Lanesborough REIT Reports 2014 Third Quarter Results
WINNIPEG, Nov. 10, 2014 /CNW/ - Lanesborough Real Estate Investment Trust ("LREIT") (TSX: LRT.UN) today reported its operating results for the quarter ended September 30, 2014. 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 September 30, 2014, which may be obtained from the LREIT website at www.lreit.com or the SEDAR website at www.sedar.com.
Results of Operations
Overview
LREIT completed Q3-2014 with a loss before discontinued operations, fair value adjustments and gain on sale of investment properties of $0.66 million, compared to income of $0.62 million in Q3-2013. After including discontinued operations, fair value adjustments and gain on sale of investment properties, LREIT completed Q3-2014 with a comprehensive loss of $0.8 million, compared to comprehensive income of $13.51 million during Q3-2013, representing a variance of approximately $14.31 million. The variance mainly reflects a decrease in gains related to fair value adjustments of approximately $12.8 million.
Net Operating Income and Income Recoveries
During Q3-2014, total net operating income ("NOI") decreased by $0.3 million, compared to Q3-2013. Excluding properties sold and Parsons Landing, NOI decreased by $0.34 million as a result of a decrease in the NOI of the Fort McMurray property portfolio of $0.38 million. The decrease in the Fort McMurray NOI mainly reflects the impact of more competitive market conditions.
The NOI results for Q3-2014 were stable, relative to Q2-2014, and reflect a significant recovery in revenue and occupancy levels for the Fort McMurray property portfolio when compared to Q1-2014. During Q3-2014, the average occupancy level for the Fort McMurray property portfolio was 89%, compared to 90% during Q2-2014 and 80% during Q1-2014.
Fair Value Adjustments
During Q3-2014, LREIT recorded a loss of $0.16 million related to fair value adjustments, compared to a gain of $12.8 million during Q3-2013. The variance in fair value adjustments served to decrease income by $12.96 million during Q3-2014, compared to Q3-2013. Gains related to fair value adjustments during Q3-2013 were due to favourable changes in key valuation assumptions for investment properties and improved earnings projections for Parsons Landing following the return of suites to active rental operations. The gain related to fair value adjustments in Q3-2013, includes a $5.16 million increase in the carrying value of Parsons Landing.
Cash Flow Results
Cash inflow from operating activities, excluding working capital adjustments, amounted to $1.15 million during Q3-2014, compared to a cash inflow of $2.06 million during Q3-2013. Including working capital adjustments, LREIT completed Q3-2014 with a cash inflow from operating activities of $0.46 million, compared to a cash inflow of $3.28 million during Q3-2013.
Renewal of the Revolving Loan
Effective October 1, 2014, the revolving loan commitment was renewed for a nine month term to June 30, 2015 at an interest rate of 12% with a maximum balance of $15 million. As of September 30, 2014, the balance of the revolving loan was $10 million.
Removal of Covenant Breach
LREIT has received a loan commitment to refinance a $15.5 million loan that has been subject to a covenant breach. The new loan was expected to fund in Q3-2014 and now is expected to fund in Q4-2014. Upon the anticipated funding of the new loan in Q4-2014, LREIT will have successfully removed the one remaining loan covenant breach. The loan commitment provides for the new loan to bear interest at approximately 4.5% for a ten-year term, compared to the 5.82% rate on the existing loan.
Outlook
Refinancing activities to date and the completion of refinancings in Q4-2014 will reduce the overall cost of mortgage loan debt and contribute to an inflow of working capital. After considering the revolving loan, upward refinancing and the potential of completing an additional property sale before the end of the year, management believes that LREIT has the capability to fund all of its projected funding commitments through 2015.
While the 2014 occupancy level of our Fort McMurray property portfolio has been weaker than expected, the medium term prospects for higher earnings from LREIT's investment in Fort McMurray is favourable as oil production from facilities under construction continues to expand over the next 3 years.
Management will continue with its systematic approach to reduce debt and interest expense and remains optimistic regarding future operations.
FINANCIAL AND OPERATING SUMMARY
| September 30 | December 31 | ||||||||||
| 2014 | 2013 | 2012 | |||||||||
| STATEMENT OF FINANCIAL POSITION | |||||||||||
| Total assets | $ 459,539,723 | $ | 468,072,319 | $ | 481,552,578 | ||||||
| Total long-term financial liabilities | $ 329,766,000 | $ | 302,335,837 | $ | 324,501,221 | ||||||
| Weighted average interest rate | |||||||||||
| - Mortgage loan debt | 5.7% | 5.4% | 7.1% | ||||||||
| - Total debt | 6.3% | 5.9% | 7.4% | ||||||||
| Three Months Ended September 30 |
Nine Months Ended September 30 |
||||||||||
| 2014 | 2013 | 2014 | 2013 | ||||||||
| KEY FINANCIAL PERFORMANCE INDICATORS | |||||||||||
| Operating Results | |||||||||||
| Rentals from investment properties | $ | 9,924,262 | $ | 10,417,760 | $ | 28,808,159 | $ | 30,212,858 | |||
| Net operating income | $ | 6,103,953 | $ | 6,405,204 | $ | 16,532,671 | $ | 18,185,494 | |||
| Income (loss) before discontinued operations | $ | (820,772) | $ | 13,422,853 | $ | (4,235,089) | $ | 15,358,454 | |||
| Income (loss) & comprehensive income (loss) | $ | (795,468) | $ | 13,505,324 | $ | (3,942,149) | $ | 16,028,750 | |||
| Cash Flows | |||||||||||
| Cash provided by (used in) operating activities | $ | 462,910 | $ | 3,280,950 | $ | 920,884 | $ | 3,191,759 | |||
| Funds from Operations (FFO) | $ | (637,581) | $ | 700,219 | $ | (3,170,905) | $ | (544,062) | |||
| Adjusted Funds from Operations (AFFO) | $ | (1,219,479) | $ | (481,765) | $ | (4,287,138) | $ | (2,909,604) | |||
| Distributable income (loss)* | $ | 367,070 | $ | 714,151 | $ | (941,600) | $ | (833,474) | |||
Q3-2014 COMPARED TO Q3-2013
| Analysis of Income (Loss) | ||||||||||||
| Three Months Ended September 30 |
Nine Months Ended September 30 |
|||||||||||
| 2014 | 2013 | 2014 | 2013 | |||||||||
| Rentals from investment properties | $ | 9,924,262 | $ | 10,417,760 | $ | 28,808,159 | $ | 30,212,858 | ||||
| Property operating costs | 3,820,309 | 4,012,556 | 12,275,488 | 12,027,364 | ||||||||
| Net operating income | 6,103,953 | 6,405,204 | 16,532,671 | 18,185,494 | ||||||||
| Interest income | 27,770 | 303,792 | 619,767 | 932,039 | ||||||||
| Interest expense | (6,240,075) | (6,281,557) | (18,940,300) | (20,733,401) | ||||||||
| Trust expense | (554,533) | (440,395) | (1,774,482) | (1,762,327) | ||||||||
| Income recovery on Parsons Landing | - | 630,704 | 98,499 | 2,272,334 | ||||||||
| Gain (loss) before the following | (662,885) | 617,748 | (3,463,845) | (1,105,861) | ||||||||
| Gain (loss) on sale of investment properties | - | - | 71,235 | 164,928 | ||||||||
| Fair value adjustments | (157,887) | 7,652,786 | (842,479) | 9,077,308 | ||||||||
| Fair value adjustment of Parsons Landing | - | 5,152,319 | - | 7,222,079 | ||||||||
| Income (loss) before discontinued operations | (820,772) | 13,422,853 | (4,235,089) | 15,358,454 | ||||||||
| Income from discontinued operations | 25,304 | 82,471 | 292,940 | 670,296 | ||||||||
| Income (loss) & comprehensive income (loss) | $ | (795,468) | $ | 13,505,324 | $ | (3,942,149) | $ | 16,028,750 | ||||
| Analysis of Rental Revenue | |||||||||||||||||||
| Three Months Ended September 30 | Nine Months Ended September 30 | ||||||||||||||||||
| 2014 | 2013 | Increase (Decrease) |
2014 | 2013 | Increase (Decrease) |
||||||||||||||
| Fort McMurray | $ | 5,881,636 | $ | 6,228,415 | $ | (346,779) | $ | 17,220,467 | $ | 18,668,698 | $ | (1,448,231) | |||||||
| Other investment properties | 2,750,193 | 2,673,558 | 76,635 | 8,111,063 | 8,141,398 | (30,335) | |||||||||||||
| Sub-total | 8,631,829 | 8,901,973 | (270,144) | 25,331,530 | 26,810,096 | (1,478,566) | |||||||||||||
| Properties sold (1) | - | 917,333 | (917,333) | 1,065 | 2,673,560 | (2,672,495) | |||||||||||||
| Parsons Landing (2) | 1,292,433 | 598,454 | 693,979 | 3,475,564 | 729,202 | 2,746,362 | |||||||||||||
| Total | $ | 9,924,262 | $ | 10,417,760 | $ | (493,498) | $ | 28,808,159 | $ | 30,212,858 | $ | (1,404,699) | |||||||
| 1. | Represents revenue from the Purolator Building and Nova Court. |
| 2. | For the first nine months of 2013, the rental revenue for Parsons Landing consists solely of the revenue from 84 reconstructed suites for a period of 122 days, commencing June 1, 2013. |
As disclosed in the chart above, total revenue from the investment properties, excluding properties sold and Parsons Landing, decreased by $0.27 million in Q3-2014, compared to Q3-2013. The decrease is comprised of a decrease in revenue from investment properties in Fort McMurray of $0.35 million, partially offset by an increase in revenue from the Other investment properties of $0.08million.
The Q3-2014 decrease in revenue from the Fort McMurray property portfolio is attributable to a decrease in both the average occupancy level and the average rental rate. As disclosed in the charts below, the average occupancy level for the Fort McMurray portfolio decreased from 92% during Q3-2013 to 89% during Q3-2014, while the average monthly rental rate decreased by $33 or 1.4%.
The decrease in revenue from the Fort McMurray property portfolio, as reflected in the nine-month comparatives, is due to a decrease in the average occupancy level, partially offset by an increase in the average rental rate. The average occupancy level for the Fort McMurray portfolio decreased from 93% during the first nine months of 2013 to 86% during the first nine months of 2014, while the average monthly rental rate increased by $27 or 1.2%.
The revenue results for the Fort McMurray property portfolio reflect a more competitive rental market at the outset of 2014 due to an increase in the supply of available rental units, increased competition from temporary housing units and abnormal variations in seasonal demand that resulted from a delay in the commencement of municipal and oil sands infrastructure projects. Although the second and third quarter revenue results for 2014 reflect an improvement in market conditions, the rental market remains highly competitive.
As disclosed in the following charts, the nine-month occupancy level of the Fort McMurray property portfolio is below 2013 levels and has levelled off at the 89% to 90% mark. The average rental rate is above 2013 levels, however, a downward trend is being displayed in 2014.
| Occupancy Level, by Quarter | ||||||
| 2014 | ||||||
| Q1 | Q2 | Q3 | 9 Month Average |
|||
| Fort McMurray | 80% | 90% | 89% | 86% | ||
| Other investment properties | 89% | 92% | 94% | 92% | ||
| Total | 82% | 91% | 91% | 88% | ||
| Properties sold | n/a | n/a | n/a | n/a | ||
| Parsons Landing | 69% | 89% | 93% | 84% | ||
| 2013 | ||||||
| Q1 | Q2 | Q3 | 9 Month Average |
Q4 | 12 Month Average |
|
| Fort McMurray | 93% | 95% | 92% | 93% | 84% | 91% |
| Other investment properties | 95% | 94% | 92% | 94% | 90% | 93% |
| Total | 94% | 94% | 92% | 93% | 85% | 91% |
| Properties sold | 100% | 100% | 100% | 100% | 99% | 100% |
| Parsons Landing | n/a | n/a | n/a | n/a | n/a | n/a |
The occupancy level represents the portion of potential revenue that was achieved
| Average Monthly Rents, by Quarter | |||||||
| 2014 | |||||||
| Q1 | Q2 | Q3 | 9 Month Average |
||||
| Fort McMurray | $2,337 | $2,309 | $2,285 | $2,311 | |||
| Other investment properties | $933 | $927 | $919 | $927 | |||
| Total | $1,672 | $1,654 | $1,638 | $1,655 | |||
| Properties sold | n/a | n/a | n/a | n/a | |||
| Parsons Landing | $2,744 | $2,742 | $2,734 | $2,740 | |||
| 2013 | |||||||
| Q1 | Q2 | Q3 | 9 Month Average |
Q4 | 12 Month Average |
||
| Fort McMurray | $2,259 | $2,275 | $2,318 | $2,284 | $2,387 | $2,329 | |
| Other investment properties | $922 | $929 | $931 | $927 | $934 | $929 | |
| Total | $1,627 | $1,638 | $1,661 | $1,642 | $1,699 | $1,666 | |
| Properties sold | $2,550 | $2,546 | $2,692 | $2,596 | $2,299 | $2,521 | |
| Parsons Landing | n/a | n/a | n/a | n/a | n/a | n/a | |
| Analysis of Property Operating Costs | ||||||||||||||||||
| Three Months Ended September 30 | Nine Months Ended September 30 | |||||||||||||||||
| 2014 | 2013 | Increase (Decrease) |
2014 | 2013 | Increase (Decrease) |
|||||||||||||
| Fort McMurray | $ | 2,153,047 | $ | 2,120,697 | $ | 32,350 | $ | 6,942,319 | $ | 6,582,146 | $ | 360,173 | ||||||
| Other investment properties | 1,337,208 | 1,303,956 | 33,252 | 4,051,569 | 3,971,162 | 80,407 | ||||||||||||
| Sub-total | 3,490,255 | 3,424,653 | 65,602 | 10,993,888 | 10,553,308 | 440,580 | ||||||||||||
| Properties sold | - | 397,843 | (397,843) | 103,437 | 1,211,410 | (1,107,973) | ||||||||||||
| Parsons Landing | 330,054 | 190,060 | 139,994 | 1,178,163 | 262,646 | 915,517 | ||||||||||||
| Total | $ | 3,820,309 | $ | 4,012,556 | $ | (192,247) | $ | 12,275,488 | $ | 12,027,364 | $ | 248,124 | ||||||
During Q3-2014, property operating costs for the portfolio of investment properties, excluding properties sold and Parsons Landing, increased marginally by $0.07 million, compared to Q3-2013, comprised of an increase of $0.03 million in the operating costs of the Fort McMurray portfolio and an increase of $0.03 million in the Other investment properties portfolio.
For the nine months ended September 30, 2014, property operating costs for the portfolio of investment properties, excluding properties sold and Parsons Landing, increased by $0.44 million or 4.2%, compared to the first nine months of 2013. The increase is comprised of an increase of $0.36 million in the operating costs of the Fort McMurray portfolio and a $0.08 million increase in the Other investment properties portfolio.
The increase in the operating costs for the nine months comparatives is mainly due to an increase in maintenance costs. The nine-month comparatives were also affected by an increase in repair costs related to water damage, net of insurance recoveries and a decrease in property taxes.
| Analysis of Net Operating Income | ||||||||||||||||||
| Net Operating Income | ||||||||||||||||||
| Three Months Ended September 30 | Nine Months Ended September 30 | |||||||||||||||||
| 2014 | 2013 | Increase (Decrease) |
2014 | 2013 | Increase (Decrease) |
|||||||||||||
| Fort McMurray | $ | 3,728,589 | $ | 4,107,718 | $ | (379,129) | $ | 10,278,148 | $ | 12,086,552 | $ | (1,808,404) | ||||||
| Other investment properties | 1,412,985 | 1,369,602 | 43,383 | 4,059,494 | 4,170,236 | (110,742) | ||||||||||||
| Sub-total | 5,141,574 | 5,477,320 | (335,746) | 14,337,642 | 16,256,788 | (1,919,146) | ||||||||||||
| Properties sold | - | 519,490 | 519,490) | (102,372) | 1,462,150 | (1,564,522) | ||||||||||||
| Parsons Landing | 962,379 | 408,394 | 553,985 | 2,297,401 | 466,556 | 1,830,845 | ||||||||||||
| Total | $ | 6,103,953 | $ | 6,405,204 | $ | (301,251) | $ | 16,532,671 | $ | 18,185,494 | $ | (1,652,823) | ||||||
After considering the decrease in rental revenue and the increase in property operating costs, as analyzed in the preceding sections of this press release, net operating income for the portfolio of investment properties, excluding properties sold and Parsons Landing, decreased by $0.34 million or 6% during Q3-2014, compared to Q3-2013. The decrease in NOI is attributable to a decrease of $0.38 million in the NOI of the Fort McMurray properties, partially offset by an increase of $0.04 million in the NOI of the Other investment properties.
For the nine-month period ended September 30, 2014 compared to 2013, net operating income for the portfolio of investment properties, excluding properties sold and Parsons Landing, decreased by $1.92 million.
After accounting for the decrease in net operating income related to properties sold and the net operating income attributable to Parsons Landing, total net operating income decreased by $0.30 million during Q3-2014, compared to Q3-2013, For the nine-month period ended September 30, 2014 compared to 2013, total net operating income decreased by $1.65 million.
During the nine months ended September 30, 2014, net operating income from Parsons Landing combined with the income recovery on Parsons Landing amounted to $2.40 million, compared to $2.74 million during the nine months ended September 30, 2013, representing a decrease of $0.34 million or 13%. The decrease is attributable to the change in the operational status of the property. During the first nine months of 2013, revenue losses from un-leased or un-reconstructed suites were fully covered by insurance proceeds, whereas, at the beginning of 2014, the property was in the lease-up phase and insurance recoveries ended on February 5, 2014. The lease-up phase was essentially completed in May 2014 when the property achieved an occupancy level of 94%.
Overall, the operating margin for the property portfolio, excluding properties sold and Parsons Landing, decreased from 62% in Q3-2013, to 60% in Q3-2014. For the nine months ended September 30, 2014, the operating margin was 57% compared to 61% for the nine months ended September 30, 2013. The decrease in the operating margin for the nine months ended September 30, 2014 is mainly due to the unfavourable variance in revenue results for the Fort McMurray property portfolio, particularly in Q1-2014.
COMPARISON TO PREVIOUS QUARTER
| Analysis of Loss | ||||||||||||
| Three Months Ended | Increase (Decrease) In Income |
|||||||||||
| September 30, 2014 |
June 30, 2014 | Amount | % | |||||||||
| Rentals from investment properties | $ | 9,924,262 | $ | 9,975,172 | $ | (50,910) | (0.5)% | |||||
| Property operating costs | 3,820,309 | 4,050,521 | 230,212 | 5.7% | ||||||||
| Net operating income | 6,103,953 | 5,924,651 | 179,302 | 3.0% | ||||||||
| Interest income | 27,770 | 206,779 | (179,009) | (86.6)% | ||||||||
| Interest expense | (6,240,075) | (5,745,943) | (494,132) | (8.6)% | ||||||||
| Trust expense | (554,533) | (599,264) | 44,731 | 7.5% | ||||||||
| Loss before the following | (662,885) | (213,777) | (449,108) | (210.1)% | ||||||||
| Fair value adjustments | (157,887) | (684,592) | 526,705 | (76.9)% | ||||||||
| Loss for the period before discontinued operations | (820,772) | (898,369) | 77,597 | 8.6% | ||||||||
| Income from discontinued operations | 25,304 | 155,701 | (130,397) | (83.7)% | ||||||||
| Comprehensive loss | $ | (795,468) | $ | (742,668) | $ | (52,800) | (7.1)% | |||||
Comparison to Q2-2014
During Q3-2014, LREIT incurred a loss of $0.66 million, before fair value adjustment and discontinued operations, compared to a loss of $0.21 million during Q2-2014. The increase in the loss mainly reflects an increase in interest expense of $0.49 million and a decrease in interest income of $0.18 million, partially offset by an increase in net operating income of $0.18 million. The increase in interest expense is mainly attributable to the change in fair value of the interest rate swap liability. The decrease in interest income is due to the repayment of the mortgage loans receivable in June 2014. The increase in operating income is mainly due to a decrease in property operating costs of $0.23 million or, more specifically, a decrease in utilities expense of $0.11 million and a decrease in maintenance expense of $0.16 million.
After accounting for the variance in fair value losses and fair value adjustment in the amount of $0.53, the loss before discontinued operations increased by $0.08 million during Q3-2014, compared to Q2-2014.
Income from discontinued operations decreased by $0.01 million in Q3-2014 compared to Q2-2014. After accounting for discontinued operations, LREIT completed Q3- 2014 with a comprehensive loss of $0.8 million, compared to a comprehensive loss of $0.75 million during Q2-2014.
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: (204) 475-9090, Fax: (204) 452-5505, Email: [email protected]
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