NPR reports first quarter 2013 financial results

CALGARY, May 8, 2013 /CNW/ - Northern Property Real Estate Investment Trust (the "REIT") and NorSerCo Inc. (the REIT together with NorSerCo, "NPR") (NPR.UN - TSX) today announced financial results for the three months ended March 31, 2013. NPR reported first quarter funds from operations ("FFO") per unit of $0.50. On a continuing operations basis, FFO per unit was $0.50 in the first quarter of 2013, up from $0.48 in the first quarter of 2012.

Financial performance at a glance

(thousands of dollars, except per unit amounts)	Three months ended March 31
	2013			2012
	Continuing	Discontinued	Total	Continuing	Discontinued	Total
Total revenue	41,762	149	41,911	38,265	4,536	42,801
Net operating income	23,350	78	23,428	21,771	4,705	26,476
Net and comprehensive income	17,275	66	17,341	13,853	5,443	19,296
Net income per Stapled Unit, basic	0.54	-	0.54	0.46	0.19	$0.65
FFO	15,811	66	15,877	14,315	3,230	17,545
FFO per Stapled Unit, basic	0.50	-	0.50	0.48	0.11	0.59
FFO payout ratio			77.2%			64.4%
Distributions declared to Unitholders			12,259			11,291
Distributions per Stapled Unit			0.38			0.38

President and COO Todd Cook commented, "NPR's lower first quarter results are entirely related to the sale of the seniors' portfolio in mid-2012. While we have replaced a portion of the income from the disposed properties, full redeployment, and replacement of the leverage associated with the sold assets, has not yet been completed. We are actively looking for quality acquisitions and we continue to increase our development capabilities but it will take another 12 - 18 months to fully replace the lost income."

CEO Jim Britton added "In late 2012, NPR shifted its business development philosophy and strategic direction to include a larger development component in its growth strategy. The first quarter of 2013 marks our first full quarter implementing our revised strategy and we are happy with the results so far. As a result of the new strategy, the only acquisition made in the quarter was a newly constructed commercial building in St. John's, NL. Two development projects were completed in the quarter, totalling 146 units, of which 142 units were in Lloydminster. We have been very pleased with the Lloydminster project as it was fully leased in less than two months, will provide us with an expected cap rate in excess of 8.0% and came in on budget at approximately $18 million.

Mr. Britton continued, "Our experience in recent years has confirmed that, in certain markets, newly constructed apartments will command superior rental rates, provide higher yields and lower initial capex requirements resulting in greater returns for NPR unitholders, and Lloydminster is a great example of this."

FFO
FFO for the three months ended March 31, 2013 was $15.9 million or $0.50 per Stapled Unit compared to $17.5 million or $0.59 per Stapled Unit for the same period of 2012.  The decrease in FFO was a result of 2012 financial results including the discontinued seniors' portfolio, which was sold in mid-2012, which represented $3.2 million of FFO or $0.11 per Stapled Unit in the first quarter of 2012. NPR is still in the process of redeploying the proceeds from the sale.

NPR's FFO payout ratio was 77.2% for the three months ended March 31, 2013 compared to 64.4% for the same period of 2012. The higher payout ratio in the first quarter of 2013 resulted from lower FFO due to the seniors' portfolio sale and dilution from the additional Stapled Units issued in public offering in the first quarter of 2012.

Residential vacancy loss

	For the three months ended March 31,		For the three months ended December 31,
Region	2013	2012	2012
British Columbia	12.9%	4.1%	10.5%
Alberta	2.7%	5.7%	4.3%
Newfoundland and Labrador	2.0%	2.0%	0.9%
Northwest Territories	9.3%	3.2%	7.8%
Nunavut	3.6%	0.9%	4.5%
Saskatchewan	10.4%	14.2%	4.6%
Quebec	0.1%	-	0.0%
Overall	6.4%	3.6%	6.2%

Residential vacancy loss for the first quarter of 2013 increased slightly to 6.4% compared to 6.2% for the last quarter of 2012.  British Columbia and Northwest Territories were the main regions with increasing vacancy while Nunavut and Alberta saw improvement.

Most regions of BC saw vacancy increases, with Fort Nelson and Campbell River seeing the largest increases. Fort Nelson's economy continues to struggle as development activity has slowed due to the delay in the LNG pipeline project. Another factor contributing to the increased vacancy in BC is that a large number of the 1,500 acquisitions in 2012 were in this province and come with higher normal vacancy levels than the rest of the portfolio. In several of our locations, specifically in Nanaimo, Abbotsford and Campbell River, the recent acquisitions are going through a transition to bring the properties up to NPR standards which normally leads to a temporary increase in vacancy.

In the Northwest Territories, both Yellowknife and Inuvik contributed to the increased vacancy.  Inuvik is still experiencing a weakened economy as infrastructure projects wind down or are delayed. However, there has been some good news lately as a new corporate tenant lease was signed in late March 2013 that will improve vacancy for the remainder of 2013, a government tenant was renewed and the Road to Tuktoyaktuk project is proceeding. The Yellowknife market has experienced a temporary increase in vacancy over the last several quarters, but we expect vacancy to return to its normal range of 2% - 3% in the latter half of 2013.

Alberta continued its improvement with Fort McMurray and Grande Prairie leading the way with vacancy of 3.3% and 2.2%, respectively, compared to 6.0% and 3.8%, respectively, at December 31, 2012.  Vacancy loss in Lloydminster increased slightly to 2.3% during the first quarter of 2013 from 1.7% reported in the same quarter of 2012.  This increase is a result of the first of two new 71 unit residential buildings being completed on March 1, 2013.

Nunavut,  improved over the previous quarter as Iqaluit starts to absorb the new development units that were completed last year.

Acquisitions and development
The sole acquisition for the quarter was a newly constructed, 29,456 square foot commercial building, Bristol Court V, in St. John's NL, acquired for $6.8 million. Leasing activity on the Bristol Court Office Park was strong in the first quarter. It is expected that all three buildings will be fully occupied by the end of the year. In the quarter, NPR also sold a 25,857 square foot commercial building in Iqaluit, NU for net proceeds of $4.2 million.

In the first quarter of 2013, NPR completed the development of 142 residential units in Lloydminster, AB and four residential units in Iqaluit, NU.  The lease up of the 142 units, two 71 unit buildings, in Lloydminster has been successful. The buildings were completed March 1, 2013 and April 1, 2013 and as of May 1, 2013 both buildings have been fully leased.

For the remainder of 2013, NPR is expecting another 280 units to be completed, including our first property in Regina, SK with 189 units.

Portfolio Summary (including joint ventures at 100% and discontinued operations) - March 31, 2013

Region	Multi-family	Execusuites & Hotels	Seniors' (Discontinued Operations)	Total Residential (units)	Commercial (sq. ft.)
British Columbia	2,831	-	-	2,831	123,164
Alberta	2,239	-	-	2,239	83,243
Newfoundland and Labrador	1,461	142	54	1,657	166,721
Northwest Territories	1,305	160	-	1,465	535,711
Nunavut	988	162	-	1,146	168,061
Saskatchewan	240	-	-	240	-
Quebec	161	-	-	161	-
Total	9,225	464	54	9,743	1,076,900

Financial strength

(thousands of dollars, except per unit amounts)	March 31, 2013	December 31, 2012	March 31, 2012
Total assets	1,368,821	1,350,072	1,373,299
Total liabilities	576,750	564,110	611,597
Mortgages payable	526,350	518,123	488,818
Gross book value	1,350,476	1,331,514	1,326,127
Debt	560,724	545,354	575,775
Debt to gross book value (fair value)	41.5%	41.0%	43.4%
Interest coverage ratio (times)	3.60	3.65	3.30
Debt service coverage ratio (times)	2.13	2.17	2.02
Weighted average mortgage interest rate	4.31%	4.37%	4.66%
Weighted average term to maturity (years)	4.0	4.1	5.4
Weighted average capitalization rate	8.0%	8.0%	8.0%

NPR continues to have one of the healthiest balance sheets in the Canadian multi-family space. Debt to gross book value remained low at 41.5% for March 31, 2013 compared to 41.0% at December 31, 2012 and 43.4% at March 31, 2012. During the three months ended March 31, 2013, NPR completed $18.4 million in mortgage financings and renewals at a weighted average interest rate of 3.21% and a weighted average term to maturity of 4.38 years.  The remainder of 2013 has a significant amount of mortgage renewals worth approximately $90 million. In addition to the refinancing on existing mortgages, NPR has over 50 unencumbered properties with a debt capacity of approximately $100 million as of March 31, 2013.

Distributions to Stapled Unit holders
During the three months ended March 31, 2013, NPR declared monthly cash distributions of $0.1275 (2012 -$0.1275) per Unit.

Tax status
Bill C-48, which includes proposed rules related to real estate investment trusts, originally announced on December 16, 2010, received second reading in the House of Commons on March 8, 2013, and is now before the House of Commons Standing Committee on Finance. Management believes it meets the requirements of the amended legislation. Bill C-48 has not been passed into legislation as of May 8, 2013.

There have been no updates to the draft stapled securities legislation ("Stapled Securities Proposals") since our 2012 financial results media release dated March 13, 2013. As at March 31, 2013, NPR's total cash tax liability resulting from the Stapled Securities Proposals is estimated to be $1.1 million. This amount has not been recorded in NPR's financial statements because the Stapled Securities Proposals are not yet substantively enacted.

Additional Information
NPR's unaudited condensed combined interim financial statements and the notes thereto and Management's Discussion and Analysis for the three months ended March 31, 2013 can be found on NPR's website at www.npreit.com or on www.sedar.com.

Conference call
NPR's conference call will take place on Thursday on May 9, 2013 at 12:00 p.m. Mountain Time, 2:00 p.m. Eastern Time. Participating on the call will be Mr. B. James Britton (Chair), Chief Executive Officer, Mr. Todd Cook, President and Chief Operating 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 #89560032 prior to being admitted to the call. A recorded playback of the call will be available from May 10, 2013 to May 17, 2013 by calling 416-849-0833 or 1-855-859-2056, passcode #89560032. The recording will also be available on our website on May 13, 2013.

About NPR
The REIT is an unincorporated open-end real estate investment trust and NorSerCo is a corporation under the Business Corporations Act (Alberta). NPR is primarily a multi-family residential real estate investor, providing a broad spectrum of rental accommodations in Canadian secondary markets with strong economic fundamentals where capitalization rates are somewhat higher and competition somewhat restrained. NPR's residential portfolio is comprised of a multi-family segment: apartments, town homes and single family rental units; and execusuites and hotels, where the rental periods range from a few days to several months. NPR also has a portfolio of commercial buildings focused on government tenancies predominantly located in Canada's far north. Geographically, NPR operates in British Columbia, the Northwest Territories, Alberta, Saskatchewan, Nunavut, Quebec and Newfoundland and Labrador. As at March 31, 2013 NPR has 9,743 residential units and 1,076,900 square feet of commercial space.

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, and federal rules respecting the 10% qualifying exemption for REITs.  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 the 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.

 

 

 

 

 

SOURCE: Northern Property Real Estate Investment Trust

For further information contact Robert Palmer, CFO, at 403-531-0720.