WINNIPEG, May 29, 2020 /CNW/ - Lanesborough Real
Estate Investment Trust ("LREIT") (TSXV: LRT.UN) today
reported its operating results for the quarter ended March 31, 2020. 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,
2020, which may be obtained from the SEDAR website at
www.sedar.com.
ANALYSIS OF OPERATING RESULTS
Analysis of Loss
and Comprehensive Loss
|
|
Three Months Ended
March 31
|
|
Increase
(Decrease)
in Income
|
|
2020
|
|
2019
|
|
Amount
|
|
%
|
|
|
|
|
|
|
|
|
Rentals from
investment properties
|
$
|
4,330,705
|
|
$
|
3,956,310
|
|
$
|
374,395
|
|
9%
|
Property operating
costs
|
(3,225,041)
|
|
(2,901,297)
|
|
(323,744)
|
|
(11)%
|
Net operating
income (NOI)
|
1,105,664
|
|
1,055,013
|
|
50,651
|
|
5%
|
Interest
income
|
48,466
|
|
49,564
|
|
(1,098)
|
|
(2)%
|
Interest
expense
|
(4,463,691)
|
|
(3,917,048)
|
|
(546,643)
|
|
(14)%
|
Trust
expense
|
(358,996)
|
|
(588,280)
|
|
229,284
|
|
39%
|
Loss before the
following
|
(3,668,557)
|
|
(3,400,751)
|
|
(267,806)
|
|
(8)%
|
Fair value
adjustments
|
(2,963,262)
|
|
(1,872,605)
|
|
(1,090,657)
|
|
(58)%
|
Loss before
discontinued operations
|
(6,631,819)
|
|
(5,273,356)
|
|
(1,358,463)
|
|
(26)%
|
Loss from
discontinued operations
|
(471,264)
|
|
(321,784)
|
|
(149,480)
|
|
(46)%
|
Loss and
comprehensive loss
|
$
|
(7,103,083)
|
|
$
|
(5,595,140)
|
|
$
|
(1,507,943)
|
|
(27)%
|
Overall Operating Results
LREIT completed Q1-2020 with a loss and comprehensive loss of
$7.1 million compared to a loss and
comprehensive loss of $5.6 million in
Q1-2019. The increase in the extent of the loss and comprehensive
loss is mainly due to an increase in the loss relating to fair
value adjustments, an increase in interest expense and an increase
in the property operating costs, partially offset by an increase in
rental revenue.
Unfavourable fair value adjustments recognized during Q1-2020
primarily reflect a reduction in the carrying value of the
Fort McMurray properties due to a
reduction in the level of net operating income that is considered
to be achievable in the Fort
McMurray rental market. The demand for rental accommodations
in the region continues to be negatively impacted by the low level
of development and investment in the Alberta oil sands industry as a result of the
depressed price of oil, delays in oil transportation infrastructure
development and political pressures around climate change. The loss
related to fair value adjustments recognized in 2019 was mainly due
to reduced revenue expectations of the Fort McMurray property portfolio that resulted
from the prolonged low‑level of oil sands development activity.
The increase in interest expense during Q1-2020 of $0.5 million mainly reflects an increase in
interest on the revolving loan from 2668921 Manitoba Ltd. of
$0.6 million as a result of an
increase in the average outstanding balance of the revolving
loan.
The increase in property operating costs of $0.3 million is primarily due to condominium
corporation special assessment fees associated with electrical
repairs at Woodland Park, the property which is classified as held
for sale ("Woodland Park").
The increase in rental revenue mainly reflects an 11% increase
in the average occupancy level of the Fort McMurray properties segment from 65%
during Q1-2019 to 76% during Q1-2020, partially offset by a
decrease in the average monthly rental rate of $85 or 6%.
Revenues
Analysis of Rental
Revenue
|
|
Three Months Ended
March 31
|
|
Increase
(Decrease)
|
|
% of Total
|
|
2020
|
|
2019
|
|
Amount
|
|
%
|
|
2020
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
|
|
Fort McMurray
properties
|
$
|
3,437,746
|
|
$
|
3,084,625
|
|
$
|
353,121
|
|
11%
|
|
79%
|
|
78%
|
Other investment
properties
|
|
434,110
|
|
407,531
|
|
26,579
|
|
7%
|
|
10%
|
|
10%
|
Sub‑total
|
|
3,871,856
|
|
3,492,156
|
|
379,700
|
|
11%
|
|
89%
|
|
88%
|
Held for sale and/or
sold properties (1)
|
|
458,849
|
|
464,154
|
|
(5,305)
|
|
(1)%
|
|
11%
|
|
12%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
$
|
4,330,705
|
|
$
|
3,956,310
|
|
$
|
374,395
|
|
9%
|
|
100%
|
|
100%
|
Average Occupancy
Level, by Quarter
|
|
2019
|
2020
|
|
Q1
|
Q2
|
Q3
|
Q4
|
12 Month
Average
|
Q1
|
Fort McMurray
properties
|
65%
|
72%
|
75%
|
75%
|
72%
|
76%
|
Other investment
properties
|
75%
|
76%
|
72%
|
71%
|
73%
|
73%
|
Total
|
66%
|
72%
|
75%
|
74%
|
72%
|
75%
|
Held for sale and/or
sold properties (1)
|
76%
|
n/a
|
n/a
|
n/a
|
n/a
|
n/a
|
Average Monthly
Rents, by Quarter
|
|
2019
|
2020
|
|
Q1
|
Q2
|
Q3
|
Q4
|
12 Month
Average
|
Q1
|
Fort McMurray
properties
|
$1,539
|
$1,522
|
$1,499
|
$1,466
|
$1,507
|
$1,454
|
Other investment
properties
|
$919
|
$939
|
$952
|
$952
|
$940
|
$955
|
Total
|
$1,435
|
$1,424
|
$1,407
|
$1,379
|
$1,411
|
$1,370
|
Held for sale and/or
sold properties (1)
|
$1,853
|
n/a
|
n/a
|
n/a
|
n/a
|
n/a
|
(1)
|
The information
required to reasonably estimate average occupancy levels and
average monthly rents for Woodland Park has not been available to
the Trust subsequent to the first quarter of 2019 when the Receiver
assumed control of the property.
|
During Q1-2020, total investment property revenue increased by
$0.4 million or 9%, compared to the
Q1-2019. The increase is mainly due to an 11% increase in
average occupancy of the Fort
McMurray properties segment, which increased from 65% during
Q1-2019 to 76% during Q1-2020. The increase in average occupancy is
partially offset by a decrease in the average monthly rental rate
of the Fort McMurray properties
segment as the prolonged low‑level of oil sands development
activity continues to negatively impact the demand for rental
accommodations in Fort McMurray.
The average monthly rental rate of the Fort McMurray property portfolio decreased
from $1,539 during Q1-2019 to
$1,454 during Q1-2020, representing a
decrease of $85 or 6%.
Property Operating Costs
Analysis of
Property Operating Costs
|
|
Three Month Ended
March 31
|
|
Increase
(Decrease)
|
|
2020
|
|
2019
|
|
Amount
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Fort McMurray
properties
|
$
|
2,293,365
|
|
$
|
2,223,918
|
|
$
|
69,447
|
|
3%
|
Other investment
properties
|
|
385,808
|
|
355,945
|
|
29,863
|
|
8%
|
Sub‑total
|
|
2,679,173
|
|
2,579,863
|
|
99,310
|
|
4%
|
Held for sale and/or
sold properties (1)
|
|
545,868
|
|
321,434
|
|
224,434
|
|
70%
|
Total
|
$
|
3,225,041
|
|
$
|
2,901,297
|
|
$
|
323,744
|
|
11%
|
(1)
|
Includes operating
costs from Woodland Park. The held for sale figures are based on
management's estimates and information provided by the Receiver who
assumed control of the property on February 28, 2019.
|
During Q1-2020, property operating costs increased by
$0.3 million or 11%, compared to
Q1-2019. The increase in property operating costs is mainly due to
condominium corporation special assessment fees associated with
electrical repairs at Woodland Park.
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
|
|
2020
|
|
2019
|
|
Amount
|
|
%
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fort McMurray
properties
|
$
|
1,144,381
|
|
$
|
860,707
|
|
$
|
283,674
|
|
33%
|
|
104%
|
|
82%
|
|
33%
|
|
28%
|
Other investment
properties
|
48,302
|
|
51,586
|
|
(3,284)
|
|
(6)%
|
|
4%
|
|
5%
|
|
11%
|
|
13%
|
Sub‑total
|
1,192,683
|
|
912,293
|
|
280,390
|
|
31%
|
|
108%
|
|
87%
|
|
31%
|
|
26%
|
Held for sale and/or
sold properties (1)
|
(87,019)
|
|
142,720
|
|
(229,739)
|
|
(161)%
|
|
(8)%
|
|
13%
|
|
(19)%
|
|
31%
|
Total
|
$
|
1,105,664
|
|
$
|
1,055,013
|
|
$
|
50,651
|
|
5%
|
|
100%
|
|
100%
|
|
26%
|
|
27%
|
(1)
|
Includes revenues and
operating costs from Woodland Park. The held for sale figures are
based on management's estimates and information provided by the
Receiver who assumed control of the property on February 28,
2019.
|
During Q1-2020, the NOI of the investment properties portfolio
increased by $0.1 million or 5%,
compared to Q1-2019. The increase in NOI is primarily due to the
increase in rental revenue of the Fort
McMurray properties segment as described in the "Revenues"
section of this press release; partially offset by the increase in
property operating costs of the held for sale and/or sold
properties segment as described in the "Property Operating Costs"
section of this press release.
Interest Expense
During Q1-2020, interest expense increased by $0.5 million or 14%, compared to Q1-2019. The
increase mainly reflects an increase in revolving loan interest of
$0.6 million primarily due to an
increase in the average outstanding balance of the loan during
Q1-2020, compared to Q1-2019.
The weighted average interest rate on the Trust's mortgage loan
debt was 5.7% as at March 31, 2020,
compared to 5.8% as at March 31,
2019. The decrease in the weighted average interest rate was
primarily due to the impact on the Trust's variable rate mortgages
of reductions in the prime rate of interest, which went from 3.95%
as at March 31, 2019 to 2.45% as at
March 31, 2020, partially offset by
an increase in the weighted average interest rate of the Trust's
fixed rate mortgages which went from 4.9% as at March 31, 2019 to 5.1% as at March 31, 2020.
The weighted average interest rate on the Trust's total debt,
inclusive of the revolving loan and debentures, was 6.0% as at
March 31, 2020, compared to 5.8% as
at March 31, 2019. The increase in
the weighted average interest rate was primarily due to an increase
in the average outstanding balance of the revolving loan and an
increase in the interest rate on the first $30,000,000 advanced under the revolving loan
from 5% to 7%, effective January 1,
2020.
Fair Value Adjustments
During Q1-2020, LREIT recorded a loss related to fair value
adjustments on its investment properties and investment properties
held for sale of $3.0 million,
compared to a loss related to fair value adjustments of
$1.9 million during Q1-2019,
representing a variance of $1.1
million.
Unfavourable fair value adjustments recognized during the first
quarter of 2020 primarily reflect a reduction in the carrying value
of the Fort McMurray properties
due to a reduction in the level of net operating income that is
considered to be achievable in the Fort
McMurray rental market. The demand for rental accommodations
in the region continues to be negatively impacted by the low level
of development and investment in the Alberta oil sands industry as a result of the
depressed price of oil, delays in oil transportation infrastructure
development and political pressures around climate change. The loss
related to fair value adjustments recognized in 2019 was mainly due
to reduced revenue expectations of the Fort McMurray property portfolio that resulted
from the prolonged low-level of oil sands development activity.
After accounting for fair value adjustments, dispositions, and
capital expenditures, the carrying value of investment properties
and investment properties held for sale decreased by an aggregate
of $2.7 million during Q1-2020.
Coronavirus (COVID-19)
Since December 31, 2019, the
spread of novel coronavirus COVID‑19 ("COVID‑19") has impacted
economies around the globe. On March 11,
2020, the World Health Organization ("WHO") declared the
outbreak of COVID‑19 as a pandemic. In many countries, including
Canada, businesses are being
forced to cease or limit operations for indefinite periods of time.
Measures, which have been taken to contain the spread of the virus,
including travel bans, quarantines, social distancing, and closures
of non‑essential services, have triggered significant disruptions
to businesses worldwide, resulting in an economic slowdown.
Consequently, the demand for oil, which is a significant driver of
the economy in the Trust's primary market of Fort McMurray, began to decline. The
decreased demand for oil combined with significant oversupply,
caused by geopolitical conflict among major oil producing nations,
created the perfect storm in the oil market with oil prices
reaching record lows in April
2020.
There is the risk that the economic slowdown will negatively
affect the ability of tenants to pay rent, which would have a
negative impact on the future financial position, operating results
and liquidity of the Trust. Governments and central banks
have been responding with monetary and fiscal interventions in an
effort to stabilize economic conditions. The extent and
duration of the economic slowdown and the ability and level of
success of jurisdictions around the world in restarting and
maintaining economies is uncertain.
Subsequent Events
In late April 2020, an ice jam on
the Athabasca River caused extensive flooding to occur in downtown
Fort McMurray. Estimates suggest 1,230 structures were
impacted by the flood. LREIT owns six residential properties
in downtown Fort McMurray,
comprising 173 suites, or 13% of its total suites in the investment
property portfolio. Of the downtown properties, three
investment properties were extensively damaged due to the
flood. The other downtown properties incurred less
substantial damage. An assessment of the damages is currently being
undertaken and it is anticipated that the insurance coverage of
LREIT will be sufficient to cover the restoration costs and loss of
rental income resulting from the flood; however, there remains a
risk that the proceeds of insurance may be inadequate to fully
compensate LREIT for all of the losses associated with the
flood.
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