Lanesborough REIT Reports 2020 Third Quarter Results

WINNIPEG, MB, Nov. 26, 2020 /CNW/ - Lanesborough Real Estate Investment Trust ("LREIT") (TSXV: LRT.UN) today reported its operating results for the quarter ended September 30, 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 September 30, 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 September 30										Nine Months Ended September 30
	Increase (Decrease) in Income
	2020			2019			Amount			%		2020			2019
Rentals from investment properties	$	4,497,114		$	4,255,582		$	241,532		6%		$	13,297,433		$	12,362,049
Property operating costs	(3,015,558)			(3,585,590)			570,032			16%		(9,082,734)			(9,140,359)
Net operating income(NOI)	1,481,556			669,992			811,564			121%		4,214,699			3,221,690
Interest income	45,012			54,137			(9,125)			(17)%		137,778			166,272
Interest expense	(4,519,349)			(4,469,113)			(50,236)			(1)%		(13,531,934)			(12,419,600)
Trust expense	(295,328)			(286,290)			(9,038)			(3)%		(994,506)			(1,178,944)
Loss before the following	(3,288,109)			(4,031,274)			743,165			18%		(10,173,963)			(10,210,582)
Gain on sale of investments and investment property	-			-			-			n/a		-			347,500
Fair value adjustments	(19,915,171)			(1,124,995)			(18,790,176)			(1,670)%		(23,747,044)			(8,979,017)
Loss before discontinued
operations	(23,203,280)			(5,156,269)			(18,047,011)			(350)%		(33,921,007)			(18,842,099)
Loss from discontinued operations	(632,986)			(559,925)			(73,061)			(13)%		(1,840,033)			(1,396,301)
Loss and comprehensive loss	$	(23,836,266)		$	(5,716,194)		$	(18,120,072)		(317)%		$	(35,761,040)		$	(20,238,400)

Overall Results

LREIT completed Q3-2020 with a loss and comprehensive loss of $23.8 million, compared to a loss and comprehensive loss of $5.7 million during Q3-2019. The increase in the extent of the loss and comprehensive loss mainly reflects an increase in the loss relating to fair value adjustments partially offset by an increase in net operating income ("NOI").

Unfavourable fair value adjustments recognized during Q3-2020 primarily reflect a reduction in the carrying value of the Fort McMurray properties mainly due to changes made to key valuation assumptions to incorporate new information, derived from external appraisals and market reports, with respect to the risks associated with and outlook for the Fort McMurray rental accommodation market.

The increase in NOI mainly reflects a decrease in property operating costs during Q3-2020, compared to Q3-2019. The decrease in property operating costs is mainly due to condominium corporation special assessment fees charged during Q3-2019 at Lakewood Townhomes and at Woodland Park and a decrease in property taxes, partially offset by an increase in insurance premiums.

Revenues

Analysis of Rental Revenue
	Three Months Ended September 30											Nine Months Ended September 30
							Increase (Decrease)
		2020		2019			Amount			%		2020			2019
Fort McMurray properties	$	3,560,715		$	3,474,799		$	85,916		2%		$	10,622,946		$	9,933,602
Other investment properties		431,396		407,650			23,746			6%		1,295,024			1,236,997
Sub–total		3,992,111		3,882,449			109,662			3%		11,917,970			11,170,599
Held for sale and/or sold properties		505,003		373,133			131,870			35%		1,379,463			1,191,450
Total	$	4,497,114		$	4,255,582		$	241,532		6%		$	13,297,433		$	12,362,049

Average Occupancy Level, by Quarter
	2020
	Q1	Q2	Q3	9 Month Average
Fort McMurray properties	76%	79%	78%	78%
Other investment properties	73%	74%	75%	74%
Total	75%	79%	77%	77%
Held for sale and/or sold properties (1)	n/a	n/a	n/a	n/a

Average Occupancy Level, by Quarter
	2019
	Q1	Q2	Q3	9 Month Average	Q4	12 Month Average
Fort McMurray properties	65%	72%	75%	71%	75%	72%
Other investment properties	75%	76%	72%	74%	71%	73%
Total	66%	72%	75%	71%	74%	72%
Held for sale and/or sold properties (1)	76%	n/a	n/a	n/a	n/a	n/a

Average Monthly Rents, by Quarter
	2020
	Q1	Q2	Q3	9 Month Average
Fort McMurray properties	$1,454	$1,456	$1,455	$1,455
Other investment properties	$955	$958	$964	$959
Total	$1,370	$1,372	$1,372	$1,372
Held for sale and/or sold properties (1)	n/a	n/a	n/a	n/a

Average Monthly Rents, by Quarter
	2019
	Q1	Q2	Q3	9 Month Average	Q4	12 Month Average
Fort McMurray properties	$1,539	$1,522	$1,499	$1,520	$1,466	$1,507
Other investment properties	$919	$939	$952	$936	$952	$940
Total	$1,435	$1,424	$1,407	$1,422	$1,379	$1,411
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 Q3-2020, total investment property revenue, excluding held for sale and/or sold properties increased by $0.1 million or 3%, compared to Q3-2019. The increase is mainly due to a 3% increase in average occupancy of the Fort McMurray properties, which increased from 75% during Q3-2019 to 78% during Q3-2020, despite $0.2 million of vacancy loss being recorded during Q3-2020 with respect to the April 27, 2020 flood in downtown Fort McMurray. The increase in average occupancy was partially offset by a decrease in the average monthly rental rate of the Fort McMurray properties, as the prolonged low level of oil sands development activity continued to negatively impact the demand for rental accommodations in Fort McMurray. The average monthly rental rate of the Fort McMurray property portfolio decreased from $1,499 during Q3-2019 to $1,455 during Q3-2020, representing a decrease of $44 or 3%.

After accounting for held for sale and/or sold properties, revenue increased by $0.2 million or 6% during Q3-2020 in comparison to Q3-2019.

Property Operating Costs

Analysis of Property Operating Costs
	Three Months Ended September 30											Nine Month Ended September 30
							Increase (Decrease)
	2020			2019			Amount			%		2020			2019
Fort McMurray properties	$	2,341,890		$	2,476,651		$	(134,761)		(5)%		$	6,759,487		$	6,691,356
Other investment properties	319,357			382,867			(63,510)			(17)%		1,073,851			1,107,924
Sub–total	2,661,247			2,859,518			(198,271)			(7)%		7,833,338			7,799,280
Held for sale and/or sold properties (1)	354,311			726,072			(371,761)			(51)%		1,249,396			1,341,079
Total	$	3,015,558		$	3,585,590		$	(570,032)		(16)%		$	9,082,734		$	9,140,359

(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 Q3-2020, property operating costs decreased by $0.6 million or 16%, compared to Q3-2019. The decrease in property operating costs is mainly due to a decrease in the condominium corporation common element fees at Lakewood Townhomes and at Woodland Park and a decrease in property taxes, partially offset by an increase in insurance premiums.

During Q3-2019, special assessment fees were charged to Lakewood Townhomes and Woodland Park by their respective condominium corporations due to an increase in insurance premiums at Lakewood Townhomes and electrical repairs at Woodland Park.

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
	2020			2019			Amount			%		2020		2019		2020		2019
Fort McMurray properties	$	1,218,825		$	998,148		$	220,677		22%		82%		149%		34%		29%
Other investment properties	112,039			24,783			87,256			352%		8%		4%		26%		6%
Sub–total	1,330,864			1,022,931			307,933			30%		90%		153%		33%		26%
Held for sale and/or sold
properties (1)	150,692			(352,939)			503,631			(143)%		10%		(53)%		30%		(95)%
Total	$	1,481,556		$	669,992		$	811,564		121%		100%		100%		33%		16%

(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 Q3-2020, the NOI of the investment properties portfolio increased by $0.8 million or 121%, compared to Q3-2019. The increase in NOI is due to the decrease in property operating costs and an increase in rental revenue as described in the "Property Operating Costs" and "Revenues" sections of this press release.

Interest Expense

During Q3-2020, interest expense increased by $0.1 million or 1%, compared to Q3-2019. The increase mainly reflects an increase in revolving loan interest of $0.5 million, partially offset by a reduction of mortgage loan interest of $0.4 million.

The increase in revolving loan interest of $0.5 million is due to the higher average outstanding balance of the revolving loan during Q3-2020 as well as an increase in the interest rate of the revolving loan that is applicable to the first $30.0 million of advances, which was amended from 5% to 7% as part of the January 1, 2020 renewal of the revolving loan.

The reduction in mortgage loan interest of $0.4 million is primarily due to a reduction in the amortization of transaction costs, due to a decrease in the amortization of professional fees charged by the receiver in control of Woodland Park and a reduction in the weighted average interest rate of the Trust's mortgage loan debt.

The weighted average interest rate on the Trust's mortgage loan debt was 5.7% as at September 30, 2020, compared to 5.9% as at September 30, 2019.  The decrease in the weighted average interest rate was primarily due to the Trust's variable rate mortgages and reductions in the prime rate of interest, which decreased from 3.95% as at September 30, 2019 to 2.45% as at September 30, 2020.

The weighted average interest rate on the Trust's total debt, inclusive of the revolving loan and debentures, was 6.0% as at September 30, 2020, compared to 5.9% as at September 30, 2019.

Fair Value Adjustments

During Q3-2020, LREIT recorded a loss related to fair value adjustments on its investment properties and investment properties held for sale of $19.9 million, compared to a loss related to fair value adjustments of $1.1 million during Q3-2019, representing an unfavourable variance of $18.8 million.

Unfavourable fair value adjustments recognized during Q3-2020 primarily reflect a reduction in the carrying value of the Fort McMurray properties mainly due to changes made to key valuation assumptions to incorporate new information, derived from external appraisals and market reports, with respect to the risks associated with and outlook for the Fort McMurray rental accommodation market.  Both the capitalization rate and normalized vacancy loss assumptions were increased during Q3-2020 negatively impacting the carrying values of the properties which are derived by the capitalized net operating income valuation method, which include the majority of the properties in Fort McMurray.

The demand for rental accommodations in the region continues to be negatively impacted by the low level of development and investment activity in the Alberta oil sands industry, which continues to be driven by the depressed price of oil, delays in oil transportation infrastructure development and political pressures with respect to climate change.

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.

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 $19,688,962 during the third quarter of 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 have been 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, has also been negatively impacted.

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.

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: [phone], Fax: [phone], Email: [email protected]

Related Links

http://www.lreit.com