Lanesborough REIT Reports 2020 First Quarter Results
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
Gino Romagnoli, Chief Executive Officer, or Arni Thorsteinson, Vice-Chair, Tel: (204) 475-9090, Fax: (204) 452-5505, Email: [email protected]
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