Northern Property reports Q3 2009 results
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
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In $000's except per Three Months Ended Nine Months Ended
unit amounts September 30 September 30
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2009 2008 2009 2008
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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%
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"NPR's financial results for Q3, 2009 were somewhat better than we expected," reported President and CEO
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
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
"Our rental market conditions in Newfoundland continue to be extremely strong and Nunavut is very positive as well," said
Executive suite results were strong in Iqaluit and
NORTHERN PROPERTY REAL ESTATE INVESTMENT TRUST
Unaudited Consolidated Balance Sheets
(Thousands of dollars)
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September 30, December 31,
2009 2008
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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
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887,675 872,922
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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
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588,946 567,812
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UNITHOLDERS' EQUITY 298,729 305,110
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887,675 872,922
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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)
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Three Months Ended Nine Months Ended
September 30 September 30
2009 2008 2009 2008
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REVENUE
Rental revenue 32,558 31,919 98,394 92,982
Other property income 724 759 2,638 2,262
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33,282 32,678 101,032 95,244
Operating expenses (10,821) (10,491) (34,999) (32,363)
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22,461 22,187 66,033 62,881
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OTHER EXPENSES
Interest on mortgages (6,730) (6,157) (20,024) (18,260)
Amortization (6,985) (6,604) (21,229) (19,580)
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(13,715) (12,761) (41,253) (37,840)
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EARNINGS BEFORE THE
UNDERNOTED 8,746 9,426 24,780 25,041
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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)
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(1,546) (1,819) (4,334) (5,427)
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EARNINGS BEFORE INCOME TAXES 7,200 7,607 20,446 19,614
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Current taxes (Note 11) (121) (128) (323) (306)
Future tax recovery
(expense) (Note 11) (250) (2,795) 540 (3,033)
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(371) (2,923) 217 (3,339)
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NET EARNINGS 6,829 4,684 20,663 16,275
Other comprehensive
earnings (loss) 62 (474) (123) (50)
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COMPREHENSIVE EARNINGS 6,891 4,210 20,540 16,225
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Net earnings per unit
(Note 13)
Basic $0.272 $0.187 $0.824 $0.650
Diluted $0.271 $0.187 $0.821 $0.649
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See accompanying notes to the consolidated financial statements.
NORTHERN PROPERTY REAL ESTATE INVESTMENT TRUST
Unaudited Consolidated Statements of Unitholders' Equity
(Thousands of dollars)
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Three Months Ended Nine Months Ended
September 30 September 30
2009 2008 2009 2008
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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
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Balance, September 30 368,636 367,446 368,636 367,446
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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)
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Balance, September 30 1,366 891 1,366 891
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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
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Balance, September 30 106,732 79,629 106,732 79,629
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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)
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Balance, September 30 (178,005) (140,931) (178,005) (140,931)
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CUMULATIVE DEFICIT,
September 30 (71,273) (61,302) (71,273) (61,302)
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ACCUMULATED OTHER
COMPREHENSIVE EARNINGS
(LOSS)
Balance, beginning of period (62) 479 123 55
Other comprehensive
earnings (loss) 62 (474) (123) (50)
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Balance, September 30 - 5 - 5
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TOTAL UNITHOLDERS' EQUITY 298,729 307,040 298,729 307,040
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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
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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
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14,203 14,154 41,613 38,637
Changes in non-cash
working capital (1,272) 741 (205) 2,458
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12,931 14,895 41,408 41,095
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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)
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(3,760) (3,396) (10,480) 21,626
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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)
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(11,319) (14,788) (34,004) (62,295)
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NET INCREASE (DECREASE)
IN CASH (2,148) (3,289) (3,076) 426
CASH (BANK INDEBTEDNESS),
BEGINNING OF PERIOD (197) 3,611 731 (104)
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CASH (BANK INDEBTEDNESS),
END OF PERIOD (2,345) 322 (2,345) 322
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SUPPLEMENTARY INFORMATION
Interest paid 6,549 6,333 19,140 18,627
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Interest received 48 74 215 301
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Income taxes paid 6 141 214 580
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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
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September 30, December 31,
2009 2008
Accumulated Net Accumulated Net
Amortiz- Book Amortiz- Book
Cost ation Value Cost ation Value
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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
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944,091 (110,836) 833,255 924,513 (90,546) 833,967
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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:
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Three Months Ended Nine Months Ended
September 30 September 30
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2009 2008 2009 2008
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Cash paid 2,786 12,949 8,347 45,105
Mortgages and debt assumed - - 1,788 -
Class B LP Units issued - - 65 -
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Total 2,786 12,949 10,200 45,105
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Residential rental units - 70 40 333
Seniors' units 30 25 82 94
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Units acquired 30 95 122 427
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Commercial square feet - 15,204 - 40,328
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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
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6,510 5,664
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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
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8,407 (3,207) 5,200 8,407 (2,266) 6,141
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Below-market leases 1,220 (1,095) 125 1,220 (941) 279
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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
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September 30, December 31,
2009 2008
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Mortgages and loans payable 515,917 502,277
Fair value adjustment (8,396) (8,574)
Deferred financing costs (11,397) (10,903)
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496,124 482,800
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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:
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2009 remainder of year 6,803
2010 45,394
2011 44,671
2012 50,061
2013 91,064
Subsequent 277,924
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515,917
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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:
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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)
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Balance - September 30, 2009 19,523
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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:
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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
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$23.12 735,000 3.6 $23.12 489,999 $23.12
$15.05 128,331 4.4 $15.05 23,338 $15.05
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863,331 3.9 $21.92 513,337 $22.75
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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:
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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
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38,949 39,489
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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:
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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
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Total income tax (recovery)
expense 371 2,923 (217) 3,339
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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:
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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)
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September 30,
2009 22,968,187 2,134,107
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-------------------------------------------------------------------------
-------------------------------------------------------------------------
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 - - -
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September 30,
2009 25,102,294 368,636
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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.
For further information: Todd Cook, CFO, (403) 531-0720
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