Northern Property Reports Q2 Financial Results



    CALGARY, Aug. 7 /CNW/ - Northern Property REIT (NPR.UN - TSX) announced
its financial results for the 3 months ended June 30, 2008.

    
    HIGHLIGHTS:

    -   Q1 2008 DIPU of $0.52 compared to $0.46 in Q2 2007
    -   FFO per unit up 10.7% to $0.53 vs. $0.48 in Q1 2007
    -   75.7% DIPU payout ratio for first 6 months of 2008
    -   Generally positive rental market conditions; utility cost pressures

    Financial Performance at a Glance
    -------------------------------------------------------------------------
    Earnings Comparison
    In $000's except per             Three Months             Six Months
     unit amounts                   Ended June 30           Ended June 30
    -------------------------------------------------------------------------
                                    2008        2007        2008        2007
                                  -------------------------------------------
    Total revenue                 32,056      24,230      62,566      47,019
    Net operating income          20,941      16,044      40,694      30,228
    Comprehensive earnings
     (loss)                        5,952     (10,924)     12,015      (6,740)

    Distributable Income          12,950       9,437      24,451      17,395
    Distributable Income per
     unit                          $0.52       $0.46       $0.98       $0.86
    Distribution to unitholders    9,259       7,034      18,513      14,038
    Distributions per unit        $0.370      $0.345      $0.740      $0.690
    Payout ratio                    71.5%       74.5%       75.7%       80.7%

    FFO                           13,172       9,668      24,955      17,904
    FFO per unit                   $0.53       $0.48       $1.00       $0.88
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    Total property revenue in the second quarter of 2008 increased 32% to
$32.1 million from $24.2 million in the second quarter of 2007. During the
same period Net Operating Income rose to $20.9 million from $16.04 million, an
increase of 30.5%. The total assets of the REIT at the end of Q2, 2008 were
$830.7 million, some 30% greater than the $637.6 million a year earlier.
    "Q2 continued to be positive for Northern Property", said Jim Britton,
NPREIT President and CEO. "Low vacancy rates prevailed in most of our
operating locations reflecting the positive economic and employment conditions
in the communities in which we are invested. However, our results were
tempered somewhat by cool weather in the spring quarter and unprecedented
increases in heating oil costs."
    Rental market conditions continued to be extremely robust in several key
NPREIT markets. Yellowknife, Fort McMurray and Iqaluit experienced essentially
nil vacancy during the quarter and very tight vacancy conditions are beginning
to emerge in St. John's. However, the northern BC/Grande Prairie Region, which
is sensitive to the forest industry, experienced higher vacancy. Increased
activity in the natural gas and coal industries is expected to mitigate this
vacancy over time.
    Vacancy in Northern Property's 841,000 square feet of commercial space
was 1.8%. Q2 2008 NOI growth was 1.8% over Q2 2007 and 7.8% for the six months
of 2008 over the corresponding six months of 2007.
    "Q2 was quiet from an acquisitions standpoint," Mr. Britton added.
"Northern Property seriously curtailed its search for new property early in
2008 because of the turbulence in capital and economic markets. I am pleased
to report that the situation is now improved and we are again resuming the
quest to increase our rental portfolio." The REIT's only closing in the period
was a $2.3 million expansion to a master leased seniors' facility in
Newfoundland. The development of a 48 suite apartment building in Dawson
Creek, BC was completed in early July and leasing is underway.
    Approximately $90 million in debt has been renewed or refinanced during
the first 6 months of 2008. While spreads are increasing and coverage ratios
decreasing, overall financing conditions continue to be reasonably positive.
NPREIT's weighted average interest rate on borrowings has declined since
December 31, 2007 to 5.22% from 5.39%.
    Pursuant to the REIT's unit option program, 735,000 options were issued
to managers and trustees on May 20, 2008. The strike price of the award is
$23.12 per unit. $435,100 in stock based compensation was included in Q2 Trust
administration costs as a result of this option award.
    Jim Britton went on to state: "We do have concerns about the short term
effect of cost pressures on our bottom line. Utility costs, but also labour
and property tax costs, are increasing significantly in our residential
portfolio. Apartments generally involve gross leases, so the surge Northern
Property experienced with building heat last winter has an immediate negative
impact to the bottom line. Apartment rents can only be increased once a year.
Northern Property is fortunate that its diversification into triple net
commercial and master leased seniors' housing protects our bottom line to some
extent. Also, in our low vacancy apartment markets, we can usually recover our
cost spikes when the tenant's annual rent review occurs."
    In the first six months of 2008, the REIT distributed 75.7% of its
distributable income. Northern Property continues to maintain a conservative
payout ratio.

    
    NORTHERN PROPERTY REAL ESTATE INVESTMENT TRUST
    Consolidated Balance Sheets
    (Thousands of dollars)

    -------------------------------------------------------------------------
                                                            June    December
                                                        30, 2008    31, 2007
                                                       Unaudited     Audited
    -------------------------------------------------------------------------

    ASSETS

    Rental properties and other capital assets (Note 4)  787,555     765,447
    Capital improvements in progress                       4,607       1,957
    Capital assets under development                      11,279       1,257
    Prepaid expenses and other assets (Note 5)             6,705      12,893
    Accounts receivable (Note 17)                          6,610       5,059
    Tenant security deposits                               3,803       2,917
    Deferred rent receivable                               2,670       2,039
    Loans receivable                                         513         479
    Intangible assets (Note 6)                             6,919       7,062
    -------------------------------------------------------------------------
                                                         830,661     799,110
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    LIABILITIES

    Mortgages and loans payable (Note 7)                 439,992     401,909
    Bank indebtedness (Note 8)                            23,689      25,304
    Accounts payable and accrued liabilities              14,631      13,993
    Distributions payable                                  3,087       3,083
    Future income tax liability (Note 11)                 36,421      36,183
    Intangible liabilities (Note 6)                          415         571
    Non-controlling interest                                 430           -
    -------------------------------------------------------------------------
                                                         518,665     481,043
    -------------------------------------------------------------------------

    UNITHOLDERS' EQUITY                                  311,996     318,067
    -------------------------------------------------------------------------
                                                         830,661     799,110
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    See accompanying notes to the consolidated financial statements.

    Guarantees, commitments and contingencies (Note 14)

    Subsequent events (Note 19)

    APPROVED BY THE BOARD

    Trustee
    Trustee



    NORTHERN PROPERTY REAL ESTATE INVESTMENT TRUST
    Consolidated Statements of Earnings and Comprehensive Earnings
    (Thousands of dollars, except per unit amounts)

    -------------------------------------------------------------------------
                                    Three Months             Six Months
                                   Ended June 30           Ended June 30
                                    2008        2007        2008        2007
                               Unaudited   Unaudited   Unaudited   Unaudited
    -------------------------------------------------------------------------
    REVENUE
    Rental revenue                31,211      23,706      61,063      46,051
    Other property income            845         524       1,503         968
    -------------------------------------------------------------------------
                                  32,056      24,230      62,566      47,019
    Operating expenses           (11,115)     (8,186)    (21,872)    (16,791)
    -------------------------------------------------------------------------
    NET OPERATING INCOME          20,941      16,044      40,694      30,228
    -------------------------------------------------------------------------
    EXPENSES
    Interest on mortgages         (6,159)     (4,720)    (12,103)     (9,358)
    Amortization                  (6,489)     (4,978)    (12,976)     (9,703)
    -------------------------------------------------------------------------
                                 (12,648)     (9,698)    (25,079)    (19,061)
    -------------------------------------------------------------------------
    EARNINGS FROM CONTINUING
     OPERATIONS BEFORE THE
     UNDERNOTED                    8,293       6,346      15,615      11,167
    -------------------------------------------------------------------------
    OTHER INCOME (EXPENSES)
    Trust administration          (1,976)     (1,436)     (3,845)     (2,626)
    Interest on operating
     facility                       (283)       (572)       (733)       (912)
    Interest and other income        116         266         302         420
    Gain (loss) on settlement
     of debt                         (13)        510         564       1,204
    Gain on sale of rental
     properties                        -           -         136          76
    Non-controlling interest         (17)          -         (32)          -
    -------------------------------------------------------------------------
                                  (2,173)     (1,232)     (3,608)     (1,838)
    -------------------------------------------------------------------------
    EARNINGS FROM CONTINUING
     OPERATIONS BEFORE
     INCOME TAXES                  6,120       5,114      12,007       9,329
    -------------------------------------------------------------------------
    INCOME TAXES (Note 11)
    Current                          (92)       (114)       (178)       (231)
    Future                          (318)    (15,924)       (238)    (15,833)
    -------------------------------------------------------------------------
                                    (410)    (16,038)       (416)    (16,064)
    -------------------------------------------------------------------------
    EARNINGS (LOSS) FROM
     CONTINUING OPERATIONS         5,710     (10,924)     11,591      (6,735)
    -------------------------------------------------------------------------
    EARNINGS (LOSS) FROM
     DISCONTINUED OPERATIONS           -           -           -          (5)
    -------------------------------------------------------------------------
    NET EARNINGS (LOSS)            5,710     (10,924)     11,591      (6,740)
    Other comprehensive earnings     242           -         424           -
    -------------------------------------------------------------------------
    COMPREHENSIVE EARNINGS (LOSS)  5,952     (10,924)     12,015      (6,740)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Net Earnings (loss) per
     unit (Note 13)
    Basic and diluted:
    Continuing operations          $0.23      $(0.54)      $0.46      $(0.33)
    Discontinued operations            -           -           -           -
    -------------------------------------------------------------------------
                                   $0.23      $(0.54)      $0.46      $(0.33)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    See accompanying notes to the consolidated financial statements.



    NORTHERN PROPERTY REAL ESTATE INVESTMENT TRUST
    Consolidated Statements of Unitholders' Equity
    (Thousands of dollars)
    -------------------------------------------------------------------------
                            Cumulative                Cumulative   Cumulative
                              Capital    Contributed      Net        Distri-
    Unaudited                (Note 12)     Surplus     Earnings      butions
    -------------------------------------------------------------------------
    December 31, 2007         366,789        1,023       63,354     (113,154)
      Comprehensive earnings        -            -       11,591            -
      Distributions to
       unitholders                  -            -            -      (18,513)
      Issuance of units             -            -            -            -
      Issuance costs               (8)           -            -            -
      Unit based
       compensation                 -          435            -            -
      Long term incentive
       units granted                -            -            -            -
      Long term incentive
       plan units issued          665         (665)           -            -
    -------------------------------------------------------------------------
    June 30, 2008             367,446          793       74,945     (131,667)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    -----------------------------------------------
                            Accumulated
                               Other
                              Compre-
                              hensive
    Unaudited                Earnings       Total
    -----------------------------------------------
    December 31, 2007              55      318,067
      Comprehensive earnings      424       12,015
      Distributions to
       unitholders                  -      (18,513)
      Issuance of units             -            -
      Issuance costs                -           (8)
      Unit based
       compensation                 -          435
      Long term incentive
       units granted                -            -
      Long term incentive
       plan units issued            -            -
    ----------------------------------------------
    June 30, 2008                 479      311,996
    -----------------------------------------------
    -----------------------------------------------


    -------------------------------------------------------------------------
                            Cumulative                Cumulative   Cumulative
                              Capital    Contributed      Net        Distri-
    Unaudited                (Note 12)     Surplus     Earnings      butions
                                                         (Loss)
    -------------------------------------------------------------------------
    December 31, 2006         261,730        1,249       55,664      (81,463)
    Comprehensive earnings
     (loss)                         -            -       (6,740)           -
    Distributions to
     unitholders                    -            -            -      (14,038)
    Issuance of units           3,000            -            -            -
    Issuance costs                (13)           -            -            -
    Long term incentive
     units granted                  -            -            -            -
    Long term incentive
     plan units issued          1,018       (1,018)           -            -
    -------------------------------------------------------------------------
    June 30, 2007             265,735          231       48,924      (95,501)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    -----------------------------------------------
                            Accumulated
                               Other
                              Compre-
                              hensive
    Unaudited                Earnings       Total
    -----------------------------------------------
    December 31, 2006               -      237,180
      Comprehensive earnings
       (loss)                       -       (6,740)
      Distributions to
       unitholders                  -      (14,038)
      Issuance of units             -        3,000
      Issuance costs                -          (13)
      Long term incentive
       units granted                -            -
      Long term incentive
       plan units issued            -            -
    ----------------------------------------------
    June 30, 2007                   -      219,389
    -----------------------------------------------
    -----------------------------------------------
    See accompanying notes to the consolidated financial statements.



    NORTHERN PROPERTY REAL ESTATE INVESTMENT TRUST
    Consolidated Statements of Cash Flows
    (Thousands of dollars)
    -------------------------------------------------------------------------
                                 Three Months Ended       Six Months Ended
                                        June 30                 June 30
                                    2008        2007        2008        2007
                               Unaudited   Unaudited   Unaudited   Unaudited
    -------------------------------------------------------------------------
    CASH FLOWS RELATED TO THE
     FOLLOWING ACTIVITIES:
      OPERATING
      Net earnings (loss) from
       continuing operations       5,710     (10,924)     11,591      (6,735)
      Adjustments for:
      Deferred rental revenue       (290)       (282)       (631)       (557)
      Amortization                 6,489       4,978      12,976       9,703
      Amortization of fair
       value of debt                 137          80         255         111
      Amortization of above
       and below market leases       (69)        (29)       (128)        (63)
      Gain on settlement of debt      13        (510)       (564)     (1,204)
      Gain on sale of rental
       properties                      -           -        (136)        (76)
      Non-controlling interest        17           -          32           -
      Unit-based compensation        642         200         850         388
      Future income taxes            318      15,924         238      15,833
    -------------------------------------------------------------------------
      Cash flows from
       continuing operations      12,967       9,437      24,483      17,400
      Cash flows used in
       discontinued operations         -           -           -          (5)
      Changes in non-cash
       working capital              (549)      4,084       1,717      (7,707)
    -------------------------------------------------------------------------
                                  12,418      13,521      26,200       9,688
    -------------------------------------------------------------------------
      FINANCING
      Unit issue costs                (8)        (30)         (8)        (30)
      Proceeds from mortgages
       and loans                  42,607       1,089      81,565      29,120
      Proceeds of acquisition
       facility                        -       9,058           -       9,058
      Proceeds from sale of
       rental properties               -           -         395         538
      Payments (to) from
       non-controlling interest     (342)          -         398           -
      Repayment of mortgages and
       loans payable             (19,238)    (10,002)    (40,524)    (22,858)
      Distributions to
       unitholders                (9,257)     (7,019)    (18,509)    (14,019)
    -------------------------------------------------------------------------
                                  13,762      (6,904)     23,317       1,809
    -------------------------------------------------------------------------
      INVESTING
      Acquisition of rental
       properties and other
       assets                     (2,037)    (21,706)    (32,889)    (22,908)
      Capital assets under
       development                (6,231)        (11)    (10,022)     (1,763)
      Building capital
       maintenance                (1,363)     (1,458)     (2,341)     (1,987)
      Capital improvements        (1,699)       (618)     (2,650)     (1,063)
    -------------------------------------------------------------------------
                                 (11,330)    (23,793)    (47,902)    (27,721)
    -------------------------------------------------------------------------
      NET DECREASE (INCREASE)
       IN BANK INDEBTEDNESS       14,850     (17,176)      1,615     (16,224)
      BANK INDEBTEDNESS,
       BEGINNING OF PERIOD       (38,539)    (21,355)    (25,304)    (22,307)
    -------------------------------------------------------------------------
      BANK INDEBTEDNESS, END
       OF PERIOD                 (23,689)    (38,531)    (23,689)    (38,531)
    -------------------------------------------------------------------------
      SUPPLEMENTARY INFORMATION
      Interest paid                6,208       5,149      12,334      10,024
    -------------------------------------------------------------------------
      Interest received              101          84         227         159
    -------------------------------------------------------------------------
      Income taxes paid              367           2         447           2
    -------------------------------------------------------------------------
    See accompanying notes to the consolidated financial statements.



    NORTHERN PROPERTY REAL ESTATE INVESTMENT TRUST
    Notes to the Consolidated Financial Statements (unaudited)
    Three and Six Months ended June 30, 2008 and 2007
    (Columnar amounts expressed in thousands of dollars except where
     indicated)
    -------------------------------------------------------------------------

    1.  DESCRIPTION OF THE TRUST

    Northern Property Real Estate Investment Trust ("NPREIT" 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

    These unaudited interim consolidated financial statements of NPREIT have
    been prepared in accordance with the recommendations of the Handbook of
    the Canadian Institute of Chartered Accountants ("CICA") and are
    consistent with those used in the audited consolidated financial
    statements as at and for the year ended December 31, 2007, 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, 2007 audited consolidated financial
    statements.

    The REIT carries out certain of its activities through partnerships and
    records its proportionate share of assets, liabilities, revenue and
    expenses of all partnerships in which it participates. Investments where
    the REIT exercises significant influence are accounted for using the
    equity method.

    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 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, 2008, NPREIT adopted CICA Handbook Section 1535,
    Capital Disclosures. This section requires the disclosure of (i) an
    entity's objectives, policies and process for managing capital; (ii)
    quantitative data about an entity's managed capital; (iii) whether an
    entity has complied with capital requirements; and (iv) if an entity has
    not complied with such capital requirements, the consequences of such
    non-compliance. This information has been presented in Note 18.

    Effective January 1, 2008, NPREIT adopted CICA Handbook Section 3862,
    Financial Instruments - Disclosures and 3863 Financial Instruments -
    Presentation. These sections require incremental disclosures regarding
    the significance of financial instruments for the REIT's financial
    position and performance; and the nature, extent and management of risks
    arising from financial instruments to which the REIT is exposed. This
    information has been presented in Note 17.

    Effective January 1, 2008, NPREIT adopted CICA Handbook Section 3031,
    Inventory. This section establishes standards for the measurement of
    inventories, allocation of overhead, accounting for write-downs and
    disclosures.

    These new standards have no material impact on the REIT's consolidated
    statement of earnings 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 NPREIT'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.

    In February 2008, the CICA issued Section 3064, Goodwill and Intangible
    Assets, replacing Section 3062, Goodwill and Other Intangible Assets and
    Section 3450, Research and Development Costs. Various changes have been
    made to other sections of the CICA Handbook for consistency purposes. The
    new Section will be applicable to financial statements relating to fiscal
    years beginning on or after October 1, 2008. Accordingly, the REIT will
    adopt the new standards for its fiscal year beginning January 1, 2009. It
    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. NPREIT is currently evaluating the impact of the adoption
    of this new Section on its consolidated financial statements. NPREIT does
    not expect that the adoption of this new Section will have a material
    impact on its consolidated financial statements.

    4.  RENTAL PROPERTIES AND OTHER CAPITAL ASSETS

    -------------------------------------------------------------------------
                               June 30, 2008             December 31, 2007
                                 Accumu-                    Accumu-
                                  lated       Net            lated       Net
                                Amortiz-     Book          Amortiz-     Book
                           Cost    ation    Value     Cost    ation    Value
    -------------------------------------------------------------------------
    Land                 87,260        -   87,260   82,332        -   82,332
    Buildings           750,554   65,665  684,889  724,355   55,525  668,830
    Furniture, fixtures
     and equipment        7,841    3,397    4,444    7,154    2,917    4,237
    Vehicles              1,187      652      535    1,050      561      489
    Capital and leasehold
     improvements        18,651    8,224   10,427   16,317    6,758    9,559
    -------------------------------------------------------------------------
                        865,493   77,938  787,555  831,208   65,761  765,447
    -------------------------------------------------------------------------

    NPREIT 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.

    NPREIT acquired properties in the three months ended June 30, 2008 for a
    total purchase price of $1.8 million (2007 - $31.3 million). The
    acquisitions were financed as follows:

    -------------------------------------------------------------------------
                                      Three Months             Six Months
                                      Ended June 30           Ended June 30
                                    2008        2007        2008        2007
    -------------------------------------------------------------------------
    Mortgages and debt assumed         -       6,395           -       6,395
    Class B LP Units issued            -       3,000           -       3,000
    Cash paid                      1,813      21,818      32,156      28,923
    -------------------------------------------------------------------------
                                   1,813      31,213      32,156      38,318
    Fair value adjustment to debt      -          79           -          79
    -------------------------------------------------------------------------
    Total purchase price of
     property acquisitions         1,813      31,292      32,156      38,397
    -------------------------------------------------------------------------
    Residential units                  -         281         263         282
    Seniors' units                    21         182          69         182
    -------------------------------------------------------------------------
                                      21         463         332         464
    -------------------------------------------------------------------------
    Commercial square feet             -      10,000      25,124      53,701
    -------------------------------------------------------------------------

    During the year, the REIT disposed of two properties for gross proceeds
    of $395,000 and a gain on sale of $136,000.

    5.  PREPAID EXPENSES AND OTHER ASSETS

    -------------------------------------------------------------------------
                                            June 30, 2008  December 31, 2007
    -------------------------------------------------------------------------
    Refundable deposits and mortgage
     proceeds held in trust                           580              7,998
    Prepaid equity leases                           2,253              2,339
    Prepaid expenses                                3,366              2,047
    Other                                             506                509
    -------------------------------------------------------------------------
                                                    6,705             12,893
    -------------------------------------------------------------------------

    6.  INTANGIBLE ASSETS AND LIABILITIES

    -------------------------------------------------------------------------
                             June 30, 2008            December 31, 2007
                                 Accumu-                    Accumu-
                                  lated       Net            lated       Net
                                Amortiz-     Book          Amortiz-     Book
                           Cost    ation    Value     Cost    ation    Value
    -------------------------------------------------------------------------
    Above-market leases     313      124      187      313       97      216
    In-place leases       6,565    1,123    5,442    6,134      672    5,462
    Lease origination
     costs                1,669      379    1,290    1,570      186    1,384
    -------------------------------------------------------------------------
                          8,547    1,626    6,919    8,017      955    7,062
    -------------------------------------------------------------------------
    Below-market leases   1,203      788      415    1,203      632      571
    -------------------------------------------------------------------------

    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, 2008  December 31, 2007
    -------------------------------------------------------------------------
    Mortgages and loans payable                   457,374            416,334
    Fair value adjustment                          (8,802)            (8,379)
    Deferred financing costs                       (8,580)            (6,046)
    -------------------------------------------------------------------------
                                                  439,992            401,909
    -------------------------------------------------------------------------

    Mortgages and loans payable bear interest at rates ranging from 3.83% to
    12.13% and have a weighted average rate of 5.22% as at June 30, 2008
    (December 31, 2007 - 5.39%). Mortgages and loans are payable in monthly
    installments of blended principal and interest of approximately
    $3.2 million. The mortgages mature between 2008 and 2025 and are secured
    by charges against specific properties. Land and buildings with a
    carrying value of $642.4 million have been pledged to secure mortgages
    and loans payable of the REIT. The fair value of mortgages payable at
    June 30, 2008 is approximately $454.0 million (December 31, 2007 -
    $408.9 million).

    Minimum future principal payments required are as follows:
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
    2008 (remainder of year)                                          30,065
    2009                                                              48,381
    2010                                                              27,554
    2011                                                              25,816
    2012                                                              42,909
    Subsequent                                                       282,649
    -------------------------------------------------------------------------
                                                                     457,374
    -------------------------------------------------------------------------

    8.  BANK INDEBTEDNESS

    NPREIT has a revolving line of credit in the amount of $40.0 million for
    acquisition and operating purposes, bearing interest at prime or bankers
    acceptance rate with a maturity of May 31, 2009. Specific properties with
    a carrying value of $88.0 million have been pledged as collateral
    security for the line of credit. At June 30, 2008, NPREIT had utilized
    $23.7 million (December 31, 2007 - $25.3 million).

    NPREIT has an acquisition facility in the amount of $30.0 million for
    acquisition and general corporate purposes to a maximum of 75% of the
    appraised value of the acquisition, bearing interest at prime with a
    maturity date of July 31, 2008. At June 30, 2008, NPREIT had utilized
    $ nil (December 31, 2007 - $ nil). See also Note 19.

    9.  LONG-TERM INCENTIVE PLAN AND UNIT OPTION PLAN

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

    -------------------------------------------------------------------------
                                                                      Number
                                                                    of Units
    -------------------------------------------------------------------------
    Balance - December 31, 2007                                       43,586
    Units vested and issued - January, 2008                           (6,033)
    Units vested and issued - February, 2008                         (11,592)
    Units vested and issued - May, 2008                              (11,931)
    -------------------------------------------------------------------------
    Balance - June 30, 2008                                           14,030
    -------------------------------------------------------------------------

    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, 2008, a total of 155,219 LTIP units had vested and been
    issued (December 31, 2007 - 125,663).

    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.

    On May 20, 2008, 735,000 options with an exercise price of $23.12 and
    expiring on May 20, 2013 were granted to trustees and officers.
    245,002 options vested immediately, 245,001 options will vest on
    May 20, 2009 and 244,997 will vest on May 20, 2010. No options have been
    exercised through June 30, 2008.

    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 and recognized over the vesting period. The following assumptions
    were used in calculating the fair value of the options granted; 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. Compensation expense for
    the three and six month period relating to options granted was $435,100
    (2007 - $nil).

    10.  EMPLOYEE UNIT PURCHASE PLAN

    Under the terms of the Employee Unit Purchase Plan (the "EUPP"),
    employees may invest a maximum of 5% of their salary in NPREIT trust
    units and the REIT will contribute 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, 2008, employees invested a
    total of $58,608 (2007 - $47,955) and the REIT contributed $19,536
    (2007 - $15,985). During the six months ended June 30, 2008, 3,858 units
    (2007 - 2,445 units) were purchased at an average cost of $21.64 per unit
    (2007 - $25.47 per unit).

    11.  INCOME TAXES

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

    On June 22, 2007, the Budget Implementation Act, 2007, Bill C-52
    ("Bill C-52") received Royal Assent. Bill C-52 will not apply to an
    entity that qualifies for the real estate investment trust exemption
    (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. Bill C-52
    provides for a transition period for publicly traded entities that
    existed prior to November 1, 2006 and is not expected to apply to NPREIT
    until 2011.

    GAAP requires NPREIT to recognize future income tax assets and
    liabilities based on estimated temporary differences expected as at
    January 1, 2011. Under the current legislation, NPREIT 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 NPREIT's assets and liabilities at January 1, 2011 and has been
    calculated using the expected tax rates of 19.63% to 29.5%.

    NPREIT has certain capital assets which have a lower tax value than their
    applicable accounting value. NPREIT has therefore recorded a future tax
    liability of $9.8 million (December 31, 2007 - $10.0 million) using an
    expected income tax rate ranging from 19.63% to 29.5%
    (2007 - 19.63% - 29.5%).

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

    -------------------------------------------------------------------------
                                            June 30, 2008  December 31, 2007
    -------------------------------------------------------------------------
    Future tax liabilities arising from
     temporary differences between
     accounting and tax basis of:
      Rental property assets in
       corporate subsidiaries                       9,829             10,007
      Acquisition of rental property
       assets in a business combination             9,476              9,476
      Rental properties                            14,787             14,771
      Other assets                                  2,329              1,929
    -------------------------------------------------------------------------
                                                   36,421             36,183
    -------------------------------------------------------------------------

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

    -------------------------------------------------------------------------
                                      Three Months             Six Months
                                      Ended June 30           Ended June 30
                                    2008        2007        2008        2007
    -------------------------------------------------------------------------
    Current income taxes             (92)       (114)       (178)       (231)
    Future income taxes             (318)    (15,924)       (238)    (15,833)
    -------------------------------------------------------------------------
    Total income tax expense        (410)    (16,038)       (416)    (16,064)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    12.  UNITHOLDERS' CAPITAL

    Total NPREIT 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, 2008 is 25,033,645 (December 31, 2007 - 25,004,089),
representing net proceeds of $367.4 million, net of issue costs of $19.6
million (December 31, 2007 - $366.8 million, net of issue costs of $19.6
million). The number of units issued and outstanding is as follows:

    -------------------------------------------------------------------------
                                                          Issue   Class B LP
    Date                Description    Trust Units        Price        Units
    -------------------------------------------------------------------------
    December
     31, 2007                           22,536,988                 2,467,101
    January
     02, 2008     LTIP units issued          6,033       $23.12            -
    February
     16, 2008     LTIP units issued         11,592       $22.35            -
    May 26, 2008  LTIP units issued         11,931       $22.35            -
    Issue costs                                  -            -            -
    Class B LP units exchanged             116,704            -     (116,704)
    -------------------------------------------------------------------------
    June 30, 2008                       22,683,248                  2,350,397
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    -------------------------------------------------------------------------
                                             Issue
    Date                Description          Price  Total Units            $
    -------------------------------------------------------------------------
    December
     31, 2007                                    -   25,004,089      366,789
    January
     02, 2008     LTIP units issued              -        6,033          139
    February
     16, 2008     LTIP units issued              -       11,592          259
    May 26, 2008  LTIP units issued              -       11,931          267
    Issue costs                                  -            -           (8)
    Class B LP units exchanged                   -            -            -
    -------------------------------------------------------------------------
    June 30, 2008                                -   25,033,645      367,446
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Trust units

    Total number of trust units of the REIT outstanding as at June 30, 2008 is
22,683,248 (December 31, 2007 - 22,536,988) representing a net book value of
$337.2 million (December 31, 2007 - $334.5 million), net of issue costs.

    Class B Exchangeable Limited Partnership Units and Special Voting Units

    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, 2008, is 2,350,397 (December 31, 2007 - 2,467,101) representing a
net book value of $30.2 million (December 31, 2007 - $32.3 million).

    13. NET EARNINGS (LOSS) PER UNIT

    -------------------------------------------------------------------------
                                      Three Months             Six Months
                                      Ended June 30           Ended June 30
                                    2008        2007        2008        2007
    -------------------------------------------------------------------------
    Earnings (loss) from
     continuing operations         5,710     (10,924)     11,591      (6,735)
    Earnings (loss) from
     discontinued operations           -           -           -          (5)
    -------------------------------------------------------------------------
    Net Earnings (loss)            5,710     (10,924)     11,591      (6,740)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Weighted average units for
     basic earnings per unit  25,026,434  20,343,524  25,021,684  20,341,124
    Effect of dilutive units
     to be issued in respect
     of the long-term
     incentive plan               21,241      12,508      25,991      29,228
    Effect dilutive of
     Option Plan                  16,375           -      17,117           -
    -------------------------------------------------------------------------
    Weighted average units
     for diluted Earnings
     per unit                 25,064,050  20,356,032  25,064,792  20,370,352
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Basic and diluted Net
     Earnings (loss) per unit:
      Continuing operations        $0.23      $(0.54)      $0.46      $(0.33)
      Discontinued operations          -           -           -           -
    -------------------------------------------------------------------------
                                   $0.23      $(0.54)      $0.46      $(0.33)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    14. GUARANTEES, COMMITMENTS AND CONTINGENCIES

    In the ordinary course of business, NPREIT 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 NPREIT 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, NPREIT 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, NPREIT 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, 2008 will not have a material impact on NPREIT.

    During the normal course of operations, NPREIT provided guarantees for
    mortgages and loans payable relating to investments in corporations and
    joint ventures where NPREIT 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, NPREIT may be liable for 100% of the
    outstanding balances of these mortgages and loans payable. At
    June 30, 2008, NPREIT has provided guarantees totaling $14.1 million
    (December 31, 2007 - $14.4 million). Of this amount, $7.0 million has
    been included in mortgages and loans payable (December 31, 2007 -
    $7.2 million). The mortgages bear interest at rates ranging from 4.54% to
    8.01% and mature December, 2008 to January, 2012 (December 31, 2007 -
    4.54% to 7.50% and mature June, 2008 to January, 2012). Land and
    buildings with a carrying value of $10.3 million have been pledged to
    secure these mortgage and loans payable.

    NPREIT has entered into agreements for the development of the following
    projects:

    -   A 79 unit multi-family residential property building located in
        Fort St. John, BC on land previously acquired by NPREIT. Construction
        commenced in September 2007 and is expected to be completed in
        Q4 2008. The estimated total cost of construction, including the
        original cost of land, is approximately $11.4 million.
    -   NPREIT commenced the development of a commercial property in
        Yellowknife, NWT for a national retail tenant in September 2007 and
        is expected to be completed in Q3 2008. The estimated total cost of
        construction is approximately $4.1 million.
    -   The development of a 189 unit multi-family residential apartment
        building located in Grande Prairie, Alberta on land previously
        acquired by NPREIT is expected to begin in 2008. The estimated total
        cost of construction, including the original cost of land, is
        approximately $22.9 million.
    -   A 48 unit multi-family residential apartment building located in
        Dawson Creek, BC on land previously acquired by NPREIT. The estimated
        total cost of construction, including the original cost of the land
        is approximately $5.1 million. In July 2008, construction was
        completed.

    15. SEGMENTED INFORMATION

    NPREIT considers residential rental, execusuites, seniors' and commercial
    income producing properties to be separate segments operating in five
    provinces and territories in Canada. The accounting policies of the
    segments are as described in Note 2. Discontinued operations are not
    allocated to individual segments. 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, NPREIT has not provided a
    reconciliation of Earnings from Continuing Operations Before Other Items
    to Net Earnings. In 2007 and 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 (loss) on
    settlement of debt was earned in the residential business segments in all
    geographic segments. Segmented information for NPREIT is provided below:

    Total Assets

    June 30, 2008       Alberta       BC     Nfld      NWT  Nunavut    Total
    -------------------------------------------------------------------------
    Residential
      Rental            129,685   80,521   56,713   87,330  117,009  471,258
      Execusuites             -        -    9,705    8,202    9,894   27,801
      Seniors'          124,960   14,356   39,149        -        -  178,465
    -------------------------------------------------------------------------
                        254,645   94,877  105,567   95,532  126,903  677,524
    Commercial            9,790   22,088    1,263   92,303   21,463  146,907
    Trust                 6,230        -        -        -        -    6,230
    -------------------------------------------------------------------------
    TOTAL ASSETS        270,665  116,965  106,830  187,835  148,366  830,661
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
    December 31, 2007   Alberta       BC     Nfld      NWT  Nunavut    Total
    -------------------------------------------------------------------------
    Residential
      Rental            119,189   60,875   55,963   88,633  122,730  447,390
      Execusuites             -        -    9,921    7,438   10,015   27,374
      Seniors'          126,006   14,238   32,923        -        -  173,167
    -------------------------------------------------------------------------
                        245,195   75,113   98,807   96,071  132,745  647,931
    Commercial           11,423   21,872    1,273   87,980   23,281  145,829
    Trust                 5,350        -        -        -        -    5,350
    -------------------------------------------------------------------------
    TOTAL ASSETS        261,968   96,985  100,080  184,051  156,026  799,110
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    Geographic Segments
    -------------------------------------------------------------------------
    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 FROM
     CONTINUING
     OPERATIONS BEFORE
     OTHER ITEMS          2,585      578    1,136    2,128    1,866    8,293
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
    Three months ended
    June 30, 2007       Alberta       BC     Nfld      NWT  Nunavut    Total
    -------------------------------------------------------------------------
    Rental revenue        6,033    2,556    2,982    6,014    6,121   23,706
    Other income            116       89      117      153       49      524
    Operating expenses   (1,110)  (1,168)  (1,459)  (2,723)  (1,726)  (8,186)
    -------------------------------------------------------------------------
    Net operating income  5,039    1,477    1,640    3,444    4,444   16,044
    Interest on
     mortgages           (1,890)    (341)    (456)    (898)  (1,135)  (4,720)
    Amortization         (1,425)    (529)    (545)  (1,130)  (1,349)  (4,978)
    -------------------------------------------------------------------------
    EARNINGS FROM
     CONTINUING
     OPERATIONS BEFORE
     OTHER ITEMS          1,724      607      639    1,416    1,960    6,346
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
    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 FROM
     CONTINUING
     OPERATIONS BEFORE
     OTHER ITEMS          5,003    1,170    2,044    3,834    3,564   15,615
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
    Six months ended
    June 30, 2007       Alberta       BC     Nfld      NWT  Nunavut    Total
    -------------------------------------------------------------------------
    Rental revenue       12,230    4,559    5,355   11,794   12,113   46,051
    Other income            237      157      219      240      115      968
    Operating expenses   (2,330)  (1,996)  (2,978)  (5,956)  (3,531) (16,791)
    -------------------------------------------------------------------------
    Net operating
     income              10,137    2,720    2,596    6,078    8,697   30,228
    Interest on
     mortgages           (3,751)    (671)    (858)  (1,858)  (2,220)  (9,358)
    Amortization         (2,708)    (872)    (984)  (2,291)  (2,848)  (9,703)
    -------------------------------------------------------------------------
    EARNINGS FROM
     CONTINUING
     OPERATIONS BEFORE
     OTHER ITEMS          3,678    1,177      754    1,929    3,629   11,167
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    Business Segments
    -------------------------------------------------------------------------
                                                     Total
    Three months ended            Execu-             Resi-  Commer-
    June 30, 2008        Rental   suites  Seniors' dential     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)
    -------------------------------------------------------------------------
    Net operating
     income              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 FROM
     CONTINUING
     OPERATIONS BEFORE
     OTHER ITEMS          4,385      757    1,416    6,558    1,735    8,293
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
                                                     Total
    Three months ended            Execu-             Resi-  Commer-
    June 30, 2007        Rental   suites  Seniors' dential     cial    Total
    -------------------------------------------------------------------------
    Rental revenue       15,804    2,043    3,377   21,224    2,482   23,706
    Other income            491       25        -      516        8      524
    Operating expenses   (6,512)    (856)      (2)  (7,370)    (816)  (8,186)
    -------------------------------------------------------------------------
    Net operating income  9,783    1,212    3,375   14,370    1,674   16,044
    Interest on
     mortgages           (2,669)    (203)  (1,537)  (4,409)    (311)  (4,720)
    Amortization         (3,172)    (115)    (957)  (4,244)    (734)  (4,978)
    -------------------------------------------------------------------------
    EARNINGS FROM
     CONTINUING
     OPERATIONS BEFORE
     OTHER ITEMS          3,942      894      881    5,717      629    6,346
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
                                                     Total
    Six months ended              Execu-             Resi-  Commer-
    June 30, 2008        Rental   suites  Seniors' dential     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)
    -------------------------------------------------------------------------
    Net operating income 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 FROM
     CONTINUING
     OPERATIONS BEFORE
     OTHER ITEMS          8,383    1,213    2,757   12,353    3,262   15,615
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
                                                     Total
    Six months ended              Execu-             Resi-  Commer-
    June 30, 2007        Rental   suites  Seniors' dential     cial    Total
    -------------------------------------------------------------------------

    Rental revenue       30,916    3,648    6,528   41,092    4,959   46,051
    Other income            909       47        -      956       12      968
    Operating expenses  (13,323)  (1,818)      (5) (15,146)  (1,645) (16,791)
    -------------------------------------------------------------------------
    Net operating income 18,502    1,877    6,523   26,902    3,326   30,228
    Interest on
     mortgages           (5,334)    (405)  (3,037)  (8,776)    (582)  (9,358)
    Amortization         (6,476)    (284)  (1,701)  (8,461)  (1,242)  (9,703)
    -------------------------------------------------------------------------
    EARNINGS FROM
     CONTINUING
     OPERATIONS BEFORE
     OTHER ITEMS          6,692    1,188    1,785    9,665    1,502   11,167
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    16. RELATED PARTY TRANSACTIONS

    A trustee of NPREIT leases space from NPREIT under normal commercial
    terms. NPREIT earned rental revenue of $232,800 for the six months ended
    June 30, 2008 (2007 - $208,600). Amounts outstanding in accounts
    receivable pertaining to this lease were $ nil at June 30, 2008
    (December 31, 2007 - $ nil).

    A trustee of NPREIT is a senior partner of a law firm that provides legal
    services to NPREIT in the ordinary course of business. Fees paid for the
    six months ended June 30, 2008 were $26,600 (2007 - $28,700).

    A trustee of NPREIT is the Chairman of AgeCare Investments Ltd.
    ("AgeCare"), which leases six seniors' properties from NPREIT. For the
    six months ended June 30, 2008, NPREIT earned rental income, including
    rental income earned on a straight-line basis over the term of the lease,
    totalling $6.3 million (2007 - $6.3 million) from AgeCare. Amounts
    outstanding in accounts receivable pertaining to this lease were $ nil at
    June 30, 2008 (December 31, 2007 - $ nil). In addition, AgeCare is paid
    an annual advisory fee of $120,000 for advisory services provided to
    NPREIT respecting prospective acquisitions of seniors' properties. For
    the six months ended June 30, 2008, NPREIT paid $60,000 for these
    services (2007 - $60,000).

    In the second quarter of 2008, the REIT commenced renovations to a
    seniors' facility in BC which is leased to AgeCare. The renovations are
    being completed under the terms of existing lease agreements and costs
    will be recovered from AgeCare over the remaining term of the lease
    agreement. The approved budget for the renovation project is
    $2.15 million, with $194,000 incurred through June 30, 2008.

    17. FINANCIAL INSTRUMENTS

    Management has determined that the majority of the NPREIT'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, other assets, accounts receivable,
    tenant security deposits, mortgages payable, loans payable, accounts
    payable and accrued liabilities, income taxes payable and bank
    indebtedness. Unless otherwise specified, the fair value of these
    instruments approximates their carrying values.

    Utility cost risk
    The REIT 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
    REITs portfolio generally provide for recovery of operating costs,
    including utilities. Because of the northern location of a portion of the
    REIT's portfolio, the exposure to utility price fluctuations is more
    pronounced in the first and last fiscal quarter of the year. The
    following discussion focuses on the REIT's exposure in its residential
    portfolio.

    NPREIT 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, NPREIT does not utilize hedges or forward contracts in the
    management of exposure to utility risk. Management continues to implement
    programs to reduce its utility risk exposure such as the environmentally
    friendly wood pellet boilers installed in two properties in Yellowknife
    in 2006. Over the course of the next 18 to 36 months, management intends
    to install up to six more boilers in 16 additional buildings. Management
    expects the investment in these wood pellet boilers to reduce the REIT's
    usage of fossil fuels which will result in lower heating costs and reduce
    the impact on the environment.

    Exposure to heating oil prices
    Heating oil is the primary source of fuel for heating properties located
    in Nunavut and the Northwest Territories. Exposure to increases in the
    cost of heating oil is partially offset by the ability to recover these
    increases from a significant proportion of its commercial and some
    residential tenants. In Nunavut, the price of heating oil is set by the
    Territorial government, which in 2008 resulted in the price of heating
    oil being substantially lower than the spot price. In June, 2008, the
    Nunavut territorial government announced an increase of $0.22 per litre
    of heating oil (or a 30% increase). In the Northwest Territories, a
    sensitivity analysis was completed assuming an increase in the cost of
    heating oil of 10% over the average price of heating oil in the Northwest
    Territories for the first six months of 2008.

    Sensitivity analysis
    -------------------------------------------------------------------------
                                    Increase in price of
                                        heating oil from       Impact on Net
                                         average for Six            Earnings
                                            months ended    Six months ended
                                           June 30, 2008       June 30, 2008
    -------------------------------------------------------------------------
    Nunavut                                      30%               $(171,000)
    Northwest Territories                        10%               $(223,000)
    -------------------------------------------------------------------------

    Exposure to natural gas prices
    Natural gas is the significant source of fuel for heating properties
located in Alberta, BC and Inuvik. In Alberta, the provincial government
implemented a natural gas rebate program for energy costs incurred from
October through March. In addition, the REIT has fixed price contracts for
certain of its properties which account for approximately 38% of the REIT's
usage in Alberta. Natural gas prices in Inuvik and BC are not subject to
regulated price control other than for the financial instruments acquired as
part of an acquisition of certain rental properties in 2007, the REIT does not
use financial instruments to manage the exposure to the price risk.

    Sensitivity analysis
    -------------------------------------------------------------------------
                                    Increase in price of
                                        Natural gas from       Impact on Net
                                         average for Six            Earnings
                                            months ended    Six months ended
                                           June 30, 2008       June 30, 2008
    -------------------------------------------------------------------------
    BC                                           10%                $(53,000)
    -------------------------------------------------------------------------

    The fair value of the fixed price contracts is $254,000
    (December 31, 2007 - ($180,000)) and is included in accounts payable and
    accrued liabilities on the balance sheet. The adjustment to current
    market price for the remaining commitment under the fixed price contracts
    is included in other comprehensive income.

    Exposure to electricity prices
    Electricity is the primary source of fuel for heating properties located
    in Newfoundland as well as part of northern 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
    units. As there is not a significant direct risk to NPREIT 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, 2008 the REIT has a revolving line of credit in the amount of
    $40.0 million and an acquisition facility in the amount of $30.0 million.
    Cash flow projections are completed on a regular basis to ensure there is
    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. See also Note 19.

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

    NPREIT 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 months rent from tenants
    where legislation permits, and geographic diversification in its
    portfolio. The REIT records a specific bad debt provision on balances
    owed to the REIT from past tenants and provides an allowance for
    receivables from current tenants 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, estimated by Management based on prior experience
    and current economic conditions. 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 tenant and other receivables:

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

                                                       June 30,  December 31,
                                                          2008          2007
    -------------------------------------------------------------------------

    0-30 days                                            1,779         1,068
    31-60 days                                             849           186
    61-90 days                                             195           375
    Over 90 days                                           534            80
    -------------------------------------------------------------------------
    Tenant receivables                                   3,357         1,709
    Other receivables                                    3,503         3,600
    Allowance for bad debts                               (250)         (250)
    -------------------------------------------------------------------------
                                                         6,610         5,059
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    The reconciliation of changes in allowance for bad debts is as follows:

    -------------------------------------------------------------------------
                                                            Six months ended
                                                               June 30, 2008
    -------------------------------------------------------------------------
    Balance, beginning of period                                         250
    Amounts written off as uncollectible                                 (89)
    Additional allowance                                                  89
    -------------------------------------------------------------------------
    Balance, end of period                                               250
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Interest rate risk
    The REIT is exposed to interest rate risk on mortgages and loans payable
    and does not hold any financial instruments to mitigate that risk. The
    REIT utilizes both fixed and floating rate debt. Interest rate risk
    related to floating interest rates is limited primarily to the
    utilization of the credit facility. 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, the revolving line of credit and the acquisition
    facility. 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, 2008 would have changed by $90,000.

    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 and acquisition facilities which are 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,
                                                          2008          2007
    -------------------------------------------------------------------------
    Bank indebtedness                                   23,689        25,304
    Mortgages and loans payable                        457,374       416,334
    -------------------------------------------------------------------------
    Debt                                               481,063       441,638
    -------------------------------------------------------------------------

    Rental properties and other capital assets         787,555       765,447
    Capital assets improvements in progress              4,607         1,957
    Capital assets under development                    11,279         1,257
    Refundable deposits and mortgage proceeds held
     in trust                                              580         7,998
    Accumulated amortization                            77,938        65,761
    Future income taxes arising on acquisitions        (21,458)      (21,458)
    -------------------------------------------------------------------------
    Gross Book Value                                   860,501       820,962
    -------------------------------------------------------------------------

    Debt to Gross Book Value                             55.9%         53.8%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    The REIT is subject to three principal financial covenants in its
    mortgage and loans payable, operating facility and acquisition
    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 (interest
        expense and principal repayments);
    -   Interest Coverage - calculated as Net earnings before interest, taxes
        and amortization divided by the interest expense;
    -   Debt to Gross Book value as calculated above.

    During the six months ended June 30, 2008, the REIT complied with all
    externally imposed capital requirements and all covenants relating to its
    debt facilities.

    19. SUBSEQUENT EVENTS

    Subsequent to June 30, 2008, NPREIT completed the acquisition of 25 long
    term care units for a total purchase price of $2.3 million. This
    acquisition was financed through a combination of mortgage financing and
    the operating facility.

    Subsequent to June 30, 2008, NPREIT completed mortgage financings
    totalling $2.9 million with interest rates from 4.48% to 4.89% and terms
    to maturity of 5 years. Proceeds from the financings were used to repay a
    existing debt portion of the operating facility.

    Subsequent to June 30, 2008, NPREIT increased its operating facility to
    $50.0 million and cancelled the acquisition facility effective
    July 23, 2008.

    





For further information:

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

Organization Profile

Northern Property Real Estate Investment Trust

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