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An Attractive Growth and Yield Investment
January 2015
NPR.UN
Cautionary Statement
Forward-Looking Information
Certain information in this presentation and statements made during this presentation, including any question and answer session, may contain “forward-looking information”, with respect to Northern Property REIT (“NPR”) and its operations, strategy, financial performance and condition. The actual results and performance of NPR discussed herein could differ materially from those expressed or implied by such statements. Important factors that could cause actual results to differ materially from expectations include, among other things, general economic and market factors, competition, changes in government regulation and additional risk factors discussed in other documents we file from time to time with securities regulatory authorities, which are available on SEDAR at sedar.com or, upon request, without charge from us. Our assumptions and estimates relating to the forward-looking information referred to above are updated quarterly and, except as required by law, we do not undertake to update any other forward-looking information.
January 2015
2 TSX: NPR.UN
3 TSX: NPR.UN
NPR – an investment in government and natural resource markets across Canada
Investment Highlights
• For Investors Seeking Sustainable Yield + Growth
– Primarily multi-family residential
– Leverage to natural resources
– Government tenancies
– Immediate accretive acquisition program
– Expanding development program
– Top quartile financial position
• A Model for Corporate Governance and Management Integrity
– Proven 10+ year track record
– No side-car vehicles or external fees to cloud judgment
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Investment Highlights
• Impressive Track Record
– “Core” FFO/Trust Unit up an average of 5-8% (CAGR) over last 10 years;
achieved on lower leverage
– Total return 166% over last 10 years; on par with S&P/TSX Capped REIT Index
– Increased distributions eight times in 13 years
• Valuation discount wider than normal – active on NCIB
– 226,500 Trust Units repurchased in 2014 at average $27.00 per Trust Unit
– NPR authorized to purchase, in a 12 month period, up to 3,095,587 Trust Units
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Investment Methodology
• High growth markets with economically growing communities;
• Strong core economies including government and services with leverage
to natural resources;
• Long term growth potential in rental rates and vacancy improvements;
• Accretive expansion through development and acquisitions
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Current Economic Conditions
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NPR well positioned to withstand low oil and commodity prices
• Healthy Financial Metrics
• Geographical Diversification
• Continued Growth
• Experienced management team
REAL ESTATE Development – a highly accretive opportunity
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Why new developments?
• Shortage of supply
• Current rents support new construction in many markets
• NPR has strong in-house expertise (has since 1980’s)
– Ability to ramp up or down based on economic conditions without financial penalty
• Existing apartments are highly priced, 30 + years in age and often obsolete
• Lower CAPEX grind for first 10+ years
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Development Plan • Develop 600-800 units per year in economically growing communities
• Development Cap Rates 100-200 bps higher than acquisition Cap Rates
• 2014 developments starts (528 units): Expected completion date
1. Lloydminster, AB – 158 units, including 8 townhomes Q4’14
2. Grande Prairie, AB – 142 units Q1’15
3. Fort St. John, BC – 118 units Q2’15
4. Bonnyville, AB – 110 units Q3’15
• Potential valuation lift exist on successful lease up
• Accumulated 45 acres of land for future development equating to approximately 1,500 units
– Including expanding into urban markets (i.e. Calgary)
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• All-in cost of $140K per door
• 75% leased up
• Rents $200-300 over pro-
forma
• Expected Cap rate over 8%
• Minimal CAPEX for 5 -10
years
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150 units – Tesla Estates Lloydminster, AB
Recent Developments Completed
• All-in cost of $148K per door
• 1st 71 units completed and
fully leased up
• 2nd building to be
completed in Feb’15
• Rents +$300 over pro-forma
• Expected Cap rate over 7%
• Minimal CAPEX for 5 -10
years
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142 units – Elk Pointe Grande Prairie, AB
Recent Developments Completed
Recent Developments Completed
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189 units – McCarthy Ridge - Regina, SK
• Rents and NOI are exceeding pro forma expectations
• Completed cost of $142,000 per unit • Cap Rate on completion ~ 8.0% • Fair value increase of $30,000 per unit recognized
upon completion • 97% leased up
Recent Developments Completed
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• Rents and NOI are exceeding pro forma expectations • Completed cost of $235,000 per unit • Cap Rate on completion ~ 9.5% • 100% leased to government on a 10 year lease
39 units – Iqaluit, NU
Recent Developments Completed
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• Rents and NOI are exceeding pro forma expectations • Completed cost of $308,000 per unit • Cap Rate on completion ~ 7.2% • Built on existing excess land • 100% leased
24 units – Aurora Heights – Yellowknife, NT
Recent Developments Started
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110 units – Bonnyville, AB 118 units – Fort St. John, BC
Typical unit layout
REAL ESTATE Acquisitions – immediately contribute to FFO
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Acquisitions
• Vendor pricing expectations are approaching replacement cost
• Pursuing higher quality assets (lower cap rates)
• Target 300 - 400 units a year
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Recent Acquisitions
19
32 units – Lloydminster, AB
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247 units – Slave Lake, AB
• Newer product • Purchase price of $122,000 per unit • Cap Rate of 7.0%
• Townhomes • Existing rents below market • Purchase price of $137,500 per unit • Cap Rate of 7.2%
FINANCIAL METRICS Among the best in the Canadian REIT sector
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Total Return Performance Last 10 years NPR: 166%; S&P TSX Capped REIT Index 167%
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Portfolio Summary and NOI Mix NOI diversified across country
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(As of September 30, 2014)
Province Multi-family Execusuites
& Hotel Total
Residential Commercial Square Feet NOI %
Alberta 2,747 - 2,747 83,243 25%
British Columbia 2,857 - 2,857 86,238 14%
Newfoundland and Labrador 1,643 142 1,785 196,049 12%
Northwest Territories 1,329 160 1,489 533,483 18%
Nunavut 1,096 117 1,213 242,946 27%
Saskatchewan 429 - 429 - 3%
Québec 161 - 161 - 1%
Total 10,262 419 10,681 1,141,959 100%
NOI % 79% 4% 83% 17% 100%
Portfolio Diversification Since Inception
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Alberta 12%
Northwest Territories
28% Nunavut
60%
NOI by Province - 2002
British Columbia 14%
Alberta 25%
Newfoundland and Labrador
12%
Northwest Territories
18%
Nunavut 27%
Saskatchewan 3%
Québec 1%
NOI by Province – 2014
Portfolio Growth Consistent predictable growth
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200
400
600
800
1,000
1,200
1,400
1,600
1,800
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Q3'14
Total Assets ($ millions)
-
2,000
4,000
6,000
8,000
10,000
12,000
# of Residential Units
FFO Growth Since Inception “Core” FFO / Trust Unit growth has averaged 5-8% (CAGR) over last 2, 5, and 10 years
25
* Excluding Stapled Unit current income tax of $1.3M or $0.04 FFO per unit.
TSX: NPR.UN
$1.28
$1.42
$1.52 $1.52
$1.64
$1.82
$2.12
$2.20 $2.16
$2.35
$2.26 $2.27 *
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Distribution Growth Pattern of regular, sustainable distribution increases
26
*2012 total distribution was $2.09 including a special distribution of $0.56 related to the sale of the seniors’ portfolio
TSX: NPR.UN
$1.15
$1.18
$1.25
$1.31
$1.38
$1.48
$1.53 $1.53 *
$1.58
1.63
2002 2003 2004 2005 2006 2007-2009 2010-2011 2012 2013 2014
Attractive and Sustainable Distributions
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• Annualized distributions of $1.63 per Trust Unit, payable monthly
• Increased eight times since inception
• Distributions increased 3.2% over last 12 months
• Current distribution yield of 6.9%
• Q3’14 FFO Payout Ratio: 67.0%
Vacancy and Same Door NOI Significant opportunity for growth as occupancy improves
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0.1%
-0.7%
2.5%
1.4%
-2.5%
-6.9%
-2.0%
-0.2% 6.2% 6.4%
6.5% 6.5% 6.7%
8.8% 8.2%
8.1%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
9.0%
10.0%
-8.0%
-6.0%
-4.0%
-2.0%
0.0%
2.0%
4.0%
Q4'12 Q1'13 Q2'13 Q3'13 Q4'13 Q1'14 Q2'14 Q3'14
To
tal V
acan
cy R
ate
(%
)
SD
NO
I G
row
th (
%)
SD NOI Growth Total Vacany Rate
Valuation and Balance Sheet
29 TSX: NPR.UN
NPR.UN Summary
• Unit price (January 9, 2015) $25.00
• Trust Units outstanding (REIT) 31.8 m
• Market cap $800 m
• Enterprise value $1.6 b
• Annual distributions per unit $1.63
• Distribution yield 6.9%
• Price / AFFO on 2015 * 10.7 x
• Normalized AFFO payout ratio (Q3’14 YTD) 81.5%
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*Source: CIBC Stock Monitor December 29, 2014
Lowest AFFO multiple in the multi-family space
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Source: CIBC Stock Monitor December 29, 2014 – 2015E
10.7
15.3 15.9 16.1
16.9
19.6
NPR KMP MEQ IIP CAP BEI
Top Quartile Balance Sheet
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Source: BMO Canadian Real Estate/REIT Weekly January 2, 2015 – 2014E
35.8%
46.7% 47.1%
50.3% 53.6%
8.0
7.1
9.8
12.5
10.2
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
BEI NPR CAP IIP KMP
De
bt
to E
BIT
DA
De
bt
to A
sse
t V
alu
e
Debt to Asset Value Debt to EBITDA
Financing
33
Weighted avg. interest rate
3.78% 3.61% 4.10% 4.56% 4.15% 3.30% 3.75% 4.10% 3.20% 3.09% 3.28%
TSX: NPR.UN
• Weighted average interest rate at September 30, 2014: 3.70%
– 35 bps lower than September 30, 2013
• Weighted average term to maturity at September 30, 2014: 5.0 years compared to 4.8 years September 30, 2013
$-
$20
$40
$60
$80
$100
$120
2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 Thereafter
($ m
illio
ns)
Financing
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• Completed $173.9 million in mortgage financing in 2014 at:
– Weighted average interest rate of 3.05%
– Weighted term to maturity 6.7 years
• Conventional financing of $36.8 million at weighted average interest rate of 3.69% and weighted term to maturity of 5.4 years
• Insured financing of $137.1 million at weighted average interest rate of 3.38% and weighted term to maturity of 7.0 years
• Current 5 / 10 yr CMHC insured rates remain near historical lows at 2.2% and 2.8%
• 2014 / 2015 renewals at current rates represents 2 – 4¢ of incremental FFO/unit
• Sufficient liquidity to cover short term commitments
Levers for Future Growth Same Door Growth
• Occupancy improvements
• Cost control
• Resource economy stabilization
Accretive Development Program
• Land assembly progressing
• Developments in larger markets (e.g. Calgary)
Interest Savings
• Current mortgages being refinance 100-150 bps lower than existing rates
Strong Balance Sheet
• Internal capacity to fund developments and acquisitions
• One of the strongest in the Canadian REIT space
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Appendix Property and Market Focus
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Residential Rentals
• Primarily wood frame
• 3 and 4 storey
• 25% staff housing leases
• Above ground parking
• Pitched roofs
• New (or made new)
APARTMENTS AND TOWNHOMES – 10,262 units:
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Residential Rentals FURNISHED EXECUTIVE SUITES & HOTEL – 419 units:
• Short to medium stays
• Furnished and equipped
• Housekeeping and towel service
• Food & beverage provided by third party operator in hotel property
• 4% of NOI
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Advantages of Our Residential Properties
• Low CAPEX
– Few parking structures
– Few flat roofs
• Energy efficient
• Easily upgradeable/ renovated
• Benefits of smaller building size and multiple locations in each community
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Commercial Properties – 1.1 m Sq. Ft.
• 17% of NOI
• In our existing large markets
• Big covenant
• Long term leases
• Triple net – minimizes operating cost risks
• Mostly government and large corporate tenants
• Superior Cap Rates
• Low vacancy of 2 to 3%
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Q. Why Northern Canada? A.
• Great undiscovered real estate story
• Canada’s future “True North Strong and Free”
• Strong economic growth
• Modest competition
• Higher cap rates
• Chronic housing shortages
• Staff housing leases
• Government and corporate tenancies
• Sovereignty initiatives
• Mining (gold, diamonds, precious metals)
• Oil & Gas
Inuvik
●
Gjoa Haven
●
● Sachs Harbour
Taloyoak ●
● ●
●
●
●
●
●
●
●
●
Arctic Bay
Pond Inlet
Clyde River
Pangnirtung
Iqaluit
Kimmirut
Cape Dorset
Igloolik
Hall Beach
Yellowknife
Cambridge Bay ●
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Population – 73,000
Nunavut Assets (27% of NOI)
• Residential vacancy loss – 2.4%
• Cap rates – 6.9 to 12.5%
• Staff housing leases – 90%
• Highest rents in Canada
• White collar tenancies
• Development opportunities
Units Average Rent
Iqaluit 914 $2,425
Communities 182 $2,246
Execusuites/ hotel 117
1,213
Commercial 242,946 sq ft
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Northwest Territories Assets (18% of NOI)
• Residential vacancy loss – 12.7%
• Cap rates – 7.3% to 13.0%
• Second highest residential rents in Canada
• Commercial vacancy of 3.7% (42,761 sq ft)
• 80% of commercial leased to government agencies
• Devolution process commencing
• Diamond mine expansions (De Beers, Rio Tinto, BHP) / Oil & Gas finds in Mackenzie Valley
Units Average Rent
Yellowknife 1,070 $1,637
Inuvik 259 $1,485
Execusuites 160
1,489
Commercial 533,483 sq ft
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Q. Why Alberta? A. • Historically strongest economy in Canada
– Oil & gas – Agriculture – Forestry – Government & services
• Even with low oil prices – Continued development of oil sands – Continued population in-migration – Expected GDP growth – Low unemployment
• Home ownership is unaffordable • Third highest rents in Canada • Development opportunities
●
●
●
●
Grande Prairie
Fort McMurray
Lloydminster
Calgary
Jasper ●
Population – 3.9 million
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● Slave Lake
Bonnyville ●
St. Paul ●
Alberta Assets (25% of NOI)
• Residential vacancy loss – 7.7%
• Cap rates – 6.5% to 9.0%
• Entered into the Slave Lake market with the acquisition of 247 units in June 2014
Units Average Rent
Fort McMurray 867 $1,860
Grande Prairie 686 $1,382
Lloydminster 529 $1,713
Slave Lake 247 $1,056
Jasper 230 $780
St. Paul 134 $937
Bonnyville 54 $1,231
2,747
Commercial 83,243 sq ft
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Q. Why BC? A.
• Positive long term economic story
• Northern BC – oil and gas, mining, forestry, special tax zone
• Prolific natural gas deposits (Horn River Basin, Montney)
• Prolonged low natural gas prices have negatively impacted occupancy in Northern BC
• Significant government & service industries
• Lower acquisition costs compared to Alberta
• Higher “baked-in” levels of vacancy at acquisition
• Development opportunities
Fort Nelson
Fort St John
Dawson Creek
Chetwynd
Nanaimo Abbotsford
Panorama
●
●
● ●
●
● ●
● Prince George
Campbell River
●
Population – 4.6 million
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Courtenay ●
● Taylor
BC Assets (14% of NOI)
• Residential vacancy loss – 11.7%
• Cap rates – 4.8 to 11.0%
Units Average Rent
Nanaimo 627 $834
Dawson Creek 379 $1,040
Abbotsford / Mission 369 $713
Prince George & area 357 $695
Fort St John/ Taylor 328 $985
Fort Nelson 284 $918
Chetwynd 213 $869
Campbell River / Courtenay 212 $723
Panorama 88 $608
2,857
Commercial 86,238 sq ft
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Q. Why Saskatchewan? A.
• Significant long term economic growth potential
• Rich in oil and gas, potash, uranium and agriculture
• Strong economic growth
• Low unemployment
• Development opportunities
Population – 1.1 million
●
Saskatoon
● Lloydminster
Regina
●
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Saskatchewan Assets (3% of NOI)
• Saskatoon vacancy loss – 5.1%
• Cap rates – 6.5% to 6.8%
• 189 units newly completed in Regina in early 2014 now 97% leased
Units Average Rent
Saskatoon 240 $979
Regina 189 $1,412
429
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Q. Why Newfoundland & Labrador?
A.
• Economic transformation underway
• High per capital GDP growth
• Government & Services
• Significant natural resource development
– Offshore oil
– Nickel
– Iron Ore
– Hydro
• Development opportunities
●
●
Gander St. John’s
Labrador City ●
Population – 530,000
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Sept-Iles, QC
●
Newfoundland and Labrador Assets (13% of NOI)
• Residential vacancy loss – 3.7%
• Cap rates – 6.7% to 9.5%
• Recent expansion of commercial portfolio
Units Average Rent
St. John’s 1,189 $846
Gander 215 $663
Labrador City 185 $1,271
Sept-Iles, QC 161 $680
Execusuites 142
Bonavista (Seniors’) 54
1,946
Commercial 196,049 sq ft
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