Investment trust selling assets in ailing oilpatch

Hey there, time traveller!
This article was published 13/05/2016 (3470 days ago), so information in it may no longer be current.

A Winnipeg-based investment trust with extensive holdings in Fort McMurray is selling some of its properties and restructuring its debt in a bid to stay afloat until conditions improve in Alberta’s beleaguered oilpatch region.

“Since the price of oil collapsed in November 2014, there has been a steady decline in the rents and in the occupancy of our 1,100 apartment units in Fort McMurray,” Lanesborough Real Estate Investment Trust CEO Arni Thorsteinson said Thursday.

“We’re suffering negative cash flow, and there is not enough money to operate the properties and pay the monthly mortgage payments. So we’ve had to go to all parties and ask them to defer principal and some interest payments on the first mortgages.”

‘We’ve had to go to all parties and ask them to defer principal and some interest payments on the first mortgages’– Lanesborough Real Estate Investment Trust CEO Arni Thorsteinson

Thorsteinson said most of the REIT’s lenders have agreed to the debt-restructuring proposal, and Lanesborough officials are optimistic buyers will be found for three properties it’s trying to sell. That’s in addition to two others it sold last month.

Net proceeds from the sales are being used to pay down mortgage debt. Last month’s transactions raised about $32 million, and Thorsteinson said the sale of the other three properties should raise about $50 million.

Lanesborough officials are also hopeful holders of its Series G debentures will agree to a new proposal to lower the interest rate and extend the maturity date on the debentures. Although they won’t know for sure until a June 21 meeting with debenture holders, Thorsteinson said early indications are that they will.

“We’ve talked to many of the debenture holders, who have suggested they don’t want to create a default because then they would be wiped out by the first-mortgage holder. So they said, ‘Do a deferral, so at least there is some prospect down the road that we’ll be able to recover at least some of our principal.’”

He said Winnipeg-based Shelter Canadian Properties Properties Ltd., of which he is president, and its parent company, 2668921 Manitoba Ltd., have also helped out. Shelter has waived its fees for managing Lanesborough’s properties, and the parent company has lowered the interest rate on Lanesborough’s working-capital loan.

He said all of these measures should enable Lanesborough to ride out the storm, provided the oil-industry crisis doesn’t get any worse and the industry begins to recover.

According to its website, 12 of the 17 apartment blocks and seniors housing complexes Lanesborough owns are in the northern Alberta city of Fort McMurray.

Thorsteinson said when new construction activity in the oilpatch came to a halt, 30,000 to 40,000 construction workers left Fort McMurray. That drove down apartment rental rates and occupancy rates and had a big impact on Lanesborough’s results.

On Wednesday, the REIT reported a net loss of $7.6 million for the first three months of this year. That was double the loss recorded in the first quarter of 2015. On the positive side, it said it doesn’t appear any of its Fort McMurray properties suffered any structural damage from the recent wildfires, which destroyed about 2,400 buildings in the city.

murray.mcneill@freepress.mb.ca