Northern Property REIT reports record FFO for the second quarter of 2015
FFO per unit increases 4.9% from 2014
CALGARY, Aug. 6, 2015 /CNW/ - Northern Property Real Estate Investment Trust (the "REIT" or "NPR") (NPR.UN – TSX) today announced financial results for the three and six months ended June 30, 2015. NPR reported second quarter 2015 funds from operations ("FFO") per Trust Unit of $0.64, an increase of 4.9% from $0.61 in the second quarter of 2014.
Todd Cook, President and CEO, commented, "The financial results for the first half of 2015 are the strongest posted in the history of NPR. We are excited to be able to deliver solid financial results, especially in light of the current tough economic environment. Growth in our commercial portfolio and the contributions from our developments coming online have offset the downward pressure that lower crude oil prices have placed on our portfolio in Alberta. This impact has been lessened through our diverse portfolio; with almost half of our income coming from northern Canada."
Mr. Cook continued, "We have continued the enhanced capital re-investment into our portfolio to improve our properties through the Street to Suite program. The increased investment has started to show positive returns as vacancy in Fort McMurray has decreased slightly, despite increased move outs from job losses. Yellowknife also showed significant improvement in vacancy, almost being cut in half this year."
Mr. Cook commented, "We are in the process of renewing our Normal Course Issuer Bid as the current trading price of our Trust units remains well below the Net Asset Value. There is a significant disconnect between our unit trading price and the sound operating performance of NPR, as evidenced by the solid financial results released today. We believe that the repurchase of NPR's units will deliver strong returns for unit holders and represents an effective use of capital."
Financial Performance Highlights |
|||||||
(thousands of dollars, except per unit amounts) |
Three months ended June 30 |
Six months ended June 30 |
|||||
2015 |
2014 |
Change |
2015 |
2014 |
Change |
||
Total revenue |
49,401 |
46,102 |
7.2% |
98,222 |
91,510 |
7.3% |
|
Net operating income |
30,041 |
27,613 |
8.8% |
56,381 |
51,485 |
9.5% |
|
Net and comprehensive income |
6,289 |
14,937 |
(57.9%) |
20,907 |
33,050 |
(36.7%) |
|
FFO |
20,327 |
19,432 |
4.6% |
36,901 |
35,010 |
5.4% |
|
FFO per Trust Unit, basic and diluted |
$0.64 |
$0.61 |
4.9% |
$1.16 |
$1.10 |
5.5% |
|
FFO payout ratio |
63.7% |
64.8% |
(1.1%) |
70.1% |
72.0% |
(1.9%) |
|
Distributions declared to Trust Unit holders |
12,940 |
12,591 |
2.8% |
25,880 |
25,211 |
2.7% |
|
Distributions per Trust Unit |
$0.41 |
$0.40 |
2.5% |
$0.81 |
$0.79 |
2.5% |
Net operating income ("NOI") and FFO are considered non-GAAP measures and do not have any standardized meaning as |
FFO
FFO for the three months ended June 30, 2015, was $20.3 million, an increase of 4.6% compared to $19.4 million for the same period of 2014. On a per unit basis, FFO was $0.64 and $0.61 for the second quarters of 2015 and 2014, respectively, an increase of 4.9%. The increase in FFO was a result of higher NOI driven by the contribution from newly acquired and developed properties, and lower utility costs throughout the portfolio. This was partially offset by higher than normal vacancy, mainly in Fort McMurray, AB, and Lloydminster, AB; an increase in financing costs due to the higher mortgage balance and operating facilities; and higher administration costs.
NOI
For the three months ended June 30, 2015, NPR reported an NOI increase of 8.8% from the same period of 2014. Management has increased efforts to reduce certain controllable expenses and the results are starting to show in the current reporting period with positive NOI growth across all business segments. Multi-family NOI increased 5.5% for the three months ended June 30, 2015, driven mainly by developments and acquisitions and lower utility costs, partially offset by increased vacancy and property tax. Developments and acquisitions completed since the second quarter of 2014 added $1.9 million in incremental NOI in 2015. Commercial NOI increased by 19.6% compared to 2014 due to developments in Iqaluit, NU, and St. John's, NL, and lease renewals on the warehouse properties in St. John's, NL. Execusuites and hotel NOI increased by 33.4% compared to 2014, as the operating expenses for the execusuites in Yellowknife, NT, and St. John's, NL, were considerably lower, while revenues remained consistent.
The three months ended June 30, 2015, marks the second consecutive quarter to have positive same door growth, increasing 1.2% compared to the same period of 2014. The improvement in same door results in 2015 was attributable to the growth in the commercial segment in St. John's, NL, and Iqaluit, NU, and lower utility costs from more moderate weather and lower utility rates. This was partially offset by higher vacancy in Fort McMurray, AB; Lloydminster, AB; and northeastern British Columbia.
From a business segment perspective, multi-family same door NOI decreased 2.6%, commercial increased 14.1%, and the execusuites and hotel increased 33.4% for the three months ended June 30, 2015.
Stabilized Vacancy Loss
Stabilized vacancy for the three months ended June 30, 2015, was 9.0%, up from 7.1% for the same period of 2014, and down from 9.5% in the first quarter of 2015. With weak economic conditions in a number of regions, NPR has experienced a higher than normal amount of tenant move outs in 2015. Through dedicated leasing teams, select rental rate reductions, and the organization-wide focus on customer service, most regions have experienced slight vacancy decreases in the second quarter of 2015. The efforts of the Street to Suite capital program have had a direct impact in lowering vacancy in Yellowknife, NT, and in Fort McMurray, AB.
Residential Stabilized Vacancy Loss |
|||||||
Province and Territory |
Q1 |
Q2 |
Q3 |
Q4 |
2014 |
Q1 |
Q2 |
Alberta |
6.5% |
6.8% |
7.7% |
9.2% |
7.6% |
13.0% |
14.0% |
British Columbia |
14.0% |
11.2% |
11.7% |
11.1% |
12.0% |
12.3% |
14.0% |
Newfoundland and Labrador and Québec |
5.0% |
4.1% |
3.7% |
3.9% |
4.2% |
5.3% |
6.2% |
Northwest Territories |
11.9% |
12.2% |
12.7% |
11.4% |
12.1% |
11.2% |
6.1% |
Nunavut |
1.8% |
1.7% |
2.4% |
2.1% |
2.0% |
3.6% |
2.1% |
Saskatchewan |
6.5% |
5.6% |
5.1% |
6.9% |
6.2% |
7.8% |
7.6% |
Overall |
7.8% |
7.1% |
7.6% |
7.6% |
7.5% |
9.5% |
9.0% |
Total vacancy loss for the second quarter of 2015 was 10.1%, compared to 10.6% in the first quarter of 2015 and 8.2% for the same period of 2014.
Portfolio Summary (including joint ventures at 100%) – June 30, 2015 |
||||
(Commercial square footage rounded to the nearest thousand) |
Execusuites & Hotel |
Total Residential |
Commercial |
|
Province and Territory |
Multi-family |
|||
Alberta |
3,047 |
- |
3,047 |
83,000 |
British Columbia |
2,975 |
- |
2,975 |
86,000 |
Newfoundland and Labrador |
1,728 |
142 |
1,870 |
225,000 |
Northwest Territories |
1,329 |
160 |
1,489 |
537,000 |
Nunavut |
1,096 |
117 |
1,213 |
243,000 |
Saskatchewan |
429 |
- |
429 |
- |
Québec |
161 |
- |
161 |
- |
Total |
10,765 |
419 |
11,184 |
1,174,000 |
Developments
In light of the current economic conditions, development activities have been reduced in 2015. Development will be focused on larger centres, mostly in Calgary, AB, and the surrounding areas, with an expectation to start 400 multi-family units in 2015.
During the quarter ended June 30, 2015, NPR purchased 3.9 acres of land in Regina, SK, for $3.6 million for development purposes. NPR also sold a 4.9 acre parcel of land that was held for development in St. John's, NL, for $2.0 million and the settlement of a $1.7 million vendor take back loan, as the city denied the request to rezone the land for multi-family residential development. As of June 30, 2015, NPR has 44.2 acres of land held for future development which allows for approximately 1,600 units.
During the second quarter of 2015, NPR completed the first phase of a development in Fort St. John, BC, totalling 118 units, which is leasing up within expectations. The development has approval for 189 multi-family units.
Projects under development – June 30, 2015 |
|||||||
(thousands of dollars, except per unit amounts) |
Units |
Expected |
Expected |
Expected |
|||
Property Type |
Location |
Start Date |
% Complete |
||||
Multi-family |
Bonnyville, AB |
110 |
Q3 2014 |
Q3 2015 |
85% |
17,000 |
8.0% to 8.5% |
Multi-family |
Airdrie, AB |
140 |
Q1 2015 |
Q4 2015 |
30% |
24,000 |
7.0% to 7.5% |
250 |
41,000 |
The development project in Bonnyville, AB, has approval for 181 multi-family units and will be constructed in two phases, with the first phase comprised of two buildings totalling 110 units and expected completion in Q3 2015.
During the first quarter of 2015, NPR started a development in Airdrie, AB. The project consists of 140 units and is expected to be completed in the fourth quarter of 2015 and cost approximately $170,000 per unit. The Airdrie project will be built with additional amenities to give a competitive edge in the larger market.
NPR's Calgary development is currently in the permitting stage and construction is expected to commence in the third quarter of 2015. The total project is expected to have 400 units, with the first phase of development consisting of 261 units.
Financial Strength |
|||
(thousands of dollars, except per unit amounts) |
June 30, 2015 |
December 31, 2014 |
June 30, 2014 |
Total assets |
1,724,303 |
1,666,171 |
1,606,920 |
Debt to gross book value |
51.3% |
48.6% |
47.4% |
Interest coverage ratio (times) |
3.60 |
3.70 |
3.76 |
Debt service coverage ratio (times) |
2.04 |
2.10 |
2.09 |
Weighted average mortgage interest rate |
3.53% |
3.67% |
3.78% |
Weighted average term to maturity (years) |
5.6 |
5.0 |
4.8 |
Weighted average capitalization rate |
7.99% |
7.97% |
7.99% |
Debt to gross book value, debt service coverage ratio and interest coverage ratio are considered non-GAAP |
NPR's balance sheet remains healthy as all of its material financial ratios continue to be strong and within the limits set out in the REIT's declaration of trust and required under the REIT's operating facilities.
During the three months ended June 30, 2015, NPR completed $77.2 million in mortgage financings and renewals with a weighted average interest rate of 3.94% and a term to maturity of 9.3 years. The majority of the funding in Q2 2015 was on commercial properties located in Yellowknife, NT, which are conventional mortgages that do not qualify for Canada Mortgage and Housing Corporation ("CMHC") rates, resulting in a higher weighted average rate. The net proceeds were used to repay existing mortgages and operating facilities, and fund developments and acquisitions. NPR continues to extend the term on new and renewed mortgages, utilizing 10 year terms where possible.
Normal Course Issuer Bid ("NCIB")
On July 31, 2014, the Toronto Stock Exchange ("TSX") approved NPR's notice of intention to renew the NCIB for its Trust Units. NPR's NCIB will be made in accordance with the policies of the TSX. NPR was able to purchase Trust Units during the period from August 6, 2014, to August 5, 2015, or an earlier date should NPR complete its maximum purchases. NPR paid the market price at the time of acquisition for any Trust Units in accordance with the rules and policies of the TSX and applicable securities laws. Purchases under the NCIB were funded out of NPR's working capital. NPR is currently in the process of renewing its NCIB with the TSX.
During the six months ended June 30, 2015, NPR did not purchase any Trust Units under its NCIB. Management allocated funds to the ongoing developments and CAPEX programs, rather than to repurchase its units under the NCIB.
Distributions to Trust Unit holders
During the three months ended June 30, 2015, NPR declared monthly cash distributions of $0.1358 per Trust Unit. For the second quarter of 2015, NPR declared distributions totaling $12.9 million (June 30, 2014 – $12.6 million).
Financial Statements
NPR's unaudited condensed consolidated financial statements and the notes thereto and Management's Discussion and Analysis for three and six months ended June 30, 2015, can be found on NPR's website at www.npreit.com or on www.sedar.com.
Cautionary/Forward-Looking Statements
This news release contains forwardlooking statements relating to our growth strategy, acquisition activity, expected costs and Cap Rates of our development project, completion of apartments for which development approvals have been obtained, commencement of development of new buildings, prospects for long-term vacancy rates, and renewal of the NCIB. 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, changes in economic conditions, changes in interest rates, changes in taxation rules, reliance on key personnel, environmental matters, tenant risks, fluctuations in commodity prices, and other risk factors more particularly described in our most recent Annual Information Form available on SEDAR at www.sedar.com. Additional risks and uncertainties not presently known to NPR or that NPR currently believes to be less significant may also adversely affect NPR.
Readers are cautioned that the above list of factors is not exhaustive and that should certain risks or uncertainties materialize, or should underlying estimates or assumptions prove incorrect, actual events, performance and results may vary significantly from those expected. There can be no assurance that the actual results, performance, events or activities anticipated by NPR will be realized or, even if substantially realized, that they will have the expected consequences to, or effect on, NPR. Readers, therefore, should not place undue importance on forward-looking information. Further, forwardlooking statements speak only as of the date on which such statements are made. NPR disclaims any intention or obligation to update or revise any forward-looking information, whether as a result of new information, future events or otherwise, except as required under applicable securities laws.
Non-GAAP and Additional GAAP Measures
Certain measures in this news release do not have any standardized meaning as prescribed by GAAP and, therefore, are considered non-GAAP measures. These measures are provided to enhance the reader's overall understanding of our current financial condition. They are included to provide investors and management with an alternative method for assessing our operating results in a manner that is focused on the performance of our ongoing operations and to provide a more consistent basis for comparison between periods. These measures include widely accepted measures of performance for Canadian real estate investment trusts; however, the measures are not defined by GAAP. In addition, these measures are subject to the interpretation of definitions by the preparers of financial statements and may not be applied consistently between real estate entities. Please refer to page 23 of our second quarter 2015 Management's Discussion & Analysis for definitions of non-GAAP and additional GAAP measures, including NOI, FFO, debt to gross book value, debt service coverage and interest coverage.
Results Conference Call
NPR's conference call will take place on Friday, August 7, 2015, at 12:00 p.m. Mountain Time, 2:00 p.m. Eastern Time. Participating on the call will be Mr. Todd Cook (Chair), President and Chief Executive Officer, and Mr. Robert Palmer, Chief Financial Officer. Investors and analysts are invited to participate in the call by calling 1-888-231-8191 or 647-427-7450. You will be required to provide the Conference Call Operator with the Conference ID #81814001 prior to being admitted to the call. A recorded playback of the call will be available from August 7, 2015 to August 14, 2015 by calling 416-849-0833 or 1-855-859-2056, passcode #81814001. The recording will also be available on our website from August 10, 2015.
Corporate Profile
NPR is primarily a multi-family residential real estate investor, providing a broad spectrum of rental accommodations across Canada. NPR focuses on communities with strong economic fundamentals where capitalization rates are generally higher and competition is somewhat restrained. NPR's residential portfolio is comprised of a multi-family segment: apartments, town homes and single family rental units; and execusuites and hotel where the rental period ranges from a few days to several months. NPR also has a portfolio of commercial buildings focused on government and quality corporate tenancies predominantly located in the Northwest Territories, Nunavut, and Newfoundland and Labrador. Geographically, NPR operates in Alberta, British Columbia, Newfoundland and Labrador, the Northwest Territories, Nunavut, Québec, and Saskatchewan. The value of NPR's real estate at June 30, 2015, was $1.6 billion with 11,184 residential units and 1,174,000 square feet of commercial space. NPR is traded on the TSX under the ticker symbol: NPR.UN.
SOURCE Northern Property Real Estate Investment Trust
Robert J. Palmer, CFO, at 403-531-3545.
Share this article