Lanesborough REIT Reports 2019 Second Quarter Results

WINNIPEG, Aug. 23, 2019 /CNW/ - Lanesborough Real Estate Investment Trust ("LREIT") (TSXV: LRT.UN) today reported its operating results for the quarter ended June 30, 2019. 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, 2019, 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						Increase (Decrease) in Income
	2019			2018			Amount			%
Rentals from investment properties	$	4,150,157		$	4,449,474		$	(299,317)		(7)%
Property operating costs	(2,653,472)			(2,828,493)			175,021			6%
Net operating income	1,496,685			1,620,981			(124,296)			(8)%
Interest income	62,571			50,758			11,813			23%
Interest expense	(4,033,439)			(3,749,689)			(283,750)			(8)%
Trust expense	(304,374)			(322,573)			18,199			6%
Loss before the following	(2,778,557)			(2,400,523)			(378,034)			(16)%
Gain (loss) on sale of investments and investment property	347,500			(48,077)			395,577			n/a
Fair value adjustments	(5,981,417)			(8,399,644)			2,418,227			29%
Loss before discontinued operations	(8,412,474)			(10,848,244)			2,435,770			22%
Loss from discontinued operations	(514,592)			(152,608)			(361,984)			(237)%
Loss and comprehensive loss	$	(8,927,066)		$	(11,000,852)		$	2,073,786		19%

Overall Operating Results

LREIT completed Q2-2019 with a loss and comprehensive loss of $8.9 million, compared to a loss and comprehensive loss of $11.0 million during Q2-2018. The decrease in the loss is mainly due to a decrease in the loss relating to fair value adjustments and a gain on sale of investments and investment property, partially offset by an increase in the loss from discontinued operations, a decrease in rental revenue from investment properties and an increase in interest expense.

Unfavourable fair value adjustments recognized during Q2-2019 decreased by $2.4 million, compared to the unfavourable fair value adjustments recognized during Q2-2018. The losses related to fair value adjustments recognized during the second quarters of 2019 and 2018 were mainly due to reduced revenue expectations in connection with the prolonged low‑level of oil sands development activity in Fort McMurray, Alberta, the Trust's primary rental market. The fair value adjustments recognized during Q2-2018 also reflect the reduced revenue expectations associated with increased uncertainty as to the timing and/or extent of a recovery of the Fort McMurray rental market.

The gain on sale of investments and investment property was due to the sale of a minority interest in a residential property investment during Q2-2019. The investment had a cost of $0.2 million and the sale generated proceeds of $0.6 million resulting in a gain on sale of $0.3 million.

The increase in the loss from discontinued operations of $0.4 million mainly reflects an increase in property operating costs due to an increase in wages as part of the coordinated effort to expand the facility's intermediate care offerings and to enhance the level of care and services provided.

The decrease in rental revenue was primarily a result of a decrease in the average rental rates of the Fort McMurray property portfolio, which continue to reflect the negative impact of the prolonged low‑level of oil sands development activity on the demand for rental accommodations in Fort McMurray.

The increase in interest expense was mainly due to an increase in the average outstanding balance of the revolving loan during Q2-2019, in comparison to Q2-2018 and the higher interest rate that applies to amounts advanced in excess of $30.0 million under the revolving loan facility.

Revenues

Analysis of Rental Revenue
	Three Months Ended June 30
							Increase (Decrease)					% of Total
	2019			2018			Amount			%		2019		2018
Fort McMurray properties	$	3,374,178		$	3,693,273		$	(319,095)		(9)%		81%		83%
Other investment properties	421,816			369,677			52,139			14%		10%		8%
Sub‑total	3,795,994			4,062,950			(266,956)			(7)%		91%		91%
Held for sale and/or sold properties	354,163			386,524			(32,361)			(8)%		9%		9%
Total	$	4,150,157		$	4,449,474		$	(299,317)		(7)%		100%		100%

Average Occupancy Level, by Quarter
	2018					2019
	Q1	Q2	Q3	Q4	12 Month Average	Q1	Q2
Fort McMurray properties	69%	72%	71%	65%	69%	65%	72%
Other investment properties	77%	68%	68%	70%	71%	75%	76%
Total	70%	71%	70%	66%	69%	66%	72%
Held for sale and/or sold properties	46%	51%	53%	62%	52%	76%	61%

Average Monthly Rents, by Quarter
	2018					2019
	Q1	Q2	Q3	Q4	12 Month Average	Q1	Q2
Fort McMurray properties	$1,685	$1,650	$1,618	$1,527	$1,620	$1,539	$1,522
Other investment properties	$907	$909	$909	$885	$902	$919	$939
Total	$1,554	$1,525	$1,499	$1,419	$1,499	$1,435	$1,424
Held for sale and/or sold properties	$2,484	$2,258	$2,201	$1,899	$2,214	$1,853	$1,884

During Q2-2019, total investment property revenue decreased by $0.3 million or 7%, compared to Q2-2018. The decrease mainly reflects a decrease in the average monthly rental rate of the Fort McMurray property portfolio as the prolonged low‑level of oil sands development activity continues to negatively impact the demand for rental accommodations in Fort McMurray. The average monthly rental rate of the Fort McMurray property portfolio decreased from $1,650 during Q2-2018 to $1,522 during Q2-2019, representing a decrease of $128 or 8%.

Property Operating Costs

Analysis of Property Operating Costs
				Three Months Ended June 30
							Increase (Decrease)
	2019			2018			Amount			%
Fort McMurray properties	$	1,990,787		$	2,145,605		$	(154,818)		(7)%
Other investment properties	369,111			389,788			(20,677)			(5)%
Sub‑total	2,359,898			2,535,393			(175,495)			(7)%
Held for sale and/or sold properties	293,574			293,100			474			- %
Total	$	2,653,472		$	2,828,493		$	(175,021)		(6)%

During Q2-2019, property operating costs decreased by $0.2 million or 6%, compared to Q2-2018. The decrease mainly reflects a decrease in property tax expense and costs related to insurance claims, partially offset by an increase in insurance premiums.

Net Operating Income and Operating Margin

Analysis of Net Operating Income
	Net Operating Income
	Three Months Ended June 30						Increase (Decrease)					Percent of Total				Operating Margin
	2019			2018			Amount			%		2019		2018		2019		2018
Fort McMurray properties	$	1,383,391		$	1,547,668		$	(164,277)		(11)%		92%		95%		41%		42%
Other investment properties	52,705			(20,111)			72,816			(362)%		4%		(1)%		12%		(5)%
Sub‑total	1,436,096			1,527,557			(91,461)			(6)%		96%		94%		38%		38%
Held for sale and/or sold properties	60,589			93,424			(32,835)			(35)%		13%		6%		17%		24%
Total	$	1,496,685		$	1,620,981		$	(124,296)		(8)%		100%		100%		36%		36%

During Q2-2019, the net operating income ("NOI") of the investment properties portfolio decreased by $0.1 million or 8%, compared to Q2-2018. The decrease in NOI is primarily due to the decreased revenue of the Fort McMurray property portfolio, as described in the "Revenues" section of this release.

Interest Expense

During Q2-2019, interest expense increased by $0.3 million or 8%, compared to Q2-2018. The increase mainly reflects an increase in revolving loan interest of $0.6 million, partially offset by a $0.2 million decrease in interest on Shelter loan advances and a $0.1 million decrease in mortgage loan interest.

The increase in revolving loan interest is mainly due to the increase in the average outstanding balance of the loan, as well as the increase in the interest rate from 5% to 7%, effective July 1, 2018, for amounts advanced that are in excess of $30.0 million.

The decrease in interest on the Shelter loan advances is due to the full repayment of the loan on July 1, 2018.

The decrease in mortgage loan interest is primarily due to the decrease in the total average balance of mortgage debt outstanding, partially offset by an increase in the weighted average interest rate of mortgage loan debt from 5.7% as of June 30, 2018 to 5.8% as of June 30, 2019.

The weighted average interest rate on the Trust's total debt, inclusive of the revolving loan and debentures, was 5.8% as at June 30, 2019, compared to 5.5% as at June 30, 2018.

Fair Value Adjustments

During Q2-2019, LREIT recorded a loss related to fair value adjustments on its investment properties and investment properties held for sale of $6.0 million, compared to a loss related to fair value adjustments of $8.4 million during Q2-2018, representing a favourable variance of $2.4 million.

The losses related to fair value adjustments recognized during the second quarter of 2019 and 2018 primarily reflect reduced revenue expectations in connection with the prolonged low level of oil sands development activity in Fort McMurray.

The losses related to fair value adjustments recognized during Q2-2018 were also impacted by reduced revenue expectations associated with increased uncertainty as to the timing and/or extent of a recovery of the Fort McMurray rental market.

After accounting for fair value adjustments, dispositions, and capital expenditures, the carrying value of investment properties and investment properties held for sale decreased by $6.0 million during Q2-2019.

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