NPR reports fourth quarter and full year 2012 financial results.

CALGARY, March 13, 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 and year ended December 31, 2012. NPR reported funds from  operations ("FFO") per unit of $0.52 for the fourth quarter, down from $0.59 in 2011. For the year ended December 31, 2012, FFO per unit was $2.26 compared to $2.35 in 2011. The decrease in FFO per unit for both the fourth quarter and the year ended December 31, 2012 arises from the dilution of the sale of the seniors' properties in the first half of 2012, which was partially offset by the acquisitions completed during the year.

President and COO Todd Cook commented, "NPR continues to redeploy the funds from the sale of the seniors' portfolio.  Our key balance sheet metrics remain strong with debt to gross book value of 41% being one of the lowest in the multi-family space. While FFO per unit is lower than the previous period, our FFO payout ratio remains strong at 73.5%."

CEO Jim Britton added, "2012 was our busiest year yet for acquisitions with 1,500 residential units being purchased as we redeployed the funds from the sale of the seniors' portfolio. We continued to execute on our strategy of focusing on multi-family residential units, adding commercial properties in areas where we have a strong presence and where it makes financial and operational sense. The acquisition environment remains a challenge as vendors' price expectations remain extremely high.  NPR will continue the acquisition program, however on a selective basis to ensure quality investment properties are acquired at appropriate price levels. NPR's growth will also continue through development activities which have become an increasingly important component of NPR's growth strategy."

Financial performance at a glance for the combined operations
(thousands of dollars except per stapled unit and percentage amounts)			Q4 2012		Q4 2011		Change		Full Year 2012		Full Year 2011		Change
Total revenue			40,689		42,576		(4.4%)		166,653		158,661		5.0%
NOI			24,223		26,192		(7.5%)		103,769		103,076		0.7%
Same door NOI			19,382		19,371		0.1%		81,341		78,737		3.3%
FFO excluding SIFT current income taxes
	Net and comprehensive income		29,165		33,249		(12.2%)		82,486		86,157		(4.3%)
	FFO		16,656		17,536		(5.0%)		70,851		67,421		5.1%
	FFO per stapled unit, basic		$0.52		$0.59		(11.9%)		$2.26		$2.35		(3.8%)
	FFO payout ratio ^i		73.5%		64.3%		9.2 pts		68.1%		65.3%		2.8 pts
Regular distributions declared			12,246		11,283		8.5%		48,224		44,051		9.5%
Regular distributions per stapled unit			$0.38		$0.38		-		$1.53		$1.53		-
Special distributions declared			17,929		-		n/a		17,929		-		n/a
Special distributions per stapled unit			$0.56		-		n/a		$0.56		-		n/a

^i	Including the special distribution, Q4 2012 FFO payout ratio, excluding SIFT current income taxes, was 181.2% and full year 2012 FFO payout ratio was 93.4%.

FFO

FFO per stapled unit from combined operations was $0.52, excluding SIFT current income taxes, for the three months ended December 31, 2012 compared to $0.59 for the three months ended December 31, 2011, a decrease of 11.9%. FFO per stapled unit, excluding SIFT current income taxes, from combined operations for the year ended December 31, 2012 was $2.26 compared to $2.35 for same period of 2011, a decrease of 3.8%.  Both of these decreases were a result of the sale of most of the seniors' portfolio in the first half of the year, partially offset by the acquisitions made during the year.

Residential vacancy loss
		For the three months ended December 31			For the years ended December 31
	Region	2012	2011		2012	2011
	British Columbia	10.5%	5.1%		7.1%	7.9%
	Alberta	4.3%	6.1%		5.4%	8.1%
	Newfoundland and Labrador	0.9%	1.6%		1.4%	1.9%
	Northwest Territories	7.8%	3.4%		4.4%	2.7%
	Nunavut	4.5%	0.8%		2.4%	0.5%
	Saskatchewan	4.6%	8.7%		10.3%	8.8%
	Quebec	0.0%	n/a		0.0%	n/a
	Overall	6.2%	3.7%		4.6%	4.6%

Vacancy loss for the three months ended December 31, 2012 was 6.2%, compared to 3.7% for the same period of 2011 and 4.7% for the third quarter of 2012.  The increase is due to a number of factors including: vacancy associated with bringing 83 units on-line in Iqaluit, NU during the third quarter; increasing vacancy in Inuvik, NWT and Fort Nelson, BC; and acquisitions in Abbotsford, BC and Campbell River, BC which have higher normal vacancy levels compared to the rest of our portfolio.

Vacancy loss for the year ended December 31 2012 remained flat at 4.6%.  Vacancy loss increases of 1.7% in the Northwest Territories and 1.9% in Nunavut were offset by decreases in Alberta, Newfoundland and British Columbia. Our key regions in Alberta of Fort McMurray, Lloydminster and Grande Prairie all performed well with vacancy improvements.

On a same door basis, vacancy for the fourth quarter increased to 4.9% from 3.7% in 2011.  The increase is due to higher vacancy in northeastern BC and the Northwest Territories, offset in part by improvements in Alberta.

Acquisitions and development

2012 was a very active year on the acquisition front nearly doubling the total acquisitions from 2011. With the sale of substantially all of the seniors' portfolio we were able to acquire new residential properties as we continued to expand our multi-family portfolio bringing the total to 9,079 at the end of 2012. The year was highlighted by our entrance into several new regions including Abbotsford and Campbell River in BC, Sept Iles, QC as well as doubling our portfolio size in Nanaimo, BC. In total, NPR completed the acquisition of 1,500 residential units, three parcels of land for future development and 58,913 square feet of commercial property for a total cost of $130.5 million in 2012.

The exceptionally high asking prices for existing apartments have created a climate where construction of new multi-family residential property is possible.  While the cost of new construction is higher than the cost of older property, new property does not require the significant capital investment required to bring the buildings up to NPR's standard.  In addition, new property typically has higher consumer demand, commands better rental rates and has lower sustaining CAPEX requirement than older properties.

As a result, management has continued to increase NPR's development capacity during 2012. NPR completed 83 residential units in 2012 for $20.5 million and has another 601 multi-family residential units and approximately 31,000 square feet in office and industrial projects in various stages of development ranging from early planning to under construction. This includes residential projects in Lloydminster, AB, which are expected to be completed in Q1 2013, Labrador City, NL, Iqaluit, NU, Yellowknife, NWT and our first project in Regina, SK. In addition, a 25,500 square foot office project is being developed in Iqaluit, NU on land acquired in 2011 and has been 80% pre-leased to the Government of Canada.

Portfolio Summary (including joint ventures at 100% and discontinued operations) - December 31, 2012
Region	Multi-family	Execusuites & Hotels	Seniors' (Discontinued Operations)	Total Residential (units)	Commercial (sq ft)
British Columbia	2,831	-	-	2,831	123,164
Alberta	2,097	-	-	2,097	83,243
Newfoundland and Labrador	1,461	142	54	1,657	137,265
Northwest Territories	1,305	160	-	1,465	535,711
Nunavut	984	162	-	1,146	193,918
Saskatchewan	240	-	-	240	-
Quebec	161	-	-	161	-
Total	9,079	464	54	9,597	1,073,301

Financial strength
	(thousands of dollars, unless indicated otherwise)				For the years ended December 31,
					2012		2011		Change
	Total assets				$1,350,072		$1,333,073		1.3%
	Debt to gross book value (fair value)				41.0%		47.8%		(6.8 pts)
	Interest coverage ratio (times)				3.65		3.35		0.30
	Debt service coverage ratio (times)				2.17		2.06		0.11
	Weighted average mortgage interest rate				4.37%		4.57%		(0.2 pts)
	Weighted average term to maturity (years)				4.1		5.2		(1.1)
	Weighted average capitalization rate				8.0%		8.1%		(0.1 pts)

NPR believes it has one of the healthiest balance sheets in the Canadian multi-family space. Debt to gross book value is at 41.0%. This is due, in part, to decisions made by Management to fund acquisitions and developments with cash from the sale of the seniors' portfolio. The completion of a $65 million equity offering in March 2012, $40.5 million of unused operating facilities and over $100 million in up-financing opportunities on the existing properties leaves NPR well situated to take advantage of acquisition and development opportunities as they arise.

Distributions to Stapled Unit holders

During the year ended December 31, 2012, NPR declared monthly cash distributions of $0.1275 (2011 -$0.1275) per stapled unit. On December 6, 2012 NPR declared a special cash distribution of $0.56 related to the sale of its senior`s portfolio, which was paid on December 28, 2012.  The sale of NPR's seniors' portfolio resulted in an increase in taxable income for the 2012 financial year. Payment of the special distribution was to distribute 100% of taxable income generated by the REIT, from the sale of the seniors' properties, to its unitholders.

Tax Matters

Bill C-48, which proposes certain relieving amendments to the definition of "real estate investment trust" (a "Tax REIT") in the Income Tax Act (Canada), received second reading in the House of Commons on March 8, 2013.  The amendments, when enacted, will apply to the REIT as of January 1, 2011.  The REIT is expected to qualify as a Tax REIT in accordance with Bill C-48 once it is enacted.

On July 25, 2012, the Department of Finance released draft legislation which proposes to amend the Tax Act with respect to the taxation of stapled securities arrangements (the "Stapled Securities Proposals").  The Stapled Securities Proposals will, when enacted, apply to NPR as of January 18, 2012 to deny NorSerCo's deduction of expenses paid or payable to the REIT, including rent paid by NorSerCo to the REIT in respect of various execusuite and health care properties.  NPR estimated that these proposals would have resulted in an additional $150,000 of income tax per month to be paid by NPR.  In order to eliminate this additional tax, NorSerCo began, with the approval of its shareholders, to sell its execusuite operations to the REIT in 2012 while continuing in a way that allows NPR to maintain its status as a Tax REIT.  As a result of such sales to date, NorSerCo has reduced its additional tax under the Stapled Securities Proposals to approximately $37,000 per month.

As a result of the special meeting of shareholders of NorSerCo, NorSerCo intends to sell its remaining properties, consisting of its execusuite property in St. John's, NL and its joint venture interest in Inuvik, NT, to the REIT when it can do so without risking its status as a Tax REIT.   The Stapled Securities Proposals have not yet been tabled in the House of Commons.

Additional Information

NPR's audited combined financial statements and the notes thereto and Management's Discussion and Analysis for the year ended December 31, 2012 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, March 14, 2013 at 11:00 a.m. Mountain Time, 1:00 p.m. Eastern Time. Participating on the call will be Mr. B. James Britton, Chief Executive Officer, (Chair), 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 March 14, 2013 to March 21, 2013 by calling 416-849-0833 or 1-855-859-2056, passcode #89560032. The recording will also be available on our website on March 15, 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 December 31, 2012 NPR has 9,597 residential units and 1,073,301 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.

Non-GAAP measures

Certain measures in this press release do not have any standardized meaning as prescribed by generally accepted accounting principles, and, therefore, are considered non-GAAP. 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 are widely accepted measures of performance for Canadian real estate investment trusts, however are not defined by IFRS. In addition, these measures are subject to the interpretation of definitions by the preparer of financial statements and may not be applied consistently between real estate entities.

 

 

SOURCE: Northern Property Real Estate Investment Trust

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