Lanesborough REIT Reports 2018 Second Quarter Results

WINNIPEG, Aug. 23, 2018 /CNW/ - Lanesborough Real Estate Investment Trust ("LREIT") (TSXV: LRT.UN) today reported its operating results for the quarter ended June 30, 2018. The following comments in regard to the financial position and operating results of LREIT should be read in conjunction with interim management's discussion & analysis – quarterly highlights and the interim financial statements for the quarter ended June 30, 2018, which may be obtained from the LREIT website at www.lreit.com or the SEDAR website at www.sedar.com.

ANALYSIS OF OPERATING RESULTS

Analysis of Loss
	Three Months Ended June 30										Six Months Ended June 30
							Increase (Decrease) in Income
		2018		2017			Amount			%		2018			2017
Rentals from investment properties	$	4,449,474		$	4,880,593		$	(431,119)		(9)%		$	8,916,977		$	9,525,108
Property operating costs		(2,828,493)		(2,406,449)			(422,044)			(18)%		(5,647,063)			(4,818,851)
Net operating income		1,620,981		2,474,144			(853,163)			(34)%		3,269,914			4,706,257
Interest income		50,758		44,612			6,146			14%		100,584			90,224
Interest expense		(3,749,689)		(3,713,754)			(35,935)			(1)%		(7,395,823)			(7,400,008)
Trust expense		(322,573)		(357,490)			34,917			10%		(703,447)			(772,968)
Loss before the following		(2,400,523)		(1,552,488)			(848,035)			(55)%		(4,728,772)			(3,376,495)
Gain (loss) on sale of investment property		(48,077)		-			(48,077)			n/a		(82,959)			58,377
Fair value adjustments		(8,399,644)		(7,346,907)			(1,052,737)			(14)%		(23,505,387)			(10,273,086)
Loss before discontinued operations		(10,848,244)		(8,899,395)			(1,948,849)			(22)%		(28,317,118)			(13,591,204)
Income (loss) from discontinued operations		(152,608)		(10,543)			(142,065)			(1,347)		(178,462)			35,547
Loss and comprehensive loss	$	(11,000,852)		$	(8,909,938)		$	(2,090,914)		(23)%		$	(28,495,580)		$	(13,555,657)

Overall Operating Results

LREIT completed Q2-2018 with a loss and comprehensive loss of $11.00 million, compared to a loss and comprehensive loss of $8.91 million during Q2-2017. The increase in the loss mainly reflects $1.05 million unfavourable variance in the fair value adjustments of the investment properties and the investment property classified as held for sale, as well as a $0.85 million decrease in net operating income.

Losses related to fair value adjustments during both Q2-2018 and Q2-2017 were due to reduced revenue expectations as a result of reductions in the anticipated positive impact of the post‑wildfire rebuilding efforts on the Fort McMurray rental market and increasing uncertainty surrounding a recovery of the Fort McMurray rental market.

The decrease in net operating income mainly reflects a decrease in rental revenue of $0.43 million and an increase in operating costs of $0.42 million. The decrease in rental revenue is mainly due to the decreased revenue of the held for sale and/or sold property segment, as a result of reduced occupancy and average rental rates at Woodland Park, the property that is classified as held for sale. The increase in property operating costs is mainly due to an increase in insurance related costs, an increase in utility costs, and an increase in property taxes. Also contributing to the increase in property operating costs was an increase in the property operating costs for the held for sale and/or sold properties as a result of certain condominium fees paid to the condominium corporation established as part of the Woodland Park Condominium Sales Program.

LREIT completed Q2-2018 with negative funds from operations ("FFO") of $2.55 million, compared to negative FFO of $1.56 million during Q2-2017, representing a decrease in FFO of $0.99 million. The decrease in FFO is mainly due to a decrease in net operating income and an increase in loss from discontinued operations.

Revenues

Rental Revenue
	Three Months Ended June 30										Six Months Ended June 30
							Increase (Decrease)
	2018			2017			Amount			%		2018			2017
Fort McMurray properties	$	3,693,273		$	3,800,949		$	(107,676)		(3)%		$	7,349,353		$	7,371,036
Other investment properties	369,677			391,025			(21,348)			(5)%		787,825			774,218
Sub‑total	4,062,950			4,191,974			(129,024)			(3)%		8,137,178			8,145,254
Held for sale and/or sold properties	386,524			688,619			(302,095)			(44)%		779,799			1,379,854
Total	$	4,449,474		$	4,880,593		$	(431,119)		(9)%		$	8,916,977		$	9,525,108

Average Occupancy Level, by Quarter
	2017						2018
		Q1		Q2		Q3		Q4		Q1		Q2
Fort McMurray properties		68%		71%		73%		72%		69%		72%
Other investment properties		71%		73%		73%		75%		77%		68%
Total		68%		72%		73%		72%		70%		71%
Held for sale and/or sold properties		79%		79%		69%		61%		46%		51%

Average Monthly Rents, by Quarter
	2017						2018
		Q1		Q2		Q3		Q4		Q1		Q2
Fort McMurray properties		$1,684		$1,707		$1,711		$1,697		$1,685		$1,650
Other investment properties		$909		$909		$903		$905		$907		$909
Total		$1,554		$1,573		$1,575		$1,563		$1,554		$1,525
Held for sale and/or sold properties		$2,593		$2,611		$2,597		$2,549		$2,484		$2,258

During Q2-2018, total investment property revenue, excluding held for sale and/or sold properties, decreased by $0.13 million or 3%, compared to Q2-2017, mainly due to a decrease in the average rental rate of the Fort McMurray property portfolio.

During Q2-2018, revenue from the held for sale and/or sold properties decreased by $0.30 million or 44%, compared to Q2-2017, due to a decrease in the average occupancy level and average rental rate of Woodland Park (the property classified as held for sale).

The decrease in average occupancy is mainly due to the transfer of two corporate tenants to other LREIT properties that offered lower rental rates or were closer to urban amenities, and due to the departure of tenants who were awaiting the reconstruction of their homes. The Woodland Park property had a relatively high proportion of tenants awaiting the reconstruction of their homes as a result of the property's townhome offering and their proximity to the area of Fort McMurray where the majority of the homes were lost to the wildfire.

The decrease in the average rental rate is mainly due to the turnover of a number of three‑bedroom units and townhome units, which had been rented shortly after the wildfire at rates that were higher than the competitive rates required in the current market environment.

Property Operating Costs

Analysis of Property Operating Costs
		Three Months Ended June 30											Six Months Ended June 30
								Increase (Decrease)
		2018			2017			Amount			%		2018			2017
Fort McMurray properties		$	2,145,605		$	1,883,781		$	261,824		14%		$	4,353,123		$	3,743,618
Other investment properties		389,788			300,223			89,565			30%		746,070			604,955
Sub‑total		2,535,393			2,184,004			351,389			16%		5,099,193			4,348,573
Held for sale and/or sold properties		293,100			222,445			70,655			32%		547,870			470,278
Total		$	2,828,493		$	2,406,449		$	422,044		18%		$	5,647,063		$	4,818,851

During Q2-2018, property operating costs, excluding the held for sale and/or sold properties, increased by $0.35 million or 16%, compared to Q2-2017, mainly due to an increase in insurance related costs. Other factors contributing to the increase in property operating costs were an increase in utility costs and an increase in property taxes. 

After accounting for held for sale and/or sold properties, total property operating costs increased by $0.42 million or 18% during Q2-2018, compared to Q2-2017, The operating costs of the held for sale and/or sold properties increased by $0.07 million and was primarily due to the capital reserve portion of condominium fees paid by LREIT for its portion of ownership of Woodland Park. Prior to the establishment of the condominium sales program, capital expenditures at Woodland Park were capitalized.

Net Operating Income and Operating Margin

Three Months Ended June 30, 2018 and 2017
	Net Operating Income
	Three Months Ended June 30						Increase (Decrease)					Percent of Total				Operating Margin
	2018			2017			Amount			%		2018		2017		2018		2017
Fort McMurray properties	$	1,547,668		$	1,917,168		$	(369,500)		(19)%		95%		77%		42%		50%
Other investment properties	(20,111)			90,802			(110,913)			(122)%		(1)%		4%		(5)%		23%
Sub‑total	1,527,557			2,007,970			(480,413)			(24)%		94%		81%		38%		48%
Held for sale and/or sold properties	93,424			466,174			(372,750)			(80)%		6%		19%		24%		68%
Total	$	1,620,981		$	2,474,144		$	(853,163)		(34)%		100%		100%		36%		51%
Six Months Ended June 30, 2018 and 2017
	Net Operating Income
	Six Months Ended June 30						Increase (Decrease)					Percent of Total				Operating Margin
	2018			2017			Amount			%		2018		2017		2018		2017
Fort McMurray properties	$	2,996,230		$	3,627,418		$	(631,188)		(17)%		92%		77%		41%		49%
Other investment properties	41,755			169,263			(127,508)			(75)%		1%		4%		5%		22%
Sub‑total	3,037,985			3,796,681			(758,696)			(20)%		93%		81%		37%		47%
Held for sale and/or sold properties	231,929			909,576			(677,647)			(75)%		7%		19%		30%		66%
Total	$	3,269,914		$	4,706,257		$	(1,436,343)		(31)%		100%		100%		37%		49%

During Q2-2018, the net operating income for the investment properties portfolio, excluding held for sale and/or sold properties, decreased by $0.48 million or 24%, compared to Q2-2017. The operating margin, excluding held for sale and/or sold properties, decreased from 48% during Q2-2017 to 38% during Q2-2018. The decreases are primarily due to the decrease in revenue and the increase in the property operating costs of the Fort McMurray property portfolio, as discussed above.

ABOUT LREIT
LREIT is a real estate investment trust, which is listed on the TSX Venture Exchange under the symbols LRT.UN (Trust Units) and LRT.DB.G (Series G Debentures). 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. 

Neither the TSX Venture Exchange nor its Regulation Services Provider (as the term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.

SOURCE Lanesborough Real Estate Investment Trust

Gino Romagnoli, Chief Executive Officer, or Arni Thorsteinson, Vice-Chair, Tel: [phone], Fax: [phone], Email: [email protected]

Related Links

http://www.lreit.com