Lanesborough REIT reports 2013 third quarter results

WINNIPEG, Nov. 8, 2013 /CNW/ - Lanesborough Real Estate Investment Trust ("LREIT") (TSX: LRT.UN) today reported its operating results for the quarter ended September 30, 2013.  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 September 30, 2013, which may be obtained from the LREIT website at www.lreit.com or the SEDAR website at www.sedar.com.

HIGHLIGHTS

  • Net operating income ("NOI") was $6.41 million during Q3-2013 and $18.19 million for the nine months ended September 30, 2013, an increase of $1.05 million (19.6%) compared to Q3-2012 and $1.05 million (6.13%) compared to the nine months ended September 30, 2012.
  • Overall occupancy of 93% (92% for Fort McMurray properties) during Q3-2013, compared to 95% (95% for Fort McMurray properties) during Q2-2013 and 91% (87% for Fort McMurray properties) during Q3-2012.
  • Average monthly rent of $1,780 during Q3-2013 ($2,318 for Fort McMurray properties), compared to $1,749 during Q2-2013 ($2,275 for Fort McMurray properties) and $1,704 during Q3-2012 ($2,251 for Fort McMurray properties).
  • Weighted average interest rate on total mortgage debt decreased to 5.4% at September 30, 2013, compared to 7.2% at December 31, 2012 and 5.5% at June 30, 2013.

Mortgage Loan Covenants

During Q3-2013, a covenant breach on a $4.6 million mortgage loan was eliminated as a result of the renewal of the loan. Subsequent to September 30, 2013, the mortgage loans for Nelson Ridge and the Lakewood Townhomes were refinanced. In total, the refinancings comprised mortgage loan debt of $49.5 million at a weighted average interest rate of 6.4%. The proceeds from the new financings, combined with the release of collateral deposits, were used to discharge or repay $48.3 million of existing mortgage loan debt with a weighted average interest rate of 6.8%, with the remaining balance used for working capital purposes. The covenant breaches for two mortgage loans were eliminated as a result of the refinancings.

The mortgage refinancings which were completed subsequent to September 30, 2013, served to eliminate all of the mortgage loan covenant breaches of LREIT, with the exception of one swap mortgage loan in the amount of $17.3 million which is in breach of a "global" debt service coverage requirement. A request has recently been submitted to the lender to waive the global debt service coverage requirement.

Parsons Landing

On October 3, 2013, the reconstruction of the remaining 76 suites at Parsons Landing was completed and the entire project returned to active operations. The suites are currently in the lease-up stage. As of November 8, 2013, 99 of the 160 suites have been leased.

Management expects to have $44 million of first mortgage financing in place in order to complete the acquisition of Parsons Landing this year, prior to the scheduled closing date of January 2, 2014.

Divestiture Program

On October 1, 2013, LREIT completed the sale of the Purolator Building in Burlington, Ontario at a price of $1.6 Million with net sale proceeds of approximately $0.8 Million. LREIT has also entered into a sale agreement for the Nova Court property, at a sale price of $21.68 million. After accounting for selling costs, the assumption of the first mortgage loan by the purchaser and the required prepayment of $10 million of the 9% mortgage bonds which are secured by the property, the net proceeds from sale are estimated to be $3.6 million. The sale is expected to close by December 31, 2013.

LREIT is pursuing the sale of additional properties and it is anticipated that the remaining two seniors' housing complexes and/or other properties will be sold in 2014.

FINANCIAL AND OPERATING SUMMARY

            September 30   December 31
            2013   2012
STATEMENT OF FINANCIAL POSITION              
  Total assets         $  494,424,755  $  481,552,578
  Total long-term financial liabilities (1)         $  310,626,674  $  323,026,417
                   
    Three Months Ended
September 30
  Nine Months Ended
September 30
    2013   2012   2013   2012
KEY FINANCIAL PERFORMANCE INDICATORS                
Operating Results                
  Rentals from investment properties $  10,417,760  $  9,206,783  $  30,212,858  $  28,978,605 
  Net operating income $  6,405,204  $  5,355,272  $  18,185,494  $  17,134,762 
  Income (loss) before taxes and discontinued operations $  13,422,853  $  (3,078,641)  $  15,358,454  $  1,380,093 
  Income (loss) and comprehensive income (loss) $  13,505,324  $  (2,298,800)  $  16,028,750  $  3,912,535 
                   
Cash Flows                
  Cash provided by (used in) operating activities $  3,280,950  $  488,083  $  3,191,759  $  (5,111,689) 
  Funds from Operations (FFO) $  700,219  $  (2,644,953)  $  (544,062)  $  (5,173,307) 
  Adjusted Funds from Operations (AFFO) $  (481,765)  $  (3,341,145)  $  (2,909,604)  $  (6,614,948) 
  Distributable income (loss) $  714,151  $  733,513  $  (833,474)  $  400,635 

(1) Long-term financial liabilities consist of mortgage loans, a swap mortgage loan, debentures, defeased liability and
mortgage bonds.  The swap mortgage loan and mortgage bonds are included at face value.

Q3-2013 COMPARED TO Q3-2012

Analysis of Income (Loss)
    Three Months Ended
September 30
  Nine Months Ended
September 30
    2013   2012   2013   2012
Rentals from investment properties $  10,417,760  $  9,206,783  $  30,212,858  $  28,978,605 
Property operating costs   4,012,556    3,851,511    12,027,364    11,843,843 
Net operating income   6,405,204    5,355,272    18,185,494    17,134,762 
Interest income   303,792         281,209          932,039    614,962 
Forgiveness of debt         -          -          -    859,561 
Interest expense   (6,281,557)    (10,116,020)    (20,733,401)    (24,474,974) 
Trust expense   (440,395)    (407,263)    (1,762,327)    (1,572,022) 
Income recovery on Parsons Landing   630,704          869,547    2,272,334    2,393,658 
Insurance proceeds         -          400,000          -          400,000 
Income (loss) before the following   617,748    (3,617,255)    (1,105,861)    (4,644,053) 
Profit on sale of investment properties         -          -          164,928    1,045,307 
Fair value gains   7,652,786          38,614    9,077,308    8,978,839 
Fair value adjustment of Parsons Landing   5,152,319          500,000    7,222,079    (4,000,000) 
Income (loss) before taxes and discontinued                
  operations   13,422,853    (3,078,641)    15,358,454    1,380,093 
Deferred income tax recovery         -    (181,339)          -          - 
Income (loss) before discontinued operations   13,422,853    (2,897,302)    15,358,454    1,380,093 
Income from discontinued operations         82,471          598,502          670,296    2,532,442 
Income (loss) and comprehensive income                
  (loss) $  13,505,324  $  (2,298,800)  $  16,028,750  $  3,912,535 

LREIT completed Q3-2013 with comprehensive income of $13.51 million compared to a comprehensive loss of $2.30 million during Q3-2012. The improvement in bottom-line results is mainly due to the following factors:

  • A combined increase in fair value gains/adjustment of $12.27 million.
  • A decrease in interest expense of $3.8 million or which $2.75 million reflects mortgage prepayment charges that were incurred in Q3-2012. Excluding prepayment charges, interest expense decreased by $1.1 million in Q3-2013 compared to Q3-2012.
  • An increase in net operating income of $1.05 million which was almost entirely attributable to rental properties in Fort McMurray as a result of expanded activity in the oilsands industry and the continuation of rental rate increases and improving occupancy levels. The return of reconstructed suites at Parsons Landing to active operations also contributed to the increase in net operating income.
Analysis of Rental Revenue
  Three Months Ended September 30 Nine Months Ended September 30
  2013 2012 Increase
(Decrease)
2013 2012 Increase
(Decrease)
                         
Fort McMurray $ 6,228,415  $ 5,686,706  $  541,709  $ 18,668,698  $ 17,093,994 $ 1,574,704 
Other investment properties   3,590,891    3,520,077    70,814    10,814,958    10,693,323   121,635 
Sub-total   9,819,306    9,206,783    612,523    29,483,656    27,787,317   1,696,339 
Properties sold         -          -          -          -    796,861   (796,861) 
Impaired property   598,454          -    598,454    729,202    394,427     334,775 
                         
Total $ 10,417,760  $ 9,206,783  $ 1,210,977  $ 30,212,858  $ 28,978,605 $ 1,234,253 

As disclosed in the chart above, total revenue from the investment properties, excluding properties sold and the impaired property, increased by $0.61 million in Q3-2013, compared to Q3-2012. The increase is comprised of an increase in revenue from investment properties in Fort McMurray of $0.54 million and an increase in revenue from the Other investment properties of $0.07 million.

The increase in revenue from the Fort McMurray property portfolio reflects an increase in the average occupancy level, as well as an increase in the average rental rate.  As disclosed in the charts below, the average occupancy level for the Fort McMurray portfolio increased from 87% during Q3-2012 to 92% in Q3-2013, while the average monthly rental rate increased by $67 or 3.0%.

For the nine month period ended September 30, 2013, total revenue from the investment properties, excluding properties sold and the impaired property, increased by $1.70 million, compared to the first nine months of 2012.  The nine month comparatives also reflect an improvement in occupancy level and rental rate.

Occupancy Level, by Quarter
  2013      
  Q1 Q2 Q3 9 Month
Average
     
Fort McMurray       93%        95%        92%        93%       
Other investment properties       96%        95%        94%        95%       
Properties sold       n/a        n/a        n/a        n/a       
Impaired property       n/a        n/a        n/a        n/a       
Total       94%        95%        93%        94%       
               
  2012
  Q1 Q2 Q3 9 Month
Average
Q4 12 Month
Average
Fort McMurray       92%        90%        87%        90%        88%        90% 
Other investment properties       98%        97%        97%        97%        98%        97% 
Properties sold       100%        n/a        n/a        n/a        n/a        n/a 
Impaired property       n/a        n/a        n/a        n/a        n/a        n/a 
Total       95%        92%        91%        93%        92%        92% 

The occupancy level represents the portion of potential revenue that was achieved

Average Monthly Rents, by Quarter
  2013
  Q1 Q2 Q3 9 Month
Average
Fort McMurray $2,259 $2,275 $2,318 $2,284
Other investment properties $1,109 $1,114 $1,133 $1,118
Properties sold n/a n/a n/a n/a
Impaired property n/a n/a n/a n/a
Total $1,739 $1,749 $1,780 $1,756

  2012
  Q1 Q2 Q3 9 Month
Average
Q4 12 Month
Average
Fort McMurray $2,124 $2,191 $2,251 $2,187 $2,293 $2,218
Other investment properties $1,075 $1,069 $1,048 $1,064 $1,076 $1,067
Properties sold $3,100 n/a n/a n/a n/a n/a
Impaired property n/a n/a n/a n/a n/a n/a
Total $1,704 $1,684 $1,704 $1,697 $1,739 $1,709

Analysis of Property Operating Costs
  Three Months Ended September 30 Nine Months Ended September 30
  2013   2012   Increase
(Decrease)
  2013   2012   Increase
(Decrease)
                       
Fort McMurray $ 2,120,697    $ 2,122,286   $ (1,589)      $ 6,582,146   $ 6,358,508   $ 223,638 
Other investment properties 1,701,799    1,729,225    (27,426)    5,182,572    5,091,443   91,129 
Sub-total 3,822,496    3,851,511    (29,015)      11,764,718   11,449,951   314,767 
Properties sold       -          -          -      99,509    (99,509) 
Impaired property 190,060          -    190,060    262,646     294,383   (31,737) 
Total $ 4,012,556    $ 3,851,511   $ 161,045    $ 12,027,364   $11,843,83   $ 183,521 

Property operating costs for the Fort McMurray and Other investment property portfolios decreased by $0.03 million or 1% during Q3-2013 compared to Q2-2012 and was mainly attributable to the Other investment properties. For the nine months ended September 30, 2013, property operating costs for the Fort McMurray and Other investment property portfolios increased by $0.31 million or 3%, compared to the first nine months of 2012. The increase in the nine month property operating costs is mainly due to increased property tax and utilities expenses for the Fort McMurray properties.

Analysis of Net Operating Income
  Net Operating Income
  Three Months Ended September 30 Nine Months Ended September 30
  2013   2012   Increase
(Decrease)
  2013   2012   Increase
(Decrease)
                       
Fort McMurray $ 4,107,718    $ 3,564,420   $ 543,298   $12,086,552   $10,735,486   $ 1,351,066
Other investment properties 1,889,092    1,790,852   98,240   5,632,386   5,601,880   30,506
Sub-total 5,996,810    5,355,272   641,538   17,718,938   16,337,366    1,381,572
Properties sold       -          -          -          -    697,352   (697,352)
Impaired property 408,394          -    408,394   466,556   100,044   366,512
                       
Total $ 6,405,204    $ 5,355,272   $ 1,049,932   $ 18,185,494   $ 17,134,762   $ 1,050,732

After considering the increase in rental revenue and the decrease in property operating costs, as analyzed in the preceding sections of this press release, net operating income for the portfolio of investment properties, excluding properties sold and the impaired property, increased by $0.64 million or 12% during Q3-2013, compared to Q3-2012. As disclosed in the table above, net operating income for the Fort McMurray portfolio increased by $0.54 million during Q3-2013, compared to Q3-2012, while net operating income for the Other investment properties portfolio increased by $0.10 million.

For the nine month period ended September 30, 2013, net operating income from investment properties, excluding properties sold and the impaired property, increased by $1.38 million or 8.5% compared to the same period in 2012.

Analysis of Operating Margin
  Operating Margin
  Three Months Ended
September 30
  Nine Months Ended
September 30
  2013 2012   2013 2012
           
Fort McMurray 66% 63%   65% 63%
Other investment properties 53% 51%   52% 52%
Sub-total 61% 58%   60% 59%
Properties sold n/a n/a   n/a 88%
Impaired property 68% n/a   64% 25%
           
Total 61% 58%   60% 59%

Overall, the operating margin for the property portfolio, excluding properties sold and the impaired property, increased from 58% in Q3-2012, to 61% in Q3-2013. The increase in the overall operating margin reflects an increase in the operating margin for both the Fort McMurray property portfolio and the Other property portfolio. For the nine month period ended September 30, 2013, the operating margin increased to 60% compared to 59% for the nine month period ended September 30, 2012.

COMPARISON TO PREVIOUS QUARTER

Analysis of Income (Loss)
  Three Months Ended Increase (Decrease)
  September 30,
2013
June 30, 2013 Amount %
Rentals from investment properties $  10,417,760  $  10,026,210  $       391,550   3.9% 
Property operating costs   4,012,556    3,939,488    (73,068)   1.9% 
Net operating income   6,405,204    6,086,722    318,482   5.2% 
Interest income   303,792    329,946    (26,154)   (7.9)% 
Interest expense   (6,281,557)    (6,609,966)    328,409   (5.0)% 
Trust expense   (440,395)    (790,635)    350,240   (44.3)% 
Income recovery on Parsons Landing   630,704    742,500    (111,796)   (15.1)% 
(Income) loss before the following   617,748    (241,433)    859,181   355.9% 
Profit on sale of investment properties     164,928    (164,928)   (100.0)% 
Fair value gains   7,652,786    1,286,668    6,366,118   494.8% 
Fair value adjustment of Parsons Landing   5,152,319    1,769,760    3,382,559   191.1% 
Income for the period before taxes and                
  discontinued operations   13,422,853    2,979,923    10,442,930   350.4% 
Income from discontinued operations   82,471    355,731    (273,260)   (76.8)% 
Comprehensive income $  13,505,324  $  3,335,654  $  10,169,670   304.9% 

During Q3-2013, the income, before profit on sale of investment properties, fair value gains, fair value adjustment of Parsons Landing, income taxes and discontinued operations, increased by $0.86 million compared to Q2-2013.  The increase in the income mainly reflects a decrease in trust expense of $0.35 million, a decrease in interest expense of $0.33 million and an increase in net operating income of $0.32 million, partially offset by a decrease in income recovery on Parsons Landing of $0.11 million. The decrease in trust expense is mainly attributable to the comparatively high level of trust expense in Q2-2013 as a result of a one-time charge of $0.19 million associated with the write down of a loan receivable. The decrease in interest expense is due to the reduction in the weighted average interest rate on mortgage loan debt, which decreased from 6.7% at the end of Q1-2013 to 5.5% at the end of Q2-2013. The increase in operating income is mainly due to the Fort McMurray property portfolio as a result of the return of 84 suites at Parsons Landing to active rental operations on June 1, 2013, as well as an improvement in occupancy levels and increased rental rates at other properties. Conversely, the decrease in income recovery is mainly due to the return of 84 suites at Parsons Landing.

After accounting for the increase in fair value gains and fair value adjustment of Parsons Landing in the combined amount of $9.75 million and a decrease in profit on sale of investment properties of $0.16 million, the income before income taxes and discontinued operations increased by $10.44 million during Q3-2013, compared to Q2-2013.

Income from discontinued operations decreased by $0.27 million during Q3-2013 compared to Q2-2013. The decrease in income from discontinued operations mainly reflects a decrease in income tax recoveries and net operating income. After accounting for discontinued operations and income tax expense, LREIT completed Q3-2013 with comprehensive income of $13.51 million, compared to comprehensive income of $3.34 million during Q2-2013.

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 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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