Lanesborough REIT reports 2009 first quarter results



    WINNIPEG, May 15 /CNW/ - Lanesborough Real Estate Investment Trust
("LREIT") (TSX: LRT.UN) today reported its operating results for the quarter
ended March 31, 2009. The following comments in regard to the financial
position and operating results of LREIT should be read in conjunction with the
March 31, 2009 Management Discussion & Analysis and the financial statements
for the quarter ended March 31, 2009, which may be obtained from the LREIT
website at www.lreit.com or the SEDAR website at www.sedar.com.
    During the first quarter of 2009, LREIT achieved a significant increase
in revenue and net operating income, compared to the first quarter of 2008,
mainly due to the growth in the property portfolio later in 2008. The loss,
before future income taxes, increased by approximately $3.8 million during the
first quarter of 2009, primarily due to an increase in amortization charges of
approximately $1.3 million and a $2.4 million non-cash charge to financing
expense in regard to a decrease in the fair value of the interest rate swap
agreements.
    As a result of the decline in rental market conditions in Fort McMurray,
LREIT experienced a decrease in revenue and net operating income during the
first quarter of 2009, compared to the fourth quarter of 2008. Total revenue
and net operating income for the first quarter of 2009 decreased by 2% and
11%, respectively, compared to the fourth quarter of 2008.

    
    FINANCIAL AND OPERATING SUMMARY
                                                  Three Months Ended March 31
                                                  ---------------------------
                                                       2009          2008
                                                     ----------    ----------

    DISTRIBUTIONS
      Total, including distributions on LP units   $ 1,668,364   $ 2,456,901
      Per unit                                     $      0.09   $      0.14

    KEY PERFORMANCE INDICATORS

    Operations
      Average residential occupancy rate                   91%           94%
      Operating residential cost ratio                     40%           42%

    Operating Results
      Total revenue                                $19,861,695   $13,628,993
      Net operating income (NOI)                   $11,712,648   $ 7,949,942
      Income (loss) for the period before future
       income tax                                  $(5,749,329)  $(1,952,898)
      Income (loss) for the period                 $(8,530,719)  $       301

    Cash Flows
      Cash flow from operating activities          $ 3,139,830   $ 1,332,215
      Funds from Operations (FFO)                  $(2,094,073)  $   400,570
      Adjusted Funds from Operations (AFFO)        $   908,073   $ 1,057,046
      Distributable income                         $ 1,580,019   $ 1,488,053

    Financing
      Mortgage loans to appraised value ratio              62%           68%
      Weighted average interest rate of mortgage
       loans                                              6.4%          6.2%

    PER UNIT AMOUNTS
    NOI
    - basic                                        $     0.670   $     0.455
    - diluted                                      $     0.465   $     0.312
    Income (loss) for the period, before
     future income tax
      - basic                                      $    (0.329)  $    (0.112)
      - diluted                                    $    (0.329)  $    (0.112)
    Income (loss) for the period
    - basic                                        $    (0.488)  $         -
    - diluted                                      $    (0.488)  $         -
    Distributable income
    - basic                                        $     0.090   $     0.085
    - diluted                                      $     0.086   $     0.074
    FFO
    - basic                                        $    (0.120)  $     0.023
    - diluted                                      $    (0.120)  $     0.023
    AFFO
    - basic                                        $     0.052   $     0.061
    - diluted                                      $     0.049   $     0.053


    FIRST QUARTER 2009 COMPARED TO FIRST QUARTER 2008

    -   NOI increased by $3.8 million or 47.3%, mainly due to the addition of
        five additional properties to the income-producing portfolio since
        March 31, 2008, as well as an increase in same property NOI of
        $669,000 or 9.3%.

    -   Loss before amortization, non-controlling interest and taxes
        increased by approximately $2.5 million, primarily due to the non-
        cash charge to financing expense of approximately $2.4 million in
        regard to the decrease in the fair value of the interest rate swaps.
        Excluding financing charges regarding the interest rate swaps, the
        decrease in income amounted to $51,000.

    -   The overall loss increased by approximately $8.5 million, after
        considering the increase in amortization charges of approximately
        $1.3 million and increase in future income tax expense of
        approximately $4.7 million.

    -   Cash provided by operating activities, excluding changes in non-cash
        operating items, was unchanged from the first quarter of 2008 at
        approximately $1.6 million.

    -   FFO decreased by $2.5 million, compared to the first quarter of 2008,
        while AFFO decreased by $149,000. On a basic per unit basis, FFO
        decreased by $0.143 per unit, while AFFO decreased by $0.009 per
        unit.

    COMPARISON TO PRECEDING QUARTER

    Analysis of Loss - First Quarter 2009 vs. Fourth Quarter 2008
    -------------------------------------------------------------------------
                             Three Months Ended       Increase  (decrease)
                         ----------------------------------------------------
                           March 31,  December 31,     Amount          %
                             2009         2008
                         ----------------------------------------------------

    Rental revenue       $19,601,942  $19,984,545  $  (382,603)        (1.9)%
    Interest and other
     income                  259,753      290,875      (31,122)       (10.7)%
    Property operating
     costs                 8,149,047    7,063,497    1,085,550          15.4%
                         ------------ ------------ ------------ -------------
    Net Operating
     Income               11,712,648   13,211,923   (1,499,275)       (11.3)%
    Trust expense            744,190      755,661      (11,471)        (1.5)%
                         ------------ ------------ ------------ -------------
    Income before
     financing expense,
     amortization,
     non-controlling
     interest and
     taxes                10,968,458   12,456,262   (1,487,804)       (11.9)%
    Financing expense     13,062,531   14,861,476   (1,798,945)       (12.1)%
                         ------------ ------------ ------------ -------------
    Income (loss)
     before
     amortization,
     non-controlling
     interest and
     taxes                (2,094,073)  (2,405,214)     311,141        (12.9)%
    Amortization           3,616,653    3,600,150       16,503          0.5%
    Non-controlling
     interest                 38,603       30,362        8,241         27.1%
                         ------------ ------------ ------------ -------------
    Income (loss)
     before future
     income tax
     expense
     (recovery)           (5,749,329)  (6,035,726)     286,397         (4.7)%
    Future income
     tax expense
     (recovery)            2,781,390   (3,850,378)   6,631,768       (172.2)%
                         ------------ ------------ ------------ -------------
    Loss for the
     period              $(8,530,719) $(2,185,348) $(6,345,371)       290.4%
                         ------------ ------------ ------------ -------------
                         ------------ ------------ ------------ -------------


    -   NOI decreased by $1.5 million or 11.3%, mainly due to decline in the
        revenues of the Fort McMurray property portfolio, and an increase in
        operating costs in the Manitoba and Saskatchewan portfolios. The
        decrease in revenues in the Fort McMurray portfolio reflects an
        increase in the vacancy rate, as well as a decrease in the average
        rental rate per suite.

    -   Loss before amortization, non-controlling interest and taxes
        decreased by approximately $311,000. After excluding the non-cash
        charge to financing expense pertaining to the change in fair value of
        an interest rate swap agreement, the loss before amortization, non-
        controlling interest and taxes increased by approximately $2.5
        million. The increase in the loss mainly reflects the decrease in NOI
        as well as an increase of $1 million in the remaining component of
        financing expense.

    -   The overall loss increased by approximately $6.3 million, after
        considering the $6.6 million decrease in the amount of future income
        tax recoveries.

    -   Cash provided by operating activities, excluding changes in non-cash
        operating items, decreased by $2.2 million.
    

    OUTLOOK FOR 2009

    LREIT is undertaking a divestiture program during 2009 and 2010,
targeting the sale of properties with an estimated value of $150 million. The
proceeds of sale will be used for the repayment of higher cost and
shorter-term debt. The objective of the divestiture program is to reduce total
debt, including convertible debenture debt, by a minimum of 25%, and to reduce
the total debt to appraised value ratio to approximately 60%.
    During the first quarter of 2009, distributable income approximated the
amount of distributions paid, but it is unlikely that this level of income
will continue for the remainder of 2009. Vacancy in the Fort McMurray
portfolio has increased during the second quarter and may not substantially
improve until 2010.
    The closing of Parsons Landing continues to be delayed, pending the
completion of permanent financing arrangements for the property. The closing
for the payment of the balance owing on Parsons Landing of approximately $45
million has been extended until June 30, 2009, subject to LREIT obtaining a
commitment for permanent financing by June 5, 2009. The vendor has agreed to
provide a $15 million second mortgage loan, in addition to the $30 million
first mortgage loan being arranged, and allow possible further extensions of
the closing date until July 31, 2009.
    LREIT has $74 million of mortgage loan debt maturing during the last nine
months of 2009, representing 16% of the total long-term debt as of March 31,
2009, and is comprised of $54.1 million of fixed rate mortgage loans and $19.9
million of floating rate demand mortgage loans. Renewal terms have been
finalized for all mortgage loans which mature in the second quarter of 2009
with the exception of two mortgage loans with a combined principal balance of
$6.6 million that have matured, but alternate financing arrangements have not
yet been concluded. Management anticipates that all mortgages maturing in 2009
will be renewed, refinanced or repaid from the proceeds of asset sales.
    As disclosed in the financial statements and MD&A, there is uncertainty
surrounding the ability of LREIT to continue as a going concern. LREIT
sustained net losses in 2008 and in the first quarter of 2009, has a working
capital deficit as of March 31, 2009 and is in violation of the debt service
covenant on two mortgage loans totalling approximately $47 million. The
violation in the debt service covenant could potentially result in the lender
demanding repayment of the mortgage loans and also potentially result in $25.6
million of convertible debenture debt becoming due and payable. Additionally,
as noted above, two first mortgage loans totalling $6.6 million have matured,
but alternate financing arrangements have not yet been concluded.
    Management has taken steps to mitigate the level of uncertainty in regard
to the going concern issue. The mortgage lender has been requested to reduce
the existing debt service coverage ratio requirements in recognition of the
decline in market conditions. If agreed to, the violation of the debt service
covenant and the risk of the mortgage loans and debentures becoming payable on
demand would be eliminated. As noted above, LREIT is also undertaking a
divestiture program to raise additional capital and initiated a cash
management strategy, including the previously announced reduction in the cash
distribution amount. LREIT has also been able to refinance mortgage loans
during 2009.
    As a result of the steps that have been taken to reduce the level of
uncertainty, management has concluded that LREIT has the ability to continue
as a going concern.

    
    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.F (Series F
Convertible Debentures) and LRT.DB.G (Series G Convertible Debentures). The
objective of LREIT is to provide Unitholders with stable cash distributions
from investment in a geographically diversified Canadian 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.
    





For further information:

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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