Lanesborough REIT Reports 2013 Second Quarter Results

WINNIPEG, Aug. 14, 2013 /CNW/ - Lanesborough Real Estate Investment Trust ("LREIT")  (TSX: LRT.UN) today reported its operating results for the quarter ended June 30, 2013.  The following comments in regard to the financial position and operating results of LREIT should be read in conjunction with Management's Discussion & Analysis and the financial statements for the quarter ended June 30, 2013, which may be obtained from the LREIT website at www.lreit.com or the SEDAR website at www.sedar.com.

HIGHLIGHTS

• Same-property net operating income ("NOI") was $6.09 million during Q2-2013, an increase of $0.40 million (6.9%) compared to Q1-2013 and $0.27 million (4.6%) compared to Q2-2012.
• Overall occupancy of 95% (95% for Fort McMurray properties) during Q2-2013, compared to 94% (93% for Fort McMurray properties) during Q1-2013 and 92% (90% for Fort McMurray properties) during Q2-2012.
• Average monthly rent of $1,749 during Q2-2013 ($2,275 for Fort McMurray properties), compared to $1,739 during Q1-2013 ($2,259 for Fort McMurray properties) and $1,684 during Q2-2012 ($2,191 for Fort McMurray properties).
• During Q2-2013, $96 million of new mortgage loan financing was obtained at a weighted average interest rate of 5.7%. The proceeds was used to repay existing mortgage loans with a weighted average interest rate of 8.5%.
• Weighted average interest rate on total mortgage debt decreased to 5.5% at June 30, 2013, compared to 7.2% at December 31, 2012 and 6.6% at March 31, 2013.

Mortgage Loan Covenants

As of June 30, 2013, LREIT had $48.6 million of mortgage loan debt with covenant breaches, comprised of three mortgage loans and one swap mortgage loan. The covenant breach for the swap mortgage loan is expected to be eliminated through modified loan terms. The swap loan has a balance of $17.5 million and matures on May 1, 2018.

The covenant breach for two of the three mortgage loans, with a combined balance of $26.5 million, are over-holding past maturity with the consent of the lender. LREIT is in the process of arranging upward refinancing for the properties which are secured under the loans and the refinancing will eliminate the covenant breaches.  Subsequent to June 30, 2013, the third mortgage loan was renewed and the breach was extinguished.

Parsons Landing

On June 1, 2013, 84 reconstructed suites at Parsons Landing were turned-over to LREIT and commenced active rental operations. The suites are currently in the lease-up stage and, as of August 13, 2013, 48 of the 84 suites have been leased. The reconstruction and turnover of the remaining suites to LREIT is expected to be completed by November 1, 2013 with an expected closing date of February 1, 2014.

Due to the vacancy loss which is typically experienced during a lease-up stage, the return of the suites to LREIT may result in a modest short-term decline in the income derived from Parsons Landing.  During the period of reconstruction, the rental loss associated with the suites under reconstruction is fully funded from insurance proceeds.

FINANCIAL AND OPERATING SUMMARY

									June 30			December 31
									2013			2012
STATEMENT OF FINANCIAL POSITION
	Total assets							$	479,984,014		$	481,552,578
	Total long-term financial liabilities ^(1)							$	313,731,810		$	323,026,417
			Three Months Ended June 30						Six Months Ended June 30
			2013			2012			2013			2012
KEY FINANCIAL PERFORMANCE INDICATORS
Operating Results
	Rentals from investment properties	$	10,026,210		$	9,387,902		$	19,795,098		$	19,771,822
	Net operating income	$	6,086,722		$	5,820,776		$	11,780,290		$	11,779,490
	Income before taxes and discontinued operations	$	2,979,923		$	30,876,865		$	1,935,601		$	4,458,734
	Income and comprehensive income	$	3,335,654		$	32,297,230		$	2,523,426		$	6,211,335
Cash Flows
	Cash provided by (used in) operating activities	$	(213,186)		$	(4,644,859)		$	(89,191)		$	(5,599,772)
	Funds from Operations (FFO)	$	(72,790)		$	(1,095,580)		$	(1,244,281)		$	(2,528,354)
	Adjusted Funds from Operations (AFFO)	$	(872,523)		$	(1,701,187)		$	(2,427,839)		$	(3,273,803)
	Distributable income (loss)	$	(1,562,692)		$	(843,529)		$	(1,547,625)		$	(332,878)

(1)	Long-term financial liabilities consist of mortgage loans, a swap mortgage loan, debentures, defeased liability and mortgage bonds.  The swap mortgage loans and mortgage bonds are included at face value.

Q2-2013 COMPARED TO Q2-2012

Analysis of Income (Loss)
		Three Months Ended June 30						Six Months Ended June 30
		2013			2012			2013			2012
Rentals from investment properties	$	10,026,210		$	9,387,902		$	19,795,098		$	19,771,822
Property operating costs		3,939,488			3,567,126			8,014,808			7,992,332
Net operating income		6,086,722			5,820,776			11,780,290			11,779,490
Interest income		329,946			259,186			628,247			333,753
Forgiveness of debt		-			-			-			859,561
Interest expense		(6,609,966)			(7,241,022)			(14,451,844)			(14,358,954)
Trust expense		(790,635)			(585,876)			(1,321,932)			(1,164,759)
Income recovery on Parsons Landing		742,500			1,524,111			1,641,630			1,524,111
Loss before the following		(241,433)			(222,825)			(1,723,609)			(1,026,798)
Profit on sale of investment properties		164,928			721,082			164,928			1,045,307
Fair value gains		1,286,668			7,078,608			1,424,522			8,940,225
Fair value adjustment of Parsons Landing		1,769,760			23,300,000			2,069,760			(4,500,000)
Income before taxes and discontinued operations		2,979,923			30,876,865			1,935,601			4,458,734
Deferred income tax expense		-			181,339			-			181,339
Income before discontinued operations		2,979,923			30,695,526			1,935,601			4,277,395
Income from discontinued operations		355,731			1,601,704			587,825			1,933,940
Income and comprehensive income	$	3,335,654		$	32,297,230		$	2,523,426		$	6,211,335

 

Analysis of Rental Revenue
		Three Months Ended June 30									Six Months Ended June 30
		2013			2012			Increase (Decrease)			2013			2012			Increase (Decrease)
Fort McMurray	$	6,285,528		$	5,715,755		$	569,773		$	12,440,283		$	11,407,288		$	1,032,995
Other investment properties		3,609,934			3,545,890			64,044			7,224,067			7,173,246			50,821
Sub-total		9,895,462			9,261,645			633,817			19,664,350			18,580,534			1,083,816
Properties sold		-			126,257			(126,257)			-			796,861			(796,861)
Impaired property		130,748			-			130,748			130,748			394,427			(263,679)
Total	$	10,026,210		$	9,387,902		$	638,308		$	19,795,098		$	19,771,822		$	23,276

As disclosed in the chart above, total revenue from the investment properties, excluding properties sold and the impaired property, increased by $0.64 million in Q2-2013, compared to Q2-2012. The increase is comprised of an increase in revenue from investment properties in Fort McMurray of $0.57 million and an increase in revenue from the Other investment properties of $0.06 million.

The increase in revenue from the Fort McMurray property portfolio reflects an increase in the average occupancy level, as well as an increase in the average rental rate.  As disclosed in the charts below, the average occupancy level for the Fort McMurray portfolio increased from 90% during Q2-2012 to 95% in Q2-2013, while the average monthly rental rate increased by $84 or 3.8%.

For the six month period ended June 30, 2013, total revenue from the investment properties, excluding properties sold and the impaired property, increased by $1.08 million, compared to the first six months of 2012.  The variance in the six month comparatives is due to the same factors that affected the second quarter comparatives.

Occupancy Level, by Quarter
				2013
				Q1	Q2	6 Month Average
Fort McMurray				93%	95%	94%
Other investment properties				96%	95%	96%
Properties sold				n/a	n/a	n/a
Impaired property				n/a	n/a	n/a
Total				94%	95%	95%
	2012
	Q1	Q2	6 Month Average	Q3	Q4	12 Month Average
Fort McMurray	92%	90%	91%	87%	88%	90%
Other investment properties	98%	97%	98%	97%	98%	97%
Properties sold	100%	n/a	n/a	n/a	n/a	n/a
Impaired property	n/a	n/a	n/a	n/a	n/a	n/a
Total	95%	92%	94%	91%	92%	92%
The occupancy level represents the portion of potential revenue that was achieved
Average Monthly Rents, by Quarter
				2013
				Q1	Q2	6 Month Average
Fort McMurray				$2,259	$2,275	$2,267
Other investment properties				$1,109	$1,114	$1,111
Properties sold				n/a	n/a	n/a
Impaired property				n/a	n/a	n/a
Total				$1,739	$1,749	$1,744
	2012
	Q1	Q2	6 Month Average	Q3	Q4	12 Month Average
Fort McMurray	$2,124	$2,191	$2,155	$2,251	$2,293	$2,218
Other investment properties	$1,075	$1,069	$1,071	$1,048	$1,076	$1,067
Properties sold	$3,100	n/a	n/a	n/a	n/a	n/a
Impaired property	n/a	n/a	n/a	n/a	n/a	n/a
Total	$1,704	$1,684	$1,693	$1,704	$1,739	$1,709

 

Analysis of Property Operating Costs
		Three Months Ended June 30									Six Months Ended June 30
		2013			2012			Increase (Decrease)			2013			2012			Increase (Decrease)
Fort McMurray	$	2,196,215		$	1,957,239		$	238,976		$	4,461,449		$	4,236,222		$	225,227
Other investment properties		1,670,687			1,587,025			83,662			3,480,773			3,362,218			118,555
Sub-total		3,866,902			3,544,264			322,638			7,942,222			7,598,440			343,782
Properties sold		-			22,862			(22,862)			-			99,509			(99,509)
Impaired property		72,586			-			72,586			72,586			294,383			(221,797)
Total	$	3,939,488		$	3,567,126		$	372,362		$	8,014,808		$	7,992,332		$	22,476

Property operating costs during Q2-2013 for the Fort McMurray and Other investment property portfolios increased by $0.32 million or 9% compared to Q2-2012. For the six months ended June 30, 2013, property operating costs for the Fort McMurray and Other investment property portfolios increased by $0.34 million or 5%, compared to the first six months of 2012.  The increase in Fort McMurray property operating costs for both the second quarter and six month comparatives is mainly due to increased property tax and insurance expenses.

Analysis of Net Operating Income
		Net Operating Income
		Three Months ended June 30									Six Months Ended June 30
		2013			2012			Increase (Decrease)			2013			2012			Increase (Decrease)
Fort McMurray	$	4,089,313		$	3,758,516		$	330,797		$	7,978,834		$	7,171,066		$	807,768
Other investment properties		1,939,247			1,958,865			(19,618)			3,743,294			3,811,028			(67,734)
Sub-total		6,028,560			5,717,381			311,179			11,722,128			10,982,094			740,034
Properties sold		-			103,395			(103,395)			-			697,352			(697,352)
Impaired property		58,162			-			58,162			58,162			100,044			(41,882)
Total	$	6,086,722		$	5,820,776		$	265,946		$	11,780,290		$	11,779,490		$	800

After considering the increase in rental revenue and the increase in property operating costs, as analysed in the preceding sections of this press release, net operating income for the portfolio of investment properties, excluding properties sold and the impaired property, increased by $0.31 million or 5% during Q2-2013, compared to Q2-2012. As disclosed in the table above, net operating income for the Fort McMurray portfolio increased by $0.33 million during Q2-2013, compared to Q2-2012, while net operating income for the Other investment properties portfolio decreased by $0.02 million.

For the six month period ended June 30, 2013, net operating income from investment properties, excluding properties sold and the impaired property, increased by $0.74 million or 7% compared to the same period in 2012. The six month increase is comprised of an increase of $0.43 million in Q1-2013 and an increase of $0.31 million in Q2-2013.

Analysis of Operating Margin
	Operating Margin
	Three Months Ended June 30				Six Months Ended June 30
	2013		2012		2013		2012
Fort McMurray	65%		66%		64%		63%
Other investment properties	54%		55%		52%		53%
Total	61%		62%		60%		60%

Overall, the operating margin for the property portfolio, excluding properties sold and the impaired property, decreased from 62% in Q2-2012, to 61% in Q2-2013. The operating margin is a measurement of the relative profitability of the investment properties and represents the amount of rental income which is derived from rental revenues, on a percentage basis.  The operating margin is calculated by dividing net operating income by rental revenue.

Including the decrease in net operating income related to properties sold and the net operating income attributable to the impaired property, net operating income increased by $0.27 million during Q2-2013, compared to Q2-2012.  For the six month period ended June 30, 2013, net operating income, including net operating income from properties sold and the impaired property was unchanged compared to the first six months of 2012.

COMPARISON TO PREVIOUS QUARTER

Analysis of Income (Loss)
		Three Months Ended						Increase (Decrease)
		June 30, 2013			March 31, 2013			Amount			%
Rentals from investment properties		10,026,210			9,768,888			257,322			2.6%
Property operating costs		3,939,488			4,075,320			135,832			(3.3)%
Net operating income		6,086,722			5,693,568			393,154			6.9%
Interest income		329,946			298,301			31,645			10.6%
Interest expense		(6,609,966)			(7,841,878)			1,231,912			(15.7)%
Trust expense		(790,635)			(531,297)			(259,338)			48.8%
Income recovery on Parsons Landing		742,500			899,130			(156,630)			(17.4)%
Loss before the following		(241,433)			(1,482,176)			1,240,743			83.7%
Profit on sale of investment properties		164,928			-			164,928			- %
Fair value gains		1,286,668			137,854			1,148,814			833.4%
Fair value adjustment of Parsons Landing		1,769,760			300,000			1,469,760			489.9%
Income (loss) for the period before taxes and discontinued operations		2,979,923			(1,044,322)			4,024,245			(385.3)%
Income from discontinued operations		355,731			232,094			123,637			53.3%
Comprehensive income (loss)	$	3,335,654		$	(812,228)		$	4,147,882			(510.7)%

During Q2-2013, the loss, before profit on sale of investment properties, fair value gains, fair value adjustment of Parsons Landing, income taxes and discontinued operations, decreased by $1.24 million compared to Q1-2013.  The decrease in the loss mainly reflects a decrease in interest expense of $1.23 million which was the result of a decrease in the weighted average interest rate of mortgage loan financing which took place in the first and second quarters of 2013 and a decrease in amortization of transaction costs. Amortization of transaction costs were comparatively high in Q1-2013 due to the write off of transaction costs upon completion of certain refinancings, which occurred in Q1-2013.

Other notable variances in Q2-2013 are the $0.39 million increase in net operating income, the $0.26 million increase in trust expense and the $0.16 million decrease in income recovery on Parsons Landing.  The increase in net operating income is mainly attributable to the Fort McMurray portfolio as a result of improved occupancy levels and an increase in the average rental rate; the increase in trust expense is mainly due to the one-time charge of $0.19 million on the write down of a note receivable; and the decrease in income recovery on Parsons Landing is due to the turnover of the 84 reconstructed units to LREIT.

During Q2-2013, fair value gains in regard to the carrying value of investment properties amounted to $1.29 million, compared to $0.14 million during Q1-2013, representing an increase of $1.15 million. In Q1-2013, LREIT did not sell any investment properties, whereas during Q2-2013, LREIT sold two condominium units at Lakewood Townhomes for a profit of $0.16 million. After accounting for fair value gains, fair value adjustment of Parsons Landing and profit on sale of investment properties, income, before income taxes and discontinued operations increased by $4.02 million during Q2-2013, compared to Q1-2013.

Income from discontinued operations increased by $0.12 million during Q2-2013 compared to Q1-2013 which was mainly the result of an increase in income tax recoveries.

Including discontinued operations and income tax expense, LREIT completed Q2-2013 with comprehensive income of $3.34 million, compared to a comprehensive loss of $0.81 million in Q1-2013.

ABOUT LREIT

LREIT is a real estate investment trust, which is listed on the Toronto Stock Exchange under the symbols LRT.UN (Trust Units), LRT.DB.G (Series G Debentures), LRT.NT.A (Second Mortgage Bonds due December 24, 2015), LRT.WT (Warrants expiring March 9, 2015) and LRT.WT.A (Warrants expiring December 23, 2015).  The objective of LREIT is to provide Unitholders with stable cash distributions from investment in a diversified portfolio of quality real estate properties.  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.

The Toronto Stock Exchange has not reviewed or approved the contents of this press release and does not accept responsibility for the adequacy or accuracy of this press release.

 

SOURCE: Lanesborough Real Estate Investment Trust

Arni Thorsteinson, Chief Executive Officer, or Gino Romagnoli, Investor Relations
Tel: [phone], Fax: [phone], Email: [email protected]