NPR Reports Second Quarter 2012 Financial Results

CALGARY, Aug. 14, 2012 /CNW/ - Northern Property REIT and NorSerCo Inc. (NPR.UN - TSX) announced its financial results for the three and six months ended June 30, 2012.  The Financial Statements and MD&A for the entities are reported on a combined basis at SEDAR.com under Northern Property Real Estate Investment Trust.

HIGHLIGHTS:

• Disposal of seniors properties nears completion - 1 Newfoundland property remains
• Three month FFO of $0.60 per unit; FFO payout ratio of 64.0%
• Six month vacancy loss of 3.6%, down from 4.9% for the same period in 2011
• Deferred and current tax expenses recorded while awaiting first reading of December 16, 2010 SIFT legislation

Financial Performance at a Glance
(Thousands of dollars except per unit amounts)			Three Months Ended June 30		Six Months Ended June 30
Total Operations		2012	2011	2012	2011
Total revenue		42,454	38,106	85,255	74,809
Net Operating income		27,435	25,531	53,911	48,686
FFO from operations *		18,883	16,667	36,428	31,366
FFO per stapled unit, basic *		$0.60	$0.59	$1.19	$1.13
FFO payout ratio *		64.0%	63.1%	64.1%	67.1%
Distributions paid		12,094	10,760	23,359	21,026
Distributions per stapled unit		$0.383	$0.383	$0.383	$0.383
Units outstanding (weighted average)		31,725,005	28,227,220	30,724,025	27,850,729
		Fair Value		Historical Cost
		June 30,	December 31,	June 30,	December 31,
		2012	2011	2012	2011
Debt to Gross Book Value		35.4%	47.8%	41.2%	52.8%
* Excluding SIFT current income taxes

 "NPR's property portfolio performed to expectations in Q2", said Jim Britton, NPR's President and CEO.  "Portfolio vacancy was considerably lower than a year earlier and has remained steady at 3.6% for both Q1 and Q2 of 2012."  The REIT recorded FFO of $0.60 per unit in Q2 of 2012, up slightly from $0.59 for the same quarter a year earlier.  Six month FFO was $1.19 per unit for 2012 up 5.3% over the same period a year earlier.  NPR is seeing considerable strength in some markets but evidence of weakness in others.  Residential property operations were strong in Newfoundland, Nunavut and Yellowknife in the Northwest Territories.  Conditions were relatively steady in northern Alberta and Vancouver Island. Indications of an economic slowdown are being observed in Inuvik and in north eastern British Columbia which are expected to contribute to higher apartment vacancy.

The sale of NPR's seniors' portfolio was substantially completed in Q2.  Following the sale of one Newfoundland asset in Q1, eight additional Newfoundland properties were sold during Q2 for $35.8 million.  Proceeds were used to retire $4.3 million of long term debt which had been held on the properties.  $5.8 million of five year vendor take back mortgages at 6% were provided by NPR in connection with the transactions.  One Newfoundland property remains to be sold, hopefully by the end of 2012.  On June 20, NPR sold its six western seniors properties for $160.0 million.  Long term debt of $91.9 million was assumed by the purchaser.  Cash proceeds of $66.0 million were received by NPR net of closing costs.  The Q2 sales of seniors' buildings, happening as they did at various times during the quarter, resulted in a reduction of approximately $0.02 of FFO during Q2.  A greater impact on quarterly FFO can be expected in the next 4 quarters while the REIT redeploys excess cash and balance sheet capacity in property acquisition and development.

In the absence of the Government of Canada arranging first reading of the legislation announced December 16, 2010 respecting amendments to the exemptions for REITs from the tax rules for income funds (the "SIFT Rules"), NPR has had to report significant current and deferred taxes in its financial statements.  There is a serious disconnection between the rules of the accounting profession and actual taxation in Canada.  Accounting rules require financial statements to be presented on the basis of existing law or law which is substantially enacted, that is to say, having received first reading in Parliament when there is a majority government.  However, the long standing policy of the Canada Revenue Agency is to administer and levy tax based upon publicly released proposed amendments to tax legislation.  That certainly includes the amendment to the tax exemptions for REITs announced by the Minister of Finance on December 16, 2010 and promised again in the Budget 2012 address.  On the date that the Government tables the December 16, 2010 legislation, NPR will be in a position to reverse the provision for $173.4 million of deferred and $14.5 million of current taxes booked in Q2, 2012.  Neither NPR nor its advisors believe that NPR will be required to pay any tax under the SIFT Rules, despite recording the deferred and current taxes for accounting purpose in its financial statements.

As approved by NorSerCo shareholders on July 13, 2012, the business assets of NorSerCo are being sold to Northern Property Real Estate Investment Trust systematically while ensuring that the 10% allowance for non-qualifying assets and revenue under the proposed REIT exemptions to the SIFT Rules are always observed.  NPR expects that the remaining business assets of NorSerCo, namely Hillview Terrace Suites operations and the Inuvik Capital Suites joint venture, will be sold to the Trust in 2013.  NorSerCo will be subject to taxation under the recent stapled security amendments to the Income Tax Act until the remaining assets of NorSerCo are disposed and the entity is wound up.

During the quarter, NPR acquired:

• 101 residential units in Labrador City, NL for $9.6 million
• 343 units in Abbotsford and Mission, BC for $28.2 million

Subsequent to quarter end, NPR:

• closed on 114 units in Campbell River, BC for $8.9 million
• and 52 units in Nanaimo, BC for $5.5 milion.
• The REIT has 156 units in Prince George, BC under contract for $9.1 million expected to close in early September.

NPR is working on a significant number of potential acquisitions including some in new market areas.  Vendor price expectations are elevated due to cap rate compression.  NPR's experience, however, is that most family property owners eventually become sellers.  If patience is exercised, a price that works for both sides can eventually be found.

The REIT continues to view multi-family residential development as a major element of its growth.

• During Q2 NPR acquired multi-family development lands suitable for 142 units in Lloydminster, AB.  Development is underway and completion of the $17.8 million project is expected in Q2 of 2013.
• A $3.3 million investment in multi-family land in Regina closed in Q2 and a development permit for 189 units was acquired recently.  The Regina project is slated to begin construction in the spring of 2013 for a total development cost of approximately $25.6 million.
• A 31 unit, $5.6 million apartment building in Labrador City is expected to receive development approval by the end of August.  Construction is scheduled to begin in September 2012.
• The REIT expects development approval and a fall construction start on a 25,500 square foot office building in Iqaluit which is 80% pre-leased to the Government of Canada.  The budgeted total development cost is $12.2 million with occupancy expected in 12 months.
• Development is underway on 40 residential units in Iqaluit at a budget of $10.3 million.
• Development approval has been obtained for a 58 unit development in Yellowknife with a development budget of $12.1 million. Construction has been postponed until the Spring of 2013.
• A 79 unit project commenced in Iqaluit in the fall of 2011 was recently completed for a total cost of approximately $17.5 million.  Leasing is 56% complete.

With the sale of its seniors' properties, NPR looks forward to continued acquisitions, significant new development activity and further diversifying into new markets.

Forward-Looking Statements

This news release contains forward‐looking statements relating to our growth strategy, purchasing activity, completion of apartments for which development approvals have been obtained, commencement of development of new buildings, federal rules respecting the 10% qualifying exemption for REITs, sale of our master leased seniors building in Newfoundland and our western seniors' portfolio.  These statements are not guarantees of future events, performance or results and will not necessarily be accurate indications of whether, or the times at which, such events, performance or results will be achieved.

Forward-looking statements are based on information available at the time they are made, underlying estimates and assumptions made by management and management's good faith belief with respect to future events, performance and results, and are subject to inherent risks and uncertainties surrounding future expectations generally which could cause actual results to differ materially from what is currently expected. Such risks and uncertainties include, but are not limited to risks associated with investment in and development of real property, competition, financing and refinancing risks, risks related to economic conditions, changes in taxation rules, reliance on key personnel, environmental matters, tenant risks, and other risk factors more particularly described in the our most recent Annual Information Form available on SEDAR at www.sedar.com.  Additional risks and uncertainties not presently known to NPR or that NPR currently believes to be less significant may also adversely affect NPR.

Readers are cautioned that the above list of factors is not exhaustive and that should certain risks or uncertainties materialize, or should underlying estimates or assumptions prove incorrect, actual events, performance and results may vary significantly from those expected. There can be no assurance that the actual results, performance, events or activities anticipated by NPR will be realized or, even if substantially realized, that they will have the expected consequences to, or effect on, NPR.  Readers, therefore, should not place undue importance on forward-looking information.  Further, forward‐looking statements speak only as of the date on which such statements are made.  NPR disclaims any intention or obligation to update or revise any forward-looking information, whether as a result of new information, future events or otherwise, except as required under applicable securities laws.

 

SOURCE: Northern Property Real Estate Investment Trust

David Leiman, CFO, 403-531-0720.