UPDATED WITH Q1 FINANCIALS: Heavily indebted Lanesborough Real Estate Investment Trust (LRT-UN-V) has announced it intends to sell its residential and vacant property assets in Winnipeg to a numbered company connected to one of its trustees for $41 million and then wrap up operations.

Lanesborough, also known as LREIT, was founded in 2003 and is based in Winnipeg. The REIT reported liabilities of $201 million in its year-end 2023 financial report.

In its Q1 2024 financial report released Thursday after the pending sale announcement, the REIT reported another loss, of just over $2.3 million.

The buyer is 7254751 Manitoba Ltd., a company controlled by Arni Thorsteinson, who as its vice-chairman is thus considered an insider of LREIT. The transaction is set up as three asset purchase agreements, LREIT reports in the announcement.

The rental properties consist of: Millennium Village; Lakewood Townhomes; Whimbrel Terrace; Gannet Place; Snowbird Manor; Skyview Apartments; Lunar Apartments; Parkland Apartments; Norglen Terrace; Highland Tower; and Chateau St. Michael's, all located in Winnipeg.

The purchase price for those assets is $41,283,800, the market value included in LREIT’s financial statements for the year ended Dec. 31.

The price being paid by 7254751 Manitoba Ltd. for one vacant property at Grant Avenue and Kenaston Boulevard is $400,000, which LREIT says is its current market value. 

LREIT's Q1 2024 financial report

Lanesborough reported a $2.317,863 loss in its Q1 financials; in Q1 2023 it had reported a $1.16-million profit. The REIT reports the decrease is mainly due to -$3.7 million decrease in fair value adjustments; properties rose in value by about $400,000 compared to an increase of $4.1 million in the Q1 2023 period.

As Lanesborough has been selling off properties during the past year, its rental income and associated costs have also declined. Rental income was $2.7 million in Q1 2024 compared to $3.5 million a year earlier (23 per cent), but property operating costs dipped from $2.8 million to $1.9 million (33 per cent).

Its interest expenses, however, remained significant, at $2.53 million in Q1 compared to $2.64 million a year ago.

It has also been reporting losses on its sale properties; $7.3 million in the most recent quarter compared to $41 million in Q1 2023.

Lanesborough had previously owned and operated several properties in Fort McMurray, Alta., but had sold them in two transactions during the past year. The properties had only recently begun to recover from the effects of the downtown in Alberta's natural resources sector and a major 2016 wildfire which heavily impacted Fort McMurray. 

Thorsteinson firm to acquire the assets

The pending sale of the Winnipeg properties is considered a "related party transaction" under securities law, but LREIT states in its announcement it is not subject to formal valuation instruments because it is not listed on the TSX (its units have been traded on the TSX Venture Exchange), nor is it subject to approval by a majority of its minority shareholders because the trust is “experiencing financial hardship”.

The transaction and plan to terminate the operations of LREIT are, however, subject to votes of all of its unitholders, so a special meeting has been scheduled for June 27.

Thorsteinson and his other related companies, including 2668921 Manitoba Ltd., and Shelter Canadian Properties Limited (Shelter), as interested parties in the transaction, will not be included. 

Thorsteinson is the president of Shelter. He was also a board member of Bird Construction for over three decades before retiring from that position this spring.

To pass the sale and wind-up transactions, the votes will require a 66.66% majority of the remaining shareholders. 

The arrangement also requires the approval of the TSX Venture Exchange.

If the sale is approved, 7254751 Manitoba Ltd. will take on mortgage debt of $33,806,578 (as of March 31) and an estimated $7,857,222 of debt under LREIT’s revolving loan facility.

“Upon completion of the sale transaction, LREIT will no longer have any material assets and will continue to owe an aggregate estimated amount of $139,934,569 to 2668921 and Shelter and $16,984,455 to the lender of the mortgage loan formerly secured by LREIT's Woodland Park property,” the announcement states, in addition to costs related to its ongoing operations.

“These financial obligations and costs mean that LREIT has no ability to continue as a going concern.

“Given the amount of indebtedness of LREIT, there is no possibility LREIT will have sufficient funds following the sale of the properties to repay all of its outstanding indebtedness.”

Thus, shareholders will not receive any of the proceeds.

“If the sale transaction resolution, and the termination resolution are approved by the unitholders at the meeting, unitholders that hold their units in unregistered accounts will have the benefit of being able to realize their investment losses in connection with the disposition of the units and to use the resulting allowable capital losses to offset taxable capital gains realized from other investments,” the announcement states.