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Lanesborough REIT Reports 2017 Third Quarter Results
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WINNIPEG, Nov. 7, 2017
WINNIPEG, Nov. 7, 2017 /CNW/ - Lanesborough Real Estate Investment Trust ("LREIT") (TSX: LRT.UN) today reported its operating results for the quarter ended September 30, 2017. 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 September 30, 2017, which may be obtained from the LREIT website at www.lreit.com or the SEDAR website at www.sedar.com.
Addressing the liquidity challenges of the Trust and stabilizing operations continue to be the top priorities for LREIT as management maintains its focus on the divestiture program; debt renewal/restructuring; and initiatives aimed at improving operating results.
Operating Results
LREIT completed the three and nine month periods ended September 30, 2017 with negative funds from operations ("FFO") of $1.1 million and $4.4 million, respectively, compared to negative FFO of $1.6 million and $10.2 million during the same periods in the prior year. The positive FFO variances mainly reflect decreases in interest expense as a result of the divestiture and debt restructuring activities undertaken during 2016.
The decrease in interest expense during Q3-2017 was partially offset by a modest decrease in net operating income ("NOI") as the average occupancy level of the Fort McMurray properties decreased from 76% during Q3-2016 to 73% during Q3-2017. During the nine month period ended September 30, 2017, however, the average occupancy level of the Fort McMurray properties increased to 71% compared 62% during the same period in the prior year.
Overall, LREIT completed the three and nine month periods ended September 30, 2017 with a loss and comprehensive loss of $6.8 million and $20.4 million, respectively, compared to a loss and comprehensive loss of $11.1 million and income and comprehensive income of $1.8 million during the same periods in the prior year. The decreased loss during Q3-2017 mainly reflects a favourable variance in fair value adjustments of the investment properties and a decrease in interest expense, partially offset by the above noted decrease in NOI. The decrease in operating results during the nine months ended September 30, 2017 mainly reflects an unfavourable variance in the fair value adjustments of investment properties, partially offset by the above noted decrease in interest expense and increase in NOI
Liquidity and Capital Resources
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During the first nine months of 2017, cash used in operating activities, before working capital adjustments, amounted to $0.9 million, compared to $2.2 million during the same period in 2016, and the cash shortfall, after accounting for working capital adjustments, regular mortgage principal repayments, capital expenditures, and transaction costs was $6.1 million, compared to $5.4 million during the first nine months of 2016. The increase in the cash shortfall is mainly due to an increase in cash used in operations after working capital adjustments. The cash shortfalls were funded by additional advances under the revolving loan facility from 2668921 Manitoba Ltd. and by unsecured advances from Shelter Canadian Properties Limited ("Shelter").
As of September 30, 2017, LREIT was in default with respect to one mortgage loan with an expired forbearance agreement in the aggregate principal amount of $25.5 million. The mortgage loan matured in December 2015 and subsequently was the subject of a forbearance agreement, which expired on February 28, 2017, after which the loan was being over-held. Subsequent to September 30, 2017, a new forbearance agreement, expiring December 2018, was executed.
In addition, five mortgage loans on eight properties with an aggregate principal balance of $61.8 million, which were previously in default of debt service payments, continue to be presented as being in default in the Financial Statements at September 30, 2017, as the lender has indicated that there are service fees outstanding with respect to the loans and that until the fees are paid the loans will remain in default. Subsequent to September 20, 2017, a two‑year forbearance agreement was executed for one of the above noted mortgage loans, in respect of one property, with an aggregate principal balance of $14.6 million. LREIT continues to meet the debt service obligations of these mortgages and the lender has taken no action to enforce the loans. In the event that full repayment is demanded LREIT would not be able to satisfy the full repayment of the loan with its current resources.
Pursuant to the terms of the Declaration of Trust, LREIT is prohibited from incurring additional mortgage loan indebtedness if such indebtedness would result in the total mortgage loan indebtedness of LREIT exceeding 75% of the appraised value of LREIT's total property portfolio. As a result of updated property appraisals, LREIT's ratio of total mortgage loan indebtedness to appraised property value was 77% as of September 30, 2017. In view of this, LREIT is unable to incur additional mortgage indebtedness; however, LREIT is permitted to continue to renew or refinance its mortgage debt at amounts, which are equal to or less than the existing balances of outstanding mortgage loan debt. In addition, LREIT may continue to obtain financing from unsecured creditors, such as the $4.5 million in unsecured advances it received from Shelter during and subsequent to Q3-2017.
Outlook
The extent of LREIT's operating cash deficiencies continue to decline from the combined result of debt restructuring and divestiture activities and improved operating results stemming from the post‑fire rental market in Fort McMurray. However, LREIT continues to face significant financing challenges and the ability of LREIT to continue operations in the near term remains contingent upon the continued financial support of Shelter and its parent company, 2668921 Manitoba Ltd., as well as LREIT's ability to renew and/or refinance its mortgage loan debts as they become due.
Looking beyond the post fire rebuilding process in Fort McMurray, which may take several years, the long term prospects of the Fort McMurray rental market will remain closely correlated with the price of oil and oil sands development activity.
STATEMENT OF FINANCIAL POSITION
| | September 30 | December 31 | ||
| | 2017 | 2016 | 2015 | |
| | | | | |
| Total assets | $ 230,762,212 | $ 245,402,329 | $ 278,524,804 | |
| Total long‑term financial liabilities (1) | $ 246,979,523 | $ 243,501,308 | $ 279,529,237 | |
| Weighted average interest rate | | | | |
| | - Mortgage loan debt | 6.0% | 5.8% | 6.0% |
| | - Total debt | 5.8% | 5.6% | 6.4% |
| | | | | |
| (1) | Long‑term financial liabilities consist of mortgage loans, debentures, defeased liability |
KEY FINANCIAL PERFORMANCE INDICATORS
| | Three Months Ended September 30 | Nine Months Ended September 30 | |||||||
| | 2017 | 2016 | 2017 | 2016 | |||||
| Operating Results | | | | | |||||
| | Rentals from investment properties | $ | 4,832,286 | $ | 5,096,608 | $ | 14,357,394 | $ | 13,527,722 |
| | Net operating income | $ | 2,329,361 | $ | 2,606,793 | $ | 7,035,618 | $ | 6,090,298 |
| | Income (loss) before discontinued operations | $ | (6,858,839) | $ | (10,614,965) | $ | (20,450,043) | $ | 2,259,269 |
| | Income (loss) and comprehensive income (loss) | $ | (6,842,465) | $ | (11,136,578) | $ | (20,398,122) | $ | 1,752,846 |
| | Funds from Operations (FFO) | $ | (1,086,920) | $ | (1,579,111) | $ | (4,427,868) | $ | (10,202,991) |
| | | | | | |||||
| Cash Flows | | | | | |||||
| | Cash provided by (used in) operating activities Werbung Mehr Nachrichten zum Optionsschein (WKN: ) kostenlos abonnieren
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