Regal Lifestyle Communities Inc. Announces Results for the Quarter Ended September 30, 2013
TORONTO, Nov. 7, 2013 /CNW/ - Regal Lifestyle Communities Inc. ("Regal") (TSX:RLC) announced today results for the third quarter ended September 30, 2013.
Q3 2013 Highlights:
- Revenue increased by 3.6% over the previous quarter;
- Net operating income increased by 5.4% over the previous quarter;
- Average portfolio occupancy increased 90 bps to 90.8% for the quarter;
- Average occupancy in the eight stabilized properties reached 94.8% in the quarter; and
- A $61.8 million portfolio acquisition was announced, which will increase total suite count by 38%. The acquisition closed on October 9, 2013.
"The growth strategies we have worked hard on since our initial public offering ("IPO") last year are bearing fruit," said Mr. Simon Nyilassy, President and CEO. "We expect further improvement in the fourth quarter as the accretive impact of our recent acquisition adds to the growing contribution from our existing homes," he added.
Average occupancy levels in the two homes in lease-up, Brampton (Greenway) and Ottawa (Valley Stream), increased by 240 bps and 280 bps, to 83.9% and 77.3% respectively, during the quarter, and hit 85.7% and 83.1% 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 will also be focusing on the integration of the four homes acquired early in the fourth quarter, to realize on the significant accretion arising from the purchase.
Financial Highlights
| (in $000's, except for unit amounts and as otherwise indicated) |
Actuals for the three months ended September 30, 2013 |
Financial forecast for the three months ended September 30, 2013 |
Actuals for the three months ended June 30, 2013 |
Actuals for the nine months ended September 30, 2013 |
Actuals for the 350-day period from October 16, 2012 to September 30, 2013 |
Financial forecast for the 350-day period from October 16, 2012 to September 30, 2013(1) |
||||||
| Operating Revenue | $ | 13,693 | $ | 14,005 | $ | 13,214 | $ | 40,570 | $ | 51,994 | $ | 52,566 |
| Net Operating Income | $ | 5,197 | $ | 5,881 | $ | 4,930 | $ | 15,454 | $ | 19,894 | $ | 21,660 |
| AFFO (2) | $ | 3,003 | $ | 3,270 | $ | 2,739 | $ | 8,635 | $ | 11,302 | $ | 12,222 |
| AFFO per share - basic(2) | $ | 0.158 | $ | 0.189 | $ | 0.144 | $ | 0.456 | $ | 0.603 | $ | 0.712 |
| AFFO per share - dilutive (2) | $ | 0.158 | $ | 0.189 | $ | 0.144 | $ | 0.456 | $ | 0.603 | $ | 0.709 |
| Dividends | $ | 3,321 | $ | 3,028 | $ | 3,321 | $ | 9,954 | $ | 12,682 | $ | 11,577 |
| Dividends per share - basic | $ | 0.175 | $ | 0.175 | $ | 0.175 | $ | 0.525 | $ | 0.676 | $ | 0.675 |
| Dividends per share - dilutive | $ | 0.175 | $ | 0.175 | $ | 0.175 | $ | 0.525 | $ | 0.676 | $ | 0.671 |
| Dividends as a % of AFFO | 110.6% | 92.6% | 121.2% | 115.3% | 112.2% | 94.7% | ||||||
| (1) | Financial forecast - refers to the financial forecast for the 12-month period ended September 30, 2013 included in Regal's prospectus dated October 5, 2012; pro-rated to reflect Regal's ownership of the Initial Communities commencing on October 16, 2012. |
| (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, net operating income ("NOI") and adjusted funds from operations ("AFFO") all increased substantially from the previous quarter, by 3.6%, 5.4% and 9.6% respectively. This strong performance reflects improvements in weighted average occupancy over the previous quarter, which rose from 89.9% to 90.8% and ended the quarter at 91.8%. Margins also increased by 70 bps to 38.0% in the quarter, also reflecting higher occupancy.
Compared to the original IPO forecast, operating revenue, NOI and AFFO were lower for the quarter by 2.2%, 11.6% and 8.2% respectively. The reconfiguration of 36 LTC funded beds into 17 assisted living suites in Valley Stream Manor, causing a temporary loss in revenue, was the primary reason for this shortfall, together with a revised 10 suite expansion plan in Plymouth Cordage which resulted in a later completion date than forecast. Both of these projects are now complete and in lease-up. In addition, margins continue to be lower than forecast in Brampton due to the ramp up in costs to run the two floors converted to assisted living, comprising 43 suites. These suites are now substantially leased up and, as a result, margins are expected to improve in future quarters. While this impacted NOI and margins, AFFO was not affected due to income guarantees receivable from the former owners.
Dividends during the period were $3,321 compared to the forecast of $3,028 and $3,321 in the previous quarter. The increase compared to the forecast was due to the issuance of approximately 2.2 million shares for the over allotment and the earn-out on Valley Stream Manor and Barrhaven Manor in the fourth quarter of 2012 and a further 0.2 million shares in the first quarter of 2013.
Total mortgage debt is $193,979 compared to $207,605 at IPO. The reduction relates to the repayment of a $10 million term loan on Greenway Retirement Village using a portion of the over allotment proceeds and regular monthly principal payments. The repayment of this debt also reduced Regal's weighted average interest rate from the forecast of 4.03% to 3.97% (3.66% after interest rate subsidy).
Operating Performance
| (in $000's except for otherwise indicated) | Actuals for the three months ended September 30, 2013 |
Financial forecast for the three months ended September 30, 2013 |
Actuals for the three months ended June 30, 2013 |
Actuals for the nine months ended September 30, 2013 |
Actuals for the 350-day period from October 16, 2012 to September 30, 2013 |
Financial forecast for the 350-day period from October 16, 2012 to September 30, 2013(1) |
||||||
| Weighted average occupancy % | 90.8% | 93.4% | 89.9% | 90.5% | 90.5% | 91.8% | ||||||
| Operating revenue | $ | 13,693 | $ | 14,005 | $ | 13,214 | $ | 40,570 | $ | 51,994 | $ | 52,566 |
| Operating expenses | $ | 8,496 | $ | 8,124 | $ | 8,284 | $ | 25,116 | $ | 32,100 | $ | 30,906 |
| Net operating income (NOI)(2) | $ | 5,197 | $ | 5,881 | $ | 4,930 | $ | 15,454 | $ | 19,894 | $ | 21,660 |
| G&A expenses | $ | 950 | $ | 806 | $ | 943 | $ | 2,968 | $ | 3,576 | $ | 3,109 |
| G&A expenses as a % of revenue | 6.9% | 5.8% | 7.1% | 7.3% | 6.9% | 5.9% | ||||||
| Income (loss) | $ | (579) | $ | 351 | $ | (625) | $ | (1,915) | $ | (5,841) | $ | 722 |
| (1) | Financial forecast - refers to the financial forecast for the 12-month period ended September 30, 2013 included in Regal's prospectus dated October 5, 2012; pro-rated to reflect Regal's ownership of the Initial Communities commencing on October 16, 2012. |
| (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 90.8% in the quarter comprised of a 94.8% weighted average occupancy for the stabilized properties, an increase of 30 bps over the previous quarter, and a 81.1% weighted average occupancy for the lease-up properties, Valley Stream Manor and Greenway, an increase of 260 bps over the previous quarter.
Margins for the stabilized properties also improved over the previous quarter from 38.2% to 39.4% and remained flat in the lease-up properties at approximately 35.0%.
Compared to forecast, occupancy and margins in the stabilized portfolio were in line with the exception of the Plymouth Cordage retirement home in Welland, due to the previously noted revision in expansion plans. In the lease-up properties, Greenway's occupancy averaged 83.9% in the quarter compared to a forecast of 79.1% while margins were lower primarily due to the ramp up in expenses mentioned above. (In addition, some temporary discounts were offered during the quarter to accelerate leasing in the traditionally slower summer months). Valley Stream's occupancy averaged 77.3% in the quarter, substantially below the forecast level of 94.4% due to the unanticipated termination of the 36 LTC funded beds. Margins were similarly affected.
General and administrative ("G&A") expenses of $950 were $7 higher than the previous quarter and $144 higher than forecast due primarily to severance costs and staff incentives. Management expects annual general and administrative expenses to be substantially in line with forecasted levels by December 31, 2013.
Loss was higher than forecast by $930 primarily due to factors noted above as well as higher than forecasted non-cash expenses of depreciation off-set by non-cash gains in fair value changes and actual finance costs of $1,724, lower than forecast of $1,907. This reduction in finance costs primarily relates to the repayment of the $10 million term loan on Greenway Retirement Village utilizing a portion of the over allotment proceeds.
Financial Position
At September 30, 2013 cash on hand was $0.3 million offset by bank indebtedness of $4.9 million and the unused borrowing capacity on Regal's revolving credit facility and revolving loan was $15.8 million. Included in bank indebtedness is $1.0 million deposit paid related to the acquisition of the four home portfolio (see Subsequent Event below).
Debt to gross book value ("GBV") is 54.6% which is slightly below the target range of 55% to 60%. The debt service coverage ratio for the quarter ended September 30, 2013 was 1.3 times. Regal's weighted average interest rate is 3.66% after interest rate subsidy. 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.
Subsequent Event
On October 2, 2013, Regal completed an offering for $25 million 6.0% convertible unsecured subordinated debentures that are due December 31, 2018. Concurrently, Regal completed a private placement of approximately 1.76 million common shares, at a price of $7.10 per common share, for total proceeds of approximately $12.5 million. Regal also assumed $34.5 million in mortgage financing in connection with the $61.8 million purchase of a portfolio of four retirement homes in Ontario. After giving effect to these transactions, Regal's debt to GBV would be 53.0% excluding convertible debentures and 58.2% after including convertible debentures compared to Regal's target ratios of 55% to 60% (65% if convertible debentures are utilized).
Investor Conference Call
Simon Nyilassy, President and Chief Executive Officer and Harold Atterton, Chief Financial Officer, will host a conference call Friday November 8, 2013 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 #7275852.
The conference call can be replayed (Instant Replay) until December 9, 2013 by dialing: Local (905) 694-9451 or Toll Free 1-800-408-3053. The passcode for the Instant Replay is #1782870. 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 "current generation" 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 three months and nine months ended September 30, 2013 ("Q3 2013 MD&A") contains a reconciliation of loss to FFO and a reconciliation of cash provided by (used in) operating activities to AFFO for the three months and nine months ended September 30, 2013. Detailed descriptions of the terms are contained Regal's Q3 2013 MD&A, available at www.sedar.com.
SOURCE: Regal Lifestyle Communities Inc.
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