Northern Property REIT reports third quarter 2014 financial results

FFO per unit increases 6.3%
Increases distribution by 3.2%

CALGARY, Nov. 5, 2014 /CNW/ - Northern Property Real Estate Investment Trust (the "REIT" or "NPR") (NPR.UN - TSX) today announced financial results for the three and nine months ended September 30, 2014. NPR reported 2014 third quarter funds from operations ("FFO") per Trust Unit of $0.67, an increase of 6.3% from the $0.63, excluding the one-time net lease termination fee, in the third quarter of 2013.

Todd Cook, President and CEO commented, "We are pleased to see our financial results continue to move forward. Improvements in many existing markets and positive contributions from developments and acquisitions coming on line have led to the strong growth in FFO of 6.3%."

Mr. Cook added, "Our focus on developments continues as the construction of 110 units in Bonnyville, AB, was started this quarter, bringing our total starts to 528 units for the year. Our first building in Lloydminster, AB, was completed on October 1 and was 75% leased on opening day. We continue to see strong interest for all of our units under development which will be available for rent over the next two quarters.  With 45 acres of land available for future development, we are well on our way to our goal of delivering 600 - 800 units per year."

Mr. Cook continued, "Our strong financial growth, healthy balance sheet and payout ratio has enabled NPR to increase its annual distribution to unitholders by $0.05 or 3.2% effective November 2014. This is our 8^th increase in NPR's history and in line with our strategic focus of providing unitholders with sustainable growth in both earnings and distributions."

Financial Performance Highlights
(thousands of dollars, except per Trust Unit and percentage amounts)		Three months ended September 30						Nine months ended September 30
		2014		2013		Change		2014		2013		Change
Total revenue		48,240		45,607		5.8%		139,750		130,243		7.3%
Net operating income		30,649		29,130		5.2%		82,134		78,788		4.2%
Net and comprehensive income		18,136		18,681		(2.9%)		51,186		51,241		(0.1%)
FFO, excluding 2013 one-time item ^i		21,482		20,144		6.6%		56,407		54,227		4.0%
FFO per Trust Unit, excluding 2013 one-time item ^i		$0.67		$0.63		6.3%		$1.77		$1.69		4.7%
FFO		21,482		20,904		2.8%		56,407		54,987		2.6%
FFO per Trust Unit, basic and diluted		$0.67		$0.65		3.1%		$1.77		$1.71		3.5%
FFO payout ratio		58.6%		59.5%		(0.9%)		67.0%		67.4%		(0.4%)
Distributions declared to Trust Unit holders		12,584		12,362		1.8%		37,794		36,908		2.4%
Distributions per Trust Unit		$0.40		$0.39		2.6%		$1.19		$1.15		3.5%

ⁱ2013 FFO excludes the one-time net lease termination fee of $760,000 or $0.02 per unit relating to the sale of a non-core warehouse in British Columbia

Net operating income ("NOI") and FFO are considered non-GAAP measures and do not have any standardized meaning as prescribed by generally accepted accounting principles ("GAAP"). See "Non-GAAP and additional GAAP measures" disclosure.

FFO
FFO for the three months ended September 30, 2014, was $21.5 million compared to $20.1 million for the same period of 2013, excluding the one-time net lease termination fee in the third quarter of 2013. FFO per unit for the three months ended September 30, 2014, was $0.67, an increase of 6.3% from the $0.63 per unit in the third quarter of 2013, excluding the one-time net lease termination fee. FFO increased from 2013 as a result of higher NOI driven by the contribution from newly acquired and developed properties and lower administration costs. This was partially offset by higher vacancy, lower execusuite and hotel results and increased mortgage interest expense due to higher mortgage balances. FFO for the three months ended September 30, 2014, was $21.5 million compared to $20.9 million for the same period of 2013. On a per unit basis, FFO was $0.67 and $0.65 for the third quarters of 2014 and 2013, respectively, an increase of 3.1%.

For the third quarter of 2014, NPR reported an NOI increase of 5.2% from the same period of 2013 due to increases in the multi-family and commercial business segments, partially offset by a decline in execusuites and hotel business segment.

Multi-family NOI increased 8.8% for the three months ended September 30, 2014, driven mostly by acquisitions and developments offset by increased vacancy, utility, property tax, and salary costs. Commercial NOI increased 0.8% compared to 2013 due to new developments in Iqaluit, NU, and St. John's, NL. Execusuites and hotel NOI decreased by 22.1%, compared to 2013, as the execusuites and hotel properties experienced lower occupancy and average nightly rates due to increased competition in St. John's, NL, and lower government and industry travel in the north.

Same door NOI decreased 0.2% for the three months ended September 30, 2014, when compared to the same period in 2013, however, improved from the 2.0% decline realized in the second quarter of 2014. The slightly negative same door growth in the third quarter of 2014 was attributable to higher vacancy in Fort McMurray, AB, and Yellowknife, NT, and lower occupancy in the execusuite property in St. John's, NL. This was partially offset by the improvements in British Columbia and Newfoundland and Labrador, and growth in the commercial segment. Commercial same door NOI increased as a result of two additional Bristol Court buildings in St. John's, NL, being fully leased up.

From a business segment perspective, multi-family same door NOI decreased 2.0%, commercial increased 21.5%, and the execusuites and hotel segment declined 22.1% for the three months ended September 30, 2014. The execusuites and hotel segment accounted for approximately half of the same door NOI decline on a dollar basis, while it only accounted for 4% of overall NOI.

Stabilized vacancy for the three months ended September 30, 2014, was 7.6%.  While vacancy remained high in the key markets of Yellowknife, NT, and Fort McMurray, AB, there were decreases in vacancy from the second quarter of 2014 in Newfoundland and Labrador, and Saskatchewan.  Rental rate reductions and incentives are being used to attract and retain residents along with ongoing capital and maintenance programs.

Residential Stabilized Vacancy Loss
Region		Q1 2014		Q2 2014		Q3 2014
British Columbia		14.0%		11.2%		11.7%
Alberta		6.5%		6.8%		7.7%
Newfoundland and Labrador and Quebec		5.0%		4.1%		3.7%
Northwest Territories		11.9%		12.2%		12.7%
Nunavut		1.8%		1.7%		2.4%
Saskatchewan		6.5%		5.6%		5.1%
Overall		7.8%		7.1%		7.6%
Total residential vacancy loss for the three months ended September 30, 2014, was 8.1% compared to 8.2% in the second quarter of 2014 and 6.5% for the same period of 2013.

Developments
NPR's development program currently has 528 multi-family units under construction with 158 in Lloydminster, AB, 142 units in Grande Prairie, AB, 110 units in Bonnyville, AB, and 118 in Fort St. John, BC. The total expected cost is approximately $79 million with expected cap rates ranging from 7.0% to 8.5%.

In the first quarter of 2014, NPR commenced its second multi-family project in Lloydminster, AB. Total approved development is for 371 multi-family units, with the first phase of the project consisting of two buildings with 150 units. Demand for new product remains strong. The second building is expected to be completed by December 1, 2014. In addition, eight townhomes being built on existing land are expected to be completed in the fourth quarter of 2014.

During the third quarter of 2014, a new development was started in Bonnyville, AB, which has approval for 181 multi-family units and will be constructed in two phases. The first phase of the development consists of two buildings with 110 units. Completion is expected for the third quarter of 2015.

Portfolio Summary (including joint ventures at 100%) - September 30, 2014
Province		Multi-family		Execusuites & Hotel		Total Residential (units)		Commercial (sq. ft.)
Alberta		2,747		-		2,747		83,243
British Columbia		2,857		-		2,857		86,238
Newfoundland and Labrador		1,643		142		1,785		196,049
Northwest Territories		1,329		160		1,489		533,483
Nunavut		1,096		117		1,213		242,946
Saskatchewan		429		-		429		-
Quebec		161		-		161		-
Total		10,262		419		10,681		1,141,959

Financial Strength
(thousands of dollars, except per trust unit and percentage amounts)		September 30, 2014		December 31, 2013		Change
Total assets		1,650,915		1,516,822		8.8%
Debt to gross book value		48.0%		45.0%		3.0%
Interest coverage ratio (times)		3.67		3.87		(5.2%)
Debt service coverage ratio (times)		2.06		2.20		(6.4%)
Weighted average mortgage interest rate		3.70%		3.84%		(0.14%)
Weighted average term to maturity (years)		4.96		4.76		4.2%
Weighted average capitalization rate		7.99%		8.01%		(0.02%)
Debt to gross book value, debt service coverage ratio and interest coverage ratio are considered non-GAAP measures and do not have any standardized meaning as prescribed by GAAP. See "Non-GAAP and additional GAAP measures" disclosure.

NPR's financial ratios have declined in the quarter as a result of the continued leveraging of the recent acquisitions and new developments. However, NPR's balance sheet remains healthy as all of its ratios continue to be strong and within the targeted ranges. During the three months ended September 30, 2014, NPR completed $51.3 million in mortgage financings and renewals with a weighted average interest rate of 3.05% and a term to maturity of 8.7 years.  The proceeds were used to repay existing mortgages and fund acquisitions and developments.

Normal Course Issuer Bid ("NCIB")
On July 31, 2014, the Toronto Stock Exchange ("TSX") approved NPR's notice of intention to renew the NCIB for its Trust Units. NPR's NCIB will be made in accordance with the policies of the TSX. NPR may purchase Trust Units during the period from August 6, 2014 to August 5, 2015, or an earlier date should NPR complete its purchases. NPR will pay the market price at the time of acquisition for any Trust Units in accordance with the rules and policies of the TSX and applicable securities laws.  Purchases under the NCIB will be funded out of NPR's working capital.

During the three months ended September 30, 2014, the REIT purchased and subsequently cancelled 27,800 Trust Units under its NCIB for total consideration of $0.8 million. For the nine months ended September 30, 2014, NPR has repurchased 137,600 Trust Units for total consideration of $3.8 million.

Distributions to Trust Unit holders
During the three months ended September 30, 2014, NPR declared monthly cash distributions of $0.1317 per Trust Unit for a total of $12.6 million (September 30, 2013 - $12.4 million).

On November 5, 2014, the Board of Trustees approved an increase to the annual distribution from $1.58 per year to $1.63 per year per Trust Unit.  The monthly distribution will increase to $0.1358 from $0.1317 effective for unitholders of record on November 28, 2014, payable December 15, 2014.

Financial Statements
NPR's unaudited condensed consolidated interim financial statements and the notes thereto and Management's Discussion and Analysis for the three and nine months ended September 30, 2014, can be found on NPR's website at www.npreit.com or on www.sedar.com.

Cautionary/forward looking statements
This news release contains forward‐looking statements relating to our growth strategy, acquisition activity, completion of apartments for which development approvals have been obtained, commencement of development of new buildings, prospects for long-term vacancy rates. These statements are not guarantees of future events, performance or results and will not necessarily be accurate indications of whether, or the times at which, such events, performance or results will be achieved.

Forward-looking statements are based on information available at the time they are made, underlying estimates and assumptions made by management and management's good faith belief with respect to future events, performance and results, and are subject to inherent risks and uncertainties surrounding future expectations generally which could cause actual results to differ materially from what is currently expected. Such risks and uncertainties include, but are not limited to risks associated with investment in and development of real property, competition, financing and refinancing risks, risks related to economic conditions, changes in taxation rules, reliance on key personnel, environmental matters, tenant risks, and other risk factors more particularly described in our most recent Annual Information Form available on SEDAR at www.sedar.com. Additional risks and uncertainties not presently known to NPR or that NPR currently believes to be less significant may also adversely affect NPR.

Readers are cautioned that the above list of factors is not exhaustive and that should certain risks or uncertainties materialize, or should underlying estimates or assumptions prove incorrect, actual events, performance and results may vary significantly from those expected. There can be no assurance that the actual results, performance, events or activities anticipated by NPR will be realized or, even if substantially realized, that they will have the expected consequences to, or effect on, NPR.  Readers, therefore, should not place undue importance on forward-looking information.  Further, forward‐looking statements speak only as of the date on which such statements are made.  NPR disclaims any intention or obligation to update or revise any forward-looking information, whether as a result of new information, future events or otherwise, except as required under applicable securities laws.

Non-GAAP and additional GAAP measures
Certain measures in this news release do not have any standardized meaning as prescribed by GAAP and, therefore, are considered non-GAAP measures.  These measures are provided to enhance the reader's overall understanding of our current financial condition.  They are included to provide investors and management with an alternative method for assessing our operating results in a manner that is focused on the performance of our ongoing operations and to provide a more consistent basis for comparison between periods. These measures include widely accepted measures of performance for Canadian real estate investment trusts; however, the measures are not defined by GAAP. In addition, these measures are subject to the interpretation of definitions by the preparers of financial statements and may not be applied consistently between real estate entities. Please refer to page 21 of our third quarter 2014 Management's Discussion & Analysis for definitions of non-GAAP and additional GAAP measures, including NOI, FFO, debt to gross book value, debt service coverage and interest coverage.

Results Conference Call
NPR's conference call will take place on Thursday, November 6, 2014, at 11:00 a.m. Mountain Time, 1:00 p.m. Eastern Time. Participating on the call will be Mr. Todd Cook (Chair), President and Chief Executive Officer, and Mr. Robert Palmer, Chief Financial Officer. Investors and analysts are invited to participate in the call by calling 1-888-231-8191 or 647-427-7450. You will be required to provide the Conference Call Operator with the Conference ID #15178839 prior to being admitted to the call. A recorded playback of the call will be available from November 6, 2014 to November 13, 2014 by calling 416-849-0833 or 1-855-859-2056, passcode #15178839. The recording will also be available on our website on November 6, 2014.

Corporate Profile
NPR is primarily a multi-family residential real estate investor, providing a broad spectrum of rental accommodations in Canadian secondary markets. NPR focuses on communities with strong economic fundamentals where capitalization rates are generally higher and competition is somewhat restrained. NPR's residential portfolio is comprised of a multi-family segment: apartments, town homes and single family rental units; and execusuites and hotel where the rental period ranges from a few days to several months. NPR also has a portfolio of commercial buildings focused on government tenancies and quality corporate tenants predominantly located in the Northwest Territories, Nunavut and Newfoundland and Labrador. Geographically, NPR operates in Alberta, British Columbia, Newfoundland and Labrador, the Northwest Territories, Nunavut, Quebec and Saskatchewan. The value of NPR's real estate at September 30, 2014, was $1.6 billion with 10,681 residential units and 1,141,959 square feet of commercial space. NPR is traded on the TSX under the ticker symbol: NPR.UN.

 

SOURCE: Northern Property Real Estate Investment Trust

Robert J. Palmer, CFO, at 403-531-3545