NPR Reports First Quarter 2012 Results

CALGARY, May 9, 2012 /CNW/ - Northern Property REIT and NorSerCo Inc. (NPR.UN - TSX) announced its financial results for the three months ended March 31, 2012.  The Financial Statements and MD&A for the entities are reported on a combined basis at SEDAR.com under Northern Property Real Estate Investment Trust.

HIGHLIGHTS:

• Vacancy loss declines to 3.6% from 4.9% same quarter last year
• Three month FFO per stapled unit increases to $0.59 from $0.53 for previous year
• 65.8%  Q1  FFO payout ratio

Financial Performance at a Glance

"NPR's property portfolio generated excellent returns notwithstanding this being the winter quarter", said Jim Britton, NPR's President and CEO.  "Quarterly net operating income was approximately $26.5 million and FFO $17.5 million.   On a per unit basis our FFO for the period was solid at $0.59, up 11% compared to the same quarter a year earlier. "

Apartment vacancy remained firm throughout Q1 of 2012 with a vacancy loss of 3.6% compared to 4.9% for Q1 of 2011.  As a result same door growth for the quarter of 5.6% was recorded.  Utility costs benefited from relatively warm winter conditions and low natural gas prices in many locations.

Closings took place on 48 units in Nanaimo and 39 in Gander and on a 29,500 square foot newly developed commercial building in St. John's for a total of $13.4 million.  Subsequent to the end of the quarter the REIT purchased the 102 unit Embassy apartment building in Labrador City for $9.4 million.

The development of new buildings is slated to become a cornerstone of NPR's future portfolio growth.   87 new apartments are nearing completion in Iqaluit and development of another 36 is planned for the fall of 2012.  The REIT expects to develop a 25,000 square foot downtown office building for an estimated $13.5 million in the Nunavut capital city.  Development approval has been obtained for 58 new units in Yellowknife.  Development of 142 apartment units has begun in two buildings in the City of Lloydminster. The REIT recently closed on 4 acres of land in Regina for $3.8 million, upon which it plans to develop a total of 189 units commencing in the spring of 2013. In Newfoundland, NPR has committed to continue with its development partner in the development of a second and third office building in the Bristol office park and hopes to break land with the development of a 31 unit apartment building in housing-starved Labrador City.

"NPR's growth strategy going forward involves a blend of both development and apartment acquisition activity," Mr. Britton said.  "Existing apartment buildings are certainly available in many of the cities and towns in which we have interest.  However, they are expensive and often require capital investment before they achieve acceptable rates of return.  Fortunately, new building development is one of NPR's core strengths."  NPR has set up an internal Development Division to plan new developments and to co-ordinate construction.  The combination of the higher cap rates associated with new buildings and the purchase of lower cap existing buildings is expected to result in accretive financial growth going forward.

"The debacle respecting Northern Property and Federal tax policy continues," Mr. Britton said. "We have been attempting, without success, to organize our business to conform with Ministerial press releases respecting REITs since 2010.  It appears that our recent necessary and customary issuances of units may have contributed to some non-material double taxation.  We cannot recognize these tax charges in our financial statements, however, until the Minister of Finance introduces some clarity through legislation on the subject."

NPR assumes that the 10% non-qualifying income/asset test will become law as the Minister has stated.  Accordingly, shareholder approval will be sought over the coming months to enable NorSerCo to sell its business assets back to the REIT over time.  Once this sales process is completed, NPR plans to wind up its stapled unit structure.

The REIT has made some progress in selling its Newfoundland seniors properties. One property sold late in Q1 and three others early in Q2  for a total of $20.2 million including vendor take back mortgages of $2.85 million.  Negotiations and financing discussions are underway respecting the remaining 6 Newfoundland seniors' buildings. NPR has also entered into a $160 million sales agreement for the sale of its 6 western Canadian seniors' buildings.  Closing is contingent upon the purchaser, HealthLease Properties REIT, successfully concluding an initial public offering.

NPR also concluded an offering of 2,000,000 stapled units at $32.85 per unit on March 23, 2012 for cash proceeds of $62.4 million.  Mr. Britton commented, "In the middle of Q1 NPR found itself in a position where acquisition and development activity had essentially exhausted operating lines at a moment when there was no certainty that the seniors properties would sell.  After we concluded our offering of units, however, deals began to firm up for both the Newfoundland and western seniors properties.  The loss of our seniors' NOI and the issuance of trust units will certainly erode our FFO per unit for some time.  But our very low payout ratio going into this situation enables us to maintain cash distributions at current levels while acquisition and development activity moves us back to customary operating metrics."

Forward-Looking Statements

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

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

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