributions paid to
       unitholders                (9,276)     (9,257)    (18,542)    (18,509)
    -------------------------------------------------------------------------
                                  (5,354)      4,362      (6,720)     25,022
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
      INVESTING
      Acquisition of rental
       properties and other
       assets                       (552)     (2,037)     (6,890)    (32,889)
      Proceeds from sale of
       rental properties               -           -           -         395
      Capital assets under
       development                (3,023)     (6,231)     (9,096)    (10,022)
      Building capital
       maintenance                (1,799)     (1,363)     (3,188)     (2,341)
      Capital improvements        (1,508)     (1,699)     (3,511)     (2,650)
    -------------------------------------------------------------------------
                                  (6,882)    (11,330)    (22,685)    (47,507)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
      NET INCREASE
       (DECREASE) IN CASH          2,129       5,450        (928)      3,715
      CASH (BANK
       INDEBTEDNESS),
       BEGINNING OF PERIOD        (2,326)     (1,839)        731        (104)
    -------------------------------------------------------------------------
      CASH (BANK
       INDEBTEDNESS), END
       OF PERIOD                    (197)      3,611        (197)      3,611
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
      SUPPLEMENTARY
       INFORMATION
      Interest paid                6,409       6,208      12,766      12,334
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
      Interest received               79         101         167         227
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
      Income taxes paid               62         367         208         447
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    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.  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.

    Section 3862 - Financial Instrument Disclosures has been amended
    effective for annual financial statements for fiscal years ending after
    September 30, 2009. The amendments include enhanced disclosures related
    to the fair value of financial instruments and the liquidity risk
    associated with financial instruments. The amendments are consistent with
    recent amendments to financial instrument disclosure standards in IFRS.
    NPR will include these additional disclosures in its annual consolidated
    financial statements for the year ending December 31, 2009.

    EIC-173 - Credit Risk and the Fair Value of Financial Assets and
    Financial Liabilities has been adopted by NPR effective January 1, 2009.
    It clarifies how an entity's own credit risk and that of the relevant
    counterparty should be taken into account in determining the fair value
    of financial assets and liabilities, including derivative instruments and
    did not have any impact on the financial position or earnings of NPR.

    4.  RENTAL PROPERTIES AND OTHER CAPITAL ASSETS
    -------------------------------------------------------------------------
                                 June 30,               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           807,761  (87,217) 720,544  800,612  (76,187) 724,425
    Furniture, fixtures
     and equipment        9,534   (4,331)   5,203    9,006   (3,757)   5,249

    Vehicles              1,261     (799)     462    1,193     (732)     461
    Capital and
     leasehold
     improvements        27,719  (11,807)  15,912   23,026   (9,870)  13,156
    Equipment under
     capital lease          212     (212)       -      212     (212)       -
    -------------------------------------------------------------------------
                        937,603 (104,366) 833,237  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 June 30, 2009 for a total purchase price of $nil (2008 -
    $1.8 million). The acquisitions and development projects were financed as
    follows:

    -------------------------------------------------------------------------
                                  Three Months Ended       Six Months Ended
                                        June 30                 June 30
    -------------------------------------------------------------------------
                                    2009        2008        2009        2008
    -------------------------------------------------------------------------
    Cash paid                          -       1,813       5,550      32,156

    Mortgages and debt
     assumed                           -           -       1,788           -

    Class B LP Units issued            -           -          65           -
    -------------------------------------------------------------------------
    Total                              -       1,813       7,403      32,156
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Residential rental units           -           -          40         263

    Seniors' units                     -          21          52          69
    -------------------------------------------------------------------------
                                       -          21          92         332
    -------------------------------------------------------------------------
    Commercial square feet             -           -           -      25,124
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    5. PREPAID EXPENSES AND OTHER ASSETS
    -------------------------------------------------------------------------
                                                        June 30, December 31,
                                                           2009         2008
    -------------------------------------------------------------------------
    Prepaid expenses                                      2,301        2,812
    Prepaid equity leases                                 2,083        2,167
    Other                                                   505          500
    Refundable deposits and mortgage proceeds held
     in trust                                                75          185
    -------------------------------------------------------------------------
                                                          4,964        5,664
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    6.  INTANGIBLE ASSETS AND LIABILITIES
    -------------------------------------------------------------------------
                                 June 30,               December 31,
                                    2009                       2008
                             Accumulated      Net       Accumulated      Net
                                Amortiz-     Book          Amortiz-     Book
                           Cost    ation    Value     Cost    ation    Value
    -------------------------------------------------------------------------
    Above-market leases     173     (127)      46      173     (114)      59
    In-place leases       6,565   (2,049)   4,516    6,565   (1,588)   4,977
    Lease origination
     costs                1,669     (722)     947    1,669     (564)   1,105
    -------------------------------------------------------------------------
                          8,407   (2,898)   5,509    8,407   (2,266)   6,141
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Below-market leases   1,220   (1,050)     170    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
    -------------------------------------------------------------------------
                                                        June 30, December 31,
                                                           2009         2008
    -------------------------------------------------------------------------
    Mortgages and loans payable                         515,892      502,277
    Fair value adjustment                                (8,521)      (8,574)
    Deferred financing costs                            (11,479)     (10,903)
    -------------------------------------------------------------------------
                                                        495,892      482,800
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Mortgages and loans payable bear interest at rates ranging from 3.06% to
    12.13% and have a weighted average rate of 4.95% as at June 30, 2009
    (December 31, 2008 - 5.13%). Mortgages and loans are payable in monthly
    installments of blended principal and interest of approximately $3.5
    million. The mortgages mature between 2009 and 2025 and are secured by
    charges against specific properties. Land and buildings with a carrying
    value of $676.3 million have been pledged to secure mortgages and loans
    payable of the REIT. The fair value of mortgages payable at June 30, 2009
    is approximately $518.2 million (December 31, 2008 - $517.7 million).

    Minimum required future principal payments are as follows:
    -------------------------------------------------------------------------
    2009                                                              24,863
    2010                                                              41,701
    2011                                                              40,888
    2012                                                              46,569
    2013                                                              90,926
    Subsequent                                                       270,945
    -------------------------------------------------------------------------
                                                                     515,892
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    8.  OPERATING FACILITIES

    NPR has revolving credit facilities totaling $57.5 million (December 31,
    2008 - $50.0 million) for acquisition and operating purposes. The $50.0
    million facility bears interest at prime plus 1.50% or bankers'
    acceptance plus 3.00% with a maturity date of May 21, 2010. The $7.5
    million facility bears interest at prime or bankers' acceptance plus
    1.50% with a maturity date of July 31, 2009. Specific properties with a
    carrying value of $94.5 million have been pledged as collateral security
    for the credit facilities. At June 30, 2009 NPR had utilized $26.2
    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 - June 30, 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
    June 30, 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 June
    30, 2009:

    -------------------------------------------------------------------------
                              Weighted-
                                average
                   Number     Remaining    Weighted-      Number    Weighted-
              Outstanding   Contractual     Average  Exercisable     Average
    Exercise      at June       Life In    Exercise      at June    Exercise
       Price     30, 2009         Years       Price     30, 2009       Price
    -------------------------------------------------------------------------

     $ 23.12      735,000           3.9      $ 23.12     489,999     $ 23.12
     $ 15.05      128,331           4.7      $ 15.05      23,338     $ 15.05
    -------------------------------------------------------------------------
                  863,331           4.2      $ 21.92     513,337     $ 22.75

    On May 20, 2008, 735,000 options with an exercise price of $23.12 and
    expiring on May 20, 2013 were granted to trustees and officers. 245,002
    options vested immediately, 245,001 options vested on May 20, 2009 and
    244,997 will vest on May 20, 2010. All options remain outstanding at June
    30, 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. During the six months ended June
    30, 2009, 29,169 options were exercised at an exercise price of $15.05
    per unit.

    The REIT accounts for its Option Plan using the fair value method, under
    which compensation expense is measured at the date the options are
    granted using the Black-Scholes model and recognized over the vesting
    period. The following assumptions were used in calculating the fair value
    of the options granted on May 20, 2008; expected annual dividend rate of
    6.40%, expected volatility of 18%, risk-free rate of return of 3.10% and
    expected life of 5 years. The following assumptions were used in
    calculating the fair value of the options granted on March 12, 2009;
    expected annual dividend rate of 9.83%, expected volatility of 28.8%,
    risk-free rate of return of 1.75% and expected life of 5 years.
    Compensation expense for the six months ended June 30, 2009 relating to
    options granted was $278,000 (2008 - $435,000).

    10. EMPLOYEE UNIT PURCHASE PLAN

    Under the terms of the Employee Unit Purchase Plan (the "EUPP"),
    employees may invest a maximum of 5% of their salary in NPR trust units
    and NPR contributes one unit for every three units acquired by an
    employee. The units are purchased on the TSX at market prices. During the
    six months ended June 30, 2009, employees invested a total of $57,200
    (2008 - $58,600) and NPR contributed $19,100 (2008 - $19,500). During the
    six months ended June 30, 2009, 4,370 units (2008 - 3,858 units) were
    purchased at an average cost of $16.89 per unit (2008 - $21.64 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 $38.7 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:

    -------------------------------------------------------------------------
                                                        June 30, December 31,
                                                           2009         2008
    -------------------------------------------------------------------------
    Future tax liabilities arising from temporary
     differences between accounting and tax basis of:
      Rental property assets in corporate
       subsidiaries                                       9,375        9,614
      Rental properties                                  24,162       24,963
      Deferred financing costs                            1,295          981
      Other assets                                        3,868        3,931
    -------------------------------------------------------------------------
                                                         38,700       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 Months Ended       Six Months Ended
                                        June 30                 June 30
    -------------------------------------------------------------------------
                                    2009        2008        2009        2008
    -------------------------------------------------------------------------
    Current income tax
     expense                         (98)        (92)       (202)       (178)
    Future income tax
     (expense) recovery             (225)       (318)        790        (238)
    -------------------------------------------------------------------------
    Total income tax
     (expense) recovery             (323)       (410)        588        (416)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    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 June 30, 2009 is 25,103,564 (December 31,
    2008 - 25,033,645), representing net proceeds of $368.6 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,
     2009          LTIP units issued       8,408       $24.20              -
    January 6,
     2009          Property
                    acquisition                -            -          3,833
    February 5,
     2009          LTIP units issued      28,509       $16.21              -

                   Options exercised      29,169       $15.05
    Issue costs                                -            -              -
    Class B LP
     units
     exchanged                           119,361            -       (119,361)
    -------------------------------------------------------------------------
    June 30,
     2009                             22,940,457                   2,163,107
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    -------------------------------------------------------------------------
                                           Issue        Total
    Date           Description             Price        Units        $(000's)
    -------------------------------------------------------------------------
    December 31,
     2008                                          25,033,645        367,446
    January 2,
     2009          LTIP units issued           -        8,408            204
    January 6,
     2009          Property
                    acquisition           $16.91        3,833             65
    February 5,
     2009          LTIP units issued           -       28,509            462

                   Options exercised                   29,169            474
    Issue costs                                -            -             (2)
    Class B LP
     units
     exchanged                                 -            -              -
    -------------------------------------------------------------------------
    June 30,
     2009                                          25,103,564        368,649
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Trust units

    The total authorized number of trust units is unlimited. The total number
    of trust units of the REIT outstanding as at June 30, 2009 is 22,940,457
    (December 31, 2008 - 22,755,010) representing a net book value of $341.6
    million (December 31, 2008 - $338.3 million), net of issue costs.

    Class B Exchangeable Limited Partnership Units and Special Voting Units

    The Class B Units can be exchanged for trust units at any time at the
    option of the holder of the Class B units. Each Class B unit has a
    "Special Voting Unit" attached to it, which entitles the holder to one
    vote, either in person or by proxy at the meeting of unitholders of the
    trust as if he or she was a 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 June 30,
    2009, is 2,163,107 (December 31, 2008 - 2,278,635) representing a net
    book value of $27.0 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
    -------------------------------------------------------------------------
                                  Three Months Ended       Six Months Ended
                                        June 30                 June 30
    -------------------------------------------------------------------------
                                    2009        2008        2009        2008
    -------------------------------------------------------------------------
    Net earnings                   6,733       5,710      13,834      11,591
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Weighted average units
     for basic net earnings
     per unit                 25,083,873  25,026,434  25,073,656  25,021,684
    Dilutive effect of units
     to be issued under the
     LTIP                         19,523      21,241      25,082      25,991
    Dilutive effect of
     Option Plan                  46,793      16,375      43,328      17,117
    -------------------------------------------------------------------------
    Weighted average units
     for diluted Net earnings
     per unit                 25,150,189  25,064,050  25,142,066  25,064,792
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Net earnings per unit:
      Basic                  $     0.268 $     0.228 $     0.552 $     0.463
      Diluted                $     0.268 $     0.228 $     0.550 $     0.462
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    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 June
    30, 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 June 30,
    2009, NPR has provided guarantees totaling $10.2 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
    July 2010 to December 2013 (December 2008 - 4.54% to 7.90% and mature
    June 2009 to December 2013). As at June 30, 2009, land and buildings with
    a carrying value of $6.5 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 June 30,
    2009 are $20.9 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 has two primary business operating segments: residential and
    commercial income producing properties. The REIT's residential portfolio
    is comprised of three segments: 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. In addition to business segments, NPR
    also considers geographic segments (i.e. provinces and territories) to be
    relevant in the management of operations. 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
    -------------------------------------------------------------------------
    June 30, 2009       Alberta       BC     Nfld      NWT  Nunavut    Total
    -------------------------------------------------------------------------
    Residential
    Multi-family        170,633   90,690   58,492   87,086  119,580  526,481
    Execusuites               -        -    9,412    7,729    9,710   26,851
    Seniors'            122,607   16,186   45,928        -        -  184,721
    -------------------------------------------------------------------------
                        293,240  106,876  113,832   94,815  129,290  738,053
    Commercial            9,497   21,534    1,201   89,742   20,363  142,337
    Trust                 2,262        -        -        -        -    2,262
    -------------------------------------------------------------------------
    TOTAL ASSETS        304,999  128,410  115,033  184,557  149,653  882,652
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    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
     June 30, 2009      Alberta       BC     Nfld      NWT  Nunavut    Total
    -------------------------------------------------------------------------
    Rental revenue        8,624    3,972    4,521    9,430    6,297   32,844
    Other income            274      128      108      198      159      867
    Operating expenses   (2,084)  (1,530)  (1,592)  (4,070)  (2,167) (11,443)
    -------------------------------------------------------------------------
                          6,814    2,570    3,037    5,558    4,289   22,268
    Interest on
     mortgages           (2,892)    (723)    (640)  (1,487)    (996)  (6,738)
    Amortization         (1,823)    (989)    (862)  (2,083)  (1,373)  (7,130)
    -------------------------------------------------------------------------
    EARNINGS BEFORE
     OTHER ITEMS          2,099      858    1,535    1,988    1,920    8,400
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    -------------------------------------------------------------------------
    Three months ended
     June 30, 2008      Alberta       BC     Nfld      NWT  Nunavut    Total
    -------------------------------------------------------------------------
    Rental revenue        8,263    3,360    3,985    9,495    6,108   31,211
    Other income            207      103      122      317       96      845
    Operating expenses   (1,628)  (1,516)  (1,577)  (4,503)  (1,891) (11,115)
    -------------------------------------------------------------------------
    Net operating
     income               6,842    1,947    2,530    5,309    4,313   20,941
    Interest on
     mortgages           (2,498)    (620)    (628)  (1,310)  (1,103)  (6,159)
    Amortization         (1,759)    (749)    (766)  (1,871)  (1,344)  (6,489)
    -------------------------------------------------------------------------
    EARNINGS BEFORE
     OTHER ITEMS          2,585      578    1,136    2,128    1,866    8,293
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    Geographic Segments
    -------------------------------------------------------------------------
    Six months ended
     June 30, 2009      Alberta       BC     Nfld      NWT  Nunavut    Total
    -------------------------------------------------------------------------
    Rental revenue       17,709    8,024    8,710   18,448   12,945   65,836
    Other income            529      243      229      526      387    1,914
    Operating expenses   (4,551)  (3,132)  (3,287)  (8,594)  (4,614) (24,178)
    -------------------------------------------------------------------------
                         13,687    5,135    5,652   10,380    8,718   43,572
    Interest on
     mortgages           (5,578)  (1,451)  (1,406)  (2,846)  (2,013) (13,294)
    Amortization         (3,729)  (1,954)  (1,720)  (4,030)  (2,811) (14,244)
    -------------------------------------------------------------------------
    EARNINGS BEFORE
     OTHER ITEMS          4,380    1,730    2,526    3,504    3,894   16,034
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    Six months ended
     June 30, 2008      Alberta       BC     Nfld      NWT  Nunavut    Total
    -------------------------------------------------------------------------
    Rental revenue       16,206    6,562    7,603   18,404   12,288   61,063
    Other income            373      184      222      583      141    1,503
    Operating expenses   (3,320)  (2,897)  (2,998)  (8,852)  (3,805) (21,872)
    -------------------------------------------------------------------------
    Net operating income 13,259    3,849    4,827   10,135    8,624   40,694
    Interest on
     mortgages           (4,788)  (1,141)  (1,228)  (2,672)  (2,274) (12,103)
    Amortization         (3,468)  (1,538)  (1,555)  (3,629)  (2,786) (12,976)
    -------------------------------------------------------------------------
    EARNINGS BEFORE
     OTHER ITEMS          5,003    1,170    2,044    3,834    3,564   15,615
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    Business Segments
    -------------------------------------------------------------------------
                                                     Total
    Three months ended    Multi-   Execu-          Residen-  Commer-
     June 30, 2009       family   suites  Seniors'    tial     cial    Total
    -------------------------------------------------------------------------
    Rental revenue       20,595    2,046    4,341   26,982    5,862   32,844
    Other income            756       41        -      797       70      867
    Operating expenses   (8,109)  (1,089)      (6)  (9,204)  (2,239) (11,443)
    -------------------------------------------------------------------------
                         13,242      998    4,335   18,575    3,693   22,268
    Interest on
     mortgages           (4,252)    (284)  (1,523)  (6,059)    (679)  (6,738)
    Amortization         (4,355)    (347)  (1,116)  (5,818)  (1,312)  (7,130)
    -------------------------------------------------------------------------
    EARNINGS BEFORE
     OTHER ITEMS          4,635      367     1,696   6,698    1,702    8,400
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    Business Segments
    -------------------------------------------------------------------------
                                                     Total
    Three months ended    Multi-   Execu-          Residen-  Commer-
     June 30, 2008       family   suites  Seniors'    tial     cial    Total
    -------------------------------------------------------------------------
    Rental revenue       18,979     2,202   4,111   25,292    5,919   31,211
    Other income            664        34       -      698      147      845
    Operating expenses   (7,689)   (1,074)     (6)  (8,769)  (2,346) (11,115)
    -------------------------------------------------------------------------
                         11,954     1,162   4,105   17,221    3,720   20,941
    Interest on
     mortgages           (3,627)     (210) (1,634)  (5,471)    (688)  (6,159)
    Amortization         (3,942)     (195) (1,055)  (5,192)  (1,297)  (6,489)
    -------------------------------------------------------------------------
    EARNINGS BEFORE
     OTHER ITEMS          4,385       757   1,416    6,558    1,735    8,293
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    Business Segments
    -------------------------------------------------------------------------
                                                     Total
    Six months ended      Multi-   Execu-          Residen-  Commer-
     June 30, 2009       family   suites  Seniors'    tial     cial    Total
    -------------------------------------------------------------------------
    Rental revenue       41,848    3,834    8,633   54,315   11,521   65,836
    Other income          1,620      154        -    1,774      140    1,914
    Operating expenses  (17,342)  (2,178)     (12) (19,532)  (4,646) (24,178)
    -------------------------------------------------------------------------
                         26,126    1,810    8,621   36,557    7,015   43,572
    Interest on
     mortgages           (8,296)    (549)  (3,083) (11,928)  (1,366) (13,294)
    Amortization         (8,808)    (634)  (2,212) (11,654)  (2,590) (14,244)
    -------------------------------------------------------------------------
    EARNINGS BEFORE
     OTHER ITEMS          9,022      627    3,326   12,975    3,059   16,034
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    Business Segments
    -------------------------------------------------------------------------
                                                     Total
    Six months ended      Multi-   Execu-          Residen-  Commer-
     June 30, 2008       family   suites  Seniors'    tial     cial    Total
    -------------------------------------------------------------------------
    Rental revenue       37,484    4,131    8,090   49,705   11,358   61,063
    Other income          1,193       66        -    1,259      244    1,503
    Operating expenses  (15,267)  (2,090)     (11) (17,368)  (4,504) (21,872)
    -------------------------------------------------------------------------
                         23,410    2,107    8,079   33,596    7,098   40,694
    Interest on
     mortgages           (7,095)    (418)  (3,237) (10,750)  (1,353) (12,103)
    Amortization         (7,932)    (476)  (2,085) (10,493)  (2,483) (12,976)
    -------------------------------------------------------------------------
    EARNINGS BEFORE
     OTHER ITEMS          8,383    1,213    2,757   12,353    3,262   15,615
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    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
    company owned by a Trustee of NPR leases commercial space from NPR under
    normal commercial terms. NPR earned rental revenue from that arrangement
    of $243,000 for the six months ended June 30, 2009 (2008 - $232,800).
    Amounts outstanding in accounts receivable pertaining to this lease were
    $nil at June 30, 2009 (December 31, 2008 - $nil).

    A Trustee of NPR is the Chairman of AgeCare, which leases six seniors'
    properties from NPR. For the six months ended June 30, 2009, NPR earned
    rental income, including rental revenue earned on a straight-line basis
    over the term of the lease, totaling $6.3 million (2008 - $6.3 million)
    from AgeCare. Amounts outstanding in accounts receivable pertaining to
    this lease were $nil at June 30, 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
    six months ended June 30, 2009, NPR paid $60,000 for these services (2008
    - $60,000).

    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
    June 30, 2009, In accordance with the lease agreement, AgeCare is
    repaying this amount over 15 years. Interest revenue of $38,000 was
    earned for the six months ended June 30, 2009 (2008 - $nil) relating to
    this receivable. Amounts outstanding at June 30, 2009 was $2.1 million
    (December 31, 2008 - $nil).

    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.

    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 26% of the
    REIT's usage in Alberta. The Alberta provincial government's Natural Gas
    Rebate Program provided 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 half 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
    $158,000 for the six months ended June 30, 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 June 30,
    2009 the REIT has revolving credit facilities totaling $57.5 million
    (December 31, 2008 - $50.0 million). At June 30, 2009, $26.2 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. (See note 16), which leases
    seniors' properties in Alberta and BC from the REIT, and the Governments
    of Canada, the Northwest Territories and Nunavut, which leases a large
    number of 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:

    -------------------------------------------------------------------------
                                                        June 30, December 31,
                                                           2009         2008
    -------------------------------------------------------------------------
    0-30 days                                             1,038          987
    31-60 days                                              276          267
    61-90 days                                              124          130
    Over 90 days                                            163          722
    -------------------------------------------------------------------------
    Tenant receivables                                    1,601        2,106
    Other receivables                                     3,510        3,329
    Allowance for doubtful accounts                        (350)        (350)
    -------------------------------------------------------------------------
                                                          4,761        5,085
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    NPR classifies tenants as past tenants on the date of their move out from
    a residential unit. NPR records 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 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 Ended        Six Months Ended
                                       June 30                  June 30
    -------------------------------------------------------------------------
                                    2009        2008        2009        2008
    -------------------------------------------------------------------------
    Balance, beginning of period     350         250         350         250
    Accounts receivable
     written off                    (235)        (45)       (279)        (89)
    Accounts recovered               168          77         252           -
    Additional allowance              67         (32)         27          89
    -------------------------------------------------------------------------
    Balance, June 30                 350         250         350         250
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

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

    -------------------------------------------------------------------------
                                                        June 30, December 31,
                                                           2009         2008
    -------------------------------------------------------------------------
    0-6 months                                           11,640        9,916
    6 months to 1 year                                    1,508        1,251
    Over 1 year                                             360           51
    -------------------------------------------------------------------------
                                                         13,508       11,218
    Tenant security deposits                              3,463        3,893
    -------------------------------------------------------------------------
                                                         16,971       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 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 six months ended June 30, 2009 would have
    changed by $105,000.

    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:

    -------------------------------------------------------------------------
                                                        June 30, December 31,
                                                           2009         2008
    -------------------------------------------------------------------------
    Bank indebtedness (cash)                                197         (731)
    Operating facilities                                 26,198       26,600
    Mortgages and loans payable                         515,892      502,277
    -------------------------------------------------------------------------
    Debt                                                542,287      528,146
    -------------------------------------------------------------------------

    Rental properties and other capital assets          833,237      833,967
    Capital assets improvements in progress               4,187        3,773
    Capital assets under development                     18,092        8,996
    Refundable deposits and mortgage proceeds
     held in trust                                           75          185
    Accumulated amortization                            104,366       90,758
    Future income taxes on acquisitions                 (21,625)     (21,625)
    -------------------------------------------------------------------------
    Gross Book Value                                    938,332      916,054
    -------------------------------------------------------------------------

    Debt to Gross Book Value                               57.8%        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.

    -------------------------------------------------------------------------
                                                           Six
                                                         Months        Year
                                                          Ended       Ended
                                                        June 30, December 31,
                                                           2009         2008
    -------------------------------------------------------------------------
    Earnings from continuing operations before taxes     13,246       26,417
    Amortization                                         14,244       26,447
    Interest on mortgages                                13,294       24,499
    Interest on operating facilities                        373        1,286
    -------------------------------------------------------------------------
    Net earnings before interest, taxes and
     amortization                                        41,157       78,649
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Interest on mortgages                                13,294       24,499
    Interest on operating facilities                        373        1,286
    -------------------------------------------------------------------------
    Total Interest                                       13,667       25,785
    Principal repayments                                  7,992       14,983
    -------------------------------------------------------------------------
    Debt Service Payments                                21,659       40,768
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

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

    Debt Service Coverage Ratio                            1.90         1.93
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    As at and during the six months ended June 30, 2009, the REIT complied
    with all externally imposed capital requirements and all covenants
    relating to its debt facilities.

    19. SUBSEQUENT EVENTS

    On July 24, 2009, NPR completed the acquisition of a 30 unit expansion to
    an existing seniors' property for a total purchase price of $2.8 million.
    This acquisition was financed through the operating facility.

    Between July 1, 2009 and August 5, 2009, NPR completed mortgage
    financings and renewals totalling $16.1 million with interest rates from
    2.97% to 4.72% and terms to maturity from 1 year to 5 years. Proceeds
    from the mortgage financings were used to repay existing mortgage debt
    and a portion of the operating facility.
    




For further information:

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

Organization Profile

Northern Property Real Estate Investment Trust

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