Lanesborough REIT Reports 2019 First Quarter Results

WINNIPEG, May 24, 2019 /CNW/ - Lanesborough Real Estate Investment Trust ("LREIT") (TSXV: LRT.UN) today reported its operating results for the quarter ended March 31, 2019. The following comments in regard to the financial position and operating results of LREIT should be read in conjunction with interim management's discussion & analysis – quarterly highlights and the interim financial statements for the quarter ended March 31, 2019, which may be obtained from the LREIT website at www.lreit.com or the SEDAR website at www.sedar.com.

ANALYSIS OF OPERATING RESULTS

Analysis of Income (Loss)
	Three Months Ended March 31				Increase (Decrease) in Income
	2019		2018		Amount		%
Rentals from investment properties	$   3,956,310		$   4,467,503		$ (511,193)		(11)%
Property operating costs	(2,901,297)		(2,818,570)		(82,727)		(3)%
Net operating income	1,055,013		1,648,933		(593,920)		(36)%
Interest income	49,564		49,826		(262)		(1)%
Interest expense	(3,917,048)		(3,646,134)		(270,914)		(7)%
Trust expense	(588,280)		(380,874)		(207,406)		(54)%
Loss before the following	(3,400,751)		(2,328,249)		(1,072,502)		(46)%
Loss on sale of investment property	-		(34,882)		34,882		n/a
Fair value adjustments ‑ Investment properties	(1,872,605)		(15,105,743)		13,233,138		88%
Loss before discontinued operations	(5,273,356)		(17,468,874)		12,195,518		70%
Loss from discontinued operations	(321,784)		(25,854)		(295,930)		(1,145)%
Loss and comprehensive loss	$ (5,595,140)		$(17,494,728)		$ 11,899,588		68%

Overall Operating Results

LREIT completed Q1-2019 with a loss and comprehensive loss of $5.6 million, compared to a loss and comprehensive loss of $17.5 million during Q1-2018. The decrease in the loss mainly reflects a reduction in the loss relating to fair value adjustments of the investment properties and the investment property classified as held for sale, partially offset by a decrease in net operating income ("NOI"), an increase in the loss from discontinued operations, an increase in interest expense, and an increase in trust expense.

Unfavourable fair value adjustments recognized during Q1-2019 decreased by $13.2 million, compared to the unfavourable fair value adjustments recognized during Q1-2018. The losses related to fair value adjustments recognized during the first quarters of 2019 and 2018 were primarily due to reduced revenue expectations resulting from the prolonged low‑level of oil sands activity in Fort McMurray.

The losses related to fair value adjustments recognized during Q1-2018 were also significantly impacted by reduced revenue expectations as a result of reductions in the anticipated impact of the rebuilding efforts in Fort McMurray on the rental market and increased uncertainty with respect to the timing and/or extent of the recovery of the Fort McMurray economy.

The decrease in NOI of $0.6 million is mainly due to a decrease in the rental revenue of the Fort McMurray property portfolio. The decreased rental revenue reflects a decrease in the average rental rates, as well as a decrease in the average occupancy levels, which continues to reflect the prolonged low‑level of oil sands development activity and its negative impact on the demand for rental accommodations in Fort McMurray.

The increase in the loss from discontinued operations of $0.3 million mainly reflects an increase in property operating costs due to an increase in wages  as part of the coordinated effort to expand the facility's intermediate care offerings and to enhance the level of care and services provided.

The increase in interest expense of $0.3 million was primarily due to an increase in the average balance outstanding on the revolving loan from 2668921 Manitoba Ltd. during Q1-2019, compared to Q1-2018; and, the increase in the interest rate from 5% to 7%, effective July 1, 2018, for advances on the revolving loan that are in excess of $30 million.

The increase in trust expense of $0.2 million was primarily due to an increase in professional fees as a result of legal costs incurred to respond to the actions taken by the lender of the mortgage that is secured by the property held for sale

Revenues

Analysis of Rental Revenue
	Three Months Ended March 31
					Increase (Decrease)				% of Total
	2019		2018		Amount		%		2019		2018
Fort McMurray properties	$ 3,084,625		$ 3,656,080		$ (571,455)		(16)%		78%		82%
Other investment properties	407,531		418,148		(10,617)		(3)%		10%		9%
Sub‑total	3,492,156		4,074,228		(582,072)		(14)%		88%		91%
Held for sale and/or sold properties	464,154		393,275		70,879		18%		12%		9%
Total	$ 3,956,310		$ 4,467,503		$ (511,193)		(11)%		100%		100%

Average Occupancy Level, by Quarter
	2018					2019
	Q1	Q2	Q3	Q4	12 Month Average	Q1
Fort McMurray properties	69%	72%	71%	65%	69%	65%
Other investment properties	77%	68%	68%	70%	71%	75%
Total	70%	71%	70%	66%	69%	66%
Held for sale and/or sold properties	46%	51%	53%	62%	52%	76%

Average Monthly Rents, by Quarter
	2018					2019
	Q1	Q2	Q3	Q4	12 Month Average	Q1
Fort McMurray properties	$1,685	$1,650	$1,618	$1,527	$1,620	$1,539
Other investment properties	$907	$909	$909	$885	$902	$919
Total	$1,554	$1,525	$1,499	$1,419	$1,499	$1,435
Held for sale and/or sold properties	$2,484	$2,258	$2,201	$1,899	$2,214	$1,853

During Q1-2019, total investment property revenue, excluding held for sale and/or sold properties, decreased by $0.6 million, or 14%, compared to Q1-2018, as the prolonged low‑level of oil sands development activity continues to negatively impact the demand for rental accommodations in Fort McMurray. The decrease mainly reflects a decrease in the average monthly rental rate of the Fort McMurray property portfolio from $1,685 during Q1-2018 to $1,539 during Q1-2019, representing a decrease of $146, or 8.7%. The Fort McMurray property portfolio experienced reduced occupancy levels, decreasing from 69% during Q1-2018 to 65% during Q1- 2019.

Revenue from the held for sale and/or sold properties increased by $0.0 million, or 18%, during Q1-2019, compared to Q1-2018. The increase in revenue was mainly due to an increase in the average occupancy level from 46% in Q1-2018 to 76% in Q1-2019; partially offset by a decrease in the average monthly rental rate from $2,484 to $1,853, representing a decrease of $631, or 25.4%.

Property Operating Costs

Analysis of Property Operating Costs
	Three Months Ended March 31
						Increase (Decrease)
		2019		2018		Amount		%
Fort McMurray properties		$ 2,223,918		$ 2,207,518		$ 16,400		1%
Other investment properties		355,945		356,282		(337)		- %
Sub‑total		2,579,863		2,563,800		16,063		1%
Held for sale and/or sold properties		321,434		254,770		66,664		26%
Total		$ 2,901,297		$ 2,818,570		$ 82,727		3%

During Q1-2019, property operating costs, increased by $0.08 million, or 3%, compared to Q1-2018. The increase mainly reflects an increase in the operating costs of the held for sale and/or sold properties of $0.07 millio, which was mainly due to the capital reserve component of the Woodland Park condominium common element fees. Prior to the establishment of the condominium sales program at Woodland Park, the capital expenditures were capitalized when incurred.

Net Operating Income and Operating Margin

Analysis of Net Operating Income
	Net Operating Income
	Three Months Ended March 31				Increase (Decrease)				Percent of Total				Operating Margin
	2019		2018		Amount		%		2019		2018		2019		2018
Fort McMurray properties	$ 860,707		$ 1,448,562		$ (587,855)		(41)%		82%		88%		28%		40%
Other investment properties	51,586		61,866		(10,280)		(17)%		5%		4%		13%		15%
Sub‑total	912,293		1,510,428		(598,135)		(40)%		87%		92%		26%		37%
Held for sale and/or sold
properties	142,720		138,505		4,215		3%		13%		8%		31%		35%
Total	$ 1,055,013		$ 1,648,933		$ (593,920)		(36)%		100%		100%		27%		37%

During Q1-2019, the NOI of the investment properties portfolio decreased by $0.6 million, or 36%, compared to Q1-2018. The operating margin decreased from 37% during Q1-2018 to 27% during Q1-2019. The decreases in net operating income and operating margin are primarily due to the decreased revenue of the Fort McMurray property portfolio, as described in the "Revenues" section of this release.

Interest Expense

During Q1-2019, interest expense increased by $0.3 million, or 7%, compared to Q1-2018. The increase mainly reflects an increase in the cash component of interest on the revolving loan of $0.5 million, partially offset by a $0.1 million decrease in interest on the Shelter loan advances, and a $0.1 million decrease in mortgage loan interest. The increase in revolving loan interest is mainly due to the increase in the average outstanding balance of the loan, as well as the increase in the interest rate from 5% to 7%, effective July 1, 2018, for amounts advanced that are in excess of $30 million.

The weighted average interest rate on total debt, inclusive of the revolving loan and debentures, was 5.8% as at March 31, 2019, compared to 5.5% as at March 31, 2018.

Fair Value Adjustments

During Q1-2019, LREIT recorded a loss related to fair value adjustments on its investment properties and investment properties held for sale of $1.9 million, compared to a loss related to fair value adjustments of $15.1 million during Q1-2018, representing a favourable variance of $13.2 million.

The losses related to fair value adjustments recognized during the first quarter of 2019 and 2018 primarily reflect reduced revenue expectations as a result of the prolonged low level of oil sands development activity.

The losses related to fair value adjustments recognized during Q1-2018 were also significantly impacted by reduced revenue expectations as a result of reductions in the anticipated impact of the rebuilding efforts in Fort McMurray on the rental market and increased uncertainty with respect to the timing and/or extent of the recovery of the Fort McMurray economy.

After accounting for fair value adjustments, dispositions, and capital expenditures, the carrying value of investment properties decreased by $1.8 million during Q1-2019.

ABOUT LREIT

LREIT is a real estate investment trust, which is listed on the TSX Venture Exchange under the symbols LRT.UN (Trust Units) and LRT.DB.G (Series G Debentures). For further information on LREIT, please visit our website at www.lreit.com.

This press release contains certain statements that could be considered as forward-looking information.  The forward-looking information is subject to certain risks and uncertainties, which could result in actual results differing materially from the forward-looking statements. 

Neither the TSX Venture Exchange nor its Regulation Services Provider (as the term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.

SOURCE Lanesborough Real Estate Investment Trust

Gino Romagnoli, Chief Executive Officer, or Arni Thorsteinson, Vice-Chair, Tel: [phone], Fax: [phone], Email: [email protected]

Related Links

http://www.lreit.com