NPR.un boosted its 2011 FFOs to $2.35 per unit,which up 8.8% from last year. That took the POR down to just 65.3%. Q4 funds from operations jumped 18% to $0.59, driving down the ratio to 64.3%.The keys were solid performance of the existing properties and a handful of successful acquisitions. Apartment vacancies portfolio dropped to 3.7%, with same store income growth up slightly, despite some one time property costs. Meanwhile, the REIT closed on 240 units in Saskatoon, 33 near Nanaimo and 53 in Labrador City, for a total cost of $26.3 million.
These cities aren't household names. But this means Northern has a key competitive advantage: It's literally the only game in town in many of Canada's most resource rich, but remote areas. This year, mgmt expects to bring 87 apartments in Iqaluit into operation and has development plans for 58 units in Yellowknife and 142 in Lloydminster.Property in Nunavut, a key area for recent expansion, is now 99.5% leased. Yellowknife properties are 97.5% leased, despite softer conditions in the second half of 2011. Even Fort McMurray, capital of the oil sands region, which has suffered from overbuilding in recent years, has shown solid improvement, with vacancy now around 9%, down from 14% in Sept. 2011.
Dawson Creek-in the center of the Montney Shale development has cut vacancy from 18% a year ago, to just 2% to 3% now. And the Nanaimo properties, which hit 20% vacancy briefly last year, are now 94-95% occupied. All this speaks to unmatched skills from management at operating profitably in remote areas where weather and economic volatility are always major factors.
Canada's shifting rules for REIT taxation remain a point of uncertainty. Northern owns a master-leased seniors facilities portfolio that falls outside the official definition of REIT income. Management's plan is to sell these facilities and then restructure so as to comply with yet-to-be issued final rules for REITs.
The good news is no matter what happens current dividends shouldn't be affected. The bad news is we're not likely to see another distribution increase until the issue is finally laid to rest. The most likely route of divesting the non-exempt operations will leave the REIT with a sizeable chunk of cash on its balance sheet, which management has pledged not to invest until there are real opportunities in its far-flung markets.
So long, as the cash isn't invested it will remain on the balance sheet, boosting financial flexibility but posting only negligible returns. In a worst case, this will put upward pressure on Northern's POR, possibly starting as soon as the second quarter of 2012.
CEO Jim Britton, however, assured investors during the company's Q4 conference call, that the distribution is "not an issue as we cycle sale proceeds into new properties.” That's borne out by the low payout, strong finances and the fact that less than 10% of earnings currently come from properties to be divested.