Northern Property reports Q3 2009 results

CALGARY, Nov. 12 /CNW/ - Northern Property REIT (NPR.UN - TSX) announced its financial results for the 3 and 9 months ended September 30, 2009.

    
    HIGHLIGHTS:
    -   Q3, 2009 FFO of $0.57 per unit essentially level with the same
        quarter of 2008
    -   Same door NOI declines 3.9% in Q3 2009 compared to Q3 2008, YTD same
        door NOI declines of 1.8% compared to 2008
    -   Operating cost savings, seasonal factors largely offset higher
        overall vacancy and lower rents
    -   Apartment occupancy in Fort McMurray, Lloydminster begins to improve
    -   Nunavut and Newfoundland continue to post strong operating
        performance
    -   Low payout ratio remains intact

    FINANCIAL PERFORMANCE AT A GLANCE

    -------------------------------------------------------------------------
    In $000's except per          Three Months Ended       Nine Months Ended
     unit amounts                       September 30            September 30
    -------------------------------------------------------------------------
                                    2009        2008        2009        2008
    -------------------------------------------------------------------------
    Total revenue                 33,282      32,678     101,032      95,244
    Net operating income
     ("NOI")(xx)                  22,461      22,187      66,033      62,881
    Net earnings                   6,829       4,684      20,663      16,275
    Net earnings per unit, basic  $0.272      $0.187      $0.824      $0.650
    Distribution to unitholders    9,269       9,264      27,814      27,777
    Distributions per unit        $0.370      $0.370      $1.110      $1.110

    Distributable Income
     ("DI")(xx)                   14,166      14,128      41,544      38,579
    DI per unit, basic            $0.564      $0.565      $1.656      $1.542
    Payout ratio                    65.4%       65.6%       67.0%       72.0%

    Funds from operation
     ("FFO")(xx)                  14,356      14,366      42,138      39,321
    FFO per unit, basic           $0.572      $0.574      $1.680      $1.571
    FFO payout ratio                64.6%       64.5%       66.0%       70.6%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

"NPR's financial results for Q3, 2009 were somewhat better than we expected," reported President and CEO Jim Britton. "Most of the portfolio performed reasonably well during recessionary conditions. Near the end of the quarter, we were pleased to see some firming up of our apartment rentals in Fort McMurray and Lloydminster for the first time this year."

Through the first nine months of 2009, the REIT continued to operate in a financially conservative fashion maintaining a payout ratio of 66% of funds from operations. Weighted average interest rates declined to 4.89% from 5.13% at December 31, 2008. Interest coverage remained at a very healthy 3.03 for the first nine months of the year. We continue to believe that NPR does not require public offerings of equity or debt to maintain adequate liquidity.

Mr. Britton went on to say, "We are working very hard on apartment marketing and the retention of existing tenants in the face of weakened economic and employment conditions in our western markets. As we predicted earlier, much higher capex investment is necessary to enhance the rentability of suites in more competitive conditions. We expect this higher level of capital expenditure will continue for several quarters until better employment conditions return along with lower apartment turnover. Our low payout ratio is helpful on these occasions when vacancy rises and the need for capex investment is high. " Sustaining capex for Northern Property for the first nine months of 2009 increased to $6.4 million from $4.4 million for the same period a year earlier.

Same door NOI declined by 3.9% in Q3 compared to Q3 of 2008 and 1.8% year to date. Much of this is related to higher apartment vacancy losses and lower rent levels in Alberta markets. A portion of this decline is also attributable to the temporary vacancy of 20,000 square feet of office space in Yellowknife which becomes subject to a long term government lease January 1, 2010. Maintenance costs are also much higher associated with a major effort to improve tenant service and enhance the rentability of vacant suites. Additional costs have been incurred due to the recruitment and training of new local property management, leasing and maintenance personnel.

"Our rental market conditions in Newfoundland continue to be extremely strong and Nunavut is very positive as well," said Mr. Britton. "Conditions in the Northwest Territories are fundamentally sound. Northern B.C. is holding up quite well mostly because of initiatives in the Montney and Horn River natural gas plays. Alberta is still our main concern with apartment rentals in Grande Prairie being very weak and Fort McMurray only now starting to recover."

Executive suite results were strong in Iqaluit and St. John's but weaker in Inuvik and Yellowknife. Master leased seniors' buildings in Alberta, B.C. and Newfoundland performed according to expectations with 100% of rents having been received. NPR's commercial portfolio had 37,000 square feet of vacancy (4%) with 20,000 of that being leased effective January 1, 2010.

Mr. Britton concluded by stating, "After several months of sitting on the sidelines, NPR is beginning to look for accretive acquisitions. While vendor price expectations continue to be high, an improved cost of capital and additional property offerings seems to make growth by acquisition much more feasible."

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

    Rental properties and other capital assets
     (Note 4)                                           833,255      833,967
    Capital improvements in progress                      6,718        3,773
    Capital assets under development                     20,180        8,996
    Prepaid expenses and other assets (Note 5)            6,510        5,664
    Cash                                                      -          731
    Accounts receivable (Note 17)                         5,618        5,085
    Tenant security deposits                              3,503        3,575
    Deferred rent receivable                              4,206        3,248
    Loans receivable                                      2,485        1,742
    Intangible assets (Note 6)                            5,200        6,141
    -------------------------------------------------------------------------
                                                        887,675      872,922
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    LIABILITIES

    Mortgages and loans payable (Note 7)                496,124      482,800
    Operating facilities (Note 8)                        31,698       26,600
    Bank indebtedness                                     2,345            -
    Accounts payable and accrued liabilities (Note 17)   16,157       15,111
    Distributions payable                                 3,095        3,092
    Future income tax liability (Note 11)                38,949       39,489
    Intangible liabilities (Note 6)                         125          279
    Non-controlling interest                                453          441
    -------------------------------------------------------------------------
                                                        588,946      567,812
    -------------------------------------------------------------------------

    UNITHOLDERS' EQUITY                                 298,729      305,110
    -------------------------------------------------------------------------
                                                        887,675      872,922
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    See accompanying notes to the consolidated financial statements.

    Guarantees, commitments and contingencies (Note 14)

    APPROVED BY THE BOARD

                             Trustee

                             Trustee



    NORTHERN PROPERTY REAL ESTATE INVESTMENT TRUST
    Unaudited Consolidated Statements of Earnings and Comprehensive Earnings
    (Thousands of dollars, except per unit amounts)
    -------------------------------------------------------------------------
                                  Three Months Ended       Nine Months Ended
                                        September 30            September 30

                                    2009        2008        2009        2008
    -------------------------------------------------------------------------
    REVENUE
    Rental revenue                32,558      31,919      98,394      92,982
    Other property income            724         759       2,638       2,262
    -------------------------------------------------------------------------
                                  33,282      32,678     101,032      95,244
    Operating expenses           (10,821)    (10,491)    (34,999)    (32,363)
    -------------------------------------------------------------------------
                                  22,461      22,187      66,033      62,881
    -------------------------------------------------------------------------
    OTHER EXPENSES
    Interest on mortgages         (6,730)     (6,157)    (20,024)    (18,260)
    Amortization                  (6,985)     (6,604)    (21,229)    (19,580)
    -------------------------------------------------------------------------
                                 (13,715)    (12,761)    (41,253)    (37,840)
    -------------------------------------------------------------------------
    EARNINGS BEFORE THE
     UNDERNOTED                    8,746       9,426      24,780      25,041
    -------------------------------------------------------------------------
    Trust administration          (1,460)     (1,634)     (4,171)     (5,479)
    Interest on operating
     facilities                     (181)       (293)       (554)     (1,026)
    Interest and other income         86         111         330         413
    Gain on settlement of debt        46          23         130         587
    Gain on sale of rental
     properties                        -           -           -         136
    Non-controlling interest         (37)        (26)        (69)        (58)
    -------------------------------------------------------------------------
                                  (1,546)     (1,819)     (4,334)     (5,427)
    -------------------------------------------------------------------------
    EARNINGS BEFORE INCOME TAXES   7,200       7,607      20,446      19,614
    -------------------------------------------------------------------------
    Current taxes (Note 11)         (121)       (128)       (323)       (306)
    Future tax recovery
     (expense) (Note 11)            (250)     (2,795)        540      (3,033)
    -------------------------------------------------------------------------
                                    (371)     (2,923)        217      (3,339)
    -------------------------------------------------------------------------
    NET EARNINGS                   6,829       4,684      20,663      16,275
    Other comprehensive
     earnings (loss)                  62        (474)       (123)        (50)
    -------------------------------------------------------------------------
    COMPREHENSIVE EARNINGS         6,891       4,210      20,540      16,225
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Net earnings per unit
     (Note 13)
    Basic                         $0.272      $0.187      $0.824      $0.650
    Diluted                       $0.271      $0.187      $0.821      $0.649
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    See accompanying notes to the consolidated financial statements.



    NORTHERN PROPERTY REAL ESTATE INVESTMENT TRUST
    Unaudited Consolidated Statements of Unitholders' Equity
    (Thousands of dollars)
    -------------------------------------------------------------------------
                                  Three Months Ended       Nine Months Ended
                                        September 30            September 30

                                    2009        2008        2009        2008
    -------------------------------------------------------------------------
    TRUST UNITS (Note 12)
    Balance, beginning of
     period                      368,649     367,446     367,446     366,789
    Issuance of units                  -           -         504           -
    Exercise of unit options           -           -          35           -
    Units cancelled                  (13)          -         (13)          -
    Issue costs                        -           -          (2)         (8)
    Long term incentive
     plan units issued                 -           -         666         665
    -------------------------------------------------------------------------
    Balance, September 30        368,636     367,446     368,636     367,446
    -------------------------------------------------------------------------

    CONTRIBUTED SURPLUS
    Balance, beginning of
     period                        1,253         793       1,676       1,023
    Unit-based compensation          113          98         391         533
    Exercise of unit options           -           -         (35)          -
    Long term incentive plan
     units granted                     -           -           -           -
    Long term incentive plan
     units issued                      -           -        (666)       (665)
    -------------------------------------------------------------------------
    Balance, September 30          1,366         891       1,366         891
    -------------------------------------------------------------------------

    CUMULATIVE DEFICIT
      CUMULATIVE NET EARNINGS
      Balance, beginning of
       period                     99,890      74,945      86,056      63,354
      Units cancelled                 13           -          13           -
      Net earnings                 6,829       4,684      20,663      16,275
    -------------------------------------------------------------------------
      Balance, September 30      106,732      79,629     106,732      79,629
    -------------------------------------------------------------------------

      CUMULATIVE DISTRIBUTIONS
       TO UNITHOLDERS
      Balance, beginning of
       period                   (168,736)   (131,667)   (150,191)   (113,154)
      Distributions declared
       to unitholders             (9,269)     (9,264)    (27,814)    (27,777)
    -------------------------------------------------------------------------
      Balance, September 30     (178,005)   (140,931)   (178,005)   (140,931)
    -------------------------------------------------------------------------

    CUMULATIVE DEFICIT,
     September 30                (71,273)    (61,302)    (71,273)    (61,302)
    -------------------------------------------------------------------------

    ACCUMULATED OTHER
     COMPREHENSIVE EARNINGS
     (LOSS)
    Balance, beginning of period     (62)        479         123          55
    Other comprehensive
     earnings (loss)                  62        (474)       (123)        (50)
    -------------------------------------------------------------------------
    Balance, September 30              -           5           -           5
    -------------------------------------------------------------------------

    TOTAL UNITHOLDERS' EQUITY    298,729     307,040     298,729     307,040
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    See accompanying notes to the consolidated financial statements.



    NORTHERN PROPERTY REAL ESTATE INVESTMENT TRUST
    Unaudited Consolidated Statements of Cash Flows
    (Thousands of dollars)
    -------------------------------------------------------------------------
                                  Three Months Ended       Nine Months Ended
                                        September 30            September 30

                                    2009        2008        2009        2008
    -------------------------------------------------------------------------
    CASH FLOWS RELATED TO THE
     FOLLOWING ACTIVITIES:
      OPERATING
      Net earnings                 6,829       4,684      20,663      16,275
      Adjustments for:
      Deferred rental revenue       (330)       (281)       (959)       (912)
      Amortization                 6,985       6,604      21,229      19,580
      Amortization of fair
       value of debt                 178         147         500         402
      Amortization of above
       and below market leases       (38)       (104)       (135)       (232)
      Gain on settlement of debt     (46)        (23)       (130)       (587)
      Gain on sale of rental
       properties                      -           -           -        (136)
      Non-controlling interest        37          26          69          58
      Unit-based compensation        338         306         916       1,156
      Future income tax recovery     250       2,795        (540)      3,033
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
                                  14,203      14,154      41,613      38,637
      Changes in non-cash
       working capital            (1,272)        741        (205)      2,458
    -------------------------------------------------------------------------
                                  12,931      14,895      41,408      41,095
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
      FINANCING
      Proceeds from mortgages
       and loans                  10,010       6,708      47,366      88,273
      Repayment of mortgages
       and loans                  (9,984)     (5,834)    (35,514)    (46,358)
      Proceeds from operating
       facilities                  5,500       5,000       5,098       7,100
      Payments (to) from
       non-controlling interest      (18)        (10)        (57)        388
      Units issued under
       option plan                     -           -         439           -
      Issue costs                      -           -          (2)         (8)
      Distributions paid
       to unitholders             (9,268)     (9,260)    (27,810)    (27,769)
    -------------------------------------------------------------------------
                                  (3,760)     (3,396)    (10,480)     21,626
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
      INVESTING
      Acquisition of rental
       properties and other
       assets                     (3,483)     (5,715)    (10,373)    (38,604)
      Proceeds from sale of
       rental properties               -           -           -         395
      Capital assets under
       development                (2,088)     (4,485)    (11,184)    (14,507)
      Building capital
       maintenance                (3,202)     (2,034)     (6,390)     (4,375)
      Capital improvements        (2,546)     (2,554)     (6,057)     (5,204)
    -------------------------------------------------------------------------
                                 (11,319)    (14,788)    (34,004)    (62,295)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
      NET INCREASE (DECREASE)
       IN CASH                    (2,148)     (3,289)     (3,076)        426
      CASH (BANK INDEBTEDNESS),
       BEGINNING OF PERIOD          (197)      3,611         731        (104)
    -------------------------------------------------------------------------
      CASH (BANK INDEBTEDNESS),
       END OF PERIOD              (2,345)        322      (2,345)        322
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
      SUPPLEMENTARY INFORMATION
      Interest paid                6,549       6,333      19,140      18,627
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
      Interest received               48          74         215         301
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
      Income taxes paid                6         141         214         580
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    See accompanying notes to the consolidated financial statements.


    1.  DESCRIPTION OF THE TRUST

    Northern Property Real Estate Investment Trust ("NPR" or the "REIT") is
    an unincorporated open-ended real estate investment trust that invests in
    and owns a portfolio of residential and commercial income producing
    properties.

    2.  BASIS OF PRESENTATION

    Basis of presentation

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

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

    The preparation of financial statements in accordance with Canadian GAAP
    requires management to make estimates and assumptions that affect the
    reported amounts of assets and liabilities, and to make disclosure of
    contingent assets and liabilities at the date of the financial
    statements, and to make estimates and assumptions that affect the
    reported amounts of revenues and expenses during the reported period.
    Actual results may differ from those estimates.

    3. CHANGE IN ACCOUNTING POLICY AND RECENT ACCOUNTING PRONOUNCEMENTS

    Change in accounting policy

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

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

    Recent accounting pronouncements

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

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

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

    4.  RENTAL PROPERTIES AND OTHER CAPITAL ASSETS
    -------------------------------------------------------------------------
                            September 30,               December 31,
                                    2009                       2008
                             Accumulated      Net       Accumulated      Net
                                Amortiz-     Book          Amortiz-     Book
                           Cost    ation    Value     Cost    ation    Value
    -------------------------------------------------------------------------
    Land                 91,116        -   91,116   90,676        -   90,676
    Buildings           810,536  (92,586) 717,950  800,612  (76,187) 724,425
    Furniture, fixtures
     and equipment        9,986   (4,620)   5,366    9,006   (3,757)   5,249
    Vehicles              1,345     (838)     507    1,193     (732)     461
    Capital and
     leasehold
     improvements        31,108  (12,792)  18,316   23,026   (9,870)  13,156
    -------------------------------------------------------------------------
                        944,091 (110,836) 833,255  924,513  (90,546) 833,967
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    NPR periodically reviews the carrying value of its rental properties and,
    if it is determined that the carrying value of a building exceeds the
    undiscounted estimated future net cash flow expected to be received from
    the ongoing use and residual worth of the property, the carrying value of
    the building is reduced to its estimated fair value. No provision has
    been recorded in 2008 or 2009.

    NPR acquired properties and completed development projects in the nine
    months ended September 30, 2009 for a total purchase price of
    $10.2 million (2008 - $12.9 million). The acquisitions and development
    projects were financed as follows:

    -------------------------------------------------------------------------
                                  Three Months Ended       Nine Months Ended
                                        September 30            September 30
    -------------------------------------------------------------------------
                                    2009        2008        2009        2008
    -------------------------------------------------------------------------
    Cash paid                      2,786      12,949       8,347      45,105
    Mortgages and debt assumed         -           -       1,788           -
    Class B LP Units issued            -           -          65           -
    -------------------------------------------------------------------------
    Total                          2,786      12,949      10,200      45,105
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Residential rental units           -          70          40         333
    Seniors' units                    30          25          82          94
    -------------------------------------------------------------------------
    Units acquired                    30          95         122         427
    -------------------------------------------------------------------------
    Commercial square feet             -      15,204           -      40,328
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    5.  PREPAID EXPENSES AND OTHER ASSETS
    -------------------------------------------------------------------------
                                                   September 30, December 31,
                                                           2009         2008
    -------------------------------------------------------------------------
    Prepaid expenses                                      3,965        2,812
    Prepaid equity leases                                 2,040        2,167
    Other                                                   505          500
    Refundable deposits and mortgage proceeds
     held in trust                                            -          185
    -------------------------------------------------------------------------
                                                          6,510        5,664
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    6.  INTANGIBLE ASSETS AND LIABILITIES
    -------------------------------------------------------------------------
                            September 30,               December 31,
                                    2009                       2008
                             Accumulated      Net       Accumulated      Net
                                Amortiz-     Book          Amortiz-     Book
                           Cost    ation    Value     Cost    ation    Value
    -------------------------------------------------------------------------
    Above-market leases     173     (133)      40      173     (114)      59
    In-place leases       6,565   (2,280)   4,285    6,565   (1,588)   4,977
    Lease origination
     costs                1,669     (794)     875    1,669     (564)   1,105
    -------------------------------------------------------------------------
                          8,407   (3,207)   5,200    8,407   (2,266)   6,141
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Below-market leases   1,220   (1,095)     125    1,220     (941)     279
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    Intangible assets are comprised of the value of above-market leases,
    in-place leases and lease origination costs for rental property
    acquisitions completed. Intangible liabilities are comprised of the value
    of below-market leases for rental property acquisitions completed.


    7.  MORTGAGES AND LOANS PAYABLE
    -------------------------------------------------------------------------
                                                   September 30, December 31,
                                                           2009         2008
    -------------------------------------------------------------------------

    Mortgages and loans payable                         515,917      502,277
    Fair value adjustment                                (8,396)      (8,574)
    Deferred financing costs                            (11,397)     (10,903)
    -------------------------------------------------------------------------
                                                        496,124      482,800
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Mortgages and loans payable bear interest at rates ranging from 2.97% to
    12.13% and have a weighted average rate of 4.89% as at September 30, 2009
    (December 31, 2008 - 5.13%). Mortgages and loans are payable in monthly
    installments of blended principal and interest of approximately
    $3.5 million. The mortgages mature between 2009 and 2025 and are secured
    by charges against specific properties. Land and buildings with a
    carrying value of $673.4 million have been pledged to secure mortgages
    and loans payable of the REIT. The fair value of mortgages and loans
    payable at September 30, 2009 is approximately $517.2 million
    (December 31, 2008 - $517.7 million).

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

    -------------------------------------------------------------------------
    2009 remainder of year                                             6,803
    2010                                                              45,394
    2011                                                              44,671
    2012                                                              50,061
    2013                                                              91,064
    Subsequent                                                       277,924
    -------------------------------------------------------------------------
                                                                     515,917
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    8.  OPERATING FACILITIES

    NPR has two revolving credit facilities totaling $57.5 million
    (December 31, 2008 - $50.0 million) for acquisition and operating
    purposes. The $50.0 million facility bears interest at prime plus 1.5% or
    bankers' acceptance plus 3.00% with a maturity date of May 21, 2010. The
    $7.5 million facility bears interest at prime plus 1.5% or bankers'
    acceptance plus 3.00% with a maturity date of July 31, 2010. Specific
    properties with a carrying value of $93.7 million have been pledged as
    collateral security for the operating facilities. At September 30, 2009
    NPR had utilized $31.7 million (December 31, 2008 - $26.6 million) of the
    operating facilities.


    9.  LONG-TERM INCENTIVE PLAN AND UNIT OPTION PLAN

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

    -------------------------------------------------------------------------
                                                             Number of Units
    -------------------------------------------------------------------------

    Balance - December 31, 2008                                       56,440
    Units vested and issued - January, 2009                           (8,408)
    Units vested and issued - February, 2009                         (28,509)
    -------------------------------------------------------------------------
    Balance - September 30, 2009                                      19,523
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    The total amount of LTIP awards are determined at the end of each fiscal
    year by the Board of Trustees based on an assessment of the performance
    of the REIT and the individual performance of the executives. The number
    of units issued is based on the trading price on December 31 of each
    year. Pursuant to the policy, rights to units generally vest in 1/3
    tranches: immediately upon award, then 12 and 24 months following. As at
    September 30, 2009, a total of 192,136 LTIP units had vested and been
    issued (December 31, 2008 - 155,219).

    The REIT has a Unit Option Plan (the "Option Plan"), which is subject to
    the rules of the Toronto Stock Exchange ("TSX"). In accordance with the
    Option Plan, the REIT may grant options to acquire units up to a total of
    1,830,429 units. All options to acquire units expire after 5 years and
    vest as determined by the Governance and Compensation Committee of the
    REIT. The exercise price is determined using the weighted average trading
    price of the units on the five days prior to the options being granted.
    The following table summarized the outstanding unit options as at
    September 30, 2009:

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

      $23.12      735,000           3.6      $23.12      489,999      $23.12
      $15.05      128,331           4.4      $15.05       23,338      $15.05
    -------------------------------------------------------------------------
                  863,331           3.9      $21.92      513,337      $22.75
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    On May 20, 2008, 735,000 options with an exercise price of $23.12 and
    expiring on May 20, 2013 were granted to trustees and officers. 245,002
    options vested immediately, 245,001 options vested on May 20, 2009 and
    244,997 will vest on May 20, 2010. All options remain outstanding at
    September 30, 2009.

    On March 12, 2009, 157,500 options with an exercise price of $15.05 and
    expiring on March 12, 2014 were granted to trustees and officers. 52,507
    options vested immediately, 52,497 options will vest on March 12, 2010
    and 52,496 will vest on March 12, 2011. During the nine months ended
    September 30, 2009, 29,169 options were exercised at an exercise price of
    $15.05 per unit.

    The REIT accounts for its Option Plan using the fair value method, under
    which compensation expense is measured at the date the options are
    granted using the Black-Scholes model and recognized over the vesting
    period. The following assumptions were used in calculating the fair value
    of the options granted on May 20, 2008; expected annual dividend rate of
    6.40%, expected volatility of 18%, risk-free rate of return of 3.10% and
    expected life of 5 years. The following assumptions were used in
    calculating the fair value of the options granted on March 12, 2009;
    expected annual dividend rate of 9.83%, expected volatility of 28.8%,
    risk-free rate of return of 1.75% and expected life of 5 years.
    Compensation expense for the nine months ended September 30, 2009
    relating to options granted was $391,000 (2008 - $533,000).

    10. EMPLOYEE UNIT PURCHASE PLAN

    Under the terms of the Employee Unit Purchase Plan (the "EUPP"),
    employees may invest a maximum of 5% of their salary in NPR trust units
    and NPR contributes one unit for every three units acquired by an
    employee. The units are purchased on the TSX at market prices. During the
    nine months ended September 30, 2009, employees invested a total of
    $89,641 (2008 - $86,285) and NPR contributed $29,888 (2008 - $28,762).
    During the nine months ended September 30, 2009, 7,029 units (2008 -
    5,652 units) were purchased at an average cost of $17.96 per unit (2008 -
    $21.96 per unit).

    11. INCOME TAXES

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

    On October 31, 2006, a "Distribution Tax" on publicly traded investment
    trusts and publicly listed partnerships was announced by the federal
    Minister of Finance. The announcement created a new tax regime for
    Specified Investment Flow Throughs ("SIFTs"), which include certain
    publicly listed income trusts and publicly listed partnerships. These
    entities will be taxed in effect as corporations (at a rate comparable to
    the general combined federal/provincial corporate income tax rate).
    Certain real estate investment trusts are excluded from the SIFT
    definition and therefore are not subject to the new regime.

    The legislation provides for a transition period for publicly traded
    entities that existed prior to November 1, 2006 and is not expected to
    apply to NPR until 2011. The new tax regime does not apply to entities
    that qualify for the REIT Exemption. Where an entity does not qualify for
    the REIT Exemption certain distributions will not be deductible in
    computing income for tax purposes and will be subject to tax on such
    distributions at a rate comparable to the general corporate income tax
    rate. At September 30, 2009, NPR does not appear to qualify for the REIT
    exemption.

    GAAP requires NPR to recognize future income tax assets and liabilities
    based on estimated temporary differences expected as at January 1, 2011.
    Under the current legislation, NPR does not appear to qualify for the
    REIT Exemption. The future income tax provision arises from temporary
    differences between the estimated accounting and tax values of NPR's
    assets and liabilities at January 1, 2011 and has been calculated using
    the expected tax rates of 19.13% to 28.4% (December 31, 2008 - 19.63% to
    29.5%).

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

    -------------------------------------------------------------------------
                                                   September 30, December 31,
                                                           2009         2008
    -------------------------------------------------------------------------
    Future tax liabilities arising from temporary
     differences between accounting and tax basis of:
      Rental property assets in corporate subsidiaries    9,214        9,614
      Rental properties                                  24,433       24,963
      Deferred financing costs                            1,431          981
      Other assets                                        3,871        3,931
    -------------------------------------------------------------------------
                                                         38,949       39,489
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

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

    -------------------------------------------------------------------------
                                  Three Months Ended       Nine Months Ended
                                        September 30            September 30
    -------------------------------------------------------------------------
                                    2009        2008        2009        2008
    -------------------------------------------------------------------------
    Current income tax expense       121         128         323         306
    Future income tax
     (recovery) expense              250       2,795        (540)      3,033
    -------------------------------------------------------------------------
    Total income tax (recovery)
     expense                         371       2,923        (217)      3,339
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    12. UNITHOLDERS' CAPITAL

    The total number of NPR Trust units and Class B units issued, as the
    result of an exchange of Class B limited partnership units of Northern
    Property Limited Partnership (the "Class B LP Units"), outstanding and
    eligible for distributions at September 30, 2009 is 25,102,294
    (December 31, 2008 - 25,033,645), representing net proceeds of
    $368.6 million, net of issue costs of $19.6 million (December 31, 2008 -
    $367.5 million, net of issue costs of $19.6 million). The number of units
    issued and outstanding is as follows:

    -------------------------------------------------------------------------
                                           Trust        Issue        Class B
    Date           Description             Units        Price       LP Units
    -------------------------------------------------------------------------
    December 31,
     2008                             22,755,010            -      2,278,635
    January 2,
     2009          LTIP units issued       8,408       $24.20              -
    January 6,
     2009          Property acquisition        -            -          3,833
    February 5,
     2009          LTIP units issued      28,509       $16.21              -

                   Options exercised      29,169       $15.05              -
    July 24, 2009  Units cancelled        (1,270)      $10.00              -
    Issue costs                                -            -              -
    Class B LP
     units
     exchanged                           148,361            -       (148,361)
    -------------------------------------------------------------------------
    September 30,
     2009                             22,968,187                   2,134,107
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


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

                   Options exercised           -       29,169            474
    July 24, 2009  Units cancelled             -       (1,270)           (13)
    Issue costs                                -            -             (2)
    Class B LP
     units
     exchanged                                 -            -              -
    -------------------------------------------------------------------------
    September 30,
     2009                                          25,102,294        368,636
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    Trust units

    The total authorized number of trust units is unlimited. The total number
    of trust units of the REIT outstanding as at September 30, 2009 is
    22,968,187 (December 31, 2008 - 22,755,010) representing a net book value
    of $341.6 million (December 31, 2008 - $338.3 million), net of issue
    costs.

    Class B Exchangeable Limited Partnership Units and Special Voting Units

    The Class B Units can be exchanged for trust units at any time at the
    option of the holder of the Class B units. Each Class B unit has a
    "Special Voting Unit" attached to it, which entitles the holder to one
    vote, either in person or by proxy at the meeting of unitholders of the
    trust as if he or she was a unitholders of the trust. Total number of
    Class B LP Units and special voting units of Northern Property Limited
    Partnership, a controlled limited partnership, outstanding as at
    September 30, 2009, is 2,134,107 (December 31, 2008 - 2,278,635)
    representing a net book value of $27.0 million (December 31, 2008 -
    $29.1 million).

    Distributions to unitholders

    Pursuant to the Trust Declaration, holders of Trust units and Class B
    units are entitled to receive distributions made on each distribution
    date as approved by the Trustees. Distributions for the year are required
    to be at least equal to the Net Income as determined in accordance with
    the Income Tax Act.

    13. NET EARNINGS PER UNIT
    -------------------------------------------------------------------------
                                  Three Months Ended       Nine Months Ended
                                        September 30            September 30
    -------------------------------------------------------------------------
                                    2009        2008        2009        2008
    -------------------------------------------------------------------------
    Net earnings                   6,829       4,684      20,663      16,275
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Weighted average units
     for basic net earnings
     per unit                 25,102,612  25,033,645  25,083,414  25,025,700
    Dilutive effect of units
     to be issued under
     the LTIP                     19,523      14,030      23,209      21,975
    Dilutive effect of
     Option Plan                  51,077      30,431      51,001      14,665
    -------------------------------------------------------------------------
    Weighted average units
     for diluted Net earnings
     per unit                 25,173,212  25,078,106  25,157,624  25,062,340
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    net earnings per unit:
      Basic                       $0.272      $0.187      $0.824      $0.650
      Diluted                     $0.271      $0.187      $0.821      $0.649
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    14. GUARANTEES, COMMITMENTS AND CONTINGENCIES

    In the ordinary course of business, NPR may provide indemnification
    commitments to counterparties in transactions such as credit facilities,
    leasing transactions, service arrangements, director and officer
    indemnification agreements and sales of assets. These indemnification
    agreements may require NPR to compensate the counterparties for costs
    incurred as a result of changes in laws and regulations (including tax
    legislation) or as a result of litigation claims or statutory sanctions
    that may be suffered by counterparties as a consequence of the
    transaction. The terms of these indemnification agreements may vary based
    on the contract and do not provide any limit on the maximum potential
    liability. To date, NPR has not made any significant payments under such
    indemnifications and no amount has been accrued in the financial
    statements with respect to these indemnification commitments. In the
    normal course of operations, NPR becomes subject to various legal and
    other claims. Management and its legal counsel evaluate these claims and,
    where required, accrue the best estimate of costs relating to these
    claims. Management believes the outcome of claims of this nature at
    September 30, 2009 will not have a material impact on NPR.

    During the normal course of operations, NPR provided guarantees for
    mortgages and loans payable relating to investments in corporations and
    joint ventures where NPR owns less than 100%. The mortgages and loans
    payable are secured by specific charges against the properties owned by
    the corporations and joint ventures. In the event of a default of the
    corporation or joint venture, NPR may be liable for 100% of the
    outstanding balances of these mortgages and loans payable. At September
    30, 2009, NPR has provided guarantees totaling $10.0 million (December
    31, 2008 - $10.4 million). The mortgages bear interest at rates ranging
    from 3.06% to 6.1% and mature July 2010 to December 2013 (December 2008 -
    4.54% to 7.90% and mature June 2009 to December 2013). As at
    September 30, 2009, land and buildings with a carrying value of
    $6.5 million have been pledged to secure these mortgage and loans payable
    (December 2008 - $6.5 million).

    NPR has included its proportionate share of its joint venture's mortgages
    and loans payable totaling $5.0 million at September 30, 2009
    (December 31, 2008 - $5.2 million) in these consolidated financial
    statements.

    In connection with the acquisition of certain seniors' properties in
    Newfoundland, the tenants have agreed to expand certain properties
    purchased by NPR. NPR has entered into agreements to purchase these
    expansions once completed. In total, NPR has commitments totalling $3.5
    million, which are expected to be completed in 2009.

    15. SEGMENTED INFORMATION

    The primary business segments used by management are geographic segments
    (i.e. provinces and territories). NPR operates in 5 geographic segments,
    British Columbia, Alberta, the Northwest Territories, Nunavut and
    Newfoundland. Within its geographic business segments, NPR has two
    business operating segments: residential and commercial income producing
    properties. The REIT's residential properties are comprised of three
    components: apartments, townhomes and single family rental units;
    execusuite apartment rental units, where the rental periods range from a
    few days to several months; and seniors' properties where the properties
    are leased on a long term basis to qualified operators who provide
    services to individual residents. The commercial business segment is
    comprised of office, industrial and retail properties in areas where NPR
    has residential operations. All items, except gain on sale of rental
    properties and gain on settlement of debt which are related only to the
    REIT and are included in the Consolidated Statement of Earnings and are
    not allocated to the defined segments. As such, NPR has not provided a
    reconciliation of Earnings before Other Items to Net Earnings. In 2008,
    gain on sale of rental properties was earned in the residential rental
    and commercial business segments in Nunavut and the Northwest
    Territories, respectively. Gain on settlement of debt was earned in the
    residential business segments in all geographic segments. Segmented
    information for NPR is provided below:

    Total Assets
    -------------------------------------------------------------------------
    September 30, 2009       BC  Alberta      NWT  Nunavut     Nfld    Total
    -------------------------------------------------------------------------
    Residential
    Multi-family         91,561  174,347   86,263  113,594   58,654  524,419
    Execusuites               -        -   10,602    9,578    9,387   29,567
    Seniors'             16,274  122,095        -        -   48,326  186,695
    -------------------------------------------------------------------------
                        107,835  296,442   96,865  123,172  116,367  740,681
    Commercial           21,637    9,067   91,864   19,725    1,203  143,496
    Trust                     -    3,498        -        -        -    3,498
    -------------------------------------------------------------------------
    TOTAL ASSETS        129,472  309,007  188,729  142,897  117,570  887,675
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


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


    Geographic Segments
    -------------------------------------------------------------------------
    Three months ended
     September 30, 2009      BC  Alberta      NWT  Nunavut     Nfld    Total
    -------------------------------------------------------------------------

    Rental revenue        4,045    8,103    8,978    6,399    5,033   32,558
    Other income             98      212      266       71       77      724
    Operating expenses   (1,530)  (2,411)  (3,585)  (1,878)  (1,417) (10,821)
    -------------------------------------------------------------------------
                          2,613    5,904    5,659    4,592    3,693   22,461
    Interest on mortgages  (794)  (2,688)  (1,639)    (964)    (645)  (6,730)
    Amortization         (1,036)  (1,644)  (1,929)  (1,456)    (920)  (6,985)
    -------------------------------------------------------------------------
    EARNINGS BEFORE
     OTHER ITEMS            783    1,572    2,091    2,172    2,128    8,746
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    -------------------------------------------------------------------------
    Three months ended
     September 30, 2008      BC  Alberta      NWT  Nunavut     Nfld    Total
    -------------------------------------------------------------------------

    Rental revenue        3,497    8,271    9,191    6,433    4,527   31,919
    Other income            128      229      240       63       99      759
    Operating expenses   (1,631)  (1,853)  (3,618)  (1,879)  (1,510) (10,491)
    -------------------------------------------------------------------------
                          1,994    6,647    5,813    4,617    3,116   22,187
    Interest on mortgages  (630)  (2,528)  (1,365)  (1,081)    (553)  (6,157)
    Amortization           (818)  (1,693)  (1,847)  (1,423)    (823)  (6,604)
    -------------------------------------------------------------------------
    EARNINGS BEFORE
     OTHER ITEMS            546    2,426    2,601    2,113    1,740    9,426
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    Geographic Segments
    -------------------------------------------------------------------------
    Nine months ended
     September 30, 2009      BC  Alberta      NWT  Nunavut     Nfld    Total
    -------------------------------------------------------------------------

    Rental revenue       12,069   25,812   27,426   19,344   13,743   98,394
    Other income            341      741      792      458      306    2,638
    Operating expenses   (4,662)  (6,962) (12,179)  (6,492)  (4,704) (34,999)
    -------------------------------------------------------------------------
                          7,748   19,591   16,039   13,310    9,345   66,033
    Interest on
     mortgages           (2,245)  (8,266)  (4,485)  (2,977)  (2,051) (20,024)
    Amortization         (2,990)  (5,373)  (5,959)  (4,267)  (2,640) (21,229)
    -------------------------------------------------------------------------
    EARNINGS BEFORE
     OTHER ITEMS          2,513    5,952    5,595    6,066    4,654   24,780
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    -------------------------------------------------------------------------
    Nine months ended
     September 30, 2008      BC  Alberta      NWT  Nunavut     Nfld    Total
    -------------------------------------------------------------------------

    Rental revenue       10,059   24,477   27,595   18,721   12,130   92,982
    Other income            312      602      823      204      321    2,262
    Operating expenses   (4,528)  (5,173) (12,470)  (5,684)  (4,508) (32,363)
    -------------------------------------------------------------------------
                          5,843   19,906   15,948   13,241    7,943   62,881
    Interest on
     mortgages           (1,771)  (7,316)  (4,037)  (3,355)  (1,781) (18,260)
    Amortization         (2,356)  (5,161)  (5,476)  (4,209)  (2,378) (19,580)
    -------------------------------------------------------------------------
    EARNINGS BEFORE
     OTHER ITEMS          1,716    7,429    6,435    5,677    3,784   25,041
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    Business Segments
    -------------------------------------------------------------------------
                                                     Total
    Three months ended    Multi-   Execu-          Residen-  Commer-
     September 30, 2009  family   suites  Seniors'    tial     cial    Total
    -------------------------------------------------------------------------

    Rental revenue       20,122    2,547    4,401   27,070    5,488   32,558
    Other income            635       26        -      661       63      724
    Operating expenses   (7,669)  (1,091)      (6)  (8,766)  (2,055) (10,821)
    -------------------------------------------------------------------------
                         13,088    1,482    4,395   18,965    3,496   22,461
    Interest on
     mortgages           (4,304)    (224)  (1,533)  (6,061)    (669)  (6,730)
    Amortization         (4,351)    (339)  (1,111)  (5,801)  (1,184)  (6,985)
    -------------------------------------------------------------------------
    EARNINGS BEFORE
     OTHER ITEMS          4,433      919    1,751    7,103    1,643    8,746
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    Business Segments
    -------------------------------------------------------------------------
                                                     Total
    Three months ended    Multi-   Execu-          Residen-  Commer-
     September 30, 2008  family   suites  Seniors'    tial     cial    Total
    -------------------------------------------------------------------------

    Rental revenue       19,640    2,476    4,202   26,318    5,601   31,919
    Other income            704       27        -      731       28      759
    Operating expenses   (7,265)  (1,209)      (7)  (8,481)  (2,010) (10,491)
    -------------------------------------------------------------------------
                         13,079    1,294    4,195   18,568    3,619   22,187
    Interest on
     mortgages           (3,713)    (213)  (1,547)  (5,473)    (684)  (6,157)
    Amortization         (4,133)    (275)  (1,058)  (5,466)  (1,138)  (6,604)
    -------------------------------------------------------------------------
    EARNINGS BEFORE
     OTHER ITEMS          5,233      806    1,590    7,629    1,797    9,426
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    Business Segments
    -------------------------------------------------------------------------
                                                     Total
    Nine months ended     Multi-   Execu-          Residen-  Commer-
     September 30, 2009  family   suites  Seniors'    tial     cial    Total
    -------------------------------------------------------------------------

    Rental revenue       61,970    6,381   13,034   81,385   17,009   98,394
    Other income          2,255      180        -    2,435      203    2,638
    Operating expenses  (25,011)  (3,269)     (18) (28,298)  (6,701) (34,999)
    -------------------------------------------------------------------------
                         39,214    3,292   13,016   55,522   10,511   66,033
    Interest on
     mortgages          (12,600)    (773)  (4,616) (17,989)  (2,035) (20,024)
    Amortization        (13,159)    (973)  (3,323) (17,455)  (3,774) (21,229)
    -------------------------------------------------------------------------
    EARNINGS BEFORE
     OTHER ITEMS         13,455    1,546    5,077   20,078    4,702   24,780
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    Business Segments
    -------------------------------------------------------------------------
                                                     Total
    Nine months ended     Multi-   Execu-          Residen-  Commer-
     September 30, 2008  family   suites  Seniors'    tial     cial    Total
    -------------------------------------------------------------------------

    Rental revenue       57,124    6,607   12,292   76,023   16,959   92,982
    Other income          1,897       93        -    1,990      272    2,262
    Operating expenses  (22,532)  (3,299)     (18) (25,849)  (6,514) (32,363)
    -------------------------------------------------------------------------
                         36,489    3,401   12,274   52,164   10,717   62,881
    Interest on
     mortgages          (10,808)    (631)  (4,784) (16,223)  (2,037) (18,260)
    Amortization        (12,065)    (751)  (3,143) (15,959)  (3,621) (19,580)
    -------------------------------------------------------------------------
    EARNINGS BEFORE
     OTHER ITEMS         13,616    2,019    4,347   19,982    5,059   25,041
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    16. RELATED PARTY TRANSACTIONS

    Related party transactions are conducted in the normal course of
    operations and are measured at the exchange amount, which is the amount
    of consideration established and agreed upon by the related parties. A
    Trustee of NPR is the Chairman of AgeCare Investment Ltd. ("AgeCare"),
    which leases six seniors' properties from NPR. For the nine months ended
    September 30, 2009, NPR earned rental income, including rental revenue
    earned on a straight-line basis over the term of the lease, totaling $9.5
    million (2008 - $9.5 million) from AgeCare. Amounts outstanding in
    accounts receivable pertaining to this lease were $nil at September 30,
    2009 (December 31, 2008 - $nil). In addition, AgeCare is paid an annual
    fee for advisory services provided to NPR respecting prospective
    acquisitions of seniors' properties. For the nine months ended
    September 30, 2009, NPR paid $90,000 for these services (2008 - $90,000).

    During the first quarter of 2009, the REIT completed renovations totaling
    $2.15 million to a seniors' facility in BC which is leased to AgeCare. At
    September 30, 2009, In accordance with the lease agreement, AgeCare is
    repaying this amount over 15 years. Interest revenue of $61,000 was
    earned for the nine months ended September 30, 2009 (2008 - $nil)
    relating to this receivable. Amounts outstanding at September 30, 2009
    was $2.1 million (December 31, 2008 - $nil).

    A company owned by a Trustee of NPR leases commercial space from NPR
    under normal commercial terms. NPR earned rental revenue from that
    arrangement of $362,000 for the nine months ended September 30, 2009
    (2008 - $338,500). Amounts outstanding in accounts receivable pertaining
    to this lease were $nil at September 30, 2009 (December 31, 2008 - $nil).

    17. FINANCIAL INSTRUMENTS

    Management has determined that the majority of the NPR's financial assets
    are designated as loans and receivables, as defined by Section 3855 of
    the CICA Handbook, and are carried at amortized cost. Management has also
    determined that all of its financial liabilities have been designated as
    other financial liabilities and are carried at amortized cost utilizing
    the effective interest method. Financial instruments include loans
    receivable, accounts receivable, tenant security deposits, mortgages and
    loans payable, operating facilities, distributions payable, accounts
    payable and accrued liabilities and bank indebtedness. Except for
    mortgages and loans payable, the fair value of financial instruments
    approximated carrying values due to the short-term nature of the
    financial instruments. The fair value of mortgages and loans payable is
    disclosed in note 7.

    Utility cost risk

    NPR is exposed to utility cost risk, which results from the fluctuation
    in utility prices for fuel oil, natural gas and electricity, the primary
    utilities used to heat the REITs properties. The exposure to utility cost
    risk is restricted primarily to the REIT's residential rental and
    execusuites portfolio. The leases in the remainder of the portfolio
    generally provide for recovery of operating costs, including utilities.
    Because of the northern location of a portion of NPR's portfolio, the
    exposure to utility price fluctuations is more pronounced in the first
    and last fiscal quarter of the year.

    NPR manages its exposure to utility risk through a number of preventative
    measures, including retrofitting properties with energy efficient
    appliances, fixtures and windows. With the exception of a fixed price
    utility contract in place for certain residential rental units in
    Alberta, NPR does not utilize hedges or forward contracts to manage
    exposure to utility cost risk.

    Heating oil is the primary source of fuel for heating properties located
    in Nunavut and the Northwest Territories. Over the last two years, NPR
    converted heating systems for certain properties in Yellowknife from fuel
    oil based boilers to wood pellet boilers. The investment in these
    environmentally friendly boilers continues to reduce NPR's exposure to
    volatile heating oil prices. Exposure to increases in the cost of heating
    oil is partially offset by the ability to recover these increases from a
    significant proportion of its commercial and some residential tenants.

    Natural gas is the significant source of fuel for heating properties
    located in Alberta, BC and Inuvik, NWT. NPR has fixed price contracts for
    certain of its properties which accounts for approximately 31% of the
    REIT's usage in Alberta. The Alberta provincial government's Natural Gas
    Rebate Program provided for refunds of $1.50 per gigajoule to consumers
    when natural gas prices exceed $5.50 per gigajoule from October through
    March. During 2009, NPR received approximately $40,000 in rebates. The
    provincial government of Alberta has indicated that the Natural Gas
    Rebate Program will not be renewed for the 2009-2010 heating season.
    Natural gas prices in Inuvik and BC are not subject to regulated price
    control and the REIT does not use financial instruments to manage the
    exposure to the price risk.

    Management prepared a sensitivity analysis on the impact of price changes
    in the cost of heating oil and natural gas. A 10% change over the average
    price of heating oil and natural gas would impact NPR's net earnings by
    $179,000 for the nine months ended September 30, 2009.

    Electricity is the primary source of fuel for heating properties located
    in Newfoundland as well as parts of north eastern BC. In Newfoundland,
    electricity is purchased from the provincially regulated utility and is
    directly paid by the tenants for a significant portion of the REIT's
    multi-family rental units. As there is not a significant direct risk to
    NPR regarding the price of electricity, a sensitivity analysis has not
    been prepared.

    Liquidity risk

    Ultimate responsibility for liquidity risk management lies with
    management and the Board of Trustees of the REIT. The REIT manages
    liquidity risk by managing mortgage and loan maturities to ensure a
    relatively even amount of mortgage maturities in each year. At
    September 30, 2009 the REIT has operating facilities totaling
    $57.5 million (December 31, 2008 - $50.0 million). At September 30, 2009,
    $31.7 million of the operating facilities were utilized (December 31,
    2008 - $26.6 million). Cash flow projections are completed on a regular
    basis to ensure there will be adequate liquidity to maintain operating
    and investment activities in addition to making monthly distributions to
    unitholders. The Board of Trustees reviews current financial results and
    the annual business plan in determining appropriate distribution levels.

    Credit risk

    Credit risk arises from the possibility that tenants may not be able to
    fulfill their lease commitments. The REIT's credit risk is primarily
    attributable to tenant receivables. Tenant receivables are comprised of a
    large number of tenants spread across the geographic areas in which the
    REIT operates. There are no significant exposures to single tenants with
    the exception of AgeCare Investments Ltd. (See note 16), which leases
    seniors' properties in Alberta and BC from the REIT, and the Governments
    of Canada, the Northwest Territories and Nunavut, which leases a large
    number of rental units in the Northwest Territories and Nunavut.

    NPR mitigates this risk through conducting thorough credit checks on
    prospective tenants, requiring rental payments on the first of the month,
    obtaining security deposits approximating one month's rent from tenants
    where legislation permits, and geographic diversification in its
    portfolio. Tenants are required to pay rent on the first of each month,
    with the exception of certain government leases where rent is due at the
    end of the month and certain commercial tenants where operating cost
    recoveries are billed in arrears. As such, the majority of tenant
    receivables are past due at the balance sheet date.

    The following is an aging of current tenant and other receivables:

    -------------------------------------------------------------------------
                                                   September 30, December 31,
                                                           2009         2008
    -------------------------------------------------------------------------

    0-30 days                                             1,475          987
    31-60 days                                              199          267
    61-90 days                                               87          130
    Over 90 days                                            549          722
    -------------------------------------------------------------------------
    Tenant receivables                                    2,310        2,106
    Other receivables                                     3,658        3,329
    Allowance for doubtful accounts                        (350)        (350)
    -------------------------------------------------------------------------
                                                          5,618        5,085
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    NPR classifies tenants as past tenants on the date of their move out from
    a residential unit. NPR records a specific bad debt provision on all
    balances owed by past tenants. Any subsequent recovery of balances owed
    from past tenants is recorded as a reduction in the bad debt provision
    for the period. In addition, NPR records an allowance for bad debt from
    current tenants and other receivables where the expected amount to be
    collected is less than the actual accounts receivable. The amounts
    disclosed on the balance sheet are net of allowances for uncollectible
    accounts from current and past tenants and other receivables, estimated
    by Management based on prior experience and current economic conditions.

    The reconciliation of changes in allowance for doubtful accounts is as
    follows:

    -------------------------------------------------------------------------
                                  Three Months Ended       Nine Months Ended
                                        September 30            September 30
    -------------------------------------------------------------------------
                                    2009        2008        2009        2008
    -------------------------------------------------------------------------

    Balance, beginning of period     350         250         350         250
    Accounts receivable written off  (20)        (20)       (299)       (109)
    Accounts recovered               154           8         406           8
    Additional allowance            (134)         12        (107)        101
    -------------------------------------------------------------------------
    Balance, September 30            350         250         350         250
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


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

    -------------------------------------------------------------------------
                                                   September 30, December 31,
                                                           2009         2008
    -------------------------------------------------------------------------

    0-6 months                                           10,911        9,916
    6 months to 1 year                                    1,504        1,251
    Over 1 year                                             272           51
    -------------------------------------------------------------------------
                                                         12,687       11,218
    Tenant security deposits                              3,470        3,893
    -------------------------------------------------------------------------
                                                         16,157       15,111
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Management believes that future cash flows from operations and
    availability under the current operating facilities provide sufficient
    available funds through the foreseeable future to support these financial
    liabilities.

    Interest rate risk

    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 operating facilities. Management mitigates interest rate
    risk by utilizing fixed rate mortgages, ensuring access to a number of
    sources of funding and staggering mortgage maturities with the objective
    of achieving relatively even annual debt maturities. To the extent
    possible, the REIT maximizes the amount of mortgages on residential
    rental properties where it is possible to lower interest rates through
    Canada Mortgage and Housing Corporation mortgage insurance.

    The sensitivity analysis for floating rate debt has been completed based
    on the exposure to interest rates at the balance sheet date. Floating
    rate debt includes all mortgage and loans payable which are not subject
    to fixed interest rates and the revolving line of credit. If interest
    rates changed by 0.50% and all other variables remained constant, the
    REIT's net earnings for the nine months ended September 30, 2009 would
    have changed by $165,000.


    18. CAPITAL MANAGEMENT

    The REIT's objective when managing its capital is to safeguard its assets
    while maximizing the growth of its business, returns to unitholders and
    maintaining the sustainability of cash distributions. The REIT's capital
    consists of mortgages and loans payable, operating and acquisition
    facilities, Trust Units and Class B LP Units.

    Management monitors the REIT's capital structure on an ongoing basis to
    determine the appropriate level of mortgage debt and loans payable to be
    placed on specific properties at the time of acquisition or when existing
    debt matures. The REIT follows conservative guidelines which are set out
    in the Trust Declaration. In determining the most appropriate debt,
    consideration is given to strength of cash flow generated from the
    specific property, interest rate, amortization period, maturity of the
    debt in relation to the existing debt of the REIT, interest and debt
    service ratios, and limits on the amount of floating rate debt. The REIT
    has operating facilities which is used to fund acquisitions and capital
    expenditures until specific mortgage debt is placed or additional equity
    is raised.

    Consistent with others in the industry, the REIT monitors capital on the
    basis of debt to gross book value ratio. The Declaration of Trust
    provides for a maximum debt to gross book value ratio of 70%. The REIT
    does not anticipate operating above a debt to gross book value ratio of
    60%. The REIT's debt to gross book value is as follows:

    -------------------------------------------------------------------------
                                                   September 30, December 31,
                                                           2009         2008
    -------------------------------------------------------------------------
    Bank indebtedness (cash)                              2,345         (731)
    Operating facilities                                 31,698       26,600
    Mortgages and loans payable                         515,917      502,277
    -------------------------------------------------------------------------
    Debt                                                549,960      528,146
    -------------------------------------------------------------------------

    Rental properties and other capital assets          833,255      833,967
    Capital assets improvements in progress               6,718        3,773
    Capital assets under development                     20,180        8,996
    Refundable deposits and mortgage proceeds
     held in trust                                            -          185
    Accumulated amortization                            110,836       90,546
    Future income taxes on acquisitions                 (21,625)     (21,625)
    -------------------------------------------------------------------------
    Gross Book Value                                    949,364      915,842
    -------------------------------------------------------------------------

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

    NPR is subject to three principal financial covenants in its mortgage and
    loans payable and operating facilities. The financial covenants are
    described as follows:

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


    -------------------------------------------------------------------------
                                              Nine Months Ended   Year Ended
                                                   September 30, December 31,
                                                           2009         2008
    -------------------------------------------------------------------------
    Earnings from continuing operations before taxes     20,446       26,417
    Amortization                                         21,229       26,447
    Interest on mortgages                                20,024       24,499
    Interest on operating facilities                        554        1,286
    -------------------------------------------------------------------------
    Net earnings before interest, taxes and
     amortization                                        62,253       78,649
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Interest on mortgages                                20,024       24,499
    Interest on operating facilities                        554        1,286
    -------------------------------------------------------------------------
    Total Interest                                       20,578       25,785
    Principal repayments                                 12,088       14,983
    -------------------------------------------------------------------------
    Debt Service Payments                                32,666       40,768
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Interest Coverage Ratio                                3.03         3.05
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Debt Service Coverage Ratio                            1.91         1.93
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

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

    19. SUBSEQUENT EVENTS

    October 2009, NPR completed the acquisition of a 29 unit expansion to an
    existing seniors' property for a total purchase price of $1.5 million.
    This acquisition was financed through the operating facility.

    Between October 1, 2009 and November 12, 2009, NPR completed mortgage
    financings and renewals totalling $4.9 million with interest rates from
    2.34% to 3.88% and terms to maturity from 6 months to 5 years. Proceeds
    from the mortgage financings were used to repay existing mortgage debt
    and a portion of the operating facility.
    

SOURCE Northern Property Real Estate Investment Trust

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

Organization Profile

Northern Property Real Estate Investment Trust

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