Lanesborough REIT Reports 2013 First Quarter Results

WINNIPEG, May 13, 2013 /CNW/ - Lanesborough Real Estate Investment Trust ("LREIT") (TSX: LRT.UN) today reported its operating results for the quarter ended March 31, 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 March 31, 2013, which may be obtained from the LREIT website at www.lreit.com or the SEDAR website at www.sedar.com.

HIGHLIGHTS

  • Same-property net operating income ("NOI") was $5.69 million during Q1-2013, an increase of $0.40 million (7.5%) compared to Q4-2012 and $0.43 million (8.0%) compared to Q1-2012.
  • Overall occupancy of 94% (93% for Fort McMurray properties) during Q1-2013, compared to 92% (88% for Fort McMurray properties) during Q4-2012 and 95% (92% for Fort McMurray properties) during Q1-2012.
  • Average monthly rent of $1,739 during Q1-2013 ($2,259 for Fort McMurray properties) was the same as during Q4-2012 and represents a 2% increase over Q1-2012 (6.4% increase for Fort McMurray properties).
  • During Q1-2013, $21 million of new first mortgage loan financing was obtained at an interest rate of 4.99%. The proceeds were used to repay $20.4 million of interim financing with a weighted average interest rate of 12% and to fund a capital expenditure reserve account of $0.6 million.
  • Subsequent to Q1-2013, $96 million of new mortgage loan financing was obtained at a weighted average interest rate of 5.7%.  The proceeds, combined with $2.7 million of collateral deposits, were used to discharge $91.5 million of existing mortgage loan financing with a weighted average interest rate of 8.2%. The remaining mortgage proceeds, combined with working capital, were used to repay a 12% second mortgage loan of $7.5 million.
  • Weighted average interest rate on mortgage debt decreased to 6.6% at March 31, 2012, compared to 7.2% at December 31, 2012.

Mortgage Loan Covenants

As of March 31, 2013, LREIT had four mortgage loans totalling $96.5 million with covenant breaches. The refinancing of one of the loans in April 2013 reduced the amount of debt with covenant breaches to $44.0 million. It is anticipated that the covenant breach for two of the remaining loans, with a combined balance of $27.7 million, both of which are over-holding past maturity with the consent of the lenders, will also be eliminated in 2013 as a result of the refinancing of the loans.

The other mortgage loan with a covenant breach in the amount of $16.3 million matures on May 1, 2018. The covenant breach is expected to be eliminated through modified loan terms.

Divestiture Program

In 2009, LREIT initiated a multi-year asset divestiture program with the objective of funding operating losses and reducing debt levels. During 2013, LREIT is focusing its divestiture efforts on the sale of the two remaining senior housing complexes and the continuation of the condominium unit sales program at Lakewood Townhomes.

During the first quarter of 2013, LREIT received prepayment of a mortgage loan receivable of $3.2 million, which originated on the sale of a property in 2012.

Parsons Landing

The reconstruction of Parsons Landing is expected to be completed during the fourth quarter of 2013 and it is estimated that the lease-up period will be approximately 90 days.

FINANCIAL AND OPERATING SUMMARY

  March 31 December 31
    2013   2012   2011
STATEMENT OF FINANCIAL POSITION            
  Total assets $ 479,771,344 $ 481,552,578 $ 555,220,070
  Total long-term financial liabilities (1) $ 319,550,877 $ 323,026,417 $ 399,176,274
   
  Three Months Ended March 31
    2013   2012   2011
             
KEY FINANCIAL PERFORMANCE INDICATORS            
Operating Results            
  Rentals from investment properties $ 9,768,888 $ 10,383,920 $  9,150,517
  Net operating income $ 5,693,568 $  5,958,714 $ 5,123,007
    Loss before taxes and discontinued operations $ (1,044,322) $ (26,418,131) $  (4,587,848)
  Loss and comprehensive loss $  (812,228) $ (26,085,895) $ (3,746,608)
             
Cash Flows            
  Cash provided by (used in) operating activities $  123,995 $ (954,913) $ 771,120
  Funds from Operations (FFO) $  (1,171,491) $  (1,432,774) $ (3,510,890)
  Adjusted Funds from Operations (AFFO) $  (1,555,316) $  (1,572,616) $  (3,446,350)
  Distributable income (loss) $  15,067 $ 510,651 $ (1,621,753)
               

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

Q1-2013 COMPARED TO Q1-2012

Analysis of Income (Loss)
  Three Months Ended
March 31
Increase (Decrease)
    2013     2012     Amount     %
                       
Rentals from investment properties $ 9,768,888   $ 10,383,920   $ (615,032)     (5.9)%
Property operating costs   4,075,320     4,425,206     349,886     7.9%
                       
Net operating income   5,693,568     5,958,714     (265,146)     (4.4)%
                       
Interest income   298,301     74,567     223,734     300.0%
Forgiveness of debt   -     859,561     (859,561)     - %
Interest expense   (7,841,878)     (7,117,932)     (723,946)     10.2%
Trust expense   (531,297)     (578,883)     47,586     (8.2)%
Income recovery on Parsons Landing   899,130     -     899,130     - %
                       
Loss before the following   (1,482,176)     (803,973)     (678,203)     (84.4)%
                       
Profit on sale of investment properties   -     324,225     (324,225)     (100.0)%
Fair value gains   137,854     1,861,617     (1,723,763)     92.6%
Fair value adjustment of Parsons Landing   300,000     (27,800,000)     28,100,000     - %
                       
Loss before discontinued operations   (1,044,322)     (26,418,131)     25,373,809     96.0%
                       
Income from discontinued operations   232,094     332,236     (100,142)     (30.1)%
                       
Loss and comprehensive loss $  (812,228)   $  (26,085,895)   $  25,273,667     96.9%

Analysis of Rental Revenue
  Three Months Ended March 31
    Increase (Decrease) % Of Total
  2013     2012     Amount     %     2013     2012
                                   
Fort McMurray $ 6,154,755   $ 5,691,533   $ 463,222     8%           63%         55% 
Other investment properties   3,614,133     3,627,356     (13,223)     - %         37%          35% 
Sub-total   9,768,888     9,318,889     449,999     5%       100%          90% 
Properties sold (1)   -     670,604     (670,604)     (100)%           - %            6% 
Impaired property (2)   -     394,427     (394,427)     (100)%           - %           4% 
                                   
Total $ 9,768,888   $ 10,383,920   $ (615,032)     (6)%       100%       100% 

As disclosed in the chart above, the total revenue from the investment properties, excluding properties sold and the impaired property, increased by $0.45 million in Q1-2013, compared to Q1-2012. The increase is comprised of an increase in revenue from investment properties in Fort McMurray of $0.46 million, partially offset by a decrease in revenue from the Other investment properties of $0.01 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 92% during Q1-2012 to 93% in Q1-2013, while the average monthly rental rate increased by $135 or 6.4%.

Occupancy Level, by Quarter
  2012 2013
  Q1 Q2 Q3 Q4 12 Month
Average
Q1
Fort McMurray 92% 90% 87% 88% 88% 93%
Other investment properties 98% 97% 97% 98% 98% 96%
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% 92% 92% 94%
             

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

Average Monthly Rents, by Quarter
  2012 2013
  Q1 Q2 Q3 Q4 12 Month
Average
Q1
Fort McMurray $ 2,124 $ 2,191 $ 2,251 $ 2,293 $ 2,218 $ 2,259
Other investment properties $ 1,075 $ 1,069 $ 1,048 $ 1,076 $ 1,067 $ 1,109
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 $ 1,739 $ 1,709 $ 1,739

Analysis of Property Operating Costs
  Three Months Ended
March 31
Increase (Decrease)
  2013 2012 Amount %
                         
Fort McMurray   $ 2,265,234   $ 2,278,983   $ (13,749)     (1)%
Other investment properties     1,810,086     1,775,193     34,893     2%
Sub-total     4,075,320     4,054,176     21,144     1%
Properties sold           -      76,647     (76,647)     (100)%
Impaired property           -      294,383     (294,383)     (100)%
                         
Total   $ 4,075,320   $ 4,425,206   $ (349,886)     (8)%

Q1-2013 property operating costs for the Fort McMurray and Other investment property portfolios are consistent with Q1-2012. During Q1-2013, property-operating costs for the portfolio of investment properties, excluding properties sold and the impaired property, increased by $0.02 million or 1%, compared to Q1-2012. The increase is comprised of an increase of $0.03 million in the operating costs of the Other investment properties portfolio, partially offset by a $0.01 million decrease in the Fort McMurray portfolio.

Analysis of Net Operating Income and Operating Margins
  Net Operating Income  
  Three Months Ended
March 31
Increase (Decrease) Percent of Total Operating
Margin
  2013 2012 Amount % 2013 2012 2013 2012
                                       
Fort McMurray   $  3,889,521   $ 3,412,550   $ 476,971   14%   68%   57%   63%   60%
Other investment properties     1,804,047     1,852,163     (48,116)   (3)%   32%   31%   50%   51%
Sub-total     5,693,568     5,264,713     428,855   8%   100%   88%   58%   56%
Properties sold     -     593,957     (593,957)   (100)%   - %   10%   n/a   n/a
Impaired property     -     100,044     (100,044)   (100)%   - %   2%   n/a   n/a
                                       
Total   $ 5,693,568   $ 5,958,714   $ (265,146)   (4)%   100%   100%   58%   57%

After considering the increase in rental revenue and the increase in property operating costs, as analysed 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 $0.43 million or 8% during Q1-2013, compared to Q1-2012. As disclosed in the table above, net operating income for the Fort McMurray portfolio increased by $0.48 million during Q1-2013, compared to Q1-2012, while net operating income for the Other investment properties portfolio decreased by $0.05 million.

Overall, the operating margin for the property portfolio, excluding properties sold and the impaired property, increased from 56% in Q1-2012, to 58% in Q1-2013.  The increase in the overall operating margin reflects an increase in the operating margin for the Fort McMurray property portfolio.

After accounting for the decrease in net operating income related to properties sold and the impaired property, net operating income decreased by $0.27 million in Q1-2013, compared to Q1-2012.

COMPARISON TO PREVIOUS QUARTER

Analysis of Income (Loss)
  Three Months Ended Increase (Decrease)
  March 31, 2013 December 31, 2012 Amount %
Rentals from investment properties   9,768,888     9,432,387     336,501   3.6%
Property operating costs   4,075,320     4,137,920     62,600   (1.5)%
Net operating income   5,693,568     5,294,467     399,101   7.5%
                     
Interest income   298,301     354,645     (56,344)   (15.9)%
Interest expense   (7,841,878)     (8,786,495)     944,617   (10.8)%
Trust expense   (531,297)     (751,957)     220,660   (29.3)%
Income recovery on Parsons Landing   899,130     885,329     13,801   1.6%
Insurance proceeds   -     525,355     (525,355)   (100.0)%
                     
Loss before the following   (1,482,176)     (2,478,656)     996,480   40.2%
                     
Loss on sale of investment properties   -     (129,776)     129,776   (100.0)%
Fair value gains   137,854     1,329,884     (1,192,030)   (89.6)%
Fair value adjustment of Parsons Landing   300,000     500,000     (200,000)   (40.0)%
Loss for the period before taxes and discontinued operations   (1,044,322)     (778,548)     (265,774)   34.1%
Current income tax expense   -     49,763     (49,763)   100.0%
Loss for the period before discontinued operations   (1,044,322)     (828,311)         (216,011)   (26.1)%
Income from discontinued operations   232,094     17,014,084      (16,781,990)   (98.6)%
                     
Comprehensive income (loss) $ (812,228)   $ 16,185,773   $ (16,998,001)   (105.0)%
                     

During Q1-2013, loss before profit on sale of investment properties, fair value gains, fair value adjustment of Parsons Landing, income taxes and discontinued operations, decreased by approximately $1.0 million compared to Q4-2012.  The decrease in the loss mainly reflects the following:

  • A decrease in interest expense of $0.94 million, which was mainly attributable to the decrease in mortgage debt on the sale of Riverside Terrace in December 2012;
  • An increase in net operating income of $0.40 million, which was mainly due to an increase in the net operating income of the Fort McMurray property portfolio resulting from an increase in the occupancy level of the property portfolio from 88% during Q4-2012 to 93% in Q1-2013;
  • A decrease in trust expense of $0.22 million, which was mainly due to a decrease in service fees; and
  • Partially offset by a decrease in insurance proceeds of $0.53 million, which was due to the settlement of the claim relating to furniture and equipment at Parsons Landing in Q4-2012.

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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