RE:RE:RE:RE:RE:New Press Release - LANESBOROUGH REIT ANNOUNCES CHANGE TO DATE OF ANNUAL GENERAL MEETING OF UNITHOLDERS I am going to add even more to my last post because I am not done yet.
This sentence from the news release announcing the operating results for the period ending June 30, 2022 also speaks volumes:
After considering the resignations of Messrs. Loewen and Coleman, Mr. Thorsteinson made the determination not to accept the resignations of Messrs. Loewen and Coleman. Due to the current financial hardship of LREIT, locating suitable and qualified replacements would be very difficult.
The reason why this is so important, is that it speaks to the very core of the issue - management incompetance and an unwillingness to focus on anyone else's benefit other than themselves.
As we know, Arni Thorsteinson is the sole owner of Shelter Properties. It is a private company that shares the same offices that Lanesborough does.
On August 27, 2002 Lanesborough REIT issued their final prospectus for a series of debentures (sound familiar, anyone?). Notice the irony of the date, August 27 - the same day that the upcoming AGM will occur on. This series of debentures were issued to fund the purchase of Lanesborough's first building. This shows some information about this transaction:
INITIAL TRANSACTION LREIT acquired the Initial Property on April 24, 2002 from the Sun Life Assurance Company of Canada for the Purchase Price of $10,650,000 pursuant to the terms of the Purchase Agreement. The Purchase Price was satisfied by LREIT paying $2,662,500 (subject to usual adjustments) in cash and the proceeds of the Purchase Mortgage in the estimated principal amount of $7,987,500. The cash component of the Purchase Price was funded by the proceeds of the Shelter Loan. The Shelter Loan provides that, during the period that the Shelter Loan remains outstanding, Shelter is to receive 100% of the net income from the Initial Property earned by LREIT after payment of all expenses and debt servicing. It is a condition of the Plan of Arrangement that the Shelter Loan be repaid in full on or prior to the Effective Date. In order to secure due repayment of the Shelter Loan, LREIT executed in favour of Shelter a Securities Pledge Agreement which provides that, for so long as the Shelter Loan remains outstanding, the issued and outstanding shares of LREIT Holdings I Corporation will be pledged to Shelter as security for the Shelter Loan. Upon repayment in full of the Shelter Loan, the shares secured by the Securities Pledge Agreement will no longer be encumbered thereby and LREIT will hold absolute beneficial ownership of those shares. As an inducement to provide the Shelter Loan, LREIT has agreed, subject to receipt of required regulatory approvals, to grant to Shelter 75,000 options to acquire LREIT Units at a price of $2.00 per Unit, exercisable for a period of five years from the date of issue.
Lanesborough REIT carried on with this property until Lanesborough did a RTO later that year, see below:
Winnipeg, September 5, 2002 – Mr. Arni Thorsteinson, Chief Executive Officer of Lanesborough Real Estate Investment Trust (LREIT), today announced that the TSX Venture Exchange has issued a Final Exchange Notice in respect of the “Qualifying Transaction” of Wireless One Inc., a capital pool company (TSX-Venture: WON.K), which was structured as a Plan of Arrangement between LREIT and Wireless One Inc. The Plan of Arrangement has resulted in former shareholders of Wireless One Inc. receiving trust units of LREIT on a 10:1 basis, and the dissolution of Wireless One Inc.
LREIT raised an additional $300,000 in equity through a private placement offering to Shelter Canadian Properties Limited, which acquired 150,000 trust units at a price of $2.00 per unit.
LREIT owns the real property known as Kenaston Place and Kenaston Village Mall, located in Winnipeg, Manitoba, which it acquired on April 24, 2002 for a purchase price of approximately $10.65 million.
The LREIT trust units will be listed on the TSX Venture Exchange under the symbol “LRT.UN” effective Monday, September 9, 2002.
After this, the next investment was a related party transaction. Guess who was involved, I bet you will not be able to figure this one out. I know it is tough challenge:
Winnipeg, September 19, 2002 – Lanesborough Real Estate Investment Trust (LREIT) today announced that the independent Trustees have approved a $1,150,000 investment in a second mortgage loan, secured by a 103,000 square foot Class A office building in Oshawa, Ontario. The recently completed office building was developed and is beneficially owned by 2668921 Manitoba Ltd., the parent company of Shelter Canadian Properties Limited.
Now guess who the "highly qualified individuals" would be for the recently listed Lanesborough REIT. You will never be able to guess who they are. It is a big challenge:
Winnipeg, October 29, 2002 – Lanesborough Real Estate Investment Trust (LREIT) announced today that Charles Loewen, Trustee and Chairman, and Earl Coleman, Trustee and Secretary, have each been granted options, in accordance with the Unit Option Plan of LREIT, to acquire 10,000 trust units at a price of $4.00 per unit. The options expire on October 29, 2007.
The loan mentioned above was amended about a year later. Note everything copied has been edited, but the intent and content is similar to the original:
Winnipeg, December 31, 2003 – Lanesborough Real Estate Investment Trust (“LREIT”) today announced that it has agreed to amend certain of the terms of its current $1,150,000 second mortgage loan secured by a 103,000 square foot Class A office building in Oshawa, Ontario (the “MINACS Building”) located adjacent to the Canadian Head Office of General Motors.
The second mortgage loan will be increased by $1,000,000 to the aggregate principal amount of $2,150,000, will bear interest at 10% per annum (payable monthly), and becomes due and payable on April 30, 2004.
Arni Thorsteinson, the Chief Executive Officer and a Trustee of LREIT, is also the President of 2668921 Manitoba Ltd., the beneficial owner of the MINACS Building. Mr. Thorsteinson abstained from voting on the approval of this transaction.
Then the abovementioned loan was increased once again:
Winnipeg, Manitoba, January 6, 2005 – Lanesborough Real Estate Investment Trust (“LREIT”) (TSX Venture: LRT.UN) announced today that it has completed the previously announced increase in its second mortgage loan investment secured by the office building and excess land located at 1189 Colonel Sam Drive in the City of Oshawa, Ontario. The second mortgage loan investment has been increased by $1,475,000 to the aggregate principal amount of $3,625,000.
Lanesborough REIT purchased a number of properties during the 2004-2005 period. There is no indication if any of these were related party transactions. Then this:
Winnipeg, Manitoba, January 5, 2006 – Lanesborough Real Estate Investment Trust (“LREIT”) (TSX Venture: LRT.UN) announced today that it has agreed to acquire up to 100% beneficial interest of an 88-suite multi-family apartment property in Brandon, Manitoba, known as Willowdale Gardens, for $4,326,000. The property was appraised, effective November 7, 2005 at $4.55 Million.
The purchase price will be funded by a cash payment in the amount of $2.25 Million and the balance by the assumption of existing mortgage financing. The acquisition is expected to close during January 2006.
The transaction will be completed by LREIT acquiring up to 100% of the units of undivided interest (the “Units”) currently owned by a syndicate of investors. Each Unit represents an undivided beneficial ownership interest in the property. Currently, unrelated third party investors own 81.33% of the Units and 2668921 Manitoba Ltd. (“2668921”) owns 18.67% of the Units. 2668921 is a “related party” of LREIT by virtue of the fact that all of its shares are owned by the family trust of Arni Thorsteinson, the Chief Executive Officer and a trustee of LREIT and Mr. Thorsteinson is the President of 2668921. 2668921 is also the parent company of Shelter Canadian Properties Limited, the administrator and property manager of LREIT.
Later in 2006 the Oshawa property loan takes a twist in the narrative:
Winnipeg, Manitoba, February 20, 2006 – Lanesborough Real Estate Investment Trust (“LREIT”) (TSXV: LRT.UN) and Huntingdon Real Estate Investment Trust (“HREIT”) (TSXV: HNT.UN) jointly announced today that the parties have agreed to enter into a transaction whereby LREIT will lend to HREIT an amount up to $12 Million. The loan will be for a maximum term of one -year, bear interest a rate of 8% per annum and be payable interest only on a monthly basis. HREIT shall have the right to prepay the loan in whole or in part at any time and LREIT shall have the right to request repayment of the loan in whole or in part upon 15 days notice. The loan will be secured by a first mortgage charge on the 103,000 square foot office building and excess land located at 1189 Colonel Sam Drive (the “Property”) in the City of Oshawa, Ontario. The transaction is subject to the approval of the TSX Venture Exchange Inc. (the “Exchange”).
The loan transaction is a “Non-Arm’s Length Transaction” under Exchange policies by virtue of the fact that Arni Thorsteinson is a trustee and senior officer of LREIT and HREIT. The independent trustees of LREIT and HREIT approved the transaction. Mr. Thorsteinson abstained from voting on the resolution approving the transaction for both LREIT and HREIT
Only two days later this transaction gets cancelled for very surprising reasons that could not have been remotely anticipated only 48-hours earlier:
Winnipeg, Manitoba, February 22, 2006 – Lanesborough Real Estate Investment Trust (“LREIT”) (TSXV: LRT.UN) and Huntingdon Real Estate Investment Trust (“HREIT”) (TSXV: HNT.UN) jointly announced today that the parties will not proceed with the previously announced short-term loan transaction, which was to have been secured by a first mortgage charge on the 103,000 square foot office building and excess land located at 1189 Colonel Sam Drive (the “Property”) in the City of Oshawa, Ontario. HREIT is finalizing a commitment for conventional first mortgage loan financing for the Property with a third party lender. The mortgage proceeds are expected to be available in time for the funding of equity commitments associated with the purchase of industrial and commercial properties.
I got tired of re-reviewing old news releases from when I did my initial DD on Lanseborough. So there is a big 18-year gap in any mention of related party transactions - not because it didn't happen, but rather I was tired of looking for more and I have stuff to do.
But then there was a recent transaction which is worth mentioning:
WINNIPEG, MB, March 3, 2023 /CNW/ - Lanesborough Real Estate Investment Trust ("LREIT") (TSXV: LRT.UN) announces today that it has completed the sale of: (i) Laird's Landing, 302 Parsons Creek Drive, Fort McMurray, Alberta ("Laird's Landing"); (ii) Lakewood Manor Apartments, 108 Loutit Road, Fort McMurray, Alberta ("Lakewood Manor"); and (iii) Westhaven Manor, 5610 11 Avenue, Edson, Alberta ("Westhaven Manor" and together with Laird's Landing and Lakewood Manor, the "Properties") to 7254751 Manitoba Ltd. ("725") for aggregate consideration of $43,010,000 plus closing adjustments in the approximate amount of $128,744, payable as follows: (i) through the assumption of the mortgages on the Properties by 725 in the approximate aggregate amount of $22,891,289; (ii) through the assumption of an accrued mortgage fee on Lakewood Manor in the amount of $169,500; (iii) through the reduction of amounts owing under the line of credit from 2668921 Manitoba Ltd., a sister company of 725, to LREIT in the approximate amount of $20,002,955; and (iv) through deposits paid of $75,000 (collectively, the "Transaction"). LREIT issued a press release previously announcing the Transaction on January 31, 2023.
Because of the amount of related party transactions, I thought I should check out the most recent financial statements to see what type of related party transactions I could find there:
- Note 3 talks about Woodland Park and is worth a read as there are many related party transactions listed here.
- Note 10 (b) talks about the $120,000,000 revolving loan facility that Lanesborough has with 921 Manitoba Ltd. (the parent of Shelter)and is payable on demand and secured against 8 properties in Ft. McMurray and a seniors residence
- Note 18 is entitled Related Party Transactions which starts on page 21 and ends on page 25 (read it for yourself)
- Note 19 entitled Financial Instruments and Risk Management is worth reading as well.
I am not going to deny thecompany has been hit with a series of bad luck relating to its Ft mcMurray properties during the flood and fire around 2016-2019 along with the hard times relating to the oil and gas business which drives the economy in Ft McMurray at the same time.
It has been a tough go for management. So I can't be overly critical, notwithstanding my feelings.
Where I think management needs to take some leadership is to convert some of that debt into equity and feel some of the pain that ebentureholders have had to endure for the past number of years. They need to take some responsibility for getting into this mess as well.