WINNIPEG, May 9, 2017 /CNW/ - Lanesborough Real Estate
Investment Trust ("LREIT") (TSX: LRT.UN) today reported its
operating results for the quarter ended March 31, 2017. 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 March 31, 2017, which may be obtained from the
LREIT website at www.lreit.com or the SEDAR website at
www.sedar.com.
As expected, rental market conditions in Fort McMurray, Alberta improved during the
first quarter of 2017, compared to the first quarter of 2016, as
the City continued with the early stages of the post‑fire
rebuilding process.
Operating Results
LREIT completed Q1-2017 with negative funds from operations
("FFO") of $1.8 million, compared to
negative FFO of $4.3 million during
Q1-2016. The favourable FFO variance mainly reflects a decrease in
interest expense and an increase in net operating income
("NOI").
The decrease in interest expense was due to divestiture and debt
restructuring initiatives during 2016 that resulted in a reduction
of outstanding mortgage loan debt and reductions in the rate of
interest applicable to the revolving loan and debenture debt.
The increase in NOI is mainly comprised of a decrease in
property operating costs and an increase in rental revenues. The
decrease in property operating costs is primarily due to the
divestitures of Beck Court and Willowdale Gardens in May 2016. The increase in rental revenues is
primarily attributable to the increase in the occupancy levels of
the Fort McMurray properties.
Specifically, the average occupancy level of the Fort McMurray property portfolio increased
from 52% during Q1-2016 to 68% during Q1-2017.
Overall, LREIT completed Q1-2017 with a loss and comprehensive
loss of $4.6 million, compared to a
loss and comprehensive loss of $7.6
million during Q1-2016. The decrease in the net loss and
comprehensive loss mainly reflects the same factors discussed
above.
Liquidity and Capital Resources
During Q1-2017, cash used in operating activities amounted to
$1.2 million and the cash shortfall,
after accounting for regular mortgage principal repayments, capital
expenditures and transaction costs, was $2.3
million, compared to cash used in operating activities of
$1.4 million and a cash shortfall of
$3.0 million during Q1- 2016. The
cash shortfalls were funded by advances under the revolving loan
facility from 2668921 Manitoba Ltd.
As of March 31, 2017, LREIT is
current with respect to all debt service payments. However, as
previously reported, the lender of five mortgage loans on eight
properties with an aggregate principal balance of $64.7 million, which were previously in default
of debt service payments, maintains that there are service fees
outstanding and that until such fees are paid the loans will remain
in default. Management expects that an agreement with respect to
the servicing fees will be negotiated and any default remedied. In
the interim, LREIT continues to meet the debt service obligations
of the mortgages and the lender has taken no action to enforce the
loans.
During Q1-2017, LREIT continued to benefit from the debt
restructuring that took place during Q1-2016, which has allowed for
the deferral of interest payments and/or a decrease in the interest
rate charged.
During Q1-2017, LREIT completed the sale of one condominium unit
under the Lakewood Townhomes condominium sales program. The sale
resulted in the reduction of $0.4
million of mortgage loan debt and a net cash shortfall of
$0.1 million. Current divestiture
activities are focused on the sale of the remaining seniors'
housing complex, Chateau St. Michael's, the property classified as
held for sale, Woodland Park, and the continuation of the Lakewood
Townhomes Condominium Sales Program.
Outlook
A report by the Conference Board of Canada estimates that $5.3 billion will be injected into the Canadian
economy as a result of the Fort
McMurray rebuilding effort and that approximately 9,000 jobs
will be created in 2017. While management is optimistic that LREIT
will experience improved operating results during the remainder of
2017 in connection with the rebuilding effort, there remains the
risk that possible homebuilding permit delays and/or late insurance
settlements will slow down the pace of the near‑term market
recovery. In addition, the long‑term prospects of the Fort McMurray rental market will remain
closely correlated with oil sands development activity and the
price of oil.
FINANCIAL SUMMARY
|
|
March 31
|
|
December
31
|
|
|
2017
|
|
2016
|
|
|
2015
|
STATEMENT OF
FINANCIAL POSITION
|
|
|
|
|
|
|
|
|
Total
assets
|
$
|
242,732,820
|
|
$
|
245,402,329
|
|
$
|
278,524,804
|
|
Total long‑term
financial liabilities (1)
|
$
|
245,721,149
|
|
$
|
243,501,308
|
|
$
|
279,529,237
|
|
Weighted average
interest rate
|
|
|
|
|
|
|
|
|
‑ Mortgage loan
debt
|
5.8%
|
|
5.8%
|
|
|
6.0%
|
|
|
‑ Total
debt
|
5.6%
|
|
5.6%
|
|
|
6.4%
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31
|
|
|
2017
|
|
2016
|
|
|
2015
|
KEY FINANCIAL
PERFORMANCE INDICATORS
|
|
|
|
|
|
|
|
Operating
Results
|
|
|
|
|
|
|
|
|
Rentals from
investment properties
|
$
|
4,644,515
|
|
$
|
4,451,462
|
|
$
|
8,731,719
|
|
Net operating
income
|
$
|
2,232,113
|
|
$
|
1,659,357
|
|
$
|
4,752,982
|
|
Loss before
discontinued operations
|
$
|
(4,691,809)
|
|
$
|
(7,640,229)
|
|
$
|
(3,919,811)
|
|
Loss and
comprehensive loss
|
$
|
(4,645,719)
|
|
$
|
(7,599,297)
|
|
$
|
(1,812,046)
|
|
Funds from Operations
(FFO)
|
$
|
(1,777,917)
|
|
$
|
(4,280,574)
|
|
$
|
(1,915,224)
|
|
|
|
|
|
|
|
|
Cash
Flows
|
|
|
|
|
|
|
|
|
Cash used in
operating activities
|
$
|
(1,218,817)
|
|
$
|
(1,412,372)
|
|
$
|
(292,138)
|
|
Adjusted Funds from
Operations (AFFO)
|
$
|
(1,885,179)
|
|
$
|
(4,603,418)
|
|
$
|
(1,610,594)
|
(1)
|
Long‑term financial
liabilities consist of mortgage loans, debentures, defeased
liability (December 2015) and the revolving loan from 2668921
Manitoba
Ltd.
|
ANALYSIS OF OPERATING RESULTS
Analysis of Income
(Loss)
|
|
Three Months Ended
March 31
|
|
Increase
(Decrease)
in Income
|
|
2017
|
|
2016
|
|
Amount
|
|
%
|
|
|
|
|
|
|
|
|
|
|
Rentals from
investment properties
|
$
|
4,644,515
|
|
$
|
4,451,462
|
|
$
|
193,053
|
|
4%
|
Property operating
costs
|
(2,412,402)
|
|
|
(2,792,105)
|
|
|
379,703
|
|
14%
|
|
|
|
|
|
|
|
|
|
|
Net operating
income
|
2,232,113
|
|
|
1,659,357
|
|
|
572,756
|
|
35%
|
Interest
income
|
45,612
|
|
|
17,253
|
|
|
28,359
|
|
164%
|
Interest
expense
|
(3,686,254)
|
|
|
(5,656,180)
|
|
|
1,969,926
|
|
35%
|
Trust
expense
|
(415,478)
|
|
|
(556,430)
|
|
|
140,952
|
|
25%
|
|
|
|
|
|
|
|
|
|
|
Loss before the
following
|
(1,824,007)
|
|
|
(4,536,000)
|
|
|
2,711,993
|
|
60%
|
Gain on sale of
investment property
|
58,377
|
|
|
-
|
|
|
58,377
|
|
n/a
|
Fair value
adjustments ‑ Investment properties
|
(2,926,179)
|
|
|
(3,104,229)
|
|
|
178,050
|
|
6%
|
|
|
|
|
|
|
|
|
|
|
Loss before
discontinued operations
|
(4,691,809)
|
|
|
(7,640,229)
|
|
|
2,948,420
|
|
39%
|
Income from
discontinued operations
|
46,090
|
|
|
40,932
|
|
|
5,158
|
|
13%
|
|
|
|
|
|
|
|
|
|
|
Loss and
comprehensive loss
|
$
|
(4,645,719)
|
|
$
|
(7,599,297)
|
|
$
|
2,953,578
|
|
39%
|
LREIT completed Q1-2017 with a loss and comprehensive loss of
$4.6 million, compared to a loss and
comprehensive loss of $7.6 million
during Q1-2016. The decrease in the loss mainly reflects a
decrease in interest expense and an increase in net operating
income.
The decrease in interest expense is mainly due to a decrease in
amortization of transaction costs, a reduction of debt during 2016
and a decrease in interest rates of the revolving loan facility
from 2668921 Manitoba Ltd. and the Series G debentures. The
decrease in amortization of transaction costs is primarily due to
the acceleration of amortization during Q1-2016 due to the early
renewal of four mortgage loans, as part of the debt restructuring
initiatives, and the May 1, 2016 sale
of Beck Court and Willowdale Gardens. The decrease in mortgage loan
debt is due to the sales of Beck Court and Willowdale Gardens in
May 2016, as well as lump sum
payments made on mortgage loans during 2016 and the full repayment
of two second mortgage loans during 2016.
The increase in net operating income mainly reflects a decrease
in property operating costs and an increase in rental revenue. The
decrease in property operating costs is mainly due to the sales of
Beck Court and Willowdale Gardens in May
2016. The increase in rental revenue is mainly due to an
increase in the occupancy level of the Fort McMurray properties, partially offset by
a decrease in rental revenue as a result of the sales of Beck Court
and Willowdale Gardens.
The increase in the occupancy level of the Fort McMurray portfolio is primarily the
result of the entry of homeowners displaced by the May 2016 wildfire into the rental market and the
commencement of the post fire rebuild. The average occupancy
level increased from 52% during Q1-2016 to 68% during
Q2-2017. The extent and duration of
the impact of the rebuilding effort on future operating results is
uncertain and the long term prospects of the Fort McMurray rental market remain dependent
on the level of future oil sands development activity.
Analysis of Rental
Revenue
|
|
|
|
Three Months Ended
March 31
|
|
|
|
|
|
|
|
Increase
(Decrease)
|
|
% of Total
|
|
2017
|
|
2016
|
|
Amount
|
|
%
|
|
2016
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fort McMurray
properties
|
$
|
3,570,087
|
|
$
|
2,744,317
|
|
$
|
825,770
|
|
30%
|
|
77%
|
|
62%
|
Other investment
properties
|
|
383,193
|
|
419,002
|
|
(35,809)
|
|
(9)%
|
|
8%
|
|
9%
|
Sub‑total
|
|
3,953,280
|
|
3,163,319
|
|
789,961
|
|
25%
|
|
85%
|
|
71%
|
Held for sale and/or
sold properties
|
|
691,235
|
|
1,288,143
|
|
(596,908)
|
|
(46)%
|
|
15%
|
|
29%
|
Total
|
$
|
4,644,515
|
|
$
|
4,451,462
|
|
$
|
193,053
|
|
4%
|
|
100%
|
|
100%
|
Occupancy Level,
by Quarter
|
|
2016
|
2017
|
|
Q1
|
Q2
|
Q3
|
Q4
|
12 Month
Average
|
Q1
|
Fort McMurray
properties
|
52%
|
58%
|
76%
|
72%
|
65%
|
68%
|
Other investment
properties
|
72%
|
74%
|
69%
|
69%
|
71%
|
71%
|
Total
|
54%
|
60%
|
75%
|
72%
|
65%
|
68%
|
Held for sale and/or
sold properties
|
75%
|
64%
|
86%
|
82%
|
75%
|
79%
|
Average Monthly
Rents, by Quarter
|
|
2016
|
2017
|
|
Q1
|
Q2
|
Q3
|
Q4
|
12 Month
Average
|
Q1
|
Fort McMurray
properties
|
$1,699
|
$1,599
|
$1,700
|
$1,669
|
$1,667
|
$1,684
|
Other investment
properties
|
$969
|
$960
|
$945
|
$919
|
$948
|
$909
|
Total
|
$1,576
|
$1,491
|
$1,573
|
$1,543
|
$1,546
|
$1,554
|
Held for sale and/or
sold properties
|
$1,783
|
$2,036
|
$2,546
|
$2,581
|
$2,088
|
$2,593
|
During Q1-2017, total revenue from LREIT's investment
properties, excluding held for sale and/or sold properties,
increased by $0.8 million or 25%,
compared to Q1-2016. The increase is due to an increase in the
rental revenues of the Fort
McMurray portfolio.
Notwithstanding the positive revenue results during Q1-2017, the
revenue results of the Fort
McMurray property portfolio continue to reflect challenging
rental market conditions as a result of the depressed level of oil
sands development activity in the region. Rental rates remain
at depressed levels and the average monthly rental rate decreased
by $15 per suite or 1% during
Q1-2017, compared to Q1-2016. The impact of the low level of oil
sands development activity continues to be tempered by the entry of
homeowners displaced by the wildfire into the rental market and the
migration of workers involved in the rebuilding effort. As a
result, the average occupancy level for the Fort McMurray portfolio increased from 52%
during Q1-2016 to 68% during Q1-2017 driving the increase in
revenue.
The depressed level of rental rates, together with the
uncertainty regarding the extent and/or duration of the post fire
rental market recovery, are key factors that cast significant doubt
as to the ability of LREIT to sustain operations into the
foreseeable future. Measures being taken by management in
order to address the liquidity challenges facing LREIT and improve
operating performance are discussed in the "Liquidity and Capital
Resources" section of the 2017 first quarter MD&A.
After accounting for the decrease in revenue from held for sale
and/or sold properties of $0.6
million during Q1-2017, the total revenue increased by
$0.2 million or 4%, compared to
Q1-2016. The decrease in revenue from held for sale and/or sold
properties was primarily due to the sales of Beck Court and
Willowdale Gardens on May 1, 2016,
partially offset by an increase in the revenue of Woodland Park, a
Fort McMurray property which is
currently classified as held‑for‑sale.
Analysis of
Property Operating Costs
|
|
Three Months Ended
March 31
|
|
2017
|
|
2016
|
|
Increase
(Decrease)
|
|
%
|
|
|
|
|
|
|
|
|
Fort McMurray
properties
|
$
|
1,859,837
|
|
$
|
1,907,568
|
|
$
|
(47,731)
|
|
(3)%
|
Other investment
properties
|
304,732
|
|
280,385
|
|
24,347
|
|
9%
|
Sub‑total
|
2,164,569
|
|
2,187,953
|
|
(23,384)
|
|
(1)%
|
Held for sale and/or
sold properties
|
247,833
|
|
604,152
|
|
(356,319)
|
|
(59)%
|
Total
|
$
|
2,412,402
|
|
$
|
2,792,105
|
|
$
|
(379,703)
|
|
(14)%
|
During Q1-2017, property operating costs decreased by
$0.4 million or 14%, compared to
Q1-2016. The decrease mainly reflects a decrease in the
property operating costs of held for sale/or sold properties,
primarily due to the sales of Beck Court and Willowdale Gardens on
May 1, 2016.
Analysis of Net
Operating Income and Operating Margin
|
|
Net Operating
Income
|
|
|
|
Three Months
Ended
March 31
|
|
Increase
(Decrease)
|
|
Percent of
Total
|
|
Operating
Margin
|
|
2017
|
|
2016
|
|
Amount
|
|
%
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fort McMurray
properties
|
$1,710,250
|
|
$836,749
|
|
$873,501
|
|
104%
|
|
77%
|
|
50%
|
|
48%
|
|
30%
|
Other investment
properties
|
78,461
|
|
138,617
|
|
(60,156)
|
|
(43)%
|
|
4%
|
|
8%
|
|
20%
|
|
33%
|
Sub‑total
|
1,788,711
|
|
975,366
|
|
813,345
|
|
83%
|
|
81%
|
|
58%
|
|
45%
|
|
31%
|
Held for sale and/or
sold properties
|
443,402
|
|
683,991
|
|
(240,589)
|
|
(35)%
|
|
20%
|
|
42%
|
|
64%
|
|
53%
|
Total
|
$2,232,113
|
|
$1,659,357
|
|
$572,756
|
|
35%
|
|
100%
|
|
100%
|
|
48%
|
|
37%
|
During Q1-2017, the net operating income of the investment
properties portfolio, excluding held for sale and/or sold
properties, increased by $0.8 million
or 83%, compared to Q1-2016. The operating margin, excluding
held for sale and/or sold properties, increased from 31% during
Q1-2016 to 45% during Q1-2017. The increase in net
operating income and operating margin, excluding held for sale
and/or sold properties, is primarily due to the increase in the
revenue results of the Fort
McMurray property portfolio, as discussed above.
After accounting for held for sale and/or sold properties, the
total net operating income increased by $0.6
million or 35%, during Q1-2017, compared to Q1-2016.
The decrease in net operating income from held for sale and/or sold
properties is primarily due to the sales of Beck Court and
Willowdale Gardens on May 1, 2016,
partially offset by an increase in the revenue of Woodland Park,
the Fort McMurray property which
is classified as held‑for‑sale.
Interest Expense
During Q1-2017, total interest expense decreased by $2. 2 million or 37%, compared to Q1-2016.
The decrease mainly reflects a decrease in mortgage loan interest
of $1.5 million, as well as a
decrease in debenture interest of $0.4
million, a decrease in interest expense related to
discontinued operations of $0.2
million and a decrease in revolving loan interest of
$0.2 million.
The decrease in mortgage loan interest is primarily due to a
decrease in the amortization of transaction costs of mortgage loans
and a decrease in the total mortgage debt during 2016. The decrease
in debentures interest reflects the reduction in the Series G
debenture interest rate from 9.5% to 5%, effective June 30, 2016, in accordance with the amended
terms of the Series G debentures and a decrease in amortization of
transaction costs of $0.1 million as
transactions costs associated with the debentures were fully
amortized in 2016. The decrease in interest expense related to
discontinued operations is due to the sale of Elgin Lodge on October 1,
2016. The decrease in revolving loan interest mainly
reflects the reduction of the interest rate from 12% to 5%,
effective July 1, 2016, partially
offset by an increase in the average outstanding principal
balance.
ABOUT LREIT
LREIT is a real estate investment trust,
which is listed on the Toronto Stock 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.
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