Lanesborough REIT reports 2009 second quarter results



    WINNIPEG, Aug. 14 /CNW/ - Lanesborough Real Estate Investment Trust
("LREIT") (TSX: LRT.UN) today reported its operating results for the quarter
ended June 30, 2009. The following comments in regard to the financial
position and operating results of LREIT should be read in conjunction with the
June 30, 2009 Management Discussion & Analysis and the financial statements
for the quarter ended June 30, 2009, which may be obtained from the LREIT
website at www.lreit.com or the SEDAR website at www.sedar.com.
    During 2009, LREIT's operating results have been negatively impacted by
the slow down of development activity in the oil sands industry in northern
Alberta and the associated decline in rental housing market conditions in Fort
McMurray. LREIT has a high concentration of properties in Fort McMurray and
the decline has resulted in increased vacancy losses and reduced rental rates
and led to a significant reduction in the profitability of the Fort McMurray
property portfolio. The decline in market conditions has necessitated the
deferral of distributions since March 2009 and created a delay in the
acquisition of the Parsons Landing property in Fort McMurray. Due to the
continued weakness of rental market conditions in Fort McMurray, LREIT has
suspended distributions for the balance of 2009.
    LREIT experienced a significant decrease in revenue and net operating
income during the first quarter of 2009, compared to the fourth quarter of
2008, as well as a significant increase in financing expense. The operating
results for the second quarter of 2009 are comparable to the first quarter
results and reflect a minimal change in the loss before taxes (excluding
financing charges related to the interest rate swap agreements) and a more
substantive change in operating cash flow (excluding changes in non-cash
operating items).
    Specifically, after excluding financing charges related to the interest
rate swap agreements, LREIT experienced a loss before taxes of approximately
$3.2 million during the second quarter of 2009, compared to a loss of
approximately $3.3 million during the first quarter of 2009. In regard to cash
flows, LREIT generated cash from operating activities of approximately $1.0
million during the second quarter of 2009, including the cash flow from
discontinued operations and excluding changes in non-cash operating items,
compared to a cash flow of $1.7 million during the first quarter of 2009. The
decrease in cash flow during the second quarter of 2009 is mainly due to an
increase in interest expense related to the delay in the acquisition of
Parsons Landing.
    In comparison to the second quarter of 2008, the loss, before taxes and
excluding financing charges related to interest rate swap agreements,
increased by approximately $2.4 million during the second quarter of 2009. The
loss before taxes includes the operating results of the ten properties which
were reclassified to "properties held for sale" during the second quarter of
2009. Cash flow from operating activities, including cash flow from
discontinued operations and excluding changes in non-cash operating items,
decreased by approximately $1.7 million during the second quarter of 2009,
compared to the second quarter of 2008. The increase in the loss and the
decrease in operating cash flow mainly reflect an increase in financing
expense which was substantially higher than the increase in net operating
income.


    
    FINANCIAL AND OPERATING SUMMARY

                              Three Months Ended        Six Months Ended
                                   June 30                   June 30
                      -------------------------------------------------------
                              2009          2008          2009          2008
                      ------------- ------------- ------------- -------------
                                       (restated)                  (restated)
    DISTRIBUTIONS
      Total,
       including
       distributions
       on LP units    $          -  $  2,463,744  $  1,668,364  $  4,920,645
      Per unit        $          -  $       0.14  $       0.09  $       0.28

    KEY PERFORMANCE
     INDICATORS
    Operations
      Average income
       property
       occupancy rate          85%           95%           87%           94%
      Income property
       operating cost
       ratio                   36%           36%           37%           38%

    Operating Results
      Revenue         $ 13,976,190  $ 11,620,994  $ 29,144,155  $ 21,953,365
      Net operating
       income         $  9,024,724  $  7,520,562  $ 18,506,976  $ 13,822,347
      Loss from
       continuing
       operations for
       the period
       before future
       income tax     $ (4,403,323) $   (487,173) $ (9,662,915) $ (2,210,113)
      Loss for the
       period         $ (3,956,727) $ (4,988,811) $(12,487,446) $ (4,988,510)

    Cash Flows
      Cash flow from
       operating
       activities     $  1,278,582  $  3,037,717  $  3,837,851  $  4,369,932
      Funds from
       Operations
       (FFO)          $   (702,323) $  1,655,318  $ (2,796,395) $  2,055,887
      Adjusted Funds
       from Operations
       (AFFO)         $    331,880  $  2,003,385  $  1,239,954  $  3,063,429
      Distributable
       income         $  1,069,790  $  2,630,440  $  2,849,003  $  4,189,148

    Financing
      Mortgage loans to
       estimated current
       value ratio                                         67%           57%
      Weighted average
       interest rate of
       mortgage loans                                     5.6%          5.8%

    PER UNIT AMOUNTS
    Net operating
     income
    - basic           $      0.517  $      0.429  $      1.060  $      0.790
    - diluted         $      0.358  $      0.294  $      0.734  $      0.541
    Loss from
     continuing
     operations for
     the period,
     before future
     income tax
    - basic           $     (0.252) $     (0.028) $     (0.553) $     (0.126)
    - diluted         $     (0.252) $     (0.028) $     (0.553) $     (0.126)
    Income (loss)
     for the
     period
    - basic           $     (0.227) $     (0.284) $     (0.715) $     (0.285)
    - diluted         $     (0.227) $     (0.284) $     (0.715) $     (0.285)
    Distributable
     income
    - basic           $      0.061  $      0.150  $      0.163  $      0.239
    - diluted         $      0.057  $      0.142  $      0.155  $      0.226
    FFO
    - basic           $     (0.040) $      0.094  $     (0.160)  $     0.118
    - diluted         $     (0.040) $      0.094  $     (0.160)  $     0.116
    AFFO
    - basic           $      0.019  $      0.114  $      0.071   $     0.175
    - diluted         $      0.016  $      0.113  $      0.065   $     0.166


    SECOND QUARTER 2009 COMPARED TO SECOND QUARTER 2008

    -   NOI increased by $1.5 million or 20%, mainly due to the addition of
        the Sienna Apartments and Parsons Landing to the portfolio subsequent
        to June 30, 2008.

    -   Loss before taxes increased by approximately $3.9 million, primarily
        due to an increase in financing expense which was substantially
        higher than the increase in NOI.

    -   Cash provided by operating activities, excluding changes in non-cash
        operating items, decreased by $1.7 million.

    -   FFO decreased by $2.4 million, while AFFO decreased by $1.7 million.
        On a basic per unit basis, FFO decreased by $0.134 per unit, while
        AFFO decreased by $0.095 per unit.

    COMPARISON TO PRECEDING QUARTER

    Analysis of Loss - Second Quarter 2009 vs. First Quarter 2009
    -------------------------------------------------------------------------
                             Three Months Ended         Increase (decrease)
                      -------------------------------------------------------
                           June 30,     March 31,
                              2009          2009        Amount           %
                      -------------------------------------------------------
    Rental revenue    $ 13,874,256  $ 14,941,454  $ (1,067,198)       (7.1)%
    Interest and
     other income          101,934       226,511      (124,577)      (55.0)%
    Property
     operating costs     4,951,466     5,685,713      (734,247)      (12.9)%
                      ------------- ------------- ------------- -------------
    Net Operating
     Income              9,024,724     9,482,252      (457,528)       (4.8)%
    Trust expense          662,087       744,190       (82,103)      (11.0)%
                      ------------- ------------- ------------- -------------
    Income before
     financing expense,
     amortization,
     non-controlling
     interest and taxes  8,362,637     8,738,062      (375,425)       (4.3)%
    Financing expense    9,979,048    11,287,447    (1,308,399)      (11.6)%
                      ------------- ------------- ------------- -------------
    Income (loss)
     before
     amortization,
     non-controlling
     interest and
     taxes              (1,616,411)   (2,549,385)      932,974       (36.6)%
    Amortization         2,735,518     2,671,604        63,914          2.4%
    Non-controlling
     interest               51,394        38,603        12,791         33.1%
                      ------------- ------------- ------------- -------------
    Income (loss)
     before future
     income tax
     expense (recovery) (4,403,323)   (5,259,592)      856,269       (16.3)%
    Future income tax
     expense               258,521     2,777,340    (2,518,819)      (90.7)%
                      ------------- ------------- ------------- -------------
    Loss from
     continuing
     operations for
     the period         (4,661,844)   (8,036,932)    3,375,088       (42.0)%
    Income from
     discontinued
     operations for
     the period            705,117      (493,787)    1,198,904      (242.8)%
                      ------------- ------------- ------------- -------------
    Loss for the
     period           $ (3,956,727) $ (8,530,719) $  4,573,992       (53.6)%
                      ------------- ------------- ------------- -------------
                      ------------- ------------- ------------- -------------

    -   NOI decreased by $457,000 or 4.8%, mainly due mainly due to decline
        in the revenues of the Fort McMurray property portfolio, partially
        offset by an increase in NOI from the Saskatchewan property
        portfolio. 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 taxes decreased by approximately $856,000. 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 taxes increased by approximately $1.2 million. The relative
        comparability in the loss mainly reflects an increase in income from
        discontinued operations which offset the decrease in NOI.
    -   The overall loss decreased by approximately $4.6 million, after
        considering the $2.5 million decrease in the amount of future income
        tax expense.
    -   Cash provided by operating activities, excluding changes in non-cash
        operating items decreased by $0.6 million.

    OUTLOOK FOR SECOND HALF OF 2009
    

    LREIT is pursuing a divestiture program targeting the sale of assets,
with estimated proceeds of $250 million, by December 31, 2010. Currently, 12
properties with estimated proceeds of $70 million are under conditional
contracts for sale and are expected to close this year. The 12 properties had
a net book value of $49.7 million at June 30, 2009. The objective of the
divestiture program is to reduce total debt, including convertible debenture
debt, and in particular higher cost interim mortgage loan financing. In
addition to generating funds for the repayment of debt, the projected sale of
properties under the divestiture program will enable LREIT to improve its
working capital position. The improved liquidity should sustain LREIT's
operations until the expected recovery in the Fort McMurray rental housing
market in 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 October 1, 2009, subject to LREIT obtaining a
commitment for permanent financing by October 1, 2009. The vendor has agreed
to provide a $15 million second mortgage loan, in addition to the $30 million
first mortgage loan being arranged. The vendor is permitted to list the
property for sale and LREIT may list the property for sale this year.
Depending on the sale price, a sale may result in the full or partial loss of
the cumulative amount paid to the vendor by LREIT. In addition, LREIT would be
liable to the vendor for any shortfall between the net proceeds of the sale
and the acquisition cost payable of $45.2 million, plus interest.
    LREIT has $103.8 million of mortgage loan debt from income producing
properties maturing during the second half of 2009, representing 23% of total
long-term debt, as of June 30, 2009. The maturing debt is comprised of $10.9
million of fixed rate mortgage loans and $92.9 million of floating rate demand
mortgage loans. $73 million of the demand loans have terms that extend beyond
2009. Renewal terms have been finalized for all mortgage loans, which mature
in the third quarter of 2009, with the exception of two mortgage loans with
combined principal balance of $5.6 million that have matured and alternate
financing arrangements have not been concluded. Management anticipates that
all mortgages maturing in 2009 will be renewed or refinanced.
    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 six months of 2009, has a
working capital deficit as of June 30, 2009 and is in breach 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, one first mortgage loan in the amount of $12.8 million has
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 has also implemented a
divestiture program to reduce debt and suspended cash distribution. LREIT has
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 believes
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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