Amica Mature Lifestyles, Inc. F1Q09 (QtrR End 08/31/08) Earnings Call Transcript

Amica Mature Lifestyles, Inc. (ACC)

F1Q09 Earnings Call

October 9, 2008 1:00 pm ET

Executives

Alyssa Williams – Investor Relations

Samir A. Manji – Chairman, President & Chief Executive Officer

Douglas G. Allen – Chief Financial Officer & Corporate Secretary

Colin R. Halliwell – Chief Operating Officer

Analysts

Shant Poladian – Canaccord Adams

Jimmy Khing Shan – National Bank Financial

Presentation

Operator

Welcome to the Amica Mature Lifestyles first quarter results conference call. (Operator Instructions) It is now my pleasure to introduce your host, Alyssa Williams.

Alyssa Williams

Thank you for joining Amica’s first quarter results conference call for fiscal 2009. If you would like a copy of the related news release or financial statements you may find them on the investor relations section of our website at www.Amica.ca. You may also access a replay of this conference call until October 15, 2008, details of which are also available on our website.

Featured on today’s call is Samir Manji, Chairman, President and CEO who will be providing an overview on the company’s progress over the quarter and Doug Allen, Chief Financial Officer who will focus on the financial results for the first quarter of fiscal 2009. Colin Halliwell, the company’s COO is also on the line and all three will be available to answer questions. We recommend that you hold your questions until Doug and Samir have completed their presentation.

Since by now you’ve had an opportunity to review the earnings announcement, we will not reiterate the numbers here other than those that merit special attention. Before we begin I would like to remind everyone that statements made during our prepared remarks or in the Q&A portion of the conference call with reference to managements’ expectations or are predictions of the future are forward-looking statements.

All statements made today which are not statements of historical facts are considered to be forward-looking statements. Please refer to the Safe Harbor statement in the earnings announcement put forth earlier today. Please also refer to the risks and uncertainty section of our 2008 annual report which outlines certain factors that may cause actual results to differ.

I’ll now turn the call over to Doug who will provide some highlights of our financial performance.

Douglas G. Allen

All of the amounts that I am about to discuss are for the first quarter ended August 31, 2008 as compared to the first quarter ended August 31, 2007 and are in Canadian dollars. EBITDA decreased $1.0 million to $2.5 million. MARPAS increased 2.1% on a same community basis. Cash flow from operations decreased $0.3 million to $1.8 million. Net earnings decreased $0.6 million to $0.5 million. Per share net earnings decreased $0.03 per share from $0.06 per share to $0.03 per share and diluted cash flow per share decreased $0.02 per share from $0.12 per share to $0.10 per share.

At this point I will pass it over to Samir for his comments.

Samir A. Manji

We have shared with you today our financial and operating results for the first quarter of fiscal 2009. I’d like to begin today where we left off just a few months ago when we shared with you our fourth quarter and yearend results for fiscal 2008. We all know that we are living in very challenging times today. During our yearend results conference call in August, I mentioned that we will leave no stone unturned as far as evaluating every facet of our business.

This statement has been and will continue to be front and center in terms of all decision making. Maximizing financial results, managing our cash resources and working to advance the Amica brand remain our top priorities. The Amica brand continues to gain prominence in the communities and surrounding areas it serves and we are proud to say that Amica today is recognized by many as the premier brand in the luxury independent living sector of senior’s housing in Canada.

As mentioned in our press release, our marketing and advertising campaigns have been ramping up over the past month for one of our busiest marketing periods of the year from September to November. As a result, we remain optimistic that we will see an increase in occupancies at our communities in operation and an increase in our pre-leasing results for communities that will be opening soon.

We ended the first quarter with overall occupancy in our mature residences at 94.5%. MARPAS for the quarter or monthly average revenue per available suite increased 2.1% on a same community basis compared to an increase of 3.9% for the same quarter ended August 31, 2007. Strong occupancy results, rent increases and ancillary revenue remain key contributors to our overall MARPAS growth.

One milestone this fiscal year was the opening of Amica at Westboro Park in Ottawa on September 16^th. 41% of the independent living suites are reserved to date at this community. The opening of Amica at Westboro Park brings our total number of communities in operations to 17 with seven communities at various stages of development. We are now looking forward to the opening of our next wellness and vitality residence, Amica at Thornhill which is expected to open next month.

Looking ahead, Amica at London is expected to open in March, 2009 and Amica at Whitby is expected to open in late spring, 2009. Our board announced earlier today along with our Q1 results a quarterly dividend of $0.06 per share on all the company’s issued and outstanding common shares to shareholders of record on November 28, 2008 made payable on December 15, 2008.

Under our normal course issuer bid which was approved by the TXX in January of 2008 and began on January 15, 2008 Amica may purchase up to 880,663 shares for cancellation. As of August 31, 2008 we have purchased a total of 404,200 common shares at an average price of $6.57 per share which have been cancelled by the company.

Let me conclude by again repeating that we are examining every aspect of our business in what are extremely challenging economic times. We have significant uncertainty today in the financial and consumer markets and we will continue to work hard to manage our business in a focus and prudent manner. At this point we will be happy to address any questions that you may have.

Question-and-Answer Session

Operator

(Operator Instructions) Our first question comes from Shant Poladian – Canaccord Adams.

Shant Poladian – Canaccord Adams

I had a few question, the first one being just generally the economy and the impacts from the credit markets. To what extent are they affecting occupancy and demand at this point? And also, are you seeing any changes as far as the competitive landscape and private developers, whether they’re able to continue to execute their growth strategies or not?

Colin R. Halliwell

We’re not really seeing the market [inaudible] affecting our occupancy. What we see is there’s a potential issue is if the softening real estate market, if that continues because the main source of equity for our residents tends to be their home. In terms of their investments, the average age of our residents is about 80 so they have often taken their portfolio to a safe haven a long time ago.

Samir A. Manji

To build on Colin’s comments as far as the balance of your question Shant, I don’t know exactly how these turbulent times that we’re in is impacting other developers. I do know how it’s impacting us and one could perhaps extrapolate from there what must be happening or may be happening to others. As far as we’re concerned, there is no doubt, and I know I’m stating the obvious but these credit markets are unprecedented times.

That has created and I believe will continue to create significant challenges when it comes to financing new development. Now, fortunately for us, of the five developments are in the ground right now underway, four of them are financed. In four cases, as far as buildings that are not open yet. So, with respect to Thornhill, London, Bayview Gardens and Whitby, we have construction financing commitments in place.

That leaves Windsor and Windsor continues to be a thorn in our side as far as financing is concerned. Despite what everyone might hear and continue to perceive as far as the Windsor market is concerned, from a seniors standpoint, from a demand standpoint, from a demographic standpoint, we continue to believe that the market in Windsor is strong and will continue to stay strong.

This ties back in to Colin’s point about the fact that our customers, in all likelihood have not been day trading, have not been making huge bets on the equity market, have not been investing in hedge funds, etc., etc. Our customers traditionally have been for a number of years holding their capital in the form of more conventional safe investments, bonds, T-Bills, GICs and while they will be impacted by the housing market again, they may not as impacted as others.

So long as we can continue to see demographics projecting out the way we do, including in Windsor, we’re confident that we’ll be okay. Now, despite that, we have not despite our months of efforts to date, we have not been able to get a lender on side to provide construction financing on Windsor and we are currently pouring columns on the third floor so the third floor slab is already poured, we’re doing columns and shortly we’ll be pouring fourth floor concrete.

I will say before the question is asked, we’ve been loaning the joint venture cash from our balance sheet to keep this thing going and we’re probably in the next 60 days we will be forced to make a decision one way or the other. We are working with a couple of lenders right now to again, ensure not stone is left unturned to get financing in place for Windsor. I can’t say we’re pessimistic, I can’t say we’re optimistic. I think we’re unpositional at this point because we don’t know.

We don’t know, the challenges we’ve had in the past few months convincing lenders that Windsor will work for us combined with the latest, and this changes by the day, what’s happening in the economy and the credit markets, we’re not sure where the dust is going to settle with this thing. But, that probably remains our one sort of key risk as it relates to our developmental construction world, Shant that you have raised in terms of the issue.

Like I said, one can extrapolate from there what others must be facing. I will say that we consider ourselves relatively speaking to others, and particularly newer players in the business, we consider ourselves to be in relatively good standing as far as our financial strength. Having said that, we don’t have a money tree here that we can keep pulling from forever.

So, as I mentioned in some of the introductory comments, from a big picture strategic standpoint we’re looking at all avenues in terms of how we can ensure we create for Amica and its shareholders a sustainable go forward environment.

Shant Poladian – Canaccord Adams

So, I guess the existing projects that have construction financing have you seen any changes in the terms? Or, everything is still –

Samir A. Manji

Yes we have. As of yesterday, our cost of funds came down 25 basis points Shant.

Shant Poladian – Canaccord Adams

What about other terms?

Samir A. Manji

Maybe there is a little bit of good news in this conference call.

Shant Poladian – Canaccord Adams

With Windsor basically you’re saying that – this thing was scheduled to open in the fall of 2009, right?

Samir A. Manji

Yes.

Shant Poladian – Canaccord Adams

So I guess the thinking is if you don’t get financing for that, that’s something that you maybe put on hold?

Samir A. Manji

We’ll have no choice quite frankly Shant. If we don’t have financing, and I’m not trying to raise alarm bells here because we have a couple of avenues we still are working on. But, I would say that by the end of November we’re either going to have financing in place or we may have to sit on, by that point, five floors of concrete. I don’t want to raise the alarm bell yet but I can’t tell you optimistically or confidently, nor pessimistically what’s going to happen in 60 days because I don’t know.

None of us know. This world is changing every day. It’s a risk reward decision, what we have chosen to do is to continue along with the construction schedule in the hopes that we will be able to secure financing to see this project through to completion. Because if we stop now versus 60 days from now, to start again in 60 days, the cost that will come with that financially and time will be quite significant.

Shant Poladian – Canaccord Adams

And how much is invested so far in this thing?

Samir A. Manji

Well, I’ll give you the breakdown, about $7 million of equity, we’ve got $2 million of mez financing that Amica had committed and has funded and we’ve got another $4 million of cash that we have injected in to that development as a loan so that’s in aggregate $13 million. That will likely grow to north of $14 in the next 60 days.

Shant Poladian – Canaccord Adams

The total cost to complete, was that in the $30 million range?

Samir A. Manji

$44 million.

Shant Poladian – Canaccord Adams

Then just turning to your liquidity position, based on the refinancing that you did, it looks like you’re going to end up next quarter with quite a substantial amount of money? I’m correct in saying that, right? I think there was roughly $23 million of debt that’s maturing and you’ve already refinanced $32 million so you’ve got an additional $9 million?

Samir A. Manji

That’s not all together correct but I’ll let Doug answer the question.

Douglas G. Allen

Some of the refinancing is really, Rideau will go to cash hand. The Erin and Villa refinancings have to be put through to a co-tenancy which will allow some surplus funds but it’s probably not a one-to-one correlation. Rideau should net us about $6 million in additional cash and then we’ll be able to make some distributions from the Erin Mills and Villa. I don’t think it’s $9 million, I think it’s probably more like $7 Shant.

Samir A. Manji

What’s happen in the process Shant is if you look at our yearend cash balance and then you’ll see the August month end cash balance or quarter end cash balance, there are several areas where there are significant outflows in Q2 related to again, other commitments we’ve made as far as mez loans, some completion loans. With our Bayview Gardens project where we had a short fall of $5 million equity, when we went to the investors for that $5 million several stepped up, several did not.

We, with our board, made a decision that we would step in to take an equity position, we didn’t have an equity position. When we did this joint venture, we were oversubscribed so Amica’s ownership in Bayview Gardens was zero. That will actually increase now to a 33% ownership position and within in that we will be investing over $3 million in to Bayview Gardens for that equity position.

Shant Poladian – Canaccord Adams

We’ll see $3 million outlay for that in the next quarter?

Samir A. Manji

We’ll see most of it in Q2, yes.

Shant Poladian – Canaccord Adams

As far as other maturities you’ve got Beechwood and I think last call you mentioned there’d be a pretty good opportunity to upward refinance that?

Samir A. Manji

I think that Beechwood will be looking at somewhere – I’ll be conservative, I think achieving $6 million additional cash through the refinancing of Beechwood would be a reasonable assumption.

Shant Poladian – Canaccord Adams

And of course, [CMAC] once again, right?

Douglas G. Allen

Yes, and I’m in the process of going through that application right now in fact.

Shant Poladian – Canaccord Adams

Just turning back, over the next year you’ve got the Amica at Bayview debt maturity and correct me if I’m wrong, that was one of those situations where you were able to get more than 100% of the equity back through the take up financing?

Samir A. Manji

Correct.

Shant Poladian – Canaccord Adams

And that asset has performed extremely well so presumably if the market stays the way it is you’ll be looking at refinancing that with [CMAC] insured mortgages. Is there a potential for a short fall or it’s still way too early to know?

Samir A. Manji

Let’s answer that question with one key caveat and the caveat is if it were today because we don’t know what will happen between now and next year, but if it were today, I believe we could refinance Amica at Bayview with [CMAC] for a loan amount at least equal to what the outstanding balance on the loan is today. So, I think we and the joint venture will be okay there.

Operator

Our next question comes from Jimmy Khing Shan – National Bank Financial.

Jimmy Khing Shan – National Bank Financial

Going back to the Bayview Gardens issue, do you see any other issues like that with respect to the other co-tenancy that you have where you think you might have to pony up?

Samir A. Manji

I think there is Jimmy, a very high likelihood that we will, over the course of the next number of weeks, be going back to investors on some of our joint ventures that are under development or lease up for an injection of additional capital. The form of which remains to be seen, whether it will be straight equity or something of a hybrid from straight equity. But, I think there’s a high likelihood that that is going to happen, number one.

Number two, it’s hard to predict how many will step up but for those that don’t we will have to find additional avenues through which we can have whatever shortfall does materialize addressed. Our first preference will not be for us to be the back stop simply because as much as we are in reasonable shape, we’re not in great shape but we’re in reasonable shape today and at least over the next few months as far as our cash position is concerned, it wouldn’t take too many more Bayview Garden scenarios before we deplete all of our cash.

We do not want to allow that to happen. So, we’ve got some work cut out for us and it’s not solely our responsibility. When all is said and done, this responsibility is shared between us and all the JV investors for everyone’s proportionate share. So, you can be rest assured that whatever it is that we propose to investors – first of all it won’t be us proposing it will be the management committee that we participate in. It will be the management committee of each joint venture that will make these proposals to the joint venture investors.

You can rest assured that the proposals that will go forward will make it very compelling to put the money and very costly for those investors that don’t put it in because while everyone has their challenges, it’s just not fair for some investors to be carrying the lion’s share if not all of the burden. So there will be risk reward consideration factored into whatever’s proposed to the different joint ventures.

The reason I want to keep it to a high level is because when you have a situation that may be a development already built open and leasing up, number one you might have a smaller capital requirement and you wouldn’t have as much difficulty getting people to step up given how far along we are in the process. Whereas if you have other situations that are of a different extreme, Windsor being a great example, it’ll likely have to be something more significant to ensure that we are able to achieve whatever funding it is that we are looking for from the investors.

Jimmy Khing Shan - National Bank Financial

So I guess on a high level if you were to guess at what that shortfall might be given what you know today, would you hazard a guess there what that amount might be?

Samir A. Manji

Typically as you know from the experience we’ve had with you and Shant and others in these conference calls, we’ve typically tried to answer questions head on. I have to tell you this is one instance where we honestly don’t know. Over the next number of weeks Doug, Colin and I are going to be amongst other things doing a lot of number crunching and a lot of confirmation on what is the size of the gap so that when we do go to these investors we’re only going once; we’re not having to go a second time afterwards.

I will though commit that when we have the Q2 conference call we will be able to provide specifics and by that point we will likely have a number of these either done or underway.

Jimmy Khing Shan - National Bank Financial

And the cost of that gap, is it a combination of construction costs ahead of performance or is it more the construction loan not being advanced or what’s the primary reason?

Samir A. Manji

Good question. It’s definitely not the latter. In other words, whatever construction financing commitments we’ve had from our lenders they have all honored and have all continued to work with us, and we appreciate their support and confidence. To the extent that there are shortfalls it is largely a product of cost overruns, construction delays that increase finance costs and soft costs, etc. So it has nothing to do with anybody pulling the plug on the construction financing side. It has everything to do with the development itself and a requirement for capital or equity injection.

Jimmy Khing Shan - National Bank Financial

And just remaining on that topic, I think a couple quarters back there were some issues with the Ottawa property where the mezzanine loan interest had to be basically pulled back. Do you see any similar issues coming up in the next little while with respect to other properties perhaps?

Samir A. Manji

No. If anything, there may be instances where we will have to go to accruing versus a cash form of interest receipt but by no means do I see any concessions being made on our part because quite frankly in this environment the fact that we are providing loans at the rates that we are, these joint ventures could not achieve those rates in the open market.

I think there’s an appreciation for that with our investors. I think investors do appreciate that. They do recognize that we’re all in the same turbulent times so I think for the most part it’s going to boil down with respect to the investors’ decisions.

And digressing here, I apologize but I think it’s important to say this, I think it’s going to be circumstantial. I don’t think there are going to be investors that will not step up because they don’t want to. I think investors who have capacity or ability will step up and I think that those who honestly don’t because they’ve got their own challenges will tell us that. I’m confident that that will be the two cases with the majority of investors.

Jimmy Khing Shan - National Bank Financial

And then just to be clear on the mortgages that got renewed, the Da Vinci, Erin Mills and Rideau, the mortgages that were expiring totaled $22 million. Is that right?

Doug

Yes. On our consolidated balance sheet, yes. Erin Mills we only pick up 50% of though, so Erin Mills had a mortgage balance of almost $16 million at August 31.

Samir A. Manji

Why don’t we give you the breakdown of the total amounts?

Jimmy Khing Shan - National Bank Financial

Yes, just in aggregate. I guess I was just trying to get a sense. I know you’re saying you’re going to net out $7 million in cash but if we just ignore the 33% new ownership in Bayview Gardens, what would have been the cash that you’re pulling out specifically from those three properties?

Doug

We’re going to pull out about $7.5 million from the three properties.

Jimmy Khing Shan - National Bank Financial

That’s positive news. And then on Kingston, has there been any update there with respect to your investment?

Samir A. Manji

There has not been. Our partner there continues to work with the various options he is considering or exploring but at this stage we don’t have a deal as far as someone there to take us out, and this current market’s obviously not helping.

Jimmy Khing Shan - National Bank Financial

Do you expect to do any sort of term financing or take out financing in the next 12 months perhaps Dundas or is that too early still?

Samir A. Manji

That’s a good question. I would say yes. I would say Dundas given where we are today has a good likelihood of getting to the finish line within the next 12 months in terms of lease up and refinancing. What the end results going to be, I don’t know but I would say as far as the cycle, yes Dundas is tracking very well.

Jimmy Khing Shan - National Bank Financial

In the quarter you delayed the design and marketing fees on Richmond Hill and Oakville due to zoning delays. Are you anticipating any further delays with respect to those two projects?

Samir A. Manji

I think that at this stage we’re looking at the earliest a spring completion of zoning. We’ve had challenges that are beyond reasonable quite frankly and imaginable in both those instances, interestingly from different stakeholder groups. We don’t need to go into detail but yes we’re going to be delayed at least till the spring. Whether it’ll go beyond that remains to be seen.

Jimmy Khing Shan - National Bank Financial

And then my final question is just if you have any update on those new development contracts that you’ve been working on for a while?

Samir A. Manji

We have one that is approaching the finish line and that we hope to be able to announce this quarter; we should be able to announce this quarter. But I’ve got to tell you, beyond that while we are seeing opportunities we’re taking a very, very cautious approach.

For whatever it’s worth, if we’re not seeing the development partner and/or combination of development partner and the development partner’s investors bringing the majority of capital to the table, we’re not going to be touching anything in the near term on our own. I think we would be naïve to not recognize that our own investor pool today between the commitments they’ve made between the likely additional commitments they will be facing in the next few months, to go to our investor pool with a new deal today is not something that I think we will be doing. So it’s really going to have to be opportunities that come from the external market including the investor side for us to even look at it.

Operator

Our next question comes from Shant Poladian - Canaccord Adams.

Shant Poladian - Canaccord Adams

The delay in the recognition of the design and marketing fees from those projects, what’s your budget for fiscal 2009?

Doug

My guidance would be probably $500,000 a quarter for the next three quarters. So we’re looking at about $2 million in aggregate then.

Shant Poladian - Canaccord Adams

Last quarter we talked a little bit about the Kingston project that you decided not to proceed with and the potential to have a write-down there. What would be the update on that?

Samir A. Manji

Again I think as I shared with Jimmy, the jury’s out on that one. Right now we on our books have a $1.3 million equity investment. So I’m going to say that could be our exposure. If it’s slightly higher or lower than that, I don’t know. But we’re working towards being able to recover that. I don’t know if I can really say much more than that.

Shant Poladian - Canaccord Adams

One final question, I guess with all of the things that you’ve got to go back to your investor pool with, are you seeing any significant investors falling away from that pool or any new ones coming in? It’s obviously a very fluid market for anybody involved in capital raising these days, but how have you seen things moving in the past few months?

Samir A. Manji

Again with the Bayview Gardens cash call, just from a dollar value standpoint we saw about 40% of the investors step up and we saw 60% not stepping up for whatever reasons and thereby taking the dilution in their ownership interest. We have seen a couple of investors going for the exit doors and we’re working with them and other investors to try and facilitate that. Whether we’ll see more of that, I don’t know. Again a lot of it is circumstantial.

It may be because they’ve lost confidence. I don’t know how much of it is that versus their own circumstances and them saying to us, “Look, I need liquidity and if you can help me get that, that would be appreciated.” So our job at that point is to try and marry investors up together and there will always be those that are in a position to perhaps step up and will negotiate with other investors to figure out what that looks like. But that has happened in a couple of instances. Whether we’ll see more of that, I don’t know. Again, every day’s a different day in the market.

Shant Poladian - Canaccord Adams

Have you given any thought towards bringing in some institutional partners with broader pools of capital?

Samir A. Manji

I think it’s early for that at this point solely. The reason we have not historically dealt with institutional investors is because they won’t accept our management contract. So unless they’re prepared to step in and accept it; they’d have to. If they wanted to buy out an existing investor or they agreed to, they would inherit our management contract. And I think that would be a non-starter for them.

Operator

There are no further questions at this time.

Alyssa Williams

We’d like to thank you for participating in today’s conference call. As previously mentioned if you would like a copy of the related news release or financial statements, you may find them on the Investor Relations section of our website at www.amica.ca. You may also access a replay of this conference until October 15, 2008, details of which are also available on our website. Thank you and have a great day.

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