LANESBOROUGH REIT REPORTS 2021 YEAR END RESULTS

WINNIPEG, MB, April 8, 2022 /CNW/ - Lanesborough Real Estate Investment Trust ("LREIT") (TSXV: LRT.UN) today reported its operating results for the year ended December 31, 2021. The following comments in regard to the financial position and operating results of LREIT should be read in conjunction with Management's Discussion & Analysis, annual report and the financial statements for the year ended December 31, 2021, which may be obtained from the SEDAR website at www.sedar.com.

Notwithstanding the continued presence of the COVID‑19 pandemic and the disruption to operations caused by the flooding in downtown Fort McMurray in April of 2020, the Trust has experienced year‑over‑year growth in revenues during both 2020 and 2021, which may suggest the long‑awaited end to what has been several years of declining revenues.

According to Alberta's Budget 2022 Economic Forecast, after a 7.9% contraction in real Gross Domestic Product ("GDP") in 2020, the GDP in Alberta grew by an estimated 5.8% during 2021.

Despite the positive economic data in LREIT's primary market of Alberta and the development of a more favourable revenue trend, the Trust continued to face liquidity challenges and required $16.6 million of advances, made at the sole discretion of 2668921 Manitoba Ltd., under the revolving loan facility to fund the cash shortfall from operating activities, as well as mortgage loan principal payments, transaction costs for debt financing, and capital expenditures.

In an effort to meet ongoing funding obligations and sustain operations, LREIT has continued to pursue debt restructuring arrangements with certain of its lenders and has relied on favourable interim financing arrangements and other support from Shelter and its parent company, 2668921 Manitoba Ltd.

As of the date of this press release, the Trust has renewed, refinanced or obtained forbearance agreements for all mortgage loan debt, except for the debt secured by Woodland Park, which had an estimated aggregate balance outstanding of $28.2 million, as of December 31, 2021. Since February of 2019, Woodland Park has been in receivership and was classified as held for sale prior to being sold during the first quarter of 2022.

At December 31, 2021, the Trust was in breach of a debt service coverage ratio requirement of a $2.0 million first mortgage loan secured by Chateau St. Michael's, the property classified as discontinued operations. All payments of principal and interest have been made as scheduled and the lender has taken no action to demand repayment or enforce its security under the loan.

Effective January 1, 2021, the Trust obtained amendments from 2668921 Manitoba Ltd. to the terms of the mortgage loan secured by a second charge over the property known as Nelson Ridge and the mortgage loan secured by the property known as Norglen Terrace resulting in reductions to the interest rates on the loans from 9% and 6% per annum, respectively, to 2% per annum.

Effective January 1, 2021 the revolving loan was amended to reduce the interest rate from 7% per annum to 2% per annum.

On November 1, 2021, the revolving loan was renewed and amended to extend the maturity date from December 31, 2021 to June 30, 2023 and to increase the maximum amount that may be advanced under the facility from $100.0 million to $120.0 million.

Subsequent to December 31, 2021, the mortgage loan receivable, in the amount of $4,000,000, was collected in full and used to partially repay the revolving loan, increasing the balance available under the revolving loan facility.

As of the date of this press release, the maximum available balance remaining on the revolving loan facility is $17.6 million.

In addition, LREIT continues to receive full interest payment deferrals on the loans held by 2668921 Manitoba Ltd., including the revolving loan and full deferrals on the payment of property management and service fees.

Subsequent to December 31, 2021, the Series G Debentures, with an aggregate principal amount outstanding of $24.8 million and all the accrued or unpaid interest owing thereon, in the amount of $8.2 million, were exchanged for 659.9 million Trust units with all claims of the holders of the Series G Debentures ("Debentureholders") extinguished. The exchange transaction reduces LREIT's overall debt and interest burden, simplifies its capital structure, improves its balance sheet and may allow the Debentureholders an opportunity to participate in a possible recovery of LREIT in the future.

Subsequent to December 31, 2021, Woodland Park was sold for $13.2 million. The net sales proceeds, of $12.8 million are being used to pay any outstanding fees and disbursements of the Receiver and counsel to the Receiver; to repay the Receiver's borrowings with respect to the receivership, in the amount of $1.0 million, in full; and, to partially repay the first mortgage loan secured by the property and accrued interest thereon, which was estimated to be $27.2 million as of December 31, 2021.

The deficit between the net sales proceeds applied to the first mortgage loan and the balance outstanding on the first mortgage loan could result in a claim against the Trust by the lender pursuant to the mortgage guarantee provided by the Trust at the time of the original execution of the first mortgage loan. Such a claim would be unsecured and subordinate to the Trust's existing secured debt, inclusive of any amounts outstanding with respect to the revolving loan facility from 2668921 Manitoba Ltd. and any amounts advanced by 2668921 Manitoba Ltd. or its affiliates, including Shelter.

ANALYSIS OF OPERATING RESULTS

Analysis of Loss and Comprehensive Loss
	Year Ended December 31
							Increase (Decrease) in Income
	2021			2020			Amount			%
Rentals from investment properties	$	18,327,013		$	17,540,289		$	786,724		4%
Rental loss insurance proceeds	1,872,888			-			1,872,888			- %
Property operating costs	(12,833,102)			(12,207,778)			(625,324)			(5)%
Net operating income (NOI)	7,366,799			5,332,511			2,034,288			38%
Interest income	239,462			181,092			58,370			32%
Interest expense	(12,250,385)			(18,102,440)			5,852,055			32%
Trust expense	(1,243,802)			(1,320,296)			76,494			6%
Loss before the following	(5,887,926)			(13,909,133)			8,021,207			58%
Fair value adjustments	(10,097,524)			(30,700,377)			20,602,853			67%
Loss before discontinued operations	(15,985,450)			(44,609,510)			28,624,060			64%
Loss from discontinued operations	(3,345,566)			(3,464,159)			118,593			3%
Loss and comprehensive loss	$	(19,331,061)		$	(48,073,669)		$	28,742,653		60%

Analysis of Loss per Unit
	Year Ended December 31
	2021			2020		Change
Loss before discontinued operations
‑ basic and diluted	$	(0.756)		$	(2.109)		$	1.353		64%
Loss from discontinued operations
‑ basic and diluted	(0.158)			(0.164)			0.006			3%
Loss and comprehensive loss
‑ basic and diluted	$	(0.914)		$	(2.273)		$	1.359		60%

Overall Results

LREIT completed 2021 with a loss and comprehensive loss of $19.3 million, compared to a loss and comprehensive loss of $48.1 million in 2020, representing a decrease in the extent of the loss of $28.8 million. The decrease mainly reflects a $20.6 million decrease in the loss relating to fair value adjustments, a $5.9 million decrease in interest expense and a $2.0 million increase in net operating income ("NOI").

The decrease in loss due to fair value adjustments is mainly due to the comparatively high losses from fair value adjustments in the prior year.  In 2020, losses from fair value adjustments, in the amount of $30.7 million, mainly reflect a decrease in the carrying value of the Fort McMurray properties as a result of changes made to a number of key valuation assumptions to incorporate new information, obtained at the time from external appraisals and market reports for the Fort McMurray rental market.  In 2021, losses from fair value adjustments, in the amount of $10.1 million, mainly reflect a decrease in the carrying value of the Fort McMurray properties as a result of a reduction in the normalized rent potential considered to be achievable in the Fort McMurray rental market and an increase in the normalized property operating costs primarily as a result of a further hardening of the insurance market.

The decrease in interest expense during 2021 mainly reflects a $3.9 million decrease in interest on the revolving loan from 2668921 Manitoba Ltd. ("revolving loan") and a $1.2 million decrease in mortgage loan interest. The decrease in interest on the revolving loan was primarily due to the reduction in the interest rate from 7% to 2% per annum, effective January 1, 2021, partially offset by an increase in the average outstanding balance of the revolving loan. The decrease in mortgage loan interest was primarily due to the decrease in the weighted average interest rate of the Trust's mortgage loan debt, which decreased from 5.7% as at December 31, 2020 to 5.3% as at December 31, 2021.

The increase in NOI is mainly due to $1.9 million of rental loss insurance proceeds recognized during 2021 (2020 ‑ $nil) and a $0.8 million increase in rental revenues, partially offset by a $0.6 million increase in property operating costs.

The rental loss insurance proceeds encompass $1.3 million received with respect to the legal claim filed by the Trust against the insurers involved with the 2016 Fort McMurray wildfire rental loss claim and $0.6 million recognized under the settlement of the insurance claim that provided rental loss coverage for the April 2020 flood in downtown Fort McMurray.

The increase in rental revenues primarily reflects a $0.4 million or 3% increase in the Fort McMurray properties segment, mainly due to a $0.6 million decrease in vacancy loss, which was comparatively high in 2020 as a result of the April 2020 flood in downtown Fort McMurray.

After removing the temporary impacts of any flood related vacancy loss from 2020 and the rental loss insurance proceeds from 2021, the average occupancy of the Fort McMurray properties segment was 80% during both 2020 and 2021 and the average monthly rental rate decreased by $19 from $1,450 in 2020 to $1,431 in 2021.

The increase in property operating costs primarily reflects a $0.6 million or 6% increase in the property operating costs of the Fort McMurray properties segment and is mainly due to increased insurance premiums as a result of the further hardening of the insurance market.

ABOUT LREIT

LREIT is a real estate investment trust, which is listed on the TSX Venture Exchange under the symbol LRT.UN (Trust Units).  LREIT's Series G Debentures were listed on the TSX Venture Exchange under the symbol LRT.DB prior to being formally delisted on March 3, 2022 following the completion of the transaction to exchange all of the outstanding Series G Debentures for units of the Trust on February 24, 2022. 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

Gino Romagnoli, Chief Executive Officer, or Arni Thorsteinson, Vice-Chair, Tel: [phone], Fax: [phone], Email: [email protected]