An anonymous trustee reports

LANESBOROUGH REIT REPORTS 2023 YEAR END RESULTS

Lanesborough Real Estate Investment Trust has released its operating results for the year ended Dec. 31, 2023. The following comments in regard to the financial position and operating results of the REIT should be read in conjunction with management's discussion and analysis, its annual report and the financial statements for the year ended Dec. 31, 2023, which may be obtained from the SEDAR+ website.

Overall results

The REIT completed 2023 with a loss and comprehensive loss of $7.7-million, compared with income and comprehensive income of $23.9-million during 2022, representing a decrease in income and comprehensive income of $31.6-million. The decrease mainly reflects a $19.8-million gain on extinguishment of Series G debentures recognized in 2022, a $9.6-million decrease related to fair value adjustments, a $3.6-million increase in loss from discontinued operations, and a $900,000 decrease in the net operating income of the investment properties and investment properties held for sale, partially offset by a $1.2-million decrease in interest expense and a $700,000 decrease in reversal of rental loss insurance proceeds.

The gain on extinguishment of the Series G debentures was the result of the exchange transaction completed on Feb. 24, 2022, pursuant to which the Series G debentures, in the aggregate principal amount outstanding of $24.8-million, and all accrued or unpaid interest owing thereon in the amount of $8.2-million, were exchanged for 659.9 million trust units. The trust units had a fair value of $13.2-million, and debt in the aggregate amount of $33.0-million was extinguished, resulting in a gain of $19.8-million.

The decrease from fair value adjustments reflects a $5.7-million gain from fair value adjustments during 2023, compared with a $15.3-million gain from fair value adjustments during 2022. The gain from fair value adjustments during 2023 reflects an increase in the carrying value of the Fort McMurray property segment, which is mainly due to an increase in the normalized revenue considered to be achievable in the Fort McMurray rental market as a result of the favourable occupancy and rental rate trends. The gain from fair value adjustments recognized during 2022 mainly reflected an increase in the carrying value of the Fort McMurray property segment, primarily as a result of changes made to key valuation assumptions to incorporate information obtained from external appraisals received during the year and in recognition of the favourable occupancy trend.

The increase in loss from discontinued operations is primarily due to a $3.4-million impairment adjustment, resulting from the impact of a reduction in the net operating income that is considered to be achievable in the Saskatchewan seniors residence market on the valuation of Chateau St. Michael's. The reduction in the NOI that is considered to be achievable is the result of the sustained operating losses of the property and increased uncertainty with respect to the economic viability of the property in the postpandemic operating environment for the market.

The decrease in the NOI of the investment properties and investment properties held for sale is mainly due to a $1.3-million decrease in NOI of the investment properties held for sale, which is primarily due to the sales of Laird's Landing, Lakewood Apartments and Westhaven Manor on Jan. 31, 2023, partially offset by a $500,000 increase in the NOI of the Fort McMurray property segment.

The increase in the NOI of the Fort McMurray property segment reflects increases in the average occupancy rate, which increased from 93 per cent during 2022 to 96 per cent during 2023, and the average monthly rental rate, which increased $35 or 3 per cent from $1,361 during 2022 to $1,396 during 2023.

The decrease in interest expense is mainly due to the assumption of mortgage loan debt, in the aggregate principal amount of $22.9-million, by the purchaser upon completion of the sales of Laird's Landing, Lakewood Apartments and Westhaven Manor on Jan. 31, 2023. The decrease in interest expense from the sale of the properties was partially offset by an increase in the weighted-average interest rate on the trust's variable interest rate mortgage loans, which increased from 9.7 per cent in 2022 to 10.4 per cent in 2023.

The decrease in the reversal of rental loss insurance proceeds is mainly due to the trust recording provisions of $200,000 during 2023, in comparison with $800,000 during 2022 with respect to the appeal of rental loss insurance proceeds originally awarded by the Alberta Court of King's Bench under the legal claim launched by the trust against the insurers of the 2016 Fort McMurray wildfire. During 2023, the trust paid $1.0-million in settlement of the appeal ruling.

About Lanesborough Real Estate Investment Trust

The REIT is a real estate investment trust which is listed on the TSX Venture Exchange under the symbol LRT.UN (trust units).

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