Lanesborough REIT announces completion of property sales and reports 2012 first quarter results
WINNIPEG, May 14, 2012 /CNW/ - Lanesborough Real Estate Investment Trust ("LREIT") (TSX: LRT.UN) today reported its operating results for the quarter ended March 31, 2012. 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, 2012, which may be obtained from the LREIT website at www.lreit.com or the SEDAR website at www.sedar.com.
COMPLETION OF PROPERTY SALES
Clarington Seniors' Residence
LREIT has completed the previously announced sale of Clarington Seniors Residence in Bowmanville, Ontario at a gross selling price of $24 million. The net proceeds from the sale are approximately $1.5 million, after accounting for selling expenses, the repayment of the existing mortgage debt of approximately $14.75 million and the take-back of a 12.5% mortgage of $7.5 million. The vendor-take back mortgage is for a term of two years and requires payments of interest at 5% per month and the accrual of interest at 7.5% per month, with accrued interest payable at maturity. The net proceeds are being used to repay debt.
Siena Apartments
LREIT has sold Siena Apartments in Fort McMurray, Alberta at a gross selling price of $30.5 million. The net proceeds are $11.4 million, after the assumption of the existing mortgage debt by the purchaser of approximately $18.65 million. The net proceeds are being used to repay debt.
OPERATING RESULTS
Improved Occupancy
During the first quarter of 2012, the properties achieved an average occupancy of 89%, compared to 75% during the first quarter of 2011. The occupancy for the Fort McMurray portfolio increased from 67% in the first quarter of 2011 to 93% in the first quarter of 2012. The occupancy results exclude Parsons Landing which was destructed by a fire in February. The continuing improvement in the occupancy for the Fort McMurray portfolio is expected to result in an upward trend in rental rates.
Impairment Loss on Parsons Landing
During the first quarter of 2012, LREIT recorded an impairment loss of $27.8 million in regard to Parsons Landing, representing the amount by which the fair value of the property decreased as a result of the fire destruction at the property in February 2012.
Although the cost of reconstructing the property is expected to be fully covered by insurance, agreements are required with the property builder and the insurer. Upon completion of the insurance agreements, the impairment loss will be offset by insurance entitlements.
As a result of the impairment loss, LREIT incurred a net loss of approximately $26.1 million during the first quarter of 2012, compared to a net loss of approximately $3.75 million during the first quarter of 2011.
For purposes of analyzing net operating income in the MD&A and this press release, Parsons Landing is disclosed separately as an "Impaired property" and is not included in the Fort McMurray property portfolio.
Net Income, excluding impairment loss
Excluding the impairment loss, LREIT completed the first quarter of 2012 with net income of $1.7 million, representing an increase in income of $5.5 million, compared to the first quarter of 2011. The increase in income, excluding the impairment loss, mainly reflects an increase in fair value gains, a decrease in interest expense, a gain on forgiveness of debt and an increase in net operating income.
- Fair value gains: During Q1-2012, fair value gains amounted to $1.86 million compared to a fair value loss of $0.30 million in Q1-2011.
- Interest expense: Decreased by $1.60 million or 18% during Q1-2012, compared to Q1-2011, comprised of a decrease in the non-cash component of interest expense of $1.03 million and a decrease in the cash component of interest expense of $0.57 million.
- Net operating income: Overall increase of $0.84 million or 16% in Q1-2012, compared to Q1-2011, comprised of a $1.11 million increase from the Fort McMurray portfolio, partially offset by a $0.25 million decrease from Parsons Landing and a $25,211 decrease from other operating properties.
Cash Flow from Operating Activities
During Q1-2012, cash from operating activities, excluding working capital adjustments, amounted to $0.68 million compared to a cash outflow of $1.29 million during the Q1-2011, representing an increase in cash from operating activities of $1.97 million. The increase in operating cash flow is mainly due to an increase in net operating income, on a cash basis, and a decrease in the cash component of interest expense. Including working capital adjustments, the cash outflow from operating activities increased by $1.73 million, compared to Q1-2011. After including regular payments of mortgage loan principal and capital expenditures the cash "shortfall" amounted to $3.28 million. The cash shortfall was funded by additional mortgage loan debt.
Financing
LREIT obtained a mortgage loan of $12 million in February 2012 and the net proceeds from the loan were used to repay $1.5 million of mortgage loan debt and for working capital purposes.
The 9.75% revolving loan commitment of $12 million matured on March 31, 2012 and was renewed for a five-month term to August 31, 2012 at an increased amount of $15 million and at an interest rate of 10%. Approximately $4.8 million is currently available under the revolving loan commitment.
FINANCIAL AND OPERATING SUMMARY
| March 31 2012 |
December 31 2011 |
|||||
| CONSOLIDATED STATEMENTS OF FINANCIAL POSITION | ||||||
| Total assets | $ | 526,222,803 | $ | 555,220,070 | ||
| Total long-term financial liabilities (1) | $ | 399,774,699 | $ | 399,176,274 | ||
| Three Months Ended March 31 |
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| 2012 | 2011 | |||||
| KEY FINANCIAL PERFORMANCE INDICATORS | ||||||
| Operating Results | ||||||
| Rentals from investment properties | $ | 10,383,920 | $ | 9,150,517 | ||
| Net operating income | $ | 5,958,714 | $ | 5,123,007 | ||
| Income (loss) from continuing operations, before taxes | $ | (26,418,131) | $ | (4,587,848) | ||
| Income (loss) and comprehensive income (loss) | $ | (26,085,895) | $ | (3,746,608) | ||
| Cash Flows | ||||||
| Cash flow from operating activities | $ | (954,913) | $ | 771,120 | ||
| Funds from Operations (FFO) | $ | (1,331,298) | $ | (3,510,890) | ||
| Adjusted Funds from Operations (AFFO) | $ | (1,471,140) | $ | (3,446,350) | ||
| Distributable income (loss) | $ | 510,651 | $ | (1,621,753) | ||
| (1) | Long-term financial liabilities consist of mortgage loans, swap mortgage loans, convertible debentures and mortgage bonds, at face value |
PER UNIT AMOUNTS
| March 31 2012 |
December 31 2011 |
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| Net operating income | |||||
| - basic | $ | 0.321 | $ | 0.279 | |
| - diluted | $ | 0.320 | $ | 0.279 | |
| Income (loss) from continuing operations, before income tax | |||||
| - basic and diluted | $ | (1.425) | $ | (0.250) | |
| Income (loss) and comprehensive income (loss) | |||||
| - basic and diluted | $ | (1.407) | $ | (0.204) | |
| Cash flow from operating activities | |||||
| - basic and diluted | $ | (0.052) | $ | 0.042 | |
| Funds from Operations (FFO) | |||||
| - basic and diluted | $ | (0.072) | $ | (0.191) | |
| Adjusted Funds from Operations (AFFO) | |||||
| - basic and diluted | $ | (0.079) | $ | (0.187) | |
| Distributable income (loss) | |||||
| - basic | $ | 0.028 | $ | (0.088) | |
| - diluted | $ | 0.027 | $ | (0.088) | |
Q1-2012 COMPARED TO Q1-2011
| Analysis of Income (Loss) | ||||||||||
| Three Months Ended March 31 | Increase (Decrease) | |||||||||
| 2012 | 2011 | Amount | % | |||||||
| Rentals from investment properties | $ | 10,383,920 | $ | 9,150,517 | $ | 1,233,403 | 13.5% | |||
| Property operating costs | 4,425,206 | 4,027,510 | 397,696 | 9.9% | ||||||
| Net operating income | 5,958,714 | 5,123,007 | 835,707 | 16.3% | ||||||
| Interest income | 74,567 | 77,667 | (3,100) | (4.0)% | ||||||
| Forgiveness of debt | 859,561 | - | 859,561 | - % | ||||||
| Interest expense | (7,117,932) | (8,716,070) | 1,598,138 | 18.3% | ||||||
| Trust expense | (578,883) | (771,745) | 192,862 | 25.0% | ||||||
| Loss before the following | (803,973) | (4,287,141) | 3,483,168 | 81.2% | ||||||
| Profit (loss) on sale of investment properties | 324,225 | - | 324,225 | - % | ||||||
| Fair value gains (losses) | 1,861,617 | (300,707) | 2,162,324 | 719.1% | ||||||
| Impairment of investment property | (27,800,000) | - | (27,800,000) | - % | ||||||
| Income (loss) before taxes and discontinued operations | (26,418,131) | (4,587,848) | (21,830,283) | (475.8)% | ||||||
| Income tax expense (recovery) | - | (117,659) | (117,659) | (100.0)% | ||||||
| Income (loss) before discontinued operations | (26,418,131) | (4,470,189) | (21,947,942) | (491.0)% | ||||||
| Income from discontinued operations | 332,236 | 723,581 | (391,345) | (54.1)% | ||||||
| Income (loss) and comprehensive income (loss) | $ | (26,085,895) | $ | (3,746,608) | $ | (22,339,287) | (596.3)% | |||
| Analysis of Total Rental Revenue | ||||||||||||||
| Three Months Ended March 31 | ||||||||||||||
| Increase (Decrease) | % of Total | |||||||||||||
| 2012 | 2011 | Amount | % | 2012 | 2011 | |||||||||
| Fort McMurray | $ | 6,362,137 | $ | 4,912,291 | $ | 1,449,846 | 30% | 61% | 54% | |||||
| Other operating properties | 3,627,356 | 3,481,824 | 145,532 | 4% | 35% | 38% | ||||||||
| Impaired property | 394,427 | 756,402 | (361,975) | (48)% | 4% | 8% | ||||||||
| Total | $ | 10,383,920 | $ | 9,150,517 | $ | 1,233,403 | 13% | 100% | 100% | |||||
Total revenue from the investment properties increased by $1.23 million during Q1-2012 compared to Q1-2011. The increase is comprised of an increase in revenue from the Fort McMurray properties of $1.45 million and an increase in revenue from the other properties of $0.15 million, partially offset by a decrease in revenue from the Impaired Property of $0.36 million.
The increase in revenue from the Fort McMurray property portfolio reflects a decrease in vacancy, partially offset by a decrease in the average rental rate. As disclosed in the charts below, the vacancy for the Fort McMurray portfolio decreased from 33% during the first quarter of 2011, to 7% in the first quarter of 2012, while the average monthly rental rate decreased by $127 or 5.4%.
| Vacancy, by Quarter | |||||||||||
| 2011 | 2012 | ||||||||||
| Q1 | Q2 | Q3 | Q4 | 12 Month Average |
Q1 | ||||||
| Fort McMurray | 33% | 19% | 6% | 6% | 16% | 7% | |||||
| Other operating properties | 2% | 2% | 2% | 1% | 2% | 2% | |||||
| Impaired property | 37% | 9% | 6% | 3% | 14% | 62% | |||||
| Total | 25% | 13% | 5% | 5% | 12% | 11% | |||||
Vacancy represents the revenue potential of vacant suites.
| Average Monthly Rents, by Quarter | |||||||||||
| 2011 | 2012 | ||||||||||
| Q1 | Q2 | Q3 | Q4 | 12 Month Average |
Q1 | ||||||
| Fort McMurray | $2,315 | $2,285 | $2,241 | $2,193 | $2,254 | $2,188 | |||||
| Other operating properties | $1,034 | $1,065 | $1,050 | $1,064 | $1,050 | $1,075 | |||||
| Impaired property | $2,370 | $2,319 | $2,282 | $2,241 | $2,303 | $2,259 | |||||
| Total | $1,790 | $1,792 | $1,759 | $1,743 | $1,767 | $1,746 | |||||
| Analysis of Property Operating Costs | ||||||||||
| Three Months Ended March 31 | Increase (Decrease) | |||||||||
| 2012 | 2011 | Amount | % | |||||||
| Fort McMurray | $ | 2,332,624 | $ | 1,996,562 | $ | 336,062 | 17% | |||
| Other operating properties | 1,798,199 | 1,627,456 | 170,743 | 10% | ||||||
| Impaired property | 294,383 | 403,492 | (109,109) | (27)% | ||||||
| Total | $ | 4,425,206 | $ | 4,027,510 | $ | 397,696 | 10% | |||
During Q1-2012, property operating costs for the entire portfolio of investment properties increased by $0.40 million or 10%, compared to Q1-2011. The increase is comprised of a $0.34 million increase in the operating costs of the Fort McMurray portfolio and an increase of $0.17 million in the Other operating properties portfolio, partially offset by a decrease of $0.11 million in the operating costs of the Impaired Property. The increase in operating costs for the Fort McMurray portfolio mainly reflects an increase in costs in respect to the improvement in occupancy. The increase in operating costs for the Other investment property portfolio is mainly due to an increase in professional fees and major improvements. The decrease in operating costs for the Impaired Property is due to the fire in February 2012.
| Analysis of Net Operating Income | ||||||||||||||||||
| Net Operating Income | ||||||||||||||||||
| Three Months Ended Mar 31 | Increase (Decrease) | Percent of Total | Operating Margin | |||||||||||||||
| 2012 | 2011 | Amount | % | 2012 | 2011 | 2012 | 2011 | |||||||||||
| Fort McMurray | $ | 4,029,513 | $ | 2,915,729 | $ | 1,113,784 | 38% | 68% | 57% | 63% | 59% | |||||||
| Other operating properties | 1,829,157 | 1,854,368 | (25,211) | (1)% | 31% | 36% | 50% | 53% | ||||||||||
| Impaired property | 100,044 | 352,910 | (252,866) | (72)% | 2% | 7% | 25% | 47% | ||||||||||
| Total | $ | 5,958,714 | $ | 5,123,007 | $ | 835,707 | 16% | 100% | 100% | 57% | 56% | |||||||
COMPARISON TO Q3-2011 AND Q4-2010
| Analysis of Income (Loss) | ||||||||||
| Three Months Ended | Increase (Decrease) | |||||||||
| March 31, 2012 | Dec. 31, 2011 | Amount | % | |||||||
| Rentals from investment properties | 10,383,920 | 11,196,590 | (812,670) | (7.3)% | ||||||
| Property operating costs | 4,425,206 | 4,013,791 | 411,415 | 10.3% | ||||||
| Net operating income | 5,958,714 | 7,182,799 | (1,224,085) | (17.0)% | ||||||
| Interest income | 74,567 | 162,836 | (88,269) | (54.2)% | ||||||
| Forgiveness of debt | 859,561 | - | 859,561 | - % | ||||||
| Interest expense | (7,117,932) | (7,709,989) | 592,057 | 7.7% | ||||||
| Trust expense | (578,883) | (560,688) | (18,195) | (3.2)% | ||||||
| Loss before the following | (803,973) | (925,042) | 121,069 | 13.1% | ||||||
| Profit on sale of investment property | 324,225 | 487,095 | (162,870) | (33.4)% | ||||||
| Fair value gains (losses) | 1,861,617 | 1,709,960 | 151,657 | 8.9% | ||||||
| Impairment of investment property | (27,800,000) | - | (27,800,000) | -% | ||||||
| Income (loss) for the period before taxes and discontinued operations | (26,418,131) | 1,272,013 | (27,690,144) | (2,176.9)% | ||||||
| Income tax expense (recovery) | - | - | - | - % | ||||||
| Income (loss) for the period before discontinued operations | (26,418,131) | 1,272,013 | (27,690,144) | (2,176.9)% | ||||||
| Income from discontinued operations | 332,236 | 333,267 | (1,031) | (0.3)% | ||||||
| Comprehensive income (loss) | $ | (26,085,895) | $ | 1,605,280 | $ | (27,691,175) | (1,725.0)% | |||
During Q1-2012, the loss, before profit on sale of investment property, fair value gains (losses), impairment of investment property, income taxes and discontinued operations, decreased by $0.12 million compared to Q4-2011. The decrease in the loss mainly reflects a decrease in interest expense of $0.59 million, an increase in forgiveness of debt of $0.86 million, partially offset by a decrease in net operating income of $1.22 million. The decrease in interest expense is mainly due to accretion charges being comparatively high during Q4-2011.
After accounting for profit on sale of investment property, fair value gains, impairment of investment property, income tax expense and income from discontinued operations, LREIT completed Q1-2012 with a comprehensive loss of $26.09 million, compared to comprehensive income of $1.61 million during Q4-2011.
OUTLOOK
LREIT will continue to pursue property sales under its divestiture program. The combination of property sale proceeds and the revolving loan from 2668921 Manitoba Ltd. is expected to enable LREIT to meet all of its funding commitments.
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.
Arni Thorsteinson, Chief Executive Officer, or Gino Romagnoli, Investor Relations
Tel: (204) 475-9090, Fax: (204) 452-5505, Email: [email protected]
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