CALGARY, Nov. 12 /CNW/ - Northern Property REIT (NPR.UN - TSX) announced its financial results for the 3 and 9 months ended September 30, 2008.
HIGHLIGHTS:
- Rental market conditions continue to be positive
- Q3 2008 DIPU of $0.565 up 12% from Q3 2007
- FFO per unit increases 10% to $0.574 vs $0.52 in Q3 2007
- Payout ratio of 72% of distributable income for first 9 months of
2008
- Same door NOI growth of 6.2% for the first 9 months of 2008 compared
to the same period of 2007
Financial Performance at a Glance
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Earnings Comparison
In $000's except Three Months Ended Nine Months Ended
per unit amounts September 30 September 30
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2008 2007 2008 2007
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Total revenue 32,678 28,425 95,244 75,444
Net operating income 22,187 19,486 62,881 49,714
Comprehensive
earnings (loss) 4,210 6,619 16,225 (121)
Distributable Income(x) 14,128 12,379 38,579 29,776
Distributable Income
per unit(x) $ 0.565 $ 0.506 $ 1.542 $ 1.370
Distribution to
unitholders 9,264 8,616 27,777 22,654
Distributions per unit $ 0.370 $ 0.345 $ 1.110 $ 1.035
Payout ratio 65.6% 69.6% 72.0% 76.1%
FFO (x) 14,366 12,727 39,321 30,631
FFO per unit(x) $ 0.574 $ 0.520 $ 1.571 $ 1.409
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Total property revenue in the third quarter of 2008 increased to $32.7 million up 15% from $28.4 million in the third quarter of 2007. During the same period, Net Operating Income rose to $22.2 million from $19.5 million, an increase of 14%.
"NPR posted strong results again in Q3", said Jim Britton, NPR President and CEO. "During the quarter we experienced positive occupancy and continued growth in net operating income. In addition, the upward pressure we have felt on operating costs has moderated somewhat".
In the key market areas of Newfoundland, Fort McMurray and Yellowknife robust rental market conditions have been experienced. Northern British Columbia, which typically has high vacancy relative to Canadian norms, had improved financial performance as natural gas exploration, wind farm and coal industry activity offset weakness in forestry. Apartment rental market conditions in Grande Prairie and Inuvik were somewhat weaker. NPR's executive suite portfolio had a strong quarter and its master leased seniors' buildings performed to expectations. NPR's commercial operations, the majority of which are in the NWT and Nunavut, performed well during the quarter.
"The exceptional volatility in the capital markets has again caused us to slow down acquisition activity", Mr. Britton went on to say. "In the immediate future, our top priority is to maintain Northern Property's very strong financial position."
While conditions are challenging relative to portfolio growth, NPR maintains conservative operating fundamentals. Its payout ratio of 72%se of distributable income is among the lowest among Canadian REITs. At the end of the quarter, debt was 56% of Gross Book Value. Its weighted average cost of debt has declined to 5.21% from 5.39% at December 31, 2008. Interest coverage was 3 times EBITDA for the first 9 months of 2008.
During Q3, NPR booked additional future income tax expense as a result of refinements to its calculation of temporary differences between accounting and tax values of NPR's assets. The related charge to the net income of NPR amounted to $2.7 million which was booked during Q3. NPR management has commenced its review of its operations and expects to be able to make changes to its structure and operations in order to qualify for the REIT exemption prior to 2011. Until that process is complete, NPR is carrying a total associated future income tax charge in the amount of $19.4 million.
Some notable business successes recorded during Q3 include the completion and leasing of a commercial development in Yellowknife and a new apartment building in Dawson Creek. NPR was awarded a long term lease for the government's consolidated medical clinics in Yellowknife. A 25 unit expansion to a seniors' facility in Newfoundland was concluded and closing took place on a 22 unit townhome acquisition in Nanaimo.
NORTHERN PROPERTY REAL ESTATE INVESTMENT TRUST
Consolidated Balance Sheets
(Thousands of dollars)
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September 30, December 31,
2008 2007
Unaudited
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ASSETS
Rental properties and other capital assets
(Note 4) 797,392 765,447
Capital improvements in progress 6,917 1,957
Capital assets under development 7,793 1,257
Prepaid expenses and other assets (Note 5) 7,713 12,893
Accounts receivable (Note 17) 5,591 5,059
Tenant security deposits 3,544 2,917
Deferred rent receivable 2,950 2,039
Loans receivable 491 479
Intangible assets (Note 6) 6,463 7,062
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838,854 799,110
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LIABILITIES
Mortgages and loans payable (Note 7) 440,275 401,909
Bank indebtedness (Note 8) 31,978 25,304
Accounts payable and accrued liabilities 16,461 13,993
Distributions payable 3,092 3,083
Future income tax liability (Note 11) 39,216 36,183
Intangible liabilities (Note 6) 346 571
Non-controlling interest 446 -
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531,814 481,043
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UNITHOLDERS' EQUITY 307,040 318,067
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838,854 799,110
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See accompanying notes to the consolidated financial statements.
Guarantees, commitments and contingencies (Note 14)
Subsequent events (Note 19)
APPROVED BY THE BOARD
Trustee
Trustee
NORTHERN PROPERTY REAL ESTATE INVESTMENT TRUST
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
2008 2007 2008 2007
Unaudited Unaudited Unaudited Unaudited
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REVENUE
Rental revenue 31,919 27,765 92,982 73,816
Other property income 759 660 2,262 1,628
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32,678 28,425 95,244 75,444
Operating expenses (10,491) (8,939) (32,363) (25,730)
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22,187 19,486 62,881 49,714
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EXPENSES
Interest on mortgages (6,157) (5,351) (18,260) (14,709)
Amortization (6,604) (6,048) (19,580) (15,751)
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(12,761) (11,399) (37,480) (30,460)
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EARNINGS FROM CONTINUING
OPERATIONS BEFORE THE
UNDERNOTED 9,426 8,087 25,041 19,254
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OTHER INCOME (EXPENSES)
Trust administration (1,634) (1,443) (5,479) (4,069)
Interest on operating
facility (293) (246) (1,026) (1,158)
Interest and other income 111 197 413 617
Gain on settlement of debt 23 146 587 1,350
Gain on sale of rental
properties - - 136 76
Non-controlling interest (26) - (58) -
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(1,819) (1,346) (5,427) (3,184)
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EARNINGS FROM CONTINUING
OPERATIONS BEFORE
INCOME TAXES 7,607 6,741 19,614 16,070
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INCOME TAX RECOVERY
(EXPENSE) (Note 11)
Current (128) (116) (306) (347)
Future (2,795) 72 (3,033) (15,761)
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(2,923) (44) (3,339) (16,108)
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EARNINGS (LOSS) FROM
CONTINUING OPERATIONS 4,684 6,697 16,275 (38)
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EARNINGS (LOSS) FROM
DISCONTINUED OPERATIONS - - - (5)
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NET EARNINGS (LOSS) 4,684 6,697 16,275 (43)
Other comprehensive loss (474) (78) (50) (78)
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COMPREHENSIVE EARNINGS
(LOSS) 4,210 6,619 16,225 (121)
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Net Earnings (loss)
per unit (Note 13)
Basic and diluted:
Continuing operations $ 0.19 $ 0.27 $ 0.65 $ (0.00)
Discontinued operations - - - -
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$ 0.19 $ 0.27 $ 0.65 $ (0.00)
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See accompanying notes to the consolidated financial statements.
NORTHERN PROPERTY REAL ESTATE INVESTMENT TRUST
Consolidated Statements of Unitholders' Equity
(Thousands of dollars)
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Cumulative Cumulative Cumulative
Capital Contributed Net Distri-
Unaudited (Note 12) Surplus Earnings butions
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December 31, 2007 366,789 1,023 63,354 (113,154)
Comprehensive earnings - - 16,275 -
Distributions to
unitholders - - - (27,777)
Issuance of units - - - -
Issuance costs (8) - - -
Unit based compensation - 533 - -
Long term incentive
units granted - - - -
Long term incentive
plan units issued 665 (665) - -
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September 30, 2008 367,446 891 79,629 (140,931)
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Accumulated
Other
Compre-
hensive
Unaudited Earnings Total
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December 31, 2007 55 318,067
Comprehensive earnings (50) 16,225
Distributions to
unitholders - (27,777)
Issuance of units - -
Issuance costs - (8)
Unit based compensation - 533
Long term incentive
units granted - -
Long term incentive
plan units issued - -
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September 30, 2008 5 307,040
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Cumulative
Cumulative Net Cumulative
Capital Contributed Earnings Distri-
Unaudited (Note 12) Surplus (Loss) butions
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December 31, 2006 261,730 1,249 55,664 (81,463)
Comprehensive earnings
(loss) - - (43) -
Distributions to
unitholders - - - (22,654)
Issuance of units 109,031 - - -
Issuance costs (4,598) - - -
Long term incentive
units granted - - - -
Long term incentive
plan units issued - (1,025) - -
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September 30, 2007 366,163 224 55,621 (104,117)
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Accumulated
Other
Compre-
hensive
Unaudited Earnings Total
-----------------------------------------------
December 31, 2006 - 237,180
Comprehensive earnings
(loss) (78) (121)
Distributions to
unitholders - (22,654)
Issuance of units - 109,031
Issuance costs - (4,598)
Long term incentive
units granted - -
Long term incentive
plan units issued - (1,025)
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September 30, 2007 (78) 317,813
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See accompanying notes to the consolidated financial statements.
NORTHERN PROPERTY REAL ESTATE INVESTMENT TRUST
Consolidated Statements of Cash Flows
(Thousands of dollars)
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Three Months Ended Nine Months Ended
September 30 September 30
2008 2007 2008 2007
Unaudited Unaudited Unaudited Unaudited
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CASH FLOWS RELATED TO
THE FOLLOWING ACTIVITIES:
OPERATING
Net earnings (loss)
from continuing
operations 4,684 6,697 16,275 (38)
Adjustments for:
Deferred rental revenue (281) (328) (912) (885)
Amortization 6,604 6,048 19,580 15,751
Amortization of fair
value of debt 147 95 402 211
Amortization of above
and below market leases (104) (115) (232) (181)
Gain on settlement
of debt (23) (146) (587) (1,350)
Gain on sale of
rental properties - - (136) (76)
Non-controlling interest 26 - 58 -
Unit-based compensation 306 200 1,156 588
Future income taxes 2,795 (72) 3,033 15,761
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14,154 12,379 38,637 29,781
Cash flows used in
discontinued operations - - - (5)
Changes in non-cash
working capital 741 2,904 2,458 (4,803)
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14,895 15,283 41,095 24,973
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FINANCING
Proceeds from public
offering (net of
issue costs) - 100,426 (8) 100,395
Proceeds from mortgages
and loans 6,708 31,388 88,273 60,508
Proceeds of
acquisition facility - - - 9,058
Payments (to) from
non-controlling
interest (10) - 388 -
Repayment of mortgages
and loans payable (5,834) (8,577) (46,358) (31,435)
Repayment of
acquisition facility - (9,058) - (9,058)
Distributions to
unitholders (9,260) (8,094) (27,769) (22,114)
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(8,396) (106,085) 14,921 107,892
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INVESTING
Acquisition of rental
properties and other
assets (5,715) (101,252) (38,604) (124,160)
Proceeds from sale
of rental properties - - 395 538
Capital assets under
development (4,485) (115) (14,507) (1,878)
Building capital
maintenance (2,034) (1,343) (4,375) (3,330)
Capital improvements (2,554) (1,862) (5,204) (2,925)
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(14,788) (104,572) (62,690) (132,293)
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NET DECREASE (INCREASE)
IN BANK INDEBTEDNESS (8,289) 16,796 (6,674) 572
BANK INDEBTEDNESS,
BEGINNING OF PERIOD (23,689) (38,531) (25,304) (22,307)
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BANK INDEBTEDNESS,
END OF PERIOD (31,978) (21,735) (31,978) (21,735)
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SUPPLEMENTARY
INFORMATION
Interest paid 6,333 5,464 18,627 15,488
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Interest received 74 191 301 250
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Income taxes paid 141 103 580 103
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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
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") and are
consistent with those used in the audited consolidated financial
statements as at and for the year ended December 31, 2007, 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, 2007 audited consolidated financial
statements.
The REIT carries out certain of its activities through partnerships
and records its proportionate share of assets, liabilities, revenue
and expenses of all partnerships in which it participates.
Investments where the REIT exercises significant influence are
accounted for using the equity method.
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 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, 2008, NPR adopted CICA Handbook Section 1535,
Capital Disclosures. This section requires the disclosure of (i) an
entity's objectives, policies and process for managing capital;
(ii) quantitative data about an entity's managed capital;
(iii) whether an entity has complied with capital requirements; and
(iv) if an entity has not complied with such capital requirements,
the consequences of such non-compliance. This information has been
presented in Note 18.
Effective January 1, 2008, NPR adopted CICA Handbook Section 3862,
Financial Instruments - Disclosures and 3863 Financial Instruments -
Presentation. These sections require incremental disclosures
regarding the significance of financial instruments for the REIT's
financial position and performance; and the nature, extent and
management of risks arising from financial instruments to which the
REIT is exposed. This information has been presented in Note 17.
Effective January 1, 2008, NPR adopted CICA Handbook Section 3031,
Inventory. This section establishes standards for the measurement of
inventories, allocation of overhead, accounting for write-downs and
disclosures.
These new standards have no material impact on the REIT's
consolidated statement of earnings beyond additional disclosure in
the notes to the financial statements.
Recent accounting pronouncements
New accounting standards are anticipated regarding the accounting for
business combinations. The proposed CICA Exposure draft regarding
business combinations may result in a decrease in NPR's earnings
during periods in which acquisitions are completed as the proposed
accounting standards would require the expensing of acquisition costs
(such as legal costs) in connection with a business combination in
the period in which they are incurred. Currently these costs are
allocated to the cost of the assets acquired under the business
combination and amortized over the expected useful life of the
assets.
In February 2008, the CICA issued Section 3064, Goodwill and
Intangible Assets, replacing Section 3062, Goodwill and Other
Intangible Assets and Section 3450, Research and Development Costs.
Various changes have been made to other sections of the CICA Handbook
for consistency purposes. The new Section will be applicable to
financial statements relating to fiscal years beginning on or after
October 1, 2008. Accordingly, the REIT will adopt the new standards
for its fiscal year beginning January 1, 2009. It 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. NPR does not expect that the adoption of this
new Section will have a material impact on its consolidated financial
statements.
4. RENTAL PROPERTIES AND OTHER CAPITAL ASSETS
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September 30, 2008 December 31, 2007
Accumulated Net Accumulated Net
Amortiz- Book Amortiz- Book
Cost ation Value Cost ation Value
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Land 87,957 - 87,957 82,332 - 82,332
Buildings 763,294 70,864 692,430 724,355 55,525 668,830
Furniture,
fixtures
and
equipment 8,195 3,440 4,755 7,154 2,917 4,237
Vehicles 1,187 695 492 1,050 561 489
Capital and
leasehold
improve-
ments 20,966 9,208 11,758 16,317 6,758 9,559
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881,599 84,207 797,392 831,208 65,761 765,447
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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.
NPR acquired properties and completed development projects in the
three months ended September 30, 2008 for a total purchase price of
$12.9 million (2007 - $45.1 million). The acquisitions and
development projects were financed as follows:
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Three Months Ended Nine Months Ended
September 30 September 30
2008 2007 2008 2007
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Mortgages and
debt assumed - 41,158 - 47,553
Class B LP Units
issued - - - 3,000
Cash paid 12,949 100,432 45,105 129,173
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12,949 141,590 45,105 179,726
Fair value
adjustment to debt - 252 - 331
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Total purchase
price of property
acquisitions and
developments 12,949 141,842 45,105 180,057
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Residential units 70 341 333 623
Seniors' units 25 65 94 247
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95 406 427 870
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Commercial square
feet 15,204 307,748 40,328 361,449
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During the nine months ended September 30, 2008, the REIT disposed of
two properties for gross proceeds of $395,000 and a gain on sale of
$136,000.
5. PREPAID EXPENSES AND OTHER ASSETS
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September 30, December 31,
2008 2007
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Refundable deposits and mortgage
proceeds held in trust 760 7,998
Prepaid equity leases 2,210 2,339
Prepaid expenses 4,237 2,047
Other 506 509
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7,713 12,893
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6. INTANGIBLE ASSETS AND LIABILITIES
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September 30, 2008 December 31, 2007
Accumulated Net Accumulated Net
Amortiz- Book Amortiz- Book
Cost ation Value Cost ation Value
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Above-market
leases 173 107 66 313 97 216
In-place
leases 6,565 1,357 5,208 6,134 672 5,462
Lease
origination
costs 1,669 480 1,189 1,570 186 1,384
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8,407 1,944 6,463 8,017 955 7,062
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Below-market
leases 1,220 874 346 1,203 632 571
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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,
2008 2007
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Mortgages and loans payable 458,249 416,334
Fair value adjustment (8,599) (8,379)
Deferred financing costs (9,375) (6,046)
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440,275 401,909
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Mortgages and loans payable bear interest at rates ranging from 3.83%
to 12.13% and have a weighted average rate of 5.21% as at
September 30, 2008 (December 31, 2007 - 5.39%). Mortgages and loans
are payable in monthly installments of blended principal and interest
of approximately $3.2 million. The mortgages mature between 2008 and
2025 and are secured by charges against specific properties. Land and
buildings with a carrying value of $644.8 million have been pledged
to secure mortgages and loans payable of the REIT. The fair value of
mortgages payable at September 30, 2008 is approximately
$453.3 million (December 31, 2007 - $408.9 million).
Minimum future principal payments required are as follows:
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2008 (remainder of year) 22,038
2009 47,461
2010 27,088
2011 26,030
2012 43,133
Subsequent 292,499
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458,249
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8. BANK INDEBTEDNESS
NPR has a revolving line of credit in the amount of $50.0 million
(December 31, 2007 - $40.0 million) for acquisition and operating
purposes, bearing interest at prime or bankers' acceptance rate with
a maturity of May 31, 2009. Specific properties with a carrying value
of $88.0 million have been pledged as collateral security for the
line of credit. At September 30, 2008, NPR had utilized $32.0 million
(December 31, 2007 - $25.3 million).
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, 2007 43,586
Units vested and issued - January, 2008 (6,033)
Units vested and issued - February, 2008 (11,592)
Units vested and issued - May, 2008 (11,931)
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Balance - September 30, 2008 14,030
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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, 2008, a total of 155,219
LTIP units had vested and been issued (December 31, 2007 - 125,663).
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.
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 will vest on
May 20, 2009 and 244,997 will vest on May 20, 2010. No options have
been exercised through September 30, 2008.
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 and recognized over the vesting period. The following
assumptions were used in calculating the fair value of the options
granted; 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. Compensation expense for the three and nine month period
relating to options granted was $533,000 (2007 - $nil).
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 the REIT will contribute 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, 2008, employees
invested a total of $86,285 (2007 - $66,754) and the REIT contributed
$28,762 (2007 - $23,488). During the nine months ended September 30,
2008, 3,858 units (2007 - 4,070 units) were purchased at an average
cost of $21.96 per unit (2007 - $24.36 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 September 22, 2007, the Budget Implementation Act, 2007, Bill C-52
("Bill C-52") received Royal Assent. Bill C-52 will not apply to an
entity that qualifies for the real estate investment trust exemption
(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. Bill C-52 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.
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 19.63% to 29.5%.
NPR has certain capital assets which have a lower tax value than
their applicable accounting value. NPR has therefore recorded a
future tax liability of $9.7 million (December 31, 2007 - $10.0
million) using an expected income tax rate ranging from 19.63% to
29.5% (2007 - 19.63% to 29.5%).
The future tax liabilities arise from the temporary differences
summarized below:
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September 30, December 31,
2008 2007
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Future tax liabilities arising from
temporary differences between
accounting and tax basis of:
Rental property assets in corporate
subsidiaries 9,741 10,007
Acquisition of rental property assets
in a business combination 9,476 9,476
Rental properties 15,154 14,771
Other assets 4,845 1,929
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39,216 36,183
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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
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2008 2007 2008 2007
---------------------------------------------------------------------
Current income taxes 128 116 306 347
Future income taxes
(recovery) 2,795 (72) 3,033 15,761
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Total income tax
expense 2,923 44 3,339 16,108
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12. UNITHOLDERS' CAPITAL
Total 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, 2008 is 25,033,645
(December 31, 2007 - 25,004,089), representing net proceeds of
$367.4 million, net of issue costs of $19.6 million (December 31,
2007 - $366.8 million, net of issue costs of $19.6 million). The
number of units issued and outstanding is as follows:
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Class
Trust Issue B LP
Date Description Units Price Units
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December 31,
2007 22,536,988 2,467,101
January 02, LTIP units
2008 issued 6,033 $23.12 -
February 16, LTIP units
2008 issued 11,592 $22.35 -
May 26, 2008 LTIP units
issued 11,931 $22.35 -
Issue costs - - -
Class B LP units exchanged 158,466 - (158,466)
---------------------------------------------------------------------
September 30,
2008 22,725,010 2,308,635
---------------------------------------------------------------------
---------------------------------------------------------------------
---------------------------------------------------------------------
Issue Total
Date Description Price Units $
---------------------------------------------------------------------
December 31,
2007 25,004,089 366,789
January 02, LTIP units
2008 issued - 6,033 139
February 16, LTIP units
2008 issued - 11,592 259
May 26, 2008 LTIP units
issued - 11,931 267
Issue costs - - (8)
Class B LP units exchanged - - -
---------------------------------------------------------------------
September 30,
2008 25,033,645 367,446
---------------------------------------------------------------------
---------------------------------------------------------------------
Trust units
Total number of trust units of the REIT outstanding as at
September 30, 2008 is 22,725,010 (December 31, 2007 - 22,536,988)
representing a net book value of $337.2 million (December 31, 2007 -
$334.5 million), net of issue costs.
Class B Exchangeable Limited Partnership Units and Special Voting
Units
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, 2008, is 2,308,635 (December 31, 2007
- 2,467,101) representing a net book value of $30.2 million
(December 31, 2007 - $32.3 million).
13. NET EARNINGS (LOSS) PER UNIT
---------------------------------------------------------------------
Three Months Ended Nine Months Ended
September 30 September 30
---------------------------------------------------------------------
2008 2007 2008 2007
---------------------------------------------------------------------
Earnings (loss) from
continuing operations 4,684 6,697 16,275 (38)
Earnings (loss) from
discontinued
operations - - - (5)
---------------------------------------------------------------------
Net Earnings (loss) 4,684 6,697 16,275 (43)
---------------------------------------------------------------------
---------------------------------------------------------------------
Weighted average
units for basic
earnings
per unit 25,033,645 24,479,329 25,025,700 21,735,685
Effect of dilutive
units to be issued
in respect of
the LTIP 14,030 26,762 21,975 21,923
Dilutive effect of
Option Plan 30,431 - 14,665 -
---------------------------------------------------------------------
Weighted average
units for diluted
Earnings
per unit 25,078,106 24,506,091 25,062,340 21,757,608
---------------------------------------------------------------------
---------------------------------------------------------------------
Basic and diluted
Net Earnings (loss)
per unit:
Continuing
operations $0.19 $0.27 $0.65 $0.00
Discontinued
operations - - - -
---------------------------------------------------------------------
$0.19 $0.27 $0.65 $0.00
---------------------------------------------------------------------
---------------------------------------------------------------------
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, 2008 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, 2008, NPR has provided guarantees totaling
$7.0 million (December 31, 2007 - $14.4 million). Of this amount,
$3.5 million has been included in mortgages and loans payable
(December 31, 2007 - $7.2 million). The mortgages bear interest at
rates ranging from 4.54% to 6.10% and mature December, 2008 to
January, 2012 (December 31, 2007 - 4.54% to 7.50% and mature
September, 2008 to January, 2012). Land and buildings with a carrying
value of $5.9 million have been pledged to secure these mortgage and
loans payable.
NPR has entered into agreements for the development of the following
projects:
- A 79 unit multi-family residential property building located in
Fort St. John, BC on land previously acquired by NPR. Construction
commenced in September 2007 and was completed on November 1, 2008.
The estimated total cost of construction is approximately
$11.4 million.
- The development of a 189 unit multi-family residential apartment
building located in Grande Prairie, Alberta on land previously
acquired by NPR is expected to begin in 2008. The estimated total
cost of construction, including the original cost of land, is
approximately $22.9 million.
15. SEGMENTED INFORMATION
NPR considers residential rental, execusuites, seniors' and
commercial income producing properties to be separate segments
operating in five provinces and territories in Canada. The accounting
policies of the segments are as described in Note 2. Discontinued
operations are not allocated to individual segments. All items,
except gain on sale of rental properties and gain on settlement of
debt, included in the Consolidated Statement of Earnings are related
only to the REIT and are not allocated to the defined segments. As
such, NPR has not provided a reconciliation of Earnings from
Continuing Operations Before Other Items to Net Earnings. In 2007 and
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 (loss) 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,
2008 Alberta BC Nfld NWT Nunavut Total
---------------------------------------------------------------------
Residential
Rental 129,174 86,707 56,426 87,506 117,667 477,480
Execusuites - - 9,513 8,186 9,937 27,636
Seniors' 124,362 14,977 41,200 - - 180,539
---------------------------------------------------------------------
253,536 101,684 107,139 95,692 127,604 685,655
Commercial 9,418 21,475 1,231 92,554 21,403 146,081
Trust 7,118 - - - - 7,118
---------------------------------------------------------------------
TOTAL ASSETS 270,072 123,159 108,370 188,246 149,007 838,854
---------------------------------------------------------------------
---------------------------------------------------------------------
---------------------------------------------------------------------
December 31,
2007 Alberta BC Nfld NWT Nunavut Total
---------------------------------------------------------------------
Residential
Rental 119,189 60,875 55,963 88,633 122,730 447,390
Execusuites - - 9,921 7,438 10,015 27,374
Seniors' 126,006 14,238 32,923 - - 173,167
---------------------------------------------------------------------
245,195 75,113 98,807 96,071 132,745 647,931
Commercial 11,423 21,872 1,273 87,980 23,281 145,829
Trust 5,350 - - - - 5,350
---------------------------------------------------------------------
TOTAL ASSETS 261,968 96,985 100,080 184,051 156,026 799,110
---------------------------------------------------------------------
---------------------------------------------------------------------
Geographic Segments
---------------------------------------------------------------------
Three months ended
September 30,
2008 Alberta BC Nfld NWT Nunavut Total
---------------------------------------------------------------------
Rental revenue 8,271 3,497 4,527 9,191 6,433 31,919
Other income 229 128 99 240 63 759
Operating
expenses (1,853) (1,631) (1,510) (3,618) (1,879) (10,491)
---------------------------------------------------------------------
Net operating
income 6,647 1,994 3,116 5,813 4,617 22,187
Interest on
mortgages (2,528) (630) (553) (1,365) (1,081) (6,157)
Amortization (1,693) (818) (823) (1,847) (1,423) (6,604)
---------------------------------------------------------------------
EARNINGS FROM
CONTINUING
OPERATIONS
BEFORE OTHER
ITEMS 2,426 546 1,740 2,601 2,113 9,426
---------------------------------------------------------------------
---------------------------------------------------------------------
---------------------------------------------------------------------
Three months ended
September 30,
2007 Alberta BC Nfld NWT Nunavut Total
---------------------------------------------------------------------
Rental revenue 7,458 2,663 3,576 8,019 6,049 27,765
Other income 171 73 91 255 70 660
Operating
expenses (1,255) (1,368) (1,464) (3,384) (1,468) (8,939)
---------------------------------------------------------------------
Net operating
income 6,374 1,368 2,203 4,890 4,651 19,486
Interest on
mortgages (2,010) (530) (496) (1,150) (1,165) (5,351)
Amortization (1,676) (537) (670) (1,464) (1,701) (6,048)
---------------------------------------------------------------------
EARNINGS FROM
CONTINUING
OPERATIONS
BEFORE OTHER
ITEMS 2,688 301 1,037 2,276 1,785 8,087
---------------------------------------------------------------------
---------------------------------------------------------------------
---------------------------------------------------------------------
Nine months ended
September 30,
2008 Alberta BC Nfld NWT Nunavut Total
---------------------------------------------------------------------
Rental revenue 24,477 10,059 12,130 27,595 18,721 92,982
Other income 602 312 321 823 204 2,262
Operating
expenses (5,173) (4,528) (4,508) (12,470) (5,684) (32,363)
---------------------------------------------------------------------
Net operating
income 19,906 5,843 7,943 15,948 13,241 62,881
Interest on
mortgages (7,316) (1,771) (1,781) (4,037) (3,355) (18,260)
Amortization (5,161) (2,356) (2,378) (5,476) (4,209) (19,580)
---------------------------------------------------------------------
EARNINGS FROM
CONTINUING
OPERATIONS
BEFORE OTHER
ITEMS 7,429 1,716 3,784 6,435 5,677 25,041
---------------------------------------------------------------------
---------------------------------------------------------------------
---------------------------------------------------------------------
Nine months ended
September 30,
2007 Alberta BC Nfld NWT Nunavut Total
---------------------------------------------------------------------
Rental revenue 19,688 7,222 8,931 19,813 18,162 73,816
Other income 408 230 310 495 185 1,628
Operating
expenses (3,585) (3,364) (4,442) (9,340) (4,999) (25,730)
---------------------------------------------------------------------
Net operating
income 16,511 4,088 4,799 10,968 13,348 49,714
Interest on
mortgages (5,761) (1,201) (1,354) (3,008) (3,385) (14,709)
Amortization (4,384) (1,409) (1,654) (3,755) (4,549) (15,751)
---------------------------------------------------------------------
EARNINGS FROM
CONTINUING
OPERATIONS
BEFORE OTHER
ITEMS 6,366 1,478 1,791 4,205 5,414 19,254
---------------------------------------------------------------------
---------------------------------------------------------------------
Business Segments
---------------------------------------------------------------------
Three months ended Total
September 30, Execu- Residen- Commer-
2008 Rental 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)
---------------------------------------------------------------------
Net operating
income 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 FROM
CONTINUING
OPERATIONS
BEFORE OTHER
ITEMS 5,233 806 1,590 7,629 1,797 9,426
---------------------------------------------------------------------
---------------------------------------------------------------------
---------------------------------------------------------------------
Three months ended Total
September 30, Execu- Residen- Commer-
2007 Rental suites Seniors' tial cial Total
---------------------------------------------------------------------
Rental revenue 17,014 2,375 3,761 23,150 4,615 27,765
Other income 543 43 - 586 74 660
Operating
expenses (6,463) (957) (9) (7,429) (1,510) (8,939)
---------------------------------------------------------------------
Net operating
income 11,094 1,461 3,752 16,307 3,179 19,486
Interest on
mortgages (3,094) (192) (1,543) (4,829) (522) (5,351)
Amortization (3,734) (273) (955) (4,962) (1,086) (6,048)
---------------------------------------------------------------------
EARNINGS FROM
CONTINUING
OPERATIONS
BEFORE OTHER
ITEMS 4,266 996 1,254 6,516 1,571 8,087
---------------------------------------------------------------------
---------------------------------------------------------------------
---------------------------------------------------------------------
Nine months ended Total
September 30, Execu- Residen- Commer-
2008 Rental 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)
---------------------------------------------------------------------
Net operating
income 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 FROM
CONTINUING
OPERATIONS
BEFORE OTHER
ITEMS 13,616 2,019 4,347 19,982 5,059 25,041
---------------------------------------------------------------------
---------------------------------------------------------------------
---------------------------------------------------------------------
Nine months ended Total
September 30, Execu- Residen- Commer-
2007 Rental suites Seniors' tial cial Total
---------------------------------------------------------------------
Rental revenue 47,930 6,023 10,289 64,242 9,574 73,816
Other income 1,452 90 - 1,542 86 1,628
Operating
expenses (19,786) (2,775) (14) (22,575) (3,155) (25,730)
---------------------------------------------------------------------
Net operating
income 29,596 3,338 10,275 43,209 6,505 49,714
Interest on
mortgages (8,428) (597) (4,580) (13,605) (1,104) (14,709)
Amortization (10,210) (557) (2,656) (13,423) (2,328) (15,751)
---------------------------------------------------------------------
EARNINGS FROM
CONTINUING
OPERATIONS
BEFORE OTHER
ITEMS 10,958 2,184 3,039 16,181 3,073 19,254
---------------------------------------------------------------------
---------------------------------------------------------------------
16. RELATED PARTY TRANSACTIONS
A trustee of NPR leases space from NPR under normal commercial terms.
NPR earned rental revenue of $338,500 for the nine months ended
September 30, 2008 (2007 - $338,500). Amounts outstanding in accounts
receivable pertaining to this lease were $ nil at September 30, 2008
(December 31, 2007 - $ nil).
A trustee of NPR is a senior partner of a law firm that provides
legal services to NPR in the ordinary course of business. Fees paid
for the nine months ended September 30, 2008 were $32,700 (2007 -
$204,700).
A trustee of NPR is the Chairman of AgeCare Investments Ltd.
("AgeCare"), which leases nine seniors' properties from NPR. For the
nine months ended September 30, 2008, NPR earned rental income,
including rental income earned on a straight-line basis over the term
of the lease, totaling $9.5 million (2007 - $9.5 million) from
AgeCare. Amounts outstanding in accounts receivable pertaining to
this lease were $ nil at September 30, 2008 (December 31, 2007 -
$ nil). In addition, AgeCare is paid an annual advisory fee of
$120,000 for advisory services provided to NPR respecting prospective
acquisitions of seniors' properties. For the nine months ended
September 30, 2008, NPR paid $90,000 for these services (2007 -
$90,000).
In the second quarter of 2008, the REIT commenced renovations to a
seniors' facility in BC which is leased to AgeCare. The renovations
are being completed under the terms of existing lease agreements and
costs will be recovered from AgeCare over the remaining term of the
lease agreement. The approved budget for the renovation project is
$2.15 million, with $865,000 incurred through September 30, 2008.
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 payable, loans payable, accounts payable
and accrued liabilities and bank indebtedness. Unless otherwise
specified, the fair value of these instruments approximates their
carrying values.
Utility cost risk
The REIT 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 REITs portfolio generally provide for recovery
of operating costs, including utilities. Because of the northern
location of a portion of the REIT's portfolio, the exposure to
utility price fluctuations is more pronounced in the first and last
fiscal quarter of the year. The following discussion focuses on the
REIT's exposure in its residential portfolio.
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 on certain residential rental
units in Alberta, NPR does not utilize hedges or forward contracts in
the management of exposure to utility risk. Management continues to
implement programs to reduce its utility risk exposure such as the
environmentally friendly wood pellet boilers installed in two
properties in Yellowknife in 2006. Over the course of the next 18 to
36 months, management intends to install up to nine more boilers in
16 additional buildings. Management expects the investment in these
wood pellet boilers to reduce the REIT's usage of fossil fuels which
will result in lower heating costs and reduce the impact on the
environment.
Exposure to heating oil prices
Heating oil is the primary source of fuel for heating properties
located in Nunavut and the Northwest Territories. 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. In Nunavut, the price of
heating oil is set by the Territorial government, which in 2008
resulted in the price of heating oil being substantially lower than
the spot price. In September, 2008, the Nunavut territorial
government announced an increase of $0.22 per litre of heating oil
(or a 30% increase). In the Northwest Territories, a sensitivity
analysis was completed assuming an increase in the cost of heating
oil of 10% over the average price of heating oil in the Northwest
Territories for the first nine months of 2008.
Sensitivity analysis
---------------------------------------------------------------------
Increase in
price of
heating oil Impact on
from average Net Earnings
for Nine Nine months
months ended ended
September 30, September 30,
2008 2008
---------------------------------------------------------------------
Nunavut (x) $(177,000)
Northwest Territories 10% $(169,000)
---------------------------------------------------------------------
(x) In Nunavut, the analysis assumes the 30% increase in heating
oil, effective July 1, 2008, took place on January 1, 2008, and
an additional 10% increase was assumed.
Exposure to natural gas prices
Natural gas is the significant source of fuel for heating properties
located in Alberta, BC and Inuvik. In Alberta, the provincial
government implemented a natural gas rebate program for energy costs
incurred from October through March. In addition, the REIT has fixed
price contracts for certain of its properties which account for
approximately 38% of the REIT's usage in Alberta. Natural gas prices
in Inuvik and BC are not subject to regulated price control other
than for the financial instruments acquired as part of an acquisition
of certain rental properties in 2007, the REIT does not use financial
instruments to manage the exposure to the price risk.
Sensitivity analysis
---------------------------------------------------------------------
Increase in
price of
Natural gas Impact on
from average Net Earnings
for Nine Nine months
months ended ended
September 30, September 30,
2008 2008
---------------------------------------------------------------------
BC 10% $(54,000)
---------------------------------------------------------------------
---------------------------------------------------------------------
The fair value of the fixed price contracts is ($219,000)
(December 31, 2007 - ($180,000)) and is included in accounts payable
and accrued liabilities on the balance sheet. The adjustment to
current market price for the remaining commitment under the fixed
price contracts is included in other comprehensive income.
Exposure to electricity prices
Electricity is the primary source of fuel for heating properties
located in Newfoundland as well as part of northern 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 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, 2008 the REIT has a revolving line of credit in the
amount of $50.0 million. Cash flow projections are completed on a
regular basis to ensure there is adequate liquidity to maintain
operating and investment activities in addition to making monthly
distributions to unitholders. The Board of Trustees reviews the
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,
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 months rent from
tenants where legislation permits, and geographic diversification in
its portfolio. The REIT records a specific bad debt provision on
balances owed to the REIT from past tenants and provides an allowance
for receivables from current tenants 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, estimated by Management based on prior
experience and current economic conditions. 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 tenant and other receivables:
---------------------------------------------------------------------
September 30, December 31,
2008 2007
---------------------------------------------------------------------
0-30 days 1,403 1,068
31-60 days 1,080 186
61-90 days 127 375
Over 90 days 346 80
---------------------------------------------------------------------
Tenant receivables 2,956 1,709
Other receivables 2,885 3,600
Allowance for bad debts (250) (250)
---------------------------------------------------------------------
5,591 5,059
---------------------------------------------------------------------
---------------------------------------------------------------------
The reconciliation of changes in allowance for bad debts is as
follows:
---------------------------------------------------------------------
Nine months ended
September 30, 2008
---------------------------------------------------------------------
Balance, beginning of period 250
Amounts written off as uncollectible (109)
Accounts recovered 8
Additional allowance 101
---------------------------------------------------------------------
Balance, end of period 250
---------------------------------------------------------------------
---------------------------------------------------------------------
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 the credit facility. 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, the revolving line of credit and
the acquisition facility. 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, 2008 would have changed by $131,000.
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 and acquisition facilities
which are 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,
2008 2007
---------------------------------------------------------------------
Bank indebtedness 31,978 25,304
Mortgages and loans payable 458,249 416,334
---------------------------------------------------------------------
Debt 490,227 441,638
---------------------------------------------------------------------
Rental properties and other capital assets 797,392 765,447
Capital assets improvements in progress 6,917 1,957
Capital assets under development 7,793 1,257
Refundable deposits and mortgage proceeds
held in trust 760 7,998
Accumulated amortization 84,207 65,761
Future income taxes arising on acquisitions (21,458) (21,458)
---------------------------------------------------------------------
Gross Book Value 875,611 820,962
---------------------------------------------------------------------
Debt to Gross Book Value 56.0% 53.8%
---------------------------------------------------------------------
---------------------------------------------------------------------
The REIT is subject to three principal financial covenants in its
mortgage and loans payable and operating facility. The financial
covenants are described as follows:
- Debt Service Coverage - calculated as Net earnings before
interest, taxes and amortization divided by the debt service
payments (interest expense and principal repayments);
- Interest Coverage - calculated as Net earnings before interest,
taxes and amortization divided by the interest expense;
- Debt to Gross Book value as calculated above.
During the nine months ended September 30, 2008, the REIT complied
with all externally imposed capital requirements and all covenants
relating to its debt facilities.
19. SUBSEQUENT EVENTS
Subsequent to September 30, 2008, NPR completed one mortgage
financing of $3.1 million with an interest rate of 4.35% and a term
to maturity of 5 years. Proceeds from the financings were used to
repay existing debt and a portion of the operating facility.
