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22.11.2019 23:00:00
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Lanesborough REIT Reports 2019 Third Quarter Results
WINNIPEG, Nov. 22, 2019 /CNW/ - Lanesborough Real Estate Investment Trust ("LREIT") (TSXV: LRT.UN) today reported its operating results for the quarter ended September 30, 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 September 30, 2019, which may be obtained from the SEDAR website at www.sedar.com.
ANALYSIS OF OPERATING RESULTS
Analysis of Loss | ||||||||||||||||
Three Months Ended September 30 | Nine Months Ended September 30 | |||||||||||||||
Increase (Decrease) | ||||||||||||||||
2019 | 2018 | Amount | % | 2019 | 2018 | |||||||||||
Rentals from investment properties | $ | 4,255,582 | $ | 4,339,380 | $ | (83,798) | (2)% | $ | 12,362,049 | $ | 13,256,357 | |||||
Property operating costs | (3,585,590) | (2,752,790) | (832,800) | (30)% | (9,140,359) | (8,399,853) | ||||||||||
Net operating income | 669,992 | 1,586,590 | (916,598) | (58)% | 3,221,690 | 4,856,504 | ||||||||||
Interest income | 54,137 | 50,533 | 3,604 | 7% | 166,272 | 151,117 | ||||||||||
Interest expense | (4,469,113) | (3,832,627) | (636,486) | (17)% | (12,419,600) | (11,228,450) | ||||||||||
Trust expense | (286,290) | (299,655) | 13,365 | 4% | (1,178,944) | (1,003,102) | ||||||||||
Loss before the following | (4,031,274) | (2,495,159) | (1,536,115) | (62)% | (10,210,582) | (7,223,931) | ||||||||||
Gain (loss) on sale of investments and | ||||||||||||||||
investment property | - | (53,042) | 53,042 | n/a | 347,500 | (136,001) | ||||||||||
Fair value adjustments | (1,124,995) | (10,120,070) | 8,995,075 | 89% | (8,979,017) | (33,625,457) | ||||||||||
Loss before discontinued operations | (5,156,269) | (12,668,271) | 7,512,002 | 59% | (18,842,099) | (40,985,389) | ||||||||||
Loss from discontinued operations | (559,925) | (160,051) | (399,874) | (250)% | (1,396,301) | (338,513) | ||||||||||
Loss and comprehensive loss | $ | (5,716,194) | $ | (12,828,322) | $ | 7,112,128 | 55% | $ | (20,238,400) | $ | (41,323,902) | |||||
Overall Results
LREIT completed Q3-2019 with a loss and comprehensive loss of $5.7 million, compared to a loss and comprehensive loss of $12.8 million during Q3-2018. The decrease in the loss is mainly due to a decrease in the loss relating to fair value adjustments, partially offset by an increase in interest expense, an increase in operating costs and an increase in the loss from discontinued operations.
Unfavourable fair value adjustments recognized during Q3-2019 decreased by $9.0 million, compared to the unfavourable fair value adjustments recognized during Q3-2018. The fair value adjustments recognized during Q3-2019 primarily reflect a reduction in the carrying value of the property classified as held for sale ("Woodland Park"). The loss related to fair value adjustments recognized during Q3-2018 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 and increased uncertainty as to the timing and/or extent of a recovery of the Fort McMurray rental market.
The increase in interest expense during Q3-2019 of $0.6 million was primarily due to an increase in the average outstanding balance of the revolving loan from 2668921 Manitoba Ltd. and an increase in the amortization of transaction costs related to professional fees charged by the Receiver appointed by the Court of Queen's Bench of Alberta ("the Court") on February 28, 2019 ("the Receiver") that is in control of Woodland Park.
The increase in property operating costs of $0.8 million mainly reflects the accrual of condominium corporation special assessment fees associated with both increased insurance premiums at Lakewood Townhomes and electrical repairs at Woodland Park. Also contributing to the increase in property operating costs was an increase in insurance premiums in the Fort McMurray property segment and an increase in repairs costs in the Other Investment property segment.
The increase in the loss from discontinued operations of $0.4 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.
Revenues
Analysis of Rental Revenue | ||||||||||||||||
Three Months Ended September 30 | Nine Months Ended September 30 | |||||||||||||||
Increase (Decrease) | ||||||||||||||||
2019 | 2018 | Amount | % | 2019 | 2018 | |||||||||||
Fort McMurray properties | $ | 3,474,799 | $ | 3,578,356 | $ | (103,557) | (3)% | $ | 9,933,602 | $ | 10,927,709 | |||||
Other investment properties | 407,650 | 366,387 | 41,263 | 11% | 1,236,997 | 1,154,212 | ||||||||||
Sub‑total | 3,882,449 | 3,944,743 | (62,294) | (2)% | 11,170,599 | 12,081,921 | ||||||||||
Held for sale and/or sold | ||||||||||||||||
properties (1) | 373,133 | 394,637 | (21,504) | (5)% | 1,191,450 | 1,174,436 | ||||||||||
Total | $ | 4,255,582 | $ | 4,339,380 | $ | (83,798) | (2)% | $ | 12,362,049 | $ | 13,256,357 | |||||
Average Occupancy Level, by Quarter | ||||
2019 | ||||
Q1 | Q2 | Q3 | 9 Month Average | |
Fort McMurray properties | 65% | 72% | 75% | 71% |
Other investment properties | 75% | 76% | 72% | 74% |
Total | 66% | 72% | 75% | 71% |
Held for sale and/or sold properties (1) | 76% | n/a | n/a | n/a |
Average Occupancy Level, by Quarter | ||||||
2018 | ||||||
Q1 | Q2 | Q3 | 9 Month | Q4 | 12 Month Average | |
Fort McMurray properties | 69% | 72% | 71% | 71% | 65% | 69% |
Other investment properties | 77% | 68% | 68% | 71% | 70% | 71% |
Total | 70% | 71% | 70% | 71% | 66% | 69% |
Held for sale and/or sold properties (1) | 46% | 51% | 53% | 50% | 62% | 52% |
Average Monthly Rents, by Quarter | ||||
2019 | ||||
Q1 | Q2 | Q3 | 9 Month Average | |
Fort McMurray properties | $1,539 | $1,522 | $1,499 | $1,520 |
Other investment properties | $919 | $939 | $952 | $936 |
Total | $1,435 | $1,424 | $1,407 | $1,422 |
Held for sale and/or sold properties (1) | $1,853 | n/a | n/a | n/a |
Average Monthly Rents, by Quarter | ||||||
2018 | ||||||
Q1 | Q2 | Q3 | 9 Month | Q4 | 12 Month Average | |
Fort McMurray properties | $1,685 | $1,650 | $1,618 | $1,651 | $1,527 | $1,620 |
Other investment properties | $907 | $909 | $909 | $908 | $885 | $902 |
Total | $1,554 | $1,525 | $1,499 | $1,526 | $1,419 | $1,499 |
Held for sale and/or sold properties (1) | $2,484 | $2,258 | $2,201 | $3,463 | $1,899 | $2,214 |
(1) | The information required to reasonably estimate average occupancy levels and average monthly rents for Woodland Park, the property classified as held for sale, was not available to the Trust subsequent to February 28, 2019, the date the Receiver assumed control of the property. |
During Q3-2019, total investment property revenue decreased by $0.1 million or 2%, compared to Q3-2018. The decrease mainly reflects a decrease in the average monthly rental rate of the Fort McMurray property portfolio 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 $1,618 during Q3-2018 to $1,499 during Q3-2019, representing a decrease of $119 or 7%. The decline in rental rates is partially offset by a 4% increase in average occupancy from 71% during Q3-2018 to 75% during Q3-2019.
Property Operating Costs
Analysis of Property Operating Costs | |||||||||||||||||
Three Months Ended | Nine Months Ended September 30 | ||||||||||||||||
Increase (Decrease) | |||||||||||||||||
2019 | 2018 | Amount | % | 2019 | 2018 | ||||||||||||
Fort McMurray properties | $ | 2,476,651 | $ | 2,158,553 | $ | 318,098 | 15% | $ | 6,691,356 | $ | 6,511,676 | ||||||
Other investment properties | 382,867 | 253,324 | 129,543 | 51% | 1,107,924 | 999,394 | |||||||||||
Sub‑total | 2,859,518 | 2,411,877 | 447,641 | 19% | 7,799,280 | 7,511,070 | |||||||||||
Held for sale and/or sold properties (1) | 726,072 | 340,913 | 385,159 | 113% | 1,341,079 | 888,783 | |||||||||||
Total | $ | 3,585,590 | $ | 2,752,790 | $ | 832,800 | 30% | $ | 9,140,359 | $ | 8,399,853 | ||||||
(1) | Includes operating costs from Woodland Park, the property classified as held for sale. The 2019 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 Q3-2019, property operating costs increased by $0.8 million or 30%, compared to Q3-2018. The increase in property operating costs mainly reflects the accrual of condominium corporation special assessment fees associated with both increased insurance premiums at Lakewood Townhomes and electrical repairs at Woodland Park. Also contributing to the increase in property operating costs was an increase in insurance premiums in the Fort McMurray property segment and an increase in repairs costs in the Other Investment property segment.
Net Operating Income and Operating Margin
Analysis of Net Operating Income | ||||||||||||||||||
Net Operating Income | ||||||||||||||||||
Three Months Ended September 30 | Increase (Decrease) | Percent of Total | Operating Margin | |||||||||||||||
2019 | 2018 | Amount | % | 2019 | 2018 | 2019 | 2018 | |||||||||||
Fort McMurray properties | $ | 998,148 | $ | 1,419,803 | $ | (421,655) | (30)% | 149% | 90% | 29% | 40% | |||||||
Other investment properties | 24,783 | 113,063 | (88,280) | (78)% | 4% | 7% | 6% | 31% | ||||||||||
Sub‑total | 1,022,931 | 1,532,866 | (509,935) | (33)% | 153% | 97% | 26% | 39% | ||||||||||
Held for sale and/or sold | ||||||||||||||||||
properties (1) | (352,939) | 53,724 | (406,663) | (757)% | (53)% | 3% | (95)% | 14% | ||||||||||
Total | $ | 669,992 | $ | 1,586,590 | $ | (916,598) | (58)% | 100% | 100% | 16% | 37% | |||||||
(1) | Includes revenues and operating costs from Woodland Park, the property classified as held for sale. The 2019 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 Q3-2019, the net operating income ("NOI") of the investment properties portfolio decreased by $0.9 million or 58%, compared to Q3-2018. The decrease in NOI is primarily due to the increased property operating costs as described in the "Property Operating Costs" section of this press release.
Interest Expense
During Q3-2019, interest expense increased by $0.6 million or 17%, compared to Q3-2018. The increase mainly reflects an increase in revolving loan interest of $0.4 million and an increase in amortization of transaction cost of $0.2 million.
The increase in revolving loan interest is due to the increase in the average outstanding balance of the loan during Q3-2019, compared to Q3-2018.
The increase in amortization of transaction costs mainly reflects an increase in the amortization of transaction costs related to professional fees charged by the Receiver in control of Woodland Park.
The weighted average interest rate on LREIT's total debt, inclusive of the revolving loan and debentures, was 5.9% as at September 30, 2019, compared to 5.6% as at September 30, 2018.
Fair Value Adjustments
During Q3-2019, LREIT recorded a loss related to fair value adjustments on its investment properties and investment properties held for sale of $1.1 million, compared to a loss related to fair value adjustments of $10.1 million during Q3-2018, representing a favourable variance of $9.0 million.
The fair value adjustments recognized during Q3-2019 primarily reflect a reduction in the carrying value of Woodland Park as a result of a reduction in the value of comparable townhome units used in the valuation of the property as well as an increase in the estimate of future capital expenditures required to sustain the income producing potential of the property.
The loss related to fair value adjustments recognized during Q3-2018 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 and increased uncertainty as to the timing and/or extent of a recovery of the Fort McMurray rental market.
After accounting for fair value adjustments, dispositions, and capital expenditures, the carrying value of investment properties and investment properties held for sale decreased by $0.7 million during Q3-2019.
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
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