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Regal Lifestyle Communities Inc. Announces Results for the Quarter and Year Ended December 31, 2013

TORONTO, Feb. 20, 2014 /CNW/ - Regal Lifestyle Communities Inc. ("Regal") (TSX:RLC) announced today results for the quarter ended and year ended December 31, 2013.

Q4 2013 Highlights:

  • A $61.8 million four home portfolio acquisition was completed on October 9, 2013 which increased total suite count by 38% and contributed $1.4 million in net operating income in the quarter; and
  • Revenue from the Initial Communities increased by 4.8% over the previous quarter;
  • Net operating income from the Initial Communities increased by 5.4% over the previous quarter;
  • Average portfolio occupancy for the Initial Communities increased 320 bps to 94.0% for the quarter.

"We are pleased that the initial ten homes are now largely stabilized, thanks to the strong occupancy gains under Regal's management," said Mr. Simon Nyilassy, President and CEO.  He added, "with the four homes which we acquired earlier in the quarter also performing better than expectations, we are entering 2014 with a strong base for further growth."

Average occupancy levels in the two homes in lease-up, Brampton (Greenway) and Ottawa (Valley Stream), increased by 600 bps and 560 bps, to 89.9% and 82.9%, respectively, during the quarter, and hit 90.3% and 85.9% by the end of the quarter, reflecting management's continued focus on achieving stabilized occupancy in these homes by mid-2014. In addition to increasing occupancy, optimizing rental rates and services and controlling expenses, management is focused on the integration of the four homes acquired on October 9, 2013, realizing on the significant accretion arising from the purchase.

Financial Highlights

(in $000's, except for unit amounts
and as otherwise indicated)
  Quarter
ended
December 31,
2013
  Quarter
ended
December 31,
2012 (1)
  Quarter 
ended
September 30,
2013
  Year
ended
December 31,
2013
  265 days
 ended
December 31,
2012
                               
Operating Revenue   $   18,796   $ 11,424   $ 13,693   $ 59,366   $ 11,424
Net Operating Income   $ 6,868   $ 4,440   $ 5,197   $ 22,322   $ 4,440
                               
AFFO (2)   $ 3,642   $ 2,667   $ 3,003   $ 12,277   $ 2,667
AFFO per share - basic(2)   $ 0.176   $ 0.148   $ 0.158   $ 0.633   $ 0.148
AFFO per share - dilutive (2)   $ 0.176   $ 0.147   $ 0.158   $ 0.633   $ 0.147
                               
Dividends   $ 3,629   $ 2,728   $ 3,321   $ 13,583   $ 2,728
Dividends per share - basic   $ 0.175   $ 0.151   $ 0.175   $ 0.700   $ 0.151
Dividends per share - dilutive   $ 0.175   $ 0.150   $ 0.175   $ 0.700   $ 0.150
                               
Dividends  as a % of AFFO     99.6%     102.3%     110.6%     110.6%     102.3%

 

(1) Regal was incorporated on April 11, 2012, however, operating activity commenced on October 16, 2012 with the acquisition of the Initial Communities, therefore, the quarter ended December 31, 2012 represents 77 days of operating activity.
(2) AFFO, AFFO per share basic and dilutive are measures used by management in evaluating operating performance. Please refer to the cautionary statements under the heading "Non-IFRS Measures" in this press release.

Operating revenue and net operating income ("NOI") increased in the quarter due to growth within the Initial Communities and with the addition of the four new homes acquired in the quarter. Operating revenue increased by 37.3%, with contribution to revenue by the four new homes accounting for 87.1% of the increase and 12.9% of the increase generated by the Initial Communities. NOI increased by 32.1%, of which 83.2% was contributed by the four new homes and 16.8% was contributed by the Initial Communities.  As a result, AFFO increased substantially from the previous quarter by 21.3% (11.1% per share). This strong performance reflects improvements in weighted average occupancy over the previous quarter within the Initial Communities which rose from 90.8% to 94.0% and a strong weighted average occupancy within the four new homes of 96.0%.

Compared to the same quarter last year, operating revenue and NOI increased by 64.5% and 54.7% respectively primarily due to the addition of four new homes and the longer operating period in 2013, and, on a normalized basis, revenue and NOI increased in substantially all of the homes within the Initial Communities.  The reconfiguration of 36 LTC funded beds into 17 assisted living suites in Valley Stream Manor caused a temporary loss in revenue and NOI from which we are now seeing strong recovery.

Dividends during the period were $3,629 compared to the previous quarter of $3,321 and the same quarter last year of $2,728. The increase compared to the previous quarter was due to the issuance of approximately 1.8 million shares through a private placement on October 2, 2013 and the expiry of certain dividend waivers in November 2013. The increase compared to the same quarter last year was similarly impacted in addition to shares issued related to the earn-out on Valley Stream Manor and Barrhaven Manor in the later part of the fourth quarter of 2012 of 0.7 million shares and a further 0.2 million shares in the first quarter of 2013.

Total mortgage debt is $227,017 compared to $193,979 at the end of the previous quarter and $198,541 and the end of the same quarter last year. The increase in both cases is primarily due to the assumption of debt and new debt obtained in conjunction with the acquisition of the four homes in the quarter.  Regal's weighted average interest rate at the end of the quarter was 3.86% (3.76% after interest rate subsidy) compared to 3.97% (3.66% after interest rate subsidy) at the end of the previous quarter and 3.92% at the end of the same quarter last year.

On October 2, 2013, Regal issued $25 million, aggregate principal, of 6.00% convertible unsecured subordinated debentures due December 31, 2018.  The debentures are convertible at the option of the holder, into common shares of Regal at a price of $9.75 per common share.  Interest on debentures is payable semi-annually in June and December

As a compound financial instrument, the debt and equity components of the debentures were bifurcated with $22.2 million classified as a liability, and $0.5 million classified as equity net of fees and deferred tax liability.

Operating Performance

(in $000's except for otherwise indicated)     Quarter ended
December 31,
2013
    Quarter ended
December 31,
2012 (1)
    Quarter  ended
September 30,
2013
    Year ended
December 31,
2013
    265 days ended
December 31,
2012
                               
Weighted average occupancy %     94.5%     90.7%     90.8%     91.7%     90.7%
Operating revenue   $   18,796   $ 11,424   $ 13,693   $ 59,366   $ 11,424
Operating expenses   $ 11,928   $ 6,984   $ 8,496   $ 37,044   $ 6,984
Net operating income (NOI)(2)   $ 6,868   $ 4,440   $ 5,197   $ 22,322   $ 4,440
G&A expenses   $ 1,027   $ 608   $ 950   $ 3,995   $ 608
G&A expenses as a % of revenue     5.5%     5.3%     6.9%     6.7%     5.3%
Loss for the period and comprehensive loss   $ (1,948)   $ (3,926)   $ (579)   $ (3,863)   $ (4,370)

(1) Regal was incorporated on April 11, 2012, however, operating activity commenced on October 16, 2012 with the acquisition of the Initial Communities, therefore, the quarter ended December 31, 2012 represents 77 days of operating activity.
(2) NOI is a measure used by management in evaluating operating performance. Please refer to the cautionary statements under the heading "Non-IFRS Measures" in this press release.

Weighted average occupancy of 94.5% in the quarter comprised of a 94.0% weighted average occupancy for the Initial Communities, an increase of 320 bps over the previous quarter, and a 96.0% weighted average occupancy for the four new homes.

Margins for the stabilized Initial Communities were maintained at 38.2% in the quarter and the lease-up properties margin was improved over the previous quarter from 35.0% to 38.1%.

General and administrative ("G&A") expenses of $1,027 were $77 higher than the previous quarter primarily due to an increase in compensation expense offset by an increase in management fees associated with higher revenue from the Initial Communities and the addition of the four new homes.  G&A was $419 higher than the same quarter last year partly due to the longer period in 2013 but primarily due to increase in staffing and public company costs, somewhat offset by an increase in management fees.

The loss of $1.9 million was higher than the loss from the previous quarter of $0.6 million due to transaction costs of $1.8 million and increased finance costs associated with the acquisition of the four new homes offset by higher revenue and fair value adjustments.  The transaction costs relate to the acquisition of the four new homes in the quarter of which the largest component is land transfer taxes.  These costs were funded in conjunction with the issue of the convertible debentures and the private placement.  The loss was lower compared to the same quarter last year due to growth in the business, both organic and through acquisitions, a longer period in 2013 and lower transaction costs, offset by increased finance costs and G&A.

Financial Position

At December 31, 2013 cash on hand was $5.1 million and the unused borrowing capacity on Regal's revolving credit facility and revolving loan was $20.0 million.

Debt to gross book value ("GBV") is 58% including the convertible debentures which is slightly below the target range of 55% to 60% (65% if convertible debentures are utilized). Regal's weighted average interest rate is 3.76% after interest rate subsidy (4.01% including convertible debentures). Regal's debt strategy is to obtain secured mortgage financing on a primarily fixed rate, property-by-property basis with staggered maturity dates once a property reaches a stabilized lease-up level. Regal's objectives are to: (i) achieve and maintain staggered debt maturities to lessen exposure to interest rate fluctuations and re-financing risk in any particular period; and (ii) fix the interest rates and extend loan terms as long as possible when borrowing conditions are favourable. However, Regal is maintaining a shorter average maturity schedule to take advantage of CMHC insured financing as well as the opportunity to arrange top-up financing, once the properties stabilize, which is expected to occur in 2014.

Investor Conference Call

Simon Nyilassy, President and Chief Executive Officer and Harold Atterton, Chief Financial Officer, will host a conference call on Friday February 21, 2014 at 10:00am ET.  The telephone numbers for the conference call are:  Local (416) 340-2217 or Toll Free 1-866-696-5910.  The participant passcode is #2783029.

The conference call can be replayed (Instant Replay) until March 24, 2014 by dialing:  Local (905) 694-9451 or Toll Free 1-800-408-3053.  The passcode for the Instant Replay is #6332204.  The call will also be archived on the Regal website at www.regallc.com.

About Regal Lifestyle Communities Inc.

Regal Lifestyle Communities Inc. is a corporation incorporated under the laws of the Province of Ontario. The Company's portfolio is comprised of 14 retirement communities consisting of over 1,900 suites, primarily located in the Province of Ontario and including a property located in each of the Provinces of Saskatchewan and Newfoundland and Labrador.

Forward-Looking Information

This press release contains forward-looking information that reflects the current expectations, estimates and projections of management about the future results, performance, achievements, prospects or opportunities for Regal and the seniors housing industry. The words such as "may", "would", "could", "will", "anticipate", "believe", "plan", "expect", "intend", "estimate", "aim", "endeavour", "project", "continue" and similar expressions have been used to identify these forward-looking statements. Forward-looking statements are based upon a number of assumptions and are subject to a number of known and unknown risks and uncertainties, many of which are beyond management's control, and that could cause actual results to differ materially from those that are disclosed in or implied by such forward-looking statements.

While we anticipate that subsequent events and developments may cause our views to change, we do not intend to update this forward-looking information, except as required by applicable securities laws. This forward-looking information represents our views as of the date of this press release and such information should not be relied upon as representing management's views as of any date subsequent to the date of this document. Management has attempted to identify important factors that could cause actual results, performance or achievements to vary from current expectations or estimates, expressed or implied, by the forward-looking information. However, there may be other factors that cause results, performance or achievements not to be as expected or estimated and that could cause actual results, performance or achievements to differ materially from current expectations. There can be no assurance that forward-looking information will prove to be accurate, as actual results and future events could differ materially from those expected or estimated in such statements. Accordingly, readers should not place undue reliance on forward-looking information. These factors are not intended to represent a complete list of the factors that could affect us. See "Risks and Uncertainties" in the MD&A, "Risk Factors" in the prospectus and risk factors highlighted in materials filed with the securities regulatory authorities of Canada from time to time, including but not limited to Regal's most recent annual information form.

Non-IFRS Measures

FFO, AFFO, NOI, and Debt Service Coverage Ratio are not measures defined by International Financial Reporting Standards ("IFRS"). They are presented because management believes these non-IFRS measures are relevant and meaningful measures of Regal's performance. FFO, AFFO, NOI and Debt Service Coverage Ratio as computed may differ from similar computations as reported by other issuers and may not be comparable to those reported by such issuers. Regal's Management Discussion and Analysis of Results of Operations and Financial Condition for the quarter and year ended December 31, 2013 ("Q4 2013 MD&A") contains a reconciliation of loss to FFO and a reconciliation of cash provided by  operating activities to AFFO for the quarter and the year ended December 31, 2013. Detailed descriptions of the terms are contained in Regal's Q4 2013 MD&A, available at www.sedar.com.

SOURCE Regal Lifestyle Communities Inc.

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