CALGARY, Aug. 14 /CNW/ - Northern Property REIT (NPR.UN) announced its financial results for the three months ended June 30, 2007.
HIGHLIGHTS:
- Closed on 281 residential units and 182 seniors' units during Q2
- 263 residential units in Fort McMurray, 53 seniors' units in
Newfoundland and 237,000 square feet of commercial space in
Yellowknife closed early in Q3
- $105 million offering of trust units arranged
- Distributable Income Per Unit increases by 11.3%
- Payout ratio declines to 80.9% of DIPU
- Bill C-52 results in $16 million charge to net earnings
NPREIT recorded a net loss for the quarter ended June 30, 2007 of $10.9 million as compared to net earnings of $4.1 million for the three months ended June 30, 2006. For the six months ended June 30, 2007 the REIT recorded a net loss of $6.7 million compared to net earnings of $6.5 million for the comparable period in 2006.
The net loss for the three and six months ended June 30, 2007 is the result of a non-cash charge to earnings of $16 million relating to NPREIT's share of the temporary differences between the accounting and tax basis of NPREIT's assets and liabilities. The charge has no impact on the REIT's cash flows or distributions. The charge relates to Northern Property's future income tax liabilities as a result of Bill C-52, the Budget Implementation Act, 2007. Bill C-52 provides for a transition period for publicly traded concerns that existed prior to October 31, 2006 and is not expected to apply to NPREIT until 2011. The Bill contains a "REIT Exemption" and ultimately should not apply to entities which qualify as real estate investment trusts. During the transition period Northern Property Real Estate Investment Trust plans to take every possible step to obtain the REIT Exemption.
Notwithstanding the above noted future tax charge, Northern Property enjoyed strong Q2 financial results in each of its property asset classes. Results were buoyed by positive rental market conditions and the usual Q2 seasonal declines in operating costs. Total property rental revenue increased by 13.4% to $24.2 million from $21.4 million in the same quarter a year earlier. During the same period Net Operating Income increased to $16 million, up by 16%.
President and CEO Jim Britton observed, "We are very pleased with the trends we are observing in Q2. Residential rental operations are working very well with improvements taking place in Yellowknife and St. John's. Furnished executive suites enjoyed a great quarter and our growing head-leased seniors' portfolio is making an accretive contribution to our results. From a business standpoint, we are continuing to experience robust opportunities to both acquire and develop property."
Distributable income increased from $8.1 million in Q2, 2006 to $9.4 million for the same quarter of 2007, up 16.4%. Distributable income per unit for the same period was $0.464, up 11.3% from $0.417. The REIT maintained its conservative financial style with debt at 58.7% of Gross Book Value (prior to its issuance of trust units in July). A payout ratio of 80.6% of distributable income was experienced in the first 6 months of 2007 compared to 81.8% for the first six months of 2006.
NPREIT had a busy quarter on the acquisitions front closing during Q2 on a 281 unit, $12 million apartment portfolio in Fort Nelson, B.C. and on 182 retirement units for $18.2 million in Newfoundland. The REIT also successfully negotiated the purchase of several properties which closed after the end of the quarter in mid-July. A 263 unit apartment portfolio in Fort McMurray closed July 12 for $53.5 million and a 53 unit seniors' building in St. John's for $4.0 million on July 16. On July 12 the REIT also closed its acquisition of a 237,000 square foot office/retail complex in downtown Yellowknife for $56.6 million.
To fund the acquisition activity the REIT carried out a $105 million public offering of trust units. 4,532,000 trust units were issued at $23.17 per unit in a bought deal which closed July 11, 2007.
"The results of our efforts in Q2 should produce favorable results for unit holders this fall as these properties are absorbed", said Mr. Britton. "All of the acquisitions are expected to be immediately accretive. Moreover, the adjustment of our property mix to a better balance between net and gross leases better protects NPREIT unit holder distributions from inflation in operating costs". Northern Property revenues now consist of approximately 60% gross leases and 40% triple net arrangements.
For a full copy of the Management Discussion and Analysis and Financial Statements please log on to www.sedar.com or www.npreit.com.
NORTHERN PROPERTY REAL ESTATE INVESTMENT TRUST
Consolidated Balance Sheets
(Thousands of dollars)
-------------------------------------------------------------------------
June 30, December 31,
2007 2006
Unaudited Audited
$ $
-------------------------------------------------------------------------
ASSETS
Rental properties and other capital
assets (Note 4) 609,844 576,375
Capital improvements in progress 1,796 3,092
Capital assets under development - 4,621
Prepaid expenses and other assets (Note 5) 13,834 8,020
Accounts receivable 5,675 6,665
Tenant security deposits 3,088 2,942
Deferred rent receivable 1,368 797
Loans receivable 515 552
Intangible assets (Note 6) 853 732
Assets held for sale (Note 17) - 337
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636,973 604,133
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LIABILITIES
Mortgages payable (Note 7) 328,739 318,330
Bank indebtedness (Note 8) 38,531 22,307
Acquisition facility (Note 8) 9,058 -
Loans payable (Note 9) 690 710
Accounts payable and accrued
liabilities (Note 10) 11,954 12,432
Distributions payable 2,351 2,332
Future income tax liability (Note 13) 26,051 10,184
Intangible liabilities (Note 6) 210 267
Liabilities related to assets held for
sale (Note 17) - 391
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417,584 366,953
UNITHOLDERS' EQUITY 219,389 237,180
-------------------------------------------------------------------------
636,973 604,133
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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)
-------------------------------------------------------------------------
Three Months ended Six Months ended
June 30 June 30
2007 2006 2007 2006
Unaudited Unaudited Unaudited Unaudited
$ $ $ $
-------------------------------------------------------------------------
REVENUE
Rental properties revenue 23,706 21,032 46,051 38,725
Laundry and other income 524 342 968 634
Rental properties
operating expenses (8,186) (7,557) (16,791) (15,228)
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Net operating income 16,044 13,817 30,228 24,131
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EXPENSES
Interest on mortgages (4,720) (4,229) (9,358) (7,251)
Amortization (4,978) (4,182) (9,703) (7,730)
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(9,698) (8,411) (19,061) (14,981)
-------------------------------------------------------------------------
EARNINGS FROM CONTINUING
OPERATIONS BEFORE OTHER
ITEMS AND INCOME TAXES 6,346 5,406 11,167 9,150
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OTHER ITEMS
Interest on operating
facility (572) (239) (912) (704)
Interest and other income 266 149 420 327
Trust administration costs (1,436) (1,216) (2,626) (2,259)
Gain on settlement of debt 510 - 1,204 -
Gain on sale of rental
properties - - 76 -
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(1,232) (1,306) (1,838) (2,636)
-------------------------------------------------------------------------
EARNINGS FROM CONTINUING
OPERATIONS BEFORE INCOME
TAXES 5,114 4,100 9,329 6,514
-------------------------------------------------------------------------
INCOME TAXES
Current 114 108 231 203
Future (recovery)
(Note 13) 15,924 (107) 15,833 (189)
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16,038 1 16,064 14
-------------------------------------------------------------------------
EARNINGS (LOSS) FROM
CONTINUING OPERATIONS (10,924) 4,099 (6,735) 6,500
EARNINGS (LOSS)) FROM
DISCONTINUED OPERATIONS
(NOTE 17) - 29 (5) 35
-------------------------------------------------------------------------
(10,924) 4,128 (6,740) 6,535
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Other comprehensive earnings - - - -
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COMPREHENSIVE EARNINGS
(LOSS) (10,924) 4,128 (6,740) 6,535
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Comprehensive earnings (loss)
per unit (Note 15)
Basic and Diluted:
Continuing operations $(0.54) $0.21 $(0.33) $0.36
Discontinued operations - - - -
-------------------------------------------------------------------------
$(0.54) $0.21 $(0.33) $0.36
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NORTHERN PROPERTY REAL ESTATE INVESTMENT TRUST
Consolidated Statements of Unitholders' Equity
(Thousands of dollars)
-------------------------------------------------------------------------
Cumulative Cumulative Cumulative
Capital Contributed Net Distri-
(Note 14) Surplus Earnings butions
-------------------------------------------------------------------------
December 31, 2006 261,730 1,249 55,664 (81,463)
-------------------------------------------------------------------------
Comprehensive earnings
(loss) - - (6,740) -
Distributions to
unitholders - - - (14,038)
New units issued 3,000 - - -
Issuance costs (13) - - -
Long term incentive plan
units issued 1,018 (1,018) - -
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June 30, 2007 265,735 231 48,924 (95,501)
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-------------------------------------------------------------------------
Accumulated
Other
Compre-
hensive
Earnings Total
-------------------------------------------------
December 31, 2006 - 237,180
-------------------------------------------------
Comprehensive earnings
(loss) - (6,740)
Distributions to
unitholders - (14,038)
New units issued - 3,000
Issuance costs - (13)
Long term incentive plan
units issued - -
-------------------------------------------------
June 30, 2007 - 219,389
-------------------------------------------------
-------------------------------------------------
-------------------------------------------------------------------------
Cumulative Cumulative Cumulative
Capital Contributed Net Distri-
(Note 14) Surplus Earnings butions
-------------------------------------------------------------------------
December 31, 2005 176,904 1,513 39,401 (56,010)
-------------------------------------------------------------------------
Comprehensive earnings - - 6,535 -
Distributions to
unitholders - - - (12,032)
New units issued 87,532 - - -
Issuance costs (3,626) - - -
Long term incentive
plan units issued 851 (851) - -
-------------------------------------------------------------------------
June 30, 2006 261,661 662 45,936 (68,042)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Accumulated
Other
Compre-
hensive
Earnings Total
-------------------------------------------------
December 31, 2006 - 161,808
-------------------------------------------------
Comprehensive earnings
(loss) - 6,535
Distributions to
unitholders - (12,032)
New units issued - 87,532
Issuance costs - (3626)
Long term incentive plan
units issued - -
-------------------------------------------------
June 30, 2007 - 240,217
-------------------------------------------------
-------------------------------------------------
NORTHERN PROPERTY REAL ESTATE INVESTMENT TRUST
Consolidated Statements of Cash Flows
(Thousands of dollars)
-------------------------------------------------------------------------
Three Months ended Six Months ended
June 30 June 30
2007 2006 2007 2006
Unaudited Unaudited Unaudited Unaudited
$ $ $ $
-------------------------------------------------------------------------
CASH FLOWS RELATED TO THE
FOLLOWING ACTIVITIES:
OPERATING
Net earnings (loss) from
continuing operations (10,924) 4,099 (6,735) 6,500
Adjustments for:
Deferred rental revenue (282) (289) (557) (287)
Amortization of capital
assets 4,939 4,142 9,628 7,660
Amortization of fair
value of debt 80 (4) 111 (13)
Amortization of lease
origination costs 39 44 75 83
Amortization of above
and below market leases (29) (44) (63) (96)
Gain on settlement of
debt (510) - (1,204) -
Gain on sale of rental
properties - - (76) -
Future income taxes
(recovery) 15,924 (107) 15,833 (189)
Long-term incentive plan 200 188 388 375
-------------------------------------------------------------------------
Cash flows from
continuing operations 9,437 8,029 17,400 14,033
Cash flows from
discontinued operations - 71 (5) 107
Changes in non-cash
working capital 4,084 4,293 (7,707) (2,916)
-------------------------------------------------------------------------
13,521 12,393 9,688 11,224
-------------------------------------------------------------------------
FINANCING
Proceeds of public
offering (net of issue
costs) (30) 71,439 (30) 71,422
Proceeds of mortgages and
loans 1,089 12,767 29,120 26,671
Proceeds of acquisition
facility 9,058 - 9,058 13,438
Repayment of capital
lease liability (13) (13) (26) (25)
Proceeds from sale of
rental properties - - 538 -
Repayment of mortgages
and loans payable (9,989) (6,778) (22,832) (9,672)
Repayment of acquisition
facility - - - (9,000)
Distributions to
unitholders (7,019) (6,242) (14,019) (11,570)
-------------------------------------------------------------------------
(6,904) 71,173 1,809 81,264
-------------------------------------------------------------------------
INVESTING
Acquisition of properties
and other assets (21,706) (52,454) (22,908) (60,516)
Capital assets under
development (629) (4,155) (2,826) (5,737)
Building capital
maintenance (1,458) (618) (1,987) (1,347)
-------------------------------------------------------------------------
(23,793) (57,227) (27,721) (67,600)
-------------------------------------------------------------------------
NET DECREASE (INCREASE) IN
BANK INDEBTEDNESS, END OF
PERIOD (17,176) 26,339 (16,224) 24,888
BANK INDEBTEDNESS, BEGINNING
OF PERIOD (21,355) (39,444) (22,307) (37,993)
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BANK INDEBTEDNESS,
END OF PERIOD (38,531) (13,105) (38,531) (13,105)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
SUPPLEMENTARY INFORMATION
Interest paid 5,149 5,010 10,024 8,579
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Interest received 84 37 159 59
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Income taxes paid 2 272 2 358
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NORTHERN PROPERTY REAL ESTATE INVESTMENT TRUST
Notes to the Consolidated Financial Statements (unaudited)
Three and Six Months Ended June 30, 2007
(Columnar amounts expressed in thousands of dollars except where
indicated)
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1. DESCRIPTION OF THE TRUST
Northern Property Real Estate Investment Trust ("NPREIT") is an
unincorporated open-ended real estate investment trust that invests
in and owns a portfolio of residential and commercial income
producing properties. NPREIT's 100% owned properties are held either
directly by, or through wholly-owned single purpose subsidiaries of,
Northern Property R.E.I.T. Holdings Inc., Northern Property Holdings
Corp., in its capacity as general partner of the Partnership, or
Urbco Inc. One property in Inuvik is held directly by 5147 NWT. Ltd.,
in its capacity as general partner of Inuvik Capital Suites Zheh
Gwizhu Limited Partnership ("ICS"), and properties in Inuvik are
directly held by 5147 NWT Ltd., in its capacity as general partner of
Inuvik Commercial Properties Zheh Gwizhu Limited Partnership ("ICP").
The land and buildings of the seniors' facilities ("seniors'
properties") are held by NPR Health Property General Partner Ltd., in
its capacity as general partner of NPR Health Property Limited
Partnership.
2. BASIS OF PRESENTATION
These unaudited interim consolidated financial statements of NPREIT
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 period ended December 31,
2006, 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, 2006 audited consolidated financial statements.
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, 2007, NPREIT adopted CICA Handbook Section 1530,
Comprehensive Income and CICA Handbook Section 3855, Financial
Instruments-Recognition and Measurement. These new Handbook Sections
provide comprehensive requirements for the recognition and
measurement of financial instruments. Handbook Section 1530 also
introduces a new component of equity referred to as comprehensive
income. Under these new standards, all financial instruments,
including derivatives, are included on the consolidated balance sheet
and are measured either at fair market value or, in limited
circumstances, at cost or amortized cost. Management has determined
that the majority of the NPREIT'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.
In accordance with the provisions of these new standards, NPREIT
reclassified $2.9 million from Prepaid expenses and other assets to
Mortgages payable in the consolidated balance sheet relating to
deferred financing fees.
The adoption of these new standards had no impact on NPREIT's
consolidated statement of earnings.
Recent Accounting Pronouncements
NPREIT has also adopted Section 1506 - Accounting Changes the only
impact of which is to provide disclosure of when an entity has not
applied a new source of GAAP that has been issued but is not yet
effective. This is the case with Section 3862 - Financial Instruments
Disclosures and Section 3863 Financial Instruments Presentations
which are required to be adopted for fiscal years beginning on or
after October 1, 2007. NPREIT will adopt these standards on
January 1, 2008 and it is expected the only effect on NPREIT will be
incremental disclosures regarding the significance of financial
instruments for the entity's financial position and performance; and
the nature, extent and management of risks arising from financial
instruments to which the entity is exposed.
4. RENTAL PROPERTIES AND OTHER CAPITAL ASSETS
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June 30, 2007 December 31, 2006
---------------------------------------------------------------------
Accumulated Net Accumulated Net
Amortiz- Book Amortiz- Book
Cost ation Value Cost ation Value
$ $ $ $ $ $
---------------------------------------------------------------------
Land 51,345 - 51,345 49,233 - 49,233
Buildings 591,807 45,801 546,006 553,615 37,832 515,783
Furniture,
fixtures
and
equipment 6,026 2,226 3,800 5,341 1,835 3,506
Vehicles 926 466 460 860 404 456
Capital and
leasehold
improvem-
ents 13,514 5,374 8,140 11,495 4,223 7,272
Equipment
under
capital
lease 212 119 93 212 87 125
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663,830 53,986 609,844 620,756 44,381 576,375
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NPREIT acquired properties in 2007 for a total purchase price of
$38.4 million (2006 - $163.5 million). The acquisitions, including
the construction of the warehouse in Ft. St. John, B.C. in the first
quarter of 2007, were financed as follows:
---------------------------------------------------------------------
Three months Six months
ended June 30 ended June 30
---------------------------------------------------------------------
2007 2006 2007 2006
$ $ $ $
---------------------------------------------------------------------
Property acquisitions -
(included in above totals):
Mortgages, debt assumed
and mezzanine repaid 6,395 92,112 6,395 92,395
Class B LP Units issued 3,000 2,486 3,000 12,484
Cash paid 21,818 51,364 28,923 58,610
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31,213 145,962 38,318 163,489
Fair value adjustment
to debt 79 16 79 39
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Total purchase price of
property acquisitions 31,292 145,978 38,397 163,528
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Residential units 281 50 282 445
Seniors' facilities - units 182 960 182 960
Commercial square feet 10,000 - 53,701 8,199
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5. PREPAID EXPENSES AND OTHER ASSETS
---------------------------------------------------------------------
June 30, December 31,
2007 2006
$ $
---------------------------------------------------------------------
Refundable deposits and mortgage proceeds
held in trust 8,855 3,455
Prepaid equity leases 2,422 2,508
Prepaid expenses 1,978 1,388
Other 579 669
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13,834 8,020
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6. INTANGIBLE ASSETS AND LIABILITIES
Intangible assets are comprised of the value of above-market leases
and lease origination costs for rental property acquisitions
completed after September 12, 2003. Intangible liabilities are
comprised of the value of below-market leases for rental property
acquisitions completed after September 12, 2003.
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June 30, 2007 December 31, 2006
---------------------------------------------------------------------
Accumulated Net Accumulated Net
Amortiz- Book Amortiz- Book
Cost ation Value Cost ation Value
$ $ $ $ $ $
---------------------------------------------------------------------
Above-
market
leases 95 68 27 95 63 31
Lease
origina-
tion
costs 1,110 284 826 912 212 701
1,205 352 853 1,007 275 732
Below
market
leases 584 374 210 584 317 267
7. MORTGAGES PAYABLE
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June 30, December 31,
2007 2006
$ $
---------------------------------------------------------------------
Mortgages payable 340,726 327,739
Fair value adjustment (7,643) (6,472)
Deferred financing costs (4,344) (2,937)
---------------------------------------------------------------------
328,739 318,330
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---------------------------------------------------------------------
Mortgages payable bear interest at rates ranging from 3.83% to 13.5%
and have a weighted average rate of 5.43% as at June 30, 2007
(December 31, 2006 - 5.55%). The mortgages are payable in monthly
instalments of blended principal and interest of approximately
$2.5 million. The mortgages mature between 2007 and 2021. All
mortgages are secured by charges against specific properties.
The fair value of mortgages payable at June 30, 2007 is approximately
$337.4 million (December 31, 2006 - $329.3 million).
8. BANK INDEBTEDNESS
NPREIT has a revolving line of credit in the amount of $40.0 million
for acquisition and operating purposes, bearing interest at prime or
bankers acceptance rate with a maturity of May 31, 2008. Specific
properties have been pledged as collateral security for the line of
credit. At June 30, 2007, NPREIT has utilized $38.5 million
(December 31, 2006 - $22.3 million).
NPREIT has an acquisition facility in the amount of $30.0 million for
acquisition and general corporate purposes to a maximum of 75% of the
appraised value of the acquisition, bearing interest at prime with a
maturity date of July 31, 2008. Specific properties have been pledged
as collateral security for the acquisition facility. At June 30,
2007, NPREIT has utilized $9.1 million (December 31, 2006 - $ nil).
9. LOANS PAYABLE
---------------------------------------------------------------------
June 30, December 31,
2007 2006
$ $
---------------------------------------------------------------------
Inuvik Commercial Properties Zheh Gwizhu
Limited Partnership - 50% ownership
CIBC demand loan bearing interest at prime
plus 0.5%, repayable in monthly principal
and interest instalments, secured by specific
properties pledged as collateral due 2016. 221 229
CIBC demand loan bearing interest at prime
plus 0.75%, repayable in monthly principal and
interest instalments, secured by specific
properties pledged as collateral due 2015. 469 481
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690 710
---------------------------------------------------------------------
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10. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
---------------------------------------------------------------------
June 30, December 31,
2007 2006
$ $
---------------------------------------------------------------------
Security deposits and other 4,610 4,680
Trade payables and accrued liabilities 7,225 7,607
Capital lease liability 119 145
---------------------------------------------------------------------
11,954 12,432
---------------------------------------------------------------------
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11. LONG-TERM INCENTIVE PLAN AND UNIT OPTION PLAN
NPREIT has a long-term incentive plan ("LTIP") for the executives of
NPREIT, based on the results of each fiscal year. Units granted and
issued under the LTIP are as follows:
---------------------------------------------------------------------
Number
of Units
---------------------------------------------------------------------
TOTAL - December 31, 2006 55,476
Units vested and issued - January, 2007 (19,858)
Units vested and issued - February, 2007 (8,139)
Units vested and issued - May, 2007 (1,597)
Units vested and issued - June, 2007 (16,317)
---------------------------------------------------------------------
TOTAL - June 30, 2007 9,565
---------------------------------------------------------------------
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 Trust 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
vest in 1/3 tranches: immediately upon award, then 12 and 24 months
following. As at June 30, 2007, a total of 124,913 LTIP units have
vested and been issued (December 31, 2006 - 79,002) and $388,000 has
been accrued for estimated 2007 LTIP awards.
On, May 10, 2007 unitholders approved the implementation of a Unit
Option Plan (the "Option Plan"), which is subject to the rules of the
Toronto Stock Exchange. 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.
No options to acquire units have been granted under the Option Plan.
12. 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 NPREIT Trust
units and the Trust will contribute one unit for every three units
acquired by an employee. The units are purchased on the TSX at market
prices. During the six months ended June 30, 2007, employees invested
a total of $47,955 (2006 - $45,246) and the trust contributed $15,985
(2006 - $15,082). During the six months ended June, 30, 2007, 2,445
units (2006 - 2,739 units) were purchased at an average cost of
$25.47 per unit (2006 - $20.73 per unit).
13. INCOME TAXES
On June 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 NPREIT until 2011.
GAAP requires NPREIT to recognize future income tax assets and
liabilities based on estimated temporary differences expected as at
January 1, 2011. Under the current legislation, NPREIT does not
appear to qualify for the REIT Exemption and as a result, a future
income tax provision of $16.0 million was recorded in the current
quarter. The future income tax provision arises from temporary
differences between the estimated accounting and tax values of
NPREIT's assets and liabilities at January 1, 2011 and has been
calculated using the expected tax rate of 31.5%.
NPREIT has certain corporate subsidiaries which are subject to income
tax on their respective taxable income at the applicable legislated
tax rates. NPREIT has recorded a future tax liability of
$10.1 million (December 31, 2006 - $10.2 million) using an expected
income tax rate of 19.68%.
The future tax liabilities arise from the temporary differences
summarized below:
---------------------------------------------------------------------
June 30, December 31,
2007 2006
$ $
---------------------------------------------------------------------
Future tax liabilities arising from temporary
differences between accounting and tax
basis of:
Rental property assets in corporate
subsidiaries 10,051 10,184
Rental property assets 15,500 -
Other assets and liabilities 500 -
---------------------------------------------------------------------
26,051 10,184
---------------------------------------------------------------------
---------------------------------------------------------------------
Income tax expense consists of the following:
---------------------------------------------------------------------
Three months Six months
ended June 30 ended June 30
---------------------------------------------------------------------
2007 2006 2007 2006
$ $ $ $
---------------------------------------------------------------------
Current income taxes 114 108 231 203
Future income taxes - corporate
subsidiaries (76) (109) (167) (189)
Future income taxes relating to
Bill-C52 16,000 - 16,000 -
---------------------------------------------------------------------
16,038 1 16,064 14
---------------------------------------------------------------------
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14. UNITHOLDERS' CAPITAL
Total NPREIT Trust units and Class B LP units issued, outstanding and
eligible for distributions at June 30, 2007 is 20,439,220
(December 31, 2006 - 20,276,290), representing net proceeds of
$265.7 million (net of issue costs of $14.9 million) (December 31,
2006 - $261.7 million net of issue costs of $14.9 million). The
number of units issued and outstanding is as follows:
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Issue Issue TOTAL
price Class price ----------------
Desc- Trust per B LP per Cumulative
Date ription Units unit Units unit Units Capital
---------------------------------------------------------------------
December LTIP
31, 2006 units
issued 17,852,667 2,423,623 20,276,290 261,730
January LTIP
04, 2007 units
issued 19,858 $17.70 - - 19,858 353
February LTIP
16, 2007 units
issued 8,139 $27.95 - - 8,139 227
May 01, Property
2007 acqui-
sition - - 78,033 $25.63 78,033 2,000
May 08, Property
2007 acqui-
tion - - 38,986 $25.65 38,986 1,000
May 08, Issue
2007 costs - - - - - (13)
May 16, LTIP
2007 units
issued 1,597 $27.95 - - 1,597 45
June 21, LTIP
2007 units
issued 16,317 $24.00 - - 16,317 393
Class
B LP
units
ex-
changed 104,247 -(104,247) - - -
---------------------------------------------------------------------
June 30,
2007 18,002,825 -2,436,395 -20,439,220 265,735
---------------------------------------------------------------------
---------------------------------------------------------------------
Trust units
Total number of Trust units outstanding as at June 30, 2007 is
18,002,825 (December 31, 2006 - 17,852,667) representing a net book
value of $234.2 million (December 31, 2006 - $231.8 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 a
controlled limited partnership outstanding as at June 30, 2007, is
2,436,395 (December 31, 2006 - 2,423,623) representing a net book
value of $31.5 million (December 31, 2006 - $30.0 million).
15. COMPREHENSIVE EARNINGS (LOSS) PER UNIT INFORMATION
---------------------------------------------------------------------
Three months Six months
ended June 30 ended June 30
2007 2006 2007 2006
$ $ $ $
---------------------------------------------------------------------
Earnings (loss) from
continuing operations (10,924) 4,099 (6,735) 6,500
Earnings (loss)
from discontinued
operations - 29 (5) 35
---------------------------------------------------------------------
Comprehensive earnings
(loss) (10,924) 4,128 (6,740) 6,535
---------------------------------------------------------------------
---------------------------------------------------------------------
Weighted average units
for basic earnings
per unit 20,343,524 19,443,980 20,341,126 17,934,983
Effect of dilutive
units to be issued
in respect of the
long-term incentive
plan 12,508 37,229 29,228 37,229
---------------------------------------------------------------------
Weighted average units
for diluted earnings
per unit 20,356,032 19,481,209 20,370,354 17,972,212
---------------------------------------------------------------------
---------------------------------------------------------------------
Basic and Diluted Comp-
rehensive
Earnings (loss)
per unit:
Continuing operations $(0.54) $0.21 $(0.33) $0.36
Discontinued
operations - - - -
---------------------------------------------------------------------
$(0.54) $0.21 $(0.33) $0.36
---------------------------------------------------------------------
---------------------------------------------------------------------
16. GUARANTEES, COMMITMENTS AND CONTINGENCIES
In the ordinary course of business, NPREIT 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 NPREIT 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, NPREIT
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.
During the normal course of operations, NPREIT provided guarantees
for mortgages and loans payable relating to investments in
corporations and joint ventures where NPREIT 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, NPREIT may be
liable for 100% of the outstanding balances of these mortgages and
loans payable. At June 30, 2007, NPREIT has provided guarantees
totalling $14.8 million (December 31, 2006 - $15.2 million). Of this
amount, $7.4 million has been included in mortgages and loans payable
(December 31, 2006 - $7.6 million). The mortgages bear interest at
rates ranging from 4.54% to 7.50% and mature June, 2008 to January,
2012 (December 31, 2006 - 4.54% to 7.50% and mature June, 2008 to
September, 2011).
During 2007, NPREIT has entered into agreements for the development
of the following projects:
- A 48 unit multi-family residential apartment building located in
Dawson Creek, British Columbia on land previously acquired by
NPREIT. Construction is scheduled to begin September 2007 and
expected to be completed in 2008. The total cost of construction,
including the original cost of the land is approximately
$5.1 million.
- A 189 unit multi-family residential apartment building located in
Grande Prairie, Alberta on land previously acquired by NPREIT.
Construction is scheduled to begin in September 2007 and expected
to be completed in 2009. The total cost of construction, including
the original cost of land, is approximately $22.9 million.
- A 79 unit multi-family residential property building located in
Fort St. John, British Columbia on land previously acquired by
NPREIT. Construction is scheduled to begin in September 2007 and
expected to be completed in 2009. The total cost of construction,
including the original cost of land, is approximately
$11.4 million.
In the normal course of operations, NPREIT becomes subject to various
legal and other claims. Management and its legal counsel evaluate
these claims and where required, accrue its' best estimate of costs
relating to these claims. Management believes the outcome of these
claims will not have a material impact on NPREIT.
17. DISCONTINUED OPERATIONS
The results from discontinued operations include the financial
results of a residential property located in Fort St. John, B.C.
which was sold in 2006 and the financial results of a commercial
property located in Inuvik, NWT which was sold in the first quarter
of 2007. The following tables set forth the results of operations and
the assets and liabilities associated with the discontinued
operations:
---------------------------------------------------------------------
Three months Six months
ended June 30 ended June 30
2007 2006 2007 2006
$ $ $ $
---------------------------------------------------------------------
Rental property
revenue - 176 - 241
Laundry and other
income - - - -
Rental property
operating expenses - (56) (2) (78)
---------------------------------------------------------------------
Net operating income - 120 (2) 163
EXPENSES
Interest on mortgages - (49) (3) (56)
Amortization - (42) - (72)
---------------------------------------------------------------------
- (91) (3) (128)
---------------------------------------------------------------------
EARNINGS (LOSS) FROM
DISCONTINUED
OPERATIONS - 29 (5) 35
---------------------------------------------------------------------
---------------------------------------------------------------------
June 30, December 31,
2007 2006
$ $
---------------------------------------------------------------------
Assets held for sale - 337
---------------------------------------------------------------------
---------------------------------------------------------------------
Liabilities relating
assets held for sale - 391
---------------------------------------------------------------------
---------------------------------------------------------------------
18. SEGMENTED INFORMATION
NPREIT considers residential, execusuites, commercial and seniors'
income producing properties to be separate segments operating in five
provinces/territories in Canada. The accounting policies of the
segments are as described in Note 2. Discontinued operations are not
allocated to individual segments. NPREIT has not provided a
reconciliation from Earnings from continuing operations before other
items to Net Earnings as all other items included in the Consolidated
Statement of Earnings are related only to the Trust and are not
allocated to the defined segments. Segmented information for NPREIT
is provided below:
---------------------------------------------------------------------
Alberta B.C. Nfld NWT Nunavut Total
June 30, 2007 $ $ $ $ $ $
---------------------------------------------------------------------
Residential 62,711 45,392 54,575 89,021 120,656 372,355
Execusuites - - 9,003 7,714 10,173 26,890
Commercial 3,221 13,447 1,277 22,964 21,843 62,752
Seniors'
properties 126,931 14,303 18,286 - - 159,520
Trust 15,456 - - - - 15,456
---------------------------------------------------------------------
TOTAL ASSETS 208,319 73,142 83,141 119,699 152,672 636,973
---------------------------------------------------------------------
---------------------------------------------------------------------
---------------------------------------------------------------------
December 31, Alberta B.C. Nfld NWT Nunavut Total
2006 $ $ $ $ $ $
---------------------------------------------------------------------
Residential 62,492 33,315 56,675 88,865 122,495 363,842
Execusuites - - 9,125 8,496 10,425 28,046
Commercial 3,261 11,068 - 22,706 23,279 60,314
Seniors'
properties 128,041 14,383 - - - 142,424
Trust 9,507 - - - - 9,507
---------------------------------------------------------------------
TOTAL ASSETS 203,301 58,766 65,800 120,067 156,199 604,133
---------------------------------------------------------------------
---------------------------------------------------------------------
---------------------------------------------------------------------
Three months
ended June 30, Alberta B.C. Nfld NWT Nunavut Total
2007 $ $ $ $ $ $
---------------------------------------------------------------------
Rental
properties
revenue 6,033 2,556 2,982 6,014 6,121 23,706
Laundry and
other income 116 89 117 153 49 524
Rental
properties
operating
expenses (1,110) (1,168) (1,459) (2,723) (1,726) (8,186)
---------------------------------------------------------------------
Net operating
income 5,039 1,477 1,640 3,444 4,444 16,044
Interest on
mortgages 1,890 341 456 898 1,135 4,720
Amortization 1,425 529 545 1,130 1,349 4,978
---------------------------------------------------------------------
3,315 870 1,001 2,028 2,484 9,698
---------------------------------------------------------------------
EARNINGS FROM
CONTINUING
OPERATIONS
BEFORE OTHER
ITEMS 1,724 607 639 1,416 1,960 6,346
---------------------------------------------------------------------
---------------------------------------------------------------------
---------------------------------------------------------------------
Three months
ended June 30, Alberta B.C. Nfld NWT Nunavut Total
2006 $ $ $ $ $ $
---------------------------------------------------------------------
Rental
properties
revenue 5,109 1,615 2,355 5,872 6,086 21,032
Laundry and
other income 90 44 60 99 49 345
Rental
properties
operating
expenses (1,016) (739) (1,451) (2,841) (1,510) (7,557)
---------------------------------------------------------------------
Net operating
income 4,178 920 964 3,130 4,625 13,817
Interest on
mortgages 1,374 457 396 918 1,142 4,229
Amortization 1,027 252 370 1,115 1,418 4,255
---------------------------------------------------------------------
2,401 709 766 1,975 2,560 8,411
---------------------------------------------------------------------
EARNINGS (LOSS)
FROM CONTINUING
OPERATIONS
BEFORE
OTHER ITEMS 1,777 211 198 1,155 2,065 5,406
---------------------------------------------------------------------
---------------------------------------------------------------------
---------------------------------------------------------------------
Six months
ended June 30, Alberta B.C. Nfld NWT Nunavut Total
2007 $ $ $ $ $ $
---------------------------------------------------------------------
Rental
properties
revenue 12,230 4,559 5,355 11,794 12,113 46,051
Laundry and
other income 237 157 219 240 115 968
Rental
properties
operating
expenses (2,330) (1,996) (2,978) (5,956) (3,531) (16,791)
---------------------------------------------------------------------
Net operating
income 10,137 2,720 2,596 6,078 8,697 30,228
Interest on
mortgages 3,751 671 858 1,858 2,220 9,358
Amortization 2,708 872 984 2,291 2,848 9,703
---------------------------------------------------------------------
6,459 1,543 1,842 4,149 5,068 19,061
---------------------------------------------------------------------
EARNINGS FROM
CONTINUING
OPERATIONS
BEFORE OTHER
ITEMS 3,678 1,177 754 1,929 3,629 11,167
---------------------------------------------------------------------
---------------------------------------------------------------------
---------------------------------------------------------------------
Six months
ended June 30, Alberta B.C. Nfld NWT Nunavut Total
2006 $ $ $ $ $ $
---------------------------------------------------------------------
Rental
properties
revenue 8,017 2,577 4,512 11,637 11,982 38,725
Laundry and
other income 142 80 105 167 140 634
Rental
properties
operating
expenses (2,065) (1,335) (2,936) (5,814) (3,078) (15,228)
---------------------------------------------------------------------
Net operating
income 6,094 1,322 1,681 5,990 9,044 24,131
Interest on
mortgages 1,823 611 763 1,795 2,259 7,251
Amortization 1,624 423 768 2,135 2,780 7,730
---------------------------------------------------------------------
3,447 1,034 1,531 3,930 5,039 14,981
---------------------------------------------------------------------
EARNINGS (LOSS)
FROM CONTINUING
OPERATIONS
BEFORE OTHER
ITEMS 2,647 288 150 2,060 4,005 9,150
---------------------------------------------------------------------
---------------------------------------------------------------------
---------------------------------------------------------------------
Three months Execu- Seniors'
ended June Residential suites Commercial Properties Total
30, 2007 $ $ $ $ $
---------------------------------------------------------------------
Rental properties
revenue 15,804 2,482 2,043 3,377 23,706
Laundry and other
income 491 8 25 - 524
Rental properties
operating expenses (6,512) (816) (856) (2) (8,186)
---------------------------------------------------------------------
Net operating income 9,783 1,674 1,212 3,375 16,044
Interest on
mortgages 2,669 311 203 1,537 4,720
Amortization 3,172 734 115 957 4,978
---------------------------------------------------------------------
5,841 1,045 318 2,494 9,698
---------------------------------------------------------------------
EARNINGS FROM
CONTINUING
OPERATIONS
BEFORE OTHER ITEMS 3,942 629 894 881 6,346
---------------------------------------------------------------------
---------------------------------------------------------------------
---------------------------------------------------------------------
Three months Execu- Seniors'
ended June Residential suites Commercial Properties Total
30, 2006 $ $ $ $ $
---------------------------------------------------------------------
Rental properties
revenue 14,357 2,358 1,785 2,532 21,032
Laundry and other
income 328 - 14 - 342
Rental properties
operating expenses (6,118) (770) (669) - (7,557)
---------------------------------------------------------------------
Net operating income 8,567 1,588 1,130 2,532 13,817
Interest on
mortgages 2,602 418 123 1,086 4,229
Amortization 3,044 363 210 565 4,182
---------------------------------------------------------------------
5,646 787 333 1,651 8,411
---------------------------------------------------------------------
EARNINGS FROM
CONTINUING
OPERATIONS
BEFORE OTHER ITEMS 2,921 807 797 881 5,406
---------------------------------------------------------------------
---------------------------------------------------------------------
---------------------------------------------------------------------
Six months Execu- Seniors'
ended June Residential suites Commercial Properties Total
30, 2007 $ $ $ $ $
---------------------------------------------------------------------
Rental properties
revenue 30,916 4,959 3,648 6,528 46,051
Laundry and other
income 909 12 47 - 968
Rental properties
operating expenses (13,323) (1,645) (1,818) (5) (16,791)
---------------------------------------------------------------------
Net operating income 18,502 3,326 1,877 6,523 30,228
Interest on
mortgages 5,334 582 405 3,037 9,358
Amortization 6,476 1,242 284 1,701 9,703
---------------------------------------------------------------------
11,810 1,824 689 4,738 19,061
---------------------------------------------------------------------
EARNINGS FROM
CONTINUING
OPERATIONS
BEFORE OTHER ITEMS 6,692 1,502 1,188 1,785 11,167
---------------------------------------------------------------------
---------------------------------------------------------------------
---------------------------------------------------------------------
Six months Execu- Seniors'
ended June Residential suites Commercial Properties Total
30, 2006 $ $ $ $ $
---------------------------------------------------------------------
Rental properties
revenue 28,338 4,508 3,347 2,532 38,725
Laundry and other
income 581 6 47 - 634
Rental properties
operating expenses (11,954) (1,535) (1,739) - (15,228)
---------------------------------------------------------------------
Net operating income 16,965 2,979 1,655 2,532 24,131
Interest on
mortgages 5,087 665 413 1,086 7,251
Amortization 5,978 777 410 565 7,730
---------------------------------------------------------------------
11,065 1,442 823 1,651 14,981
---------------------------------------------------------------------
EARNINGS FROM
CONTINUING
OPERATIONS
BEFORE OTHER ITEMS 5,900 1,537 832 881 9,150
---------------------------------------------------------------------
---------------------------------------------------------------------
19. RELATED PARTY TRANSACTIONS
A trustee leases space from NPREIT under normal commercial terms.
NPREIT earned rental revenue of $208,634 for the six months ended
June 30, 2007 (2006 - $226,053). Amounts outstanding in accounts
receivable pertaining to this lease were $ nil at June 30, 2007
(December 31, 2006 - $ nil).
A trustee of NPREIT is a senior partner of a law firm that provides
legal services to NPREIT in the ordinary course of business. Fees
paid for the six months ended June 30, 2007 were $28,706 (2006 -
$249,833).
A trustee of NPREIT is the Chairman of AgeCare Investments Ltd.
("AgeCare"), which leases six seniors' properties from NPREIT. For
the six months ended June 30, 2007, NPREIT earned rental income from
Agecare totalling $6,302,000 (2006 - $ 2,532,000). Amounts
outstanding in accounts receivable pertaining to this lease were
$ nil at June 30, 2007 (December 31, 2006 - $ nil). In addition,
AgeCare is paid an annual advisory fee of $120,000 for advisory
services provided to NPREIT respecting prospective acquisitions of
seniors' properties. For the six months ended June 30, 2007, NPREIT
paid $60,000 for these services (2006 - $20,000).
20. FINANCIAL INSTRUMENTS
Financial instruments include loans receivable, prepaid expenses and
other assets, accounts receivable, tenant security deposits,
mortgages payable, loans payable, accounts payable and accrued
liabilities, income taxes payable and bank indebtedness. Unless
otherwise specified, the fair value of these instruments approximates
their carrying values.
Interest rate risk
Interest rate risk is minimized through management's strategy of
ensuring that the substantial portion of its mortgage portfolio is in
fixed terms arrangements.
Utility cost risk
NPREIT has a utility cost management program under which its rental
properties are retrofitted with energy efficient appliances, fixtures
and windows. In addition, NPREIT's management closely monitors the
effect of oil prices on earnings. A portion of the increase in the
price of utilities can be recovered pursuant to lease terms,
particularly in Nunavut. However, in much of NPREIT's residential
portfolio rising utility rates will negatively affect earnings until
rent increases can be implemented.
Credit risk
Credit risk arises from the possibility that tenants may not be able
to fulfill their lease commitments. NPREIT mitigates this risk
through conducting thorough credit checks on prospective tenants,
obtaining security deposits from tenants where legislation permits,
and geographic diversification in its portfolio.
21. SUBSEQUENT EVENTS
Subsequent to June 30, 2007, NPREIT completed or entered into
agreements for the following:
a) On July 11, 2007, NPREIT completed an offering of 4,532,000 trust
units at $23.17 per unit on a bought deal basis. The net proceeds
of this offering, which closed on July 11, 2007, were used to fund
the following acquisitions which were completed in July, 2007.
- A 263 multifamily residential units located in Fort McMurray,
Alberta for a purchase price of approximately $53.5 million;
- A commercial portfolio totalling 237,453 square feet located in
Yellowknife, Northwest Territories for a purchase price of
$56.6 million;
- A seniors' property comprised of 53 seniors' units located in
Cornerbrook, Newfoundland for a purchase price of $4.0 million.
The net proceeds from this offering were also used to repay a
potion of the revolving credit facility.
b) Vista Village Limited Partnership, which is 40% owned by NPREIT,
entered into an agreement to sell a 60 residential unit complex
located in Red Deer, Alberta. The proposed sale is subject to
typical terms and conditions and is expected to close by
December 31, 2007, with NPREIT's share of the sale proceeds
expected to be approximately $3.4 million.
c) The acquisition of 78 residential units located in Fort St. John,
B.C. for a total purchase price of $12.1 million. This acquisition
is expected to close in the third quarter of 2007 and will be
financed through a combination of cash and mortgage debt.
Subsequent to June 30, 2007, NPREIT completed 15 mortgages totalling
$22.1 million with interest rates from 5.057% to 5.27% and terms to
maturity ranging from 5 to 10 years. Proceeds from the refinancings
were used to repay the acquisition facility and a portion of the
operating facility.
22. COMPARATIVE FIGURES
Certain of the prior year's figures have been reclassified to conform
with the current presentation.
