WINNIPEG, Nov. 20, 2018 /CNW/ – Lanesborough Real Estate Investment Trust (“LREIT”) (TSXV: LRT.UN) today reported its operating results for the quarter ended September 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 â quarterly highlights and the interim financial statements for the quarter ended September 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 September 30 |
Nine Months Ended Sept 30 |
|||||||||||||||
|
Increase (Decrease) |
||||||||||||||||
|
2018 |
2017 |
Amount |
% |
2018 |
2017 |
|||||||||||
|
Rentals from investment properties |
$ |
4,339,380 |
$ |
4,832,286 |
$ |
(492,906) |
(10)% |
$ |
13,256,357 |
$ |
14,357,394 |
|||||
|
Property operating costs |
(2,752,790) |
(2,502,925) |
(249,865) |
(10)% |
(8,399,853) |
(7,321,776) |
||||||||||
|
Net operating income |
1,586,590 |
2,329,361 |
(742,771) |
(32)% |
4,856,504 |
7,035,618 |
||||||||||
|
Interest income |
50,533 |
47,409 |
3,124 |
7% |
151,117 |
137,633 |
||||||||||
|
Interest expense |
(3,832,627) |
(3,121,665) |
(710,962) |
(23)% |
(11,228,450) |
(10,521,673) |
||||||||||
|
Trust expense |
(299,655) |
(358,399) |
58,744 |
16% |
(1,003,102) |
(1,131,367) |
||||||||||
|
Loss before the following |
(2,495,159) |
(1,103,294) |
(1,391,865) |
(126)% |
(7,223,931) |
(4,479,789) |
||||||||||
|
Gain (loss) on sale of investment |
(53,042) |
– |
(53,042) |
n/a |
(136,001) |
58,377 |
||||||||||
|
Fair value adjustments |
(10,120,070) |
(5,755,545) |
(4,364,525) |
(76)% |
(33,625,457) |
(16,028,631) |
||||||||||
|
Loss before discontinued operations |
(12,668,271) |
(6,858,839) |
(5,809,432) |
(85)% |
(40,985,389) |
(20,450,043) |
||||||||||
|
Income (loss) from discontinued operations |
(160,051) |
16,374 |
(176,425) |
1,077% |
(338,513) |
51,921 |
||||||||||
|
Loss and comprehensive loss |
$ |
(12,828,322) |
$ |
(6,842,465) |
$ |
(5,985,857) |
(87)% |
$ |
(41,323,902) |
$ |
(20,398,122) |
|||||
Overall Operating Results
LREIT completed Q3-2018 with a loss and comprehensive loss of $12.83 million, compared to a loss and comprehensive loss of $6.84 million during Q3-2017. The increase in the loss mainly reflects unfavourable variances in the fair value adjustments of the investment properties and the investment property classified as held for sale totaling $4.36 million, as well as a decrease in net operating income of $0.74 million and an increase in interest expense of $0.71 million.
Losses related to fair value adjustments during both Q3-2018 and Q2-2017 were mainly due to reduced revenue expectations for LREIT’s properties located in Fort McMurray as a result of reductions in the anticipated positive impact of the postâwildfire rebuilding efforts and increasing uncertainty surrounding a recovery of the Fort McMurray rental market.
The decrease in net operating income reflects a decrease in rental revenue of $0.49 million and an increase in operating costs of $0.25 million. The decrease in rental revenue is mainly due to a decrease in occupancy and a decrease in the average rental rates experienced by LREIT’s properties located in Fort McMurray, inclusive of Woodland Park, the property that is classified as held for sale. The increase in property operating costs is mainly due to an increase in utility costs and an increase in insurance premiums; partially offset by a reduction in property taxes. Also contributing to the increase in property operating costs is an increase in the property operating costs for the held for sale and/or sold properties primarily as a result of certain fees paid to the condominium corporation established as part of the Woodland Park Condominium Sales Program.
The increase in interest expense mainly reflects an increase in revolving loan interest, due to an increase in the average outstanding balance of the revolving loan and the higher rate of interest that applies to revolving loan advances in excess of $30 million, as well as an increase in the amortization of transaction costs.
LREIT completed Q3-2018 with negative funds from operation (“FFO”) of $2.66 million, compared to negative FFO of $1.09 million during Q3-2017, representing a decrease in FFO of $1.57 million. The decrease in FFO is mainly due to a decrease in net operating income, an increase in interest expense and an increase in loss from discontinued operations.
Revenues
|
Rental Revenue |
||||||||||||||||
|
Three Months Ended Sept. 30 |
Nine Months Ended Sept. 30 |
|||||||||||||||
|
Increase (Decrease) |
||||||||||||||||
|
2018 |
2017 |
Amount |
% |
2018 |
2017 |
|||||||||||
|
Fort McMurray properties |
$ |
3,578,356 |
$ |
3,846,043 |
$ |
(267,687) |
(7)% |
$ |
10,927,709 |
$ |
1,217,079 |
|||||
|
Other investment properties |
366,387 |
391,653 |
(25,266) |
(6)% |
1,154,212 |
1,165,871 |
||||||||||
|
Subâtotal |
3,944,743 |
4,237,696 |
(292,953) |
(7)% |
12,081,921 |
12,382,950 |
||||||||||
|
Held for sale and/or sold properties |
394,637 |
594,590 |
(199,953) |
(34)% |
1,174,436 |
1,974,444 |
||||||||||
|
Total |
$ |
4,339,380 |
$ |
4,832,286 |
$ |
(492,906) |
(10)% |
$ |
13,256,357 |
$ |
14,357,394 |
|||||
|
Average Occupancy Level, by Quarter |
||||||||
|
2017 |
2018 |
|||||||
|
Q1 |
Q2 |
Q3 |
Q4 |
Q1 |
Q2 |
Q3 |
||
|
Fort McMurray properties |
68% |
71% |
73% |
72% |
69% |
72% |
71% |
|
|
Other investment properties |
71% |
73% |
73% |
75% |
77% |
68% |
68% |
|
|
Total |
68% |
72% |
73% |
72% |
70% |
71% |
70% |
|
|
Held for sale and/or sold properties |
79% |
79% |
69% |
61% |
46% |
51% |
53% |
|
|
Average Monthly Rents, by Quarter |
|||||||
|
2017 |
2018 |
||||||
|
Q1 |
Q2 |
Q3 |
Q4 |
Q1 |
Q2 |
Q3 |
|
|
Fort McMurray properties |
$1,684 |
$1,707 |
$1,711 |
$1,697 |
$1,685 |
$1,650 |
$1,618 |
|
Other investment properties |
$909 |
$909 |
$903 |
$905 |
$907 |
$909 |
$909 |
|
Total |
$1,554 |
$1,573 |
$1,575 |
$1,563 |
$1,554 |
$1,525 |
$1,499 |
|
Held for sale and/or sold properties |
$2,593 |
$2,611 |
$2,597 |
$2,549 |
$2,484 |
$2,258 |
$2,201 |
During Q3-2018, total investment property revenue, excluding held for sale and/or sold properties, decreased by $0.29 million or 7%, compared to Q3-2017. The decrease mainly reflects a decrease in the average rental rate of the Fort McMurray property portfolio, due to the turnover of leases that had commenced shortly after the May 2016 wildfire when higher rental rates were achievable. The Fort McMurray property portfolio also experienced reduced occupancy as the average occupancy declined from 73% during Q3-2017 to 71% during Q3-2018.
During Q3-2018, revenue from the held for sale and/or sold properties decreased by $0.20 million or 34%, compared to Q3-2017. The decrease was due to a decrease in the average occupancy level and the average rental rate of Woodland Park, the property classified as held for sale.
The decrease in the average occupancy level of Woodland Park 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 that 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 proximity to an area of Fort McMurray where a substantial number of homes were damaged or destroyed by the wildfire.
The decrease in the average rental rate of Woodland Park is mainly due to the continued turnover of a number of threeâbedroom units and townhome units, which had been rented shortly after the wildfire at rental rates that were higher than the current market rates.
Property Operating Costs
|
Analysis of Property Operating Costs |
||||||||||||||||
|
Three Months Ended September 30 |
Nine Months Ended Sept 30 |
|||||||||||||||
|
Increase (Decrease) |
||||||||||||||||
|
2018 |
2017 |
Amount |
% |
2018 |
2017 |
|||||||||||
|
Fort McMurray properties |
$ |
2,158,553 |
$ |
2,022,164 |
$ |
136,389 |
7% |
$ |
6,511,676 |
$ |
5,765,782 |
|||||
|
Other investment properties |
253,324 |
292,522 |
(39,198) |
(13)% |
999,394 |
897,477 |
||||||||||
|
Subâtotal |
2,411,877 |
2,314,686 |
97,191 |
4% |
7,511,070 |
6,663,259 |
||||||||||
|
Held for sale and/or sold properties |
340,913 |
188,239 |
152,674 |
81% |
888,783 |
658,517 |
||||||||||
|
Total |
$ |
2,752,790 |
$ |
2,502,925 |
$ |
249,865 |
10% |
$ |
8,399,853 |
$ |
7,321,776 |
|||||
During Q3-2018, property operating costs, excluding the held for sale and/or sold properties, increased by $0.10 million or 4%, compared to Q3-2017. The increase is mainly due to an increase in utility costs, primarily due to an increase in the number of all-inclusive leases and an increase in insurance premiums, partially offset by a reduction in property taxes as a result of a successful appeal of the assessed values of certain properties in LREIT’s Fort McMurray portfolio.
After accounting for held for sale and/or sold properties, property operating costs increased by $0.25 million or 10% during Q3-2018, compared to Q3-2017. The increase in operating costs of the held for sale and/or sold properties of $0.15 million is primarily due to condominium fees paid by LREIT for its portion of ownership of Woodland Park, the property held for sale, inclusive of capital replacement reserve fees paid to address future capital expenditures that would have been capitalized when incurred prior to the establishment of the condominium sales program.
Net Operating Income and Operating Margin
|
Three Months Ended September 30, 2018 and 2017 |
|||||||||||||||||||
|
Net Operating Income |
|||||||||||||||||||
|
Three Months Ended |
Increase (Decrease) |
Percent of Total |
Operating Margin |
||||||||||||||||
|
2018 |
2017 |
Amount |
% |
2018 |
2017 |
2018 |
2017 |
||||||||||||
|
Fort McMurray properties |
$ |
1,419,803 |
$ |
1,823,879 |
$ |
(404,076) |
(22)% |
89% |
78% |
40% |
47% |
||||||||
|
Other investment properties |
113,063 |
99,131 |
13,932 |
14% |
7% |
4% |
31% |
25% |
|||||||||||
|
Subâtotal |
1,532,866 |
1,923,010 |
(390,144) |
(20)% |
96% |
82% |
39% |
45% |
|||||||||||
|
Held for sale and/or sold properties |
53,724 |
406,351 |
(352,627) |
(87)% |
3% |
17% |
14% |
68% |
|||||||||||
|
Total |
$ |
1,586,590 |
$ |
2,329,361 |
$ |
(742,771) |
(32)% |
100% |
100% |
37% |
48% |
||||||||
|
Nine Months Ended September 30, 2018 and 2017 |
||||||||||||||||||
|
Net Operating Income |
||||||||||||||||||
|
Nine Months Ended |
Increase (Decrease) |
Percent of Total |
Operating Margin |
|||||||||||||||
|
2018 |
2017 |
Amount |
% |
2018 |
2017 |
2018 |
2017 |
|||||||||||
|
Fort McMurray properties |
$ |
4,416,033 |
$ |
5,451,297 |
$ |
(1,035,264) |
(19)% |
91% |
77% |
40% |
49% |
|||||||
|
Other investment properties |
154,818 |
268,394 |
(113,576) |
(42)% |
3% |
4% |
13% |
23% |
||||||||||
|
Subâtotal |
4,570,851 |
5,719,691 |
(1,148,840) |
(20)% |
94% |
81% |
38% |
46% |
||||||||||
|
Held for sale and/or sold properties |
285,653 |
1,315,927 |
(1,030,274) |
(78)% |
6% |
19% |
24% |
67% |
||||||||||
|
Total |
$ |
4,856,504 |
$ |
7,035,618 |
$ |
(2,179,114) |
(31)% |
100% |
100% |
37% |
49% |
|||||||
During Q3-2018, the net operating income for the investment properties portfolio, excluding held for sale and/or sold properties, decreased by $0.39 million or 20%, compared to Q3-2017. The operating margin, excluding held for sale and/or sold properties, decreased from 45% during Q3-2017 to 39% during Q3-2018. 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.
The decrease in net operating income from held for sale and/or sold properties of $0.35 million or 87% is due to the decrease in revenue and the increase in operating costs of Woodland Park, as discussed above. After accounting for held for sale and/or sold properties, the total net operating income of LREIT decreased by $0.74 million or 32% during Q3-2018, compared to Q3-2017.
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
View original content: http://www.newswire.ca/en/releases/archive/November2018/20/c4486.html