We are pleased to provide this update for REALnorth Opportunities Fund (the "Trust").
The economic recovery in Fort St. John, following the collapse in the oil sector, has been slow. Adding to the initial downturn, Premier Horgan’s delays around the Site C Dam mega-project magnified the slowdown for the area. Fortunately, these political delays have passed, and the Site C project is now progressing. The Canadian Association of Petroleum Producers (CAPP) announced an increase in gas exploration and spending by 22% and all area mills are operating at full capacity. Throughout 2022, LNG Canada has planned drilling programs to meet the increased demand in the natural gas sector. The increased demand for resources, along with construction at Site C, have helped increase the size of the workforce and the respective salaries.
This economic recovery is slowly starting to impact the real estate sector and we have begun to see signs of improvement in the Fort St. John real estate market. In 2021, Fort St. John’s property assessments increased by 7% and another increase is expected for 2022. In addition, there has been a 51% increase in properties sold in 2021 compared to 2020. REALnorth remains optimistic that the increase in workforce and salaries will translate into increased demand for homes.
Carter Industrial Property, Prince George: We sold this asset on August 30, 2018 for $6.75 million. This profitable sale provided the Trust with capital that was used to refinance debt obligations on Trust assets and for other working capital needs.
FSJ Industrial Property, Fort St. John: This asset was originally comprised of approximately 17 acres of industrial property and included four level lots with rail access available. Each industrial lot may be sold in its current condition or further developed with either build-to-suit options or lay-down yards for industrial users depending upon market demands. On March 26, 2020, the Trust, through its subsidiary, FSJ Industrial, sold one of the four lots that comprise the BCR Lands for $650,000 less standard closing costs and adjustments. The Trust continues to market the property and assess opportunities to divest this asset.
Aurora Acreage Property, Fort St. John: The property is currently zoned as part of the Agricultural Land Reserve; however, the City of Fort St. John has expanded its northeast boundary to include the Aurora Acreage Property. The Trust continues to lobby for zoning changes that will permit residential and commercial development on the acreage, which management believes has the potential to significantly enhance the property’s value.
Garrison Landing Residential Property, Fort St. John: Garrison Landing is a residential development which is being developed in five phases and will generate, in aggregate, approximately 153 single family lots. Two phases comprising 55 subdivision lots are substantially complete and 40 of those lots have now been sold.
In order to provide sufficient capital to the Trust, FSJ Residential Development LP (“FSJ Residential”), which is related to the Trust by virtue of having a general partner director/officer in common, has agreed to acquire 3 more lots at Garrison for $270,000 (or $90,000 per lot). FSJ Residential will continue to build homes on these lots in order to press forward with the Garrison Landing subdivision and thus create positive momentum that will jumpstart the sale of the remaining lots held by the Trust.
DISTRIBUTIONS AND THE MINIMUM RETURN
As a reminder to unitholders, the Trust intends to declare distributions on a periodic basis. Trust unitholders are entitled to a minimum non-compounded annual return of 7% on the net equity then outstanding and a return of capital before any return is paid to the Master GP.
DEVELOPMENT LAND HOLDINGS
REALnorth Opportunities Trust has not performed as well as originally anticipated mainly due to the downturn in the resource sector, which has slowed the pace and demand for housing in Fort St. John. The nature of a land-development focused fund is tied directly to larger economic factors that impact demand for housing.
Given the region’s economic slowdown (which appears to be finally improving now) the members of the General Partner stepped-up and put their own money in to initially acquire 13 lots at Garrison (and now 3 more lots) in order to permit the Trust to meet its financial obligations. Further, by building homes on these lots, they believe that it will create greater momentum within the sub-division and a nicer ‘neighbourhood feel’ which should position the Trust to benefit from greater future lot sales when the market improves.
REALNORTH TRUST UNIT PRICING
As at the most recent valuation date of December 31, 2020, each of the Trust’s units have been priced at $604 per Unit. This pricing is based upon a third-party report in accordance with the Client Relationship Model – Phase 2 (“CRM2”) requirements.
The decrease in the value from $649 at the end of 2019 to $604 was due primarily to the continued economic downturn in FSJ in 2020 and the scale down in operations of both the LNG project and BC Hydro’s Site C Dam.
If your REALnorth units are presently listed as a zero amount in your investment dealer’s client account statement, please direct your investment firm to the valuation page on our website for the most up-to-date valuation report.
More information about REALnorth Opportunities Fund can be found on our website at www.realnorthfund.ca. Our public documents are also filed on SEDAR at www.sedar.com. Should you have any questions, please do not hesitate to contact our office or your financial advisor.