WINNIPEG, Nov. 20, 2018 /CNW/ - Lanesborough Real
Estate Investment Trust ("LREIT") (TSXV: LRT.UN) today
reported its operating results for the quarter ended September 30, 2018. 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, 2018, which may be obtained from the LREIT website at
www.lreit.com or the SEDAR website at www.sedar.com.
ANALYSIS OF OPERATING RESULTS
Analysis of
Loss
|
|
Three Months Ended
September 30
|
Nine Months Ended
Sept 30
|
|
|
Increase
(Decrease) in
Income
|
|
|
2018
|
|
2017
|
|
Amount
|
|
%
|
|
2018
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
Rentals from
investment properties
|
$
|
4,339,380
|
|
$
|
4,832,286
|
|
$
|
(492,906)
|
|
(10)%
|
|
$
|
13,256,357
|
|
$
|
14,357,394
|
Property operating
costs
|
(2,752,790)
|
|
(2,502,925)
|
|
(249,865)
|
|
(10)%
|
|
(8,399,853)
|
|
(7,321,776)
|
Net operating
income
|
1,586,590
|
|
2,329,361
|
|
(742,771)
|
|
(32)%
|
|
4,856,504
|
|
7,035,618
|
Interest
income
|
50,533
|
|
47,409
|
|
3,124
|
|
7%
|
|
151,117
|
|
137,633
|
Interest
expense
|
(3,832,627)
|
|
(3,121,665)
|
|
(710,962)
|
|
(23)%
|
|
(11,228,450)
|
|
(10,521,673)
|
Trust
expense
|
(299,655)
|
|
(358,399)
|
|
58,744
|
|
16%
|
|
(1,003,102)
|
|
(1,131,367)
|
Loss before the
following
|
(2,495,159)
|
|
(1,103,294)
|
|
(1,391,865)
|
|
(126)%
|
|
(7,223,931)
|
|
(4,479,789)
|
Gain (loss) on sale
of investment
property
|
(53,042)
|
|
-
|
|
(53,042)
|
|
n/a
|
|
(136,001)
|
|
58,377
|
Fair value
adjustments
|
(10,120,070)
|
|
(5,755,545)
|
|
(4,364,525)
|
|
(76)%
|
|
(33,625,457)
|
|
(16,028,631)
|
Loss before
discontinued operations
|
(12,668,271)
|
|
(6,858,839)
|
|
(5,809,432)
|
|
(85)%
|
|
(40,985,389)
|
|
(20,450,043)
|
Income (loss) from
discontinued operations
|
(160,051)
|
|
16,374
|
|
(176,425)
|
|
1,077%
|
|
(338,513)
|
|
51,921
|
Loss and
comprehensive loss
|
$
|
(12,828,322)
|
|
$
|
(6,842,465)
|
|
$
|
(5,985,857)
|
|
(87)%
|
|
$
|
(41,323,902)
|
|
$
|
(20,398,122)
|
Overall Operating Results
LREIT completed Q3-2018 with a loss and comprehensive loss of
$12.83 million, compared to a loss
and comprehensive loss of $6.84
million during Q3-2017. The increase in the loss mainly
reflects unfavourable variances in the fair value adjustments of
the investment properties and the investment property classified as
held for sale totaling $4.36 million,
as well as a decrease in net operating income of $0.74 million and an increase in interest expense
of $0.71 million.
Losses related to fair value adjustments during both Q3-2018 and
Q2-2017 were mainly due to reduced revenue expectations for LREIT's
properties located in Fort
McMurray as a result of reductions in the anticipated
positive impact of the post‑wildfire rebuilding efforts and
increasing uncertainty surrounding a recovery of the Fort McMurray rental market.
The decrease in net operating income reflects a decrease in
rental revenue of $0.49 million and
an increase in operating costs of $0.25
million. The decrease in rental revenue is mainly due to a
decrease in occupancy and a decrease in the average rental rates
experienced by LREIT's properties located in Fort McMurray, inclusive of Woodland Park, the
property that is classified as held for sale. The increase in
property operating costs is mainly due to an increase in utility
costs and an increase in insurance premiums; partially offset by a
reduction in property taxes. Also contributing to the increase in
property operating costs is an increase in the property operating
costs for the held for sale and/or sold properties primarily as a
result of certain fees paid to the condominium corporation
established as part of the Woodland Park Condominium Sales
Program.
The increase in interest expense mainly reflects an increase in
revolving loan interest, due to an increase in the average
outstanding balance of the revolving loan and the higher rate of
interest that applies to revolving loan advances in excess of
$30 million, as well as an increase
in the amortization of transaction costs.
LREIT completed Q3-2018 with negative funds from operation
("FFO") of $2.66 million, compared to
negative FFO of $1.09 million during
Q3-2017, representing a decrease in FFO of $1.57 million. The decrease in FFO is mainly due
to a decrease in net operating income, an increase in interest
expense and an increase in loss from discontinued operations.
Revenues
Rental
Revenue
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
Sept. 30
|
|
Nine Months Ended
Sept. 30
|
|
|
|
|
|
Increase
(Decrease)
|
|
|
|
|
|
|
2018
|
|
2017
|
|
Amount
|
|
%
|
|
|
2018
|
|
2017
|
Fort McMurray
properties
|
$
|
3,578,356
|
|
$
|
3,846,043
|
|
$
|
(267,687)
|
|
(7)%
|
|
$
|
10,927,709
|
|
$
|
1,217,079
|
Other investment
properties
|
|
366,387
|
|
391,653
|
|
(25,266)
|
|
(6)%
|
|
|
1,154,212
|
|
1,165,871
|
Sub‑total
|
|
3,944,743
|
|
4,237,696
|
|
(292,953)
|
|
(7)%
|
|
|
12,081,921
|
|
12,382,950
|
Held for sale and/or
sold properties
|
|
394,637
|
|
594,590
|
|
(199,953)
|
|
(34)%
|
|
|
1,174,436
|
|
1,974,444
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
$
|
4,339,380
|
|
$
|
4,832,286
|
|
$
|
(492,906)
|
|
(10)%
|
|
$
|
13,256,357
|
|
$
|
14,357,394
|
Average Occupancy
Level, by Quarter
|
|
2017
|
2018
|
|
Q1
|
Q2
|
Q3
|
Q4
|
Q1
|
Q2
|
Q3
|
Fort McMurray
properties
|
68%
|
71%
|
73%
|
72%
|
69%
|
72%
|
71%
|
Other investment
properties
|
71%
|
73%
|
73%
|
75%
|
77%
|
68%
|
68%
|
Total
|
68%
|
72%
|
73%
|
72%
|
70%
|
71%
|
70%
|
Held for sale and/or
sold properties
|
79%
|
79%
|
69%
|
61%
|
46%
|
51%
|
53%
|
|
|
|
|
|
|
|
|
|
Average Monthly
Rents, by Quarter
|
|
2017
|
2018
|
|
Q1
|
Q2
|
Q3
|
Q4
|
Q1
|
Q2
|
Q3
|
Fort McMurray
properties
|
$1,684
|
$1,707
|
$1,711
|
$1,697
|
$1,685
|
$1,650
|
$1,618
|
Other investment
properties
|
$909
|
$909
|
$903
|
$905
|
$907
|
$909
|
$909
|
Total
|
$1,554
|
$1,573
|
$1,575
|
$1,563
|
$1,554
|
$1,525
|
$1,499
|
Held for sale and/or
sold properties
|
$2,593
|
$2,611
|
$2,597
|
$2,549
|
$2,484
|
$2,258
|
$2,201
|
During Q3-2018, total investment property revenue, excluding
held for sale and/or sold properties, decreased by $0.29 million or 7%, compared to Q3-2017. The
decrease mainly reflects a decrease in the average rental rate of
the Fort McMurray property
portfolio, due to the turnover of leases that had commenced shortly
after the May 2016 wildfire when
higher rental rates were achievable. The Fort McMurray property portfolio also
experienced reduced occupancy as the average occupancy declined
from 73% during Q3-2017 to 71% during Q3-2018.
During Q3-2018, revenue from the held for sale and/or sold
properties decreased by $0.20 million
or 34%, compared to Q3-2017. The decrease was due to a decrease in
the average occupancy level and the average rental rate of Woodland
Park, the property classified as held for sale.
The decrease in the average occupancy level of Woodland Park is
mainly due to the transfer of two corporate tenants to other LREIT
properties that offered lower rental rates or were closer to urban
amenities, and due to the departure of tenants that were awaiting
the reconstruction of their homes. The Woodland Park property had a
relatively high proportion of tenants awaiting the reconstruction
of their homes as a result of the property's townhome offering and
proximity to an area of Fort
McMurray where a substantial number of homes were damaged or
destroyed by the wildfire.
The decrease in the average rental rate of Woodland Park is
mainly due to the continued turnover of a number of three‑bedroom
units and townhome units, which had been rented shortly after the
wildfire at rental rates that were higher than the current market
rates.
Property Operating Costs
Analysis of
Property Operating Costs
|
|
Three Months Ended
September 30
|
Nine Months Ended
Sept 30
|
|
|
|
Increase
(Decrease)
|
|
|
|
2018
|
|
2017
|
|
Amount
|
|
%
|
|
2018
|
|
2017
|
Fort McMurray
properties
|
$
|
2,158,553
|
|
$
|
2,022,164
|
|
$
|
136,389
|
|
7%
|
|
$
|
6,511,676
|
|
$
|
5,765,782
|
Other investment
properties
|
253,324
|
|
292,522
|
|
(39,198)
|
|
(13)%
|
|
999,394
|
|
897,477
|
Sub‑total
|
2,411,877
|
|
2,314,686
|
|
97,191
|
|
4%
|
|
7,511,070
|
|
6,663,259
|
Held for sale and/or
sold properties
|
340,913
|
|
188,239
|
|
152,674
|
|
81%
|
|
888,783
|
|
658,517
|
Total
|
$
|
2,752,790
|
|
$
|
2,502,925
|
|
$
|
249,865
|
|
10%
|
|
$
|
8,399,853
|
|
$
|
7,321,776
|
During Q3-2018, property operating costs, excluding the held for
sale and/or sold properties, increased by $0.10 million or 4%, compared to Q3-2017. The
increase is mainly due to an increase in utility costs, primarily
due to an increase in the number of all-inclusive leases and an
increase in insurance premiums, partially offset by a reduction in
property taxes as a result of a successful appeal of the assessed
values of certain properties in LREIT's Fort McMurray portfolio.
After accounting for held for sale and/or sold properties,
property operating costs increased by $0.25
million or 10% during Q3-2018, compared to Q3-2017.
The increase in operating costs of the held for sale and/or sold
properties of $0.15 million is
primarily due to condominium fees paid by LREIT for its portion of
ownership of Woodland Park, the property held for sale, inclusive
of capital replacement reserve fees paid to address future capital
expenditures that would have been capitalized when incurred prior
to the establishment of the condominium sales program.
Net Operating Income and Operating Margin
Three Months Ended
September 30, 2018 and 2017
|
|
Net Operating
Income
|
|
|
Three Months
Ended
September 30
|
Increase
(Decrease)
|
Percent of
Total
|
Operating
Margin
|
|
2018
|
|
2017
|
|
Amount
|
|
%
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Fort McMurray
properties
|
$
|
1,419,803
|
|
$
|
1,823,879
|
|
$
|
(404,076)
|
|
(22)%
|
|
89%
|
|
78%
|
|
40%
|
|
47%
|
Other investment
properties
|
113,063
|
|
99,131
|
|
13,932
|
|
14%
|
|
7%
|
|
4%
|
|
31%
|
|
25%
|
Sub‑total
|
1,532,866
|
|
1,923,010
|
|
(390,144)
|
|
(20)%
|
|
96%
|
|
82%
|
|
39%
|
|
45%
|
Held for sale and/or
sold properties
|
53,724
|
|
406,351
|
|
(352,627)
|
|
(87)%
|
|
3%
|
|
17%
|
|
14%
|
|
68%
|
Total
|
$
|
1,586,590
|
|
$
|
2,329,361
|
|
$
|
(742,771)
|
|
(32)%
|
|
100%
|
|
100%
|
|
37%
|
|
48%
|
Nine Months Ended
September 30, 2018 and 2017
|
|
Net Operating
Income
|
|
Nine Months Ended
September 30
|
Increase
(Decrease)
|
Percent of
Total
|
Operating
Margin
|
|
2018
|
|
2017
|
|
Amount
|
|
%
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Fort McMurray
properties
|
$
|
4,416,033
|
|
$
|
5,451,297
|
|
$
|
(1,035,264)
|
|
(19)%
|
|
91%
|
|
77%
|
|
40%
|
|
49%
|
Other investment
properties
|
154,818
|
|
268,394
|
|
(113,576)
|
|
(42)%
|
|
3%
|
|
4%
|
|
13%
|
|
23%
|
Sub‑total
|
4,570,851
|
|
5,719,691
|
|
(1,148,840)
|
|
(20)%
|
|
94%
|
|
81%
|
|
38%
|
|
46%
|
Held for sale and/or
sold properties
|
285,653
|
|
1,315,927
|
|
(1,030,274)
|
|
(78)%
|
|
6%
|
|
19%
|
|
24%
|
|
67%
|
Total
|
$
|
4,856,504
|
|
$
|
7,035,618
|
|
$
|
(2,179,114)
|
|
(31)%
|
|
100%
|
|
100%
|
|
37%
|
|
49%
|
During Q3-2018, the net operating income for the investment
properties portfolio, excluding held for sale and/or sold
properties, decreased by $0.39
million or 20%, compared to Q3-2017. The operating margin,
excluding held for sale and/or sold properties, decreased from 45%
during Q3-2017 to 39% during Q3-2018. The decreases are primarily
due to the decrease in revenue and the increase in the property
operating costs of the Fort
McMurray property portfolio, as discussed above.
The decrease in net operating income from held for sale and/or
sold properties of $0.35 million or
87% is due to the decrease in revenue and the increase in operating
costs of Woodland Park, as discussed above. After accounting for
held for sale and/or sold properties, the total net operating
income of LREIT decreased by $0.74
million or 32% during Q3-2018, compared to Q3-2017.
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