News Column

Northern Property REIT reports second quarter 2014 financial results and acquisition of 247 multi-family units in Slave Lake, AB

August 12, 2014

CALGARY, Aug. 12, 2014 /CNW/ - Northern Property Real Estate Investment Trust (the "REIT" or "NPR") (NPR.UN - TSX) today announced financial results for the three and six months ended June 30, 2014. NPR reported second quarter funds from operations ("FFO") per Trust Unit of $0.61, a 7% increase compared to $0.57 in the second quarter of 2013.

Todd Cook, President and CEO commented, "We are pleased with the improvements in financial results compared to the same period in 2013. Our new developments and acquisitions as well as improvements in vacancy in British Columbia and Nunavut contributed to the growth in FFO."

Mr. Cook continued, "We are excited about our entrance into Slave Lake, AB with the acquisition of 247 newer multi-family units that will be immediately accretive. Our development program is in full swing with 418 multi-family units under development.  These accretive developments will have cap rates ranging from 7.0% - 8.5% and we are on our way to meeting our goal of starting 600 - 800 units per year.

As we look to the rest of 2014, we are encouraged by the improved results in the second quarter, lower vacancy and a continued healthy balance sheet as our leverage ratios remain strong. These trends are expected to continue in the upcoming quarters as we allocate significant resources and efforts to leasing, customer service and the maintenance of our properties."



 Financial Performance Highlights    
(thousands of dollars except per trust unit and

percentage amounts)
Three months ended June 30Six months ended June 30
  2014 2013 Change 2014 2013 Change
Total revenue 46,102 42,725 7.9% 91,510 84,636 8.1%
Net operating income 27,613 26,230 5.3% 51,485 49,658 3.7%
Net and comprehensive income 14,937 15,219 (1.9%) 33,050 32,560 1.5%
FFO 19,432 18,206 6.7% 35,010 34,083 2.7%
FFO per Trust Unit, basic and diluted $0.61$0.57 7.0% $1.10$1.06 3.8%
FFO payout ratio 64.8% 67.2% (2.4%) 72.0% 71.8% 0.2%
Distributions declared to Trust Unit holders 12,591 12,236 2.9% 25,211 24,469 3.0%
Distributions per Trust Unit $0.40$0.38 5.3% $0.79$0.77 2.6%

Net operating income ("NOI") and FFO are considered non-GAAP measures and do not have any standardized meaning as prescribed by generally accepted accounting principles ("GAAP"). See "Non-GAAP and additional GAAP measures" below.



FFO

FFO per unit increased 7.0% from 2013 to $0.61 as a result of higher NOI. This was partially offset by the increase in mortgage interest expense due to the higher mortgage and credit facility balances.

For the second quarter of 2014, NPR reported an NOI increase of 5.3% from the same period of 2013, reflecting increases in the multi-family and commercial business segments, partially offset by a decline in execusuites and hotel NOI. Multi-family NOI Increased 8.4% for the three months ended June 30, 2014, driven mostly by acquisitions and developments offset by increased vacancy, utility, property tax and salary costs. Commercial NOI had a 6.7% increase compared to 2013, due to new developments in Iqaluit, NU and St. John's, NL. Execusuites and hotel NOI decreased by 37.1%, compared to 2013, as the execusuites and hotel properties experienced lower occupancy due to increased competition and lower government and industry travel in the North.

Same door NOI decreased 2.0% for the three months ended June 30, 2014 when compared to the same period in 2013, however, improved significantly from the 6.9% decline realized in the first quarter of 2014. The negative same door growth in the second quarter was attributable to higher vacancy in Fort McMurray, AB and Yellowknife, NT. This was partially offset by the vacancy improvements in British Columbia and Newfoundland.

From a business segment perspective, multi-family same door NOI was down 1.0%, commercial increased 8.0% and the execusuites and hotel segment declined 37.1% for the three months ended June 30, 2014. The execusuites and hotel segment accounted for half of the same door NOI decline on a dollar basis, while it only accounted for 4% of overall NOI.

Stabilized vacancy for the three months ended June 30, 2014 was 7.1%.  While vacancy remains high in the key markets of Yellowknife, NTand Fort McMurray, AB, there are signs of improvement with decreases in vacancy noted in British Columbia, Newfoundland and Labrador, Saskatchewan and Nunavut.



Residential Stabilized Vacancy Loss    
Region Q1 2014 Q2 2014
British Columbia 14.0% 11.2%
Alberta 6.5% 6.8%
Newfoundland and Labrador and Quebec 5.0% 4.1%
Northwest Territories 11.9% 12.2%
Nunavut 1.8% 1.7%
Saskatchewan 6.5% 5.6%
Overall 7.8% 7.1%



Total residential vacancy loss for the three months ended June 30, 2014 was 8.2% compared to 8.8% in the first quarter of 2014 and 6.5% for the same period of 2013.

Acquisitions

During the three months ended June 30, 2014, 247 residential units were acquired in Slave Lake, AB and 32 units in Lloydminster, AB. The units in Slave Lake are newer product with a mix of one, two and three bedroom units.  The buildings were purchased for an average of $122,000 per unit with a going in Cap Rate of 7.0%. The 32 units in Lloydminster are townhomes and were purchased for $137,500 per unit with a going in Cap Rate of 7.2%.

Development

The second quarter of 2014 saw the completion of 24 multi-family units on excess land in Yellowknife, NT. The project was completed for a total cost of $7.4 million or $308,000 per unit and an expected Cap Rate of 7.2%. Demand is strong for this project with 21 out of the 24 units rented, 10 of the units leased to a government agency with a long term lease.

NPR's development program currently has 418 multi-family units under construction with 142 units in Grande Prairie, AB, 118 units in Fort St. John, BC and 158 units in Lloydminster, AB.  The total expected cost is approximately $63.0 million with expected cap rates ranging from 7.0% to 8.5%.



Portfolio Summary (including joint ventures at 100%) - June 30, 2014        
ProvinceMulti-familyExecusuites &

Hotel
Total Residential

(units)
Commercial

(sq. ft.)
Alberta 2,747 - 2,747 83,243
British Columbia 2,857 - 2,857 86,238
Newfoundland and Labrador 1,643 142 1,785 196,695
Northwest Territories 1,329 160 1,489 533,483
Nunavut 1,096 117 1,213 241,295
Quebec 161 - 161 -
Saskatchewan 429 - 429 -
Total10,26241910,6811,140,954



Financial Strength

           
(thousands of dollars except per trust unit and percentage amounts) June 30, 2014December 31, 2013     Change
Total assets 1,606,920 1,516,822     5.9%
Debt to gross book value 47.4% 45.0%     2.4%
Interest coverage ratio (times) 3.76 3.87     (2.8%)
Debt service coverage ratio (times) 2.09 2.20     (5.0%)
Weighted average mortgage interest rate 3.78% 3.84%     (6 bps)
Weighted average term to maturity (years) 4.76 4.76     (0.8%)
Weighted average capitalization rate 7.99% 8.01%     (0.02 %)

Debt to gross book value, debt service coverage ratio and interest coverage ratio are considered non-GAAP measures and do not have any standardized meaning as prescribed by GAAP. See "Non-GAAP and additional GAAP measures" below.



NPR's financial ratios have declined in the quarter as a result of the continued leveraging of the recent acquisitions and new developments, the negative impact of higher utility costs and higher vacancy on net income in 2014. However, NPR's balance sheet remains healthy as all of its ratios continue to be strong. During the three months ended June 30, 2014, NPR completed $94.5 million in mortgage financings and renewals with a weighted average interest rate of 3.71% and a term to maturity of 5.9 years.  The proceeds were used to repay existing mortgages and fund acquisitions and developments.

Distributions to Trust Unit holders

During the three months ended June 30, 2014, NPR declared monthly cash distributions of $0.1317 per Trust Unit for a total of $12.6 million (June 30, 2013 - $12.2 million).

Normal Course Issuer Bid ("NCIB")

During the three months ended June 30, 2014, the REIT purchased and subsequently cancelled 31,800 Trust Units under its NCIB for total consideration of $0.9 million. Since the commencement of the NCIB in August 2013, NPR has repurchased 232,100 Trust Units for total consideration of $6.3 million.

On July 31, 2014, the Toronto Stock Exchange ("TSX") approved NPR's renewal of its NCIB. NPR's NCIB will be made in accordance with the policies of the TSX. NPR may purchase Trust Units during the period from August 6, 2014 to August 5, 2015, or an earlier date should NPR complete its purchases. NPR will pay the market price at the time of acquisition for any Trust Units in accordance with the rules and policies of the TSX and applicable securities laws.  Purchases under the NCIB will be funded out of NPR's working capital.

NPR is authorized to purchase, in a 12 month period, up to 3,095,587 Trust Units, representing 10% of its public float, through the facilities of the TSX and other Canadian trading platforms. On any trading day, NPR will not purchase more than 12,474 Trust Units, which is equal to 25% of NPR's average daily trading volume over the last six months, except where such purchases are made in accordance with the block purchase exemptions under the TSX rules.

Financial Statements

NPR's unaudited condensed consolidated interim financial statements and the notes thereto and Management's Discussion and Analysis for the three and six months ended June 30, 2014 can be found on NPR's website at www.npreit.com or on www.sedar.com.

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, prospects for long-term vacancy rates. 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 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 and additional GAAP measures

Certain measures in this news release do not have any standardized meaning as prescribed by GAAP and, therefore, are considered non-GAAP measures.  These measures are provided to enhance the reader's overall understanding of our current financial condition.  They are included to provide investors and management with an alternative method for assessing our operating results in a manner that is focused on the performance of our ongoing operations and to provide a more consistent basis for comparison between periods. These measures include widely accepted measures of performance for Canadian real estate investment trusts; however, the measures are not defined by IFRS. In addition, these measures are subject to the interpretation of definitions by the preparers of financial statements and may not be applied consistently between real estate entities.

Please refer to page 22 of our second quarter 2014 MD&A for definitions of non-GAAP and additional GAAP measures to their closest GAAP measure, including NOI, FFO, debt to gross book value, debt service coverage and interest coverage.

Results Conference Call

NPR's conference call will take place on Wednesday, August 13, 2014 at 11:00 a.m. Mountain Time, 1:00 p.m. Eastern Time. Participating on the call will be Mr. Todd Cook (Chair), President and Chief Executive Officer, and Mr. Robert Palmer, Chief Financial Officer. Investors and analysts are invited to participate in the call by calling 1-888-231-8191 or 647-427-7450. You will be required to provide the Conference Call Operator with the Conference ID #61134009 prior to being admitted to the call. A recorded playback of the call will be available from August 13, 2014 to August 20, 2014 by calling 416-849-0833 or 1-855-859-2056, passcode #61134009. The recording will also be available on our website on August 13, 2014.

Corporate Profile

NPR is primarily a multi-family residential real estate investor, providing a broad spectrum of rental accommodations in Canadian secondary markets. NPR focuses on communities with strong economic fundamentals where capitalization rates are generally higher and competition is somewhat restrained. NPR's residential portfolio is comprised of a multi-family segment: apartments, town homes and single family rental units; and execusuites and hotel where the rental period ranges from a few days to several months. NPR also has a portfolio of commercial buildings focused on government tenancies predominantly located in the Northwest Territories and Nunavut. Geographically, NPR operates in Alberta, British Columbia, Newfoundland and Labrador, the Northwest Territories, Nunavut, Quebec and Saskatchewan. The value of NPR's real estate at June 30, 2014 was $1.5 billion with 10,681 residential units and 1,140,954 square feet of commercial space. NPR is traded on the TSX under the ticker symbol: NPR.UN.

 

 

SOURCE Northern Property Real Estate Investment Trust


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