LANESBOROUGH REIT REPORTS 2011 FIRST QUARTER RESULTS

WINNIPEG, June 10, 2011 /CNW/ - Lanesborough Real Estate Investment Trust ("LREIT") (TSX: LRT.UN) today reported its operating results for the quarter ended March 31, 2011.  The following comments in regard to the financial position and operating results of LREIT should be read in conjunction with Management's Discussion & Analysis and the financial statements for the quarter ended March 31, 2011, which may be obtained from the LREIT website at www.lreit.com or the SEDAR website at www.sedar.com.

Comprehensive loss

During the first quarter of 2011, comprehensive loss increased by $2.05 million, compared to the first quarter of 2010. The increase in the loss is mainly due to an increase in interest expense of $1.30 million and a decrease in net operating income of $0.78 million, partially offset by an increase in income from the four seniors housing complexes in discontinued operations of $0.40 million.

In comparison to the fourth quarter of 2010, comprehensive loss decreased by $1.98 million mainly due to a decrease in interest expense of $2.69 million and an increase in income from discontinued operations of $0.16 million, partially offset by a decrease in net operating income of $0.28 million.

The above noted increase/decrease in interest expense is largely due to a change in amortization, accretion and other non-cash charges to interest expense.

Cash from Operating Activities

During the first quarter of 2011, cash from operating activities, excluding working capital adjustments, decreased by $0.12 million. Net operating income and the cash component of interest expense are the main components of cash from operating activities.  The decrease in operating cash flow mainly reflects the decrease in net operating income from the Fort McMurray property portfolio, partially offset by the incease in net operating income from the seniors housing complexes in discontinued operations.

In comparison to the fourth quarter of 2010, cash from operating activities, excluding working capital adjustments, decreased by $0.99 million. The decrease in cash from operating activities reflects a decrease in net operating income from the entire property portfolio of $0.50 and an increase in the cash component of interest expense of $0.14 million.

Financing and Investing Activities

During the first quarter of 2011, LREIT retired $13.60 million of the Series F convertible debenture debt, primarily from mortgage bond proceeds in the amount of $12.31 million. The balance of the convertible debenture repayment, as well as the other first quarter funding obligations, including the shortfall in operating cash flow, were funded by $0.40 million of additional mortgage loan financing and from existing working capital.

FINANCIAL AND OPERATING SUMMARY

  March 31 December 31
        2011        2010 
BALANCE SHEET    
   Total assets $ 540,496,000 $ 547,829,176
   Total long-term financial liabilities (1) $ 343,738,509 $ 355,770,082
     
     
  Three Months Ended
      March 31 
KEY FINANCIAL PERFORMANCE INDICATORS    
Operating Results    
   Total revenue      $ 9,150,517 $ 10,752,142
   Net operating income      $ 5,123,007     $ 5,905,537
Loss from continuing operations, before taxes $ (4,587,848) $ (2,249,560)
   Loss and comprehensive loss $ (3,746,608) $ (1,698,832)
     
Cash Flows    
   Cash flow from operating activities $ 771,120 $ (104,724)
   Funds from Operations $ (3,510,890) $ (1,746,244)
   Adjusted Funds from Operations $ (3,326,447) $ (1,261,114)
   Distributable income (loss) $ (1,621,753) $ (1,549,746)

PER UNIT AMOUNTS

Net operating income          
  • basic
$ 0.279       $ 0.326
  • diluted
$ 0.232       $ 0.247
Loss from continuing operations, before income tax          
  • basic
$ (0.250)       $ (0.124)
  • diluted
$ (0.250)       $ (0.124)
Income (loss) and comprehensive income (loss)          
  • basic
$ (0.204)       $ (0.094)
  • diluted
$ (0.204)       $ (0.094)
Funds from Operations          
  • basic
$ (0.191)       $ (0.096)
  • diluted
$ (0.191)       $ (0.096)
Adjusted Funds from Operations          
  • basic
$ (0.181)        $ (0.070)
  • diluted
$ (0.181)        $ (0.070)
Distributable income (loss)          
  • diluted
$ (0.088)       $ (0.085)
  • diluted
$ (0.088)       $ (0.085)

(1) Long-Term Financial Liabilities

Long-term financial liabilities consist of mortgage loans, swap mortgage loans, convertible debentures and mortgage bonds, at face value.

2011 COMPARED TO 2010

Analysis of Loss
  Three Months Ended  
  March 31       Increase (Decrease) 
        2011        2010        Amount     % 
         
Rentals from investment properties $ 9,150,517 $ 10,752,142 $ (1,601,625)       (14.9)%
Property operating costs       4,027,510       4,846,605       (819,095)       (16.9)%
Net operating income       5,123,007       5,905,537       (782,530)       (13.3)%
Interest income       77,667       106,432       (28,765)       (27.0)%
Interest expense       (8,716,070)       (7,413,999)       (1,302,071)       17.6%
Trust expense       (771,745)       (696,790)       (74,955)       10.8%
Profit (loss) on sale of investment property       -       (22,324)       22,324       (100.0)%
Fair value gains (losses)       (300,707)       (128,416)       (172,291)       134.2%
Income (loss) for the period before taxes and discontinued operations       (4,587,848)       (2,249,560)       (2,338,288)       103.9%
Income tax expense (recovery)       (117,659)       (227,520)       109,861       (48.3)%
Income (loss) for the period before discontinued operations       (4,470,189)       (2,022,040)       (2,448,149)       121.1%
Income from discontinued operations       723,581       323,208       400,373       123.9%
Income (loss) and comprehensive income (loss) $ (3,746,608) $ (1,698,832) (2,047,776)       120.5%

During the first quarter of 2011, comprehensive loss increased by $2.05 million compared to the first quarter of 2010.  The increase in the loss mainly reflects an increase in interest expense and a decrease in net operating income, partially offset by an increase in income from discontinued operations

Analysis of Total Rental Revenue
  Three Months Ended March 31
      Increase (Decrease) % of Total
  2011 2010 Amount % 2010 2009
             
Fort McMurray $ 5,670,174 $ 6,691,357 $ (1,021,183)       (15)       62%       62%
Other       3,480,343     4,060,785       (580,442)       (14)       38%       38%
             
Total 9,150,517 $ 10,752,142 $(1,601,625)       (15)       100%       100%

Total revenue from the investment properties decreased by $1.60 million during the first quarter of 2011 compared to the first quarter of 2010.  The decrease in revenue from the Fort McMurray property portfolio reflects an increase in the vacancy loss and a decrease in the average rental rate.   As disclosed in the chart below, vacancy loss for the Fort McMurray portfolio increased from 30% during the first quarter of 2010, to 34% during the first quarter of 2011, while the average monthly rental rate decreased by $172 or 6.9%.

The decrease in revenue for the "Other" property portfolio is mainly due to a reduction in the number of revenue-generating investment properties.  During the first quarter of 2010, 27 investment properties contributed to the revenue results, including two properties which were sold on March 1, 2010.  During the first quarter of 2011, the portfolio of investment properties was comprised of 22 properties.

Analysis of Vacancy Loss
  2011 2010
  Q1 Q1 Q2 Q3 Q4 12 Month
Average
Fort McMurray       34%       30%       30%       33%       33%       32%
Other       2%       6%       5%       4%       3%       5%
Sub-total       25%       24%       23%       25%       24%       24%
Sold properties       N/A       5%       2%       2%       2%       3%
Total       25%       23%       22%       24%       24%       23%

Analysis of Average Monthly Rents
  2011 2010
  Q1 Q1 Q2 Q3 Q4 12 Month
Average
Fort McMurray $2,323 $2,495 $2,315 $2,380 $2,338 $2,382
Other $1,034 $1,037 $1,031 $1,037 $1,025 $1,033
Sub-total $1,790 $1,895 $1,743 $1,781 $1,753 $1,793
Sold properties        N/A $1,060 $1,004 $904 $978 $986
Total $1,790 $1,767 $1,683 $1,711 $1,735 $1,724

Analysis of Property Operating Costs
  Three Months Ended March 31    Increase
  2011 2010 (Decrease) %
         
Fort McMurray $ 2,400,054 $ 2,663,317 $ (263,263)       (10)%
Other       1,627,456       2,183,288         (555,832)       (25)%
Total $ 4,027,510 4,846,605 $ (819,095)       (17)%

During the first quarter of 2011, property operating costs decreased by $0.82 million or 17%, compared to the first quarter of 2010, comprised of a $0.26 million decrease in the operating costs of the Fort McMurray portfolio and a decrease of $0.56 million in the operating costs of the "Other" property portfolio.  The decrease in operating costs for the Fort McMurray portfolio is mainly due to a decrease in bad debt expense, utility expenses and property management fees.  The decrease in operating costs for the "Other" property portfolio is mainly due to the reduction in the number of properties in the portfolio.

Analysis of Net Operating Income - Investment Properties
  Net Operating Income  
  Three Months Ended March 31 Increase (Decrease) Percent of Total Operating
Margin
  2011 2010 Amount % 2011 2010 2011 2010
                 
Fort McMurray $ 3,270,120 $ 4,028,040 $ (757,920)       (19)%       64%       68%       58%       60%
Other       1,852,887       1,877,497       (24,610)       (1)%       36%       32%       53%       46%
Total $ 5,123,007 $ 5,905,537 $ (780,231)       (13)%       100%       100%       56%       55%

COMPARISON TO PREVIOUS QUARTER

Analysis of Loss First Quarter 2011 vs. Fourth Quarter 2010
  Three Months Ended Increase (Decrease)
  March 31, 2011 December 31, 2010 Amount %
         
Rentals from investment properties       9,150,517       9,323,809       (173,292)         (1.9)%
Property operating costs       4,027,510       3,917,464       110,046            2.8%
Net operating income       5,123,007       5,406,345       (283,338)         (5.2)%
Interest income       77,667       154,270       (76,603)       (49.7)%
Interest expense       (8,716,070)       (11,406,004)       2,689,934       (23.6)%
Trust expense       (771,745)       (723,855)       (47,890)       6.6%
Profit (loss) on sale of investment property       -       222,608       (222,608)       (100.0)%
Fair value gains (losses)       (300,707)       (189,606)       (111,101)     58.6%
Loss for the period before taxes and discontinued operations       (4,587,848)       (6,536,242)       1,948,394        (29.8)%
Income tax expense (recovery)       (117,659)       (243,000)       125,341        (51.6)%
Loss for the period before discontinued operations       (4,470,189)       (6,293,242)       1,823,053       (29.0)%
Income from discontinued operations       723,581       562,531       161,050       28.6%
Comprehensive income (loss) $ (3,746,608) $ (5,730,711) $ 1,984,103        (34.6)%

During the first quarter of 2011, comprehensive loss, decreased by $1.98 million compared to the fourth quarter of 2010, comprised mainly of a decrease in interest expense of $2.69 million and an increase in income from discontinued operations of $0.16 million and partially offset by a decrease in net operating income of $0.28 million and a decrease in profit on sale of investment property of $0.22 million.

OUTLOOK

Financing

This quarter, LREIT obtained an 8% second mortgage loan of $16.3 million on Colony Square in Winnipeg, resulting in net proceeds of $4.0 million after retiring a 12.3% interim mortgage loan of $11.5 million. The net proceeds were used for working capital purposes.

LREIT experienced a delay in obtaining sufficient financing to complete the closing of the 160-suite Parsons Landing development in Fort McMurray.  As of April 30, 2011, the payment date was extended to September 30, 2012 in order to demonstrate a full year of stabilized occupancy for financing purposes.

LREIT is also continuing to address the breach of debt covenant requirements for approximately $198 million of mortgage loan debt.  The majority of the covenant breaches were initially resolved through forbearance agreements or modified loan terms and by the provision of additional cash deposits. The expectation is that all of the covenant breaches will continue to be addressed through new or extended forbearance agreements, waivers or modified loan terms.

The Series G convertible debentures in the approximate amount of $25.6 Million mature on December 31, 2011. LREIT has the option to satisfy repayment by issuing trust units in whole or in part to the debenture holders.

Property Sales

LREIT is pursuing the sale of the four seniors housing complexes and other properties in the portfolio.  Management expects that LREIT will generate additional net proceeds of $14 million from the upward refinancing of one of the targeted sale properties and complete the sale of three of the seniors housing complexes by December 31, 2011.

Rental Occupancy

Occupancy levels at LREIT properties have substantially improved during the second quarter of 2011.  This improvement is expected to continue in the Fort McMurray portfolio as the oil sands industry embarks on an investment program to significantly increase production capacity through 2016.  Current occupancy levels in the Fort McMurray portfolio are approximately 87%, while the total portfolio occupancy is approximately 90%.

ABOUT LREIT

LREIT is a real estate investment trust, which is listed on the Toronto Stock Exchange under the symbols LRT.UN (Trust Units), LRT.DB.G (Series G Convertible Debentures), LRT.NT.A (Second Mortgage Bonds due December 24, 2015, LRT.WT (Warrants expiring March 9, 2015) and LRT.WT.A (Warrants expiring December 23, 2015).  The objective of LREIT is to provide Unitholders with stable cash distributions from investment in a diversified portfolio of quality real estate properties.  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.

The Toronto Stock Exchange has not reviewed or approved the contents of this press release and does not accept responsibility for the adequacy or accuracy of this press release.

 

 

 

 

 

 

SOURCE Lanesborough Real Estate Investment Trust

For further information:

Arni Thorsteinson, Chief Executive Officer, or Gino Romagnoli, Investor Relations
Tel: (204) 475-9090, Fax: (204) 452-5505, Email: info@lreit.com


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