Retirement Residences Real Estate Investment Trust
TSX : RRR.UN
TSX : RRR.DB.B
TSX : RRR.DB.C

Retirement Residences Real Estate Investment Trust

November 09, 2006 06:00 ET

Retirement Residences Real Estate Investment Trust Reports 2006 Third Quarter Results

MISSISSAUGA, ONTARIO--(CCNMatthews - Nov. 9, 2006) - Retirement Residences Real Estate Investment Trust ("Retirement REIT") (TSX:RRR.UN)(TSX:RRR.DB.B)(TSX:RRR.DB.C) today released its financial results for the third quarter ended September 30, 2006:

HIGHLIGHTS:

For the third quarter of 2006 compared to the third quarter of 2005:

- Revenue grew to $306.8 million from $268.8 million, an increase of 14.1%;

- Funds from operations per unit decreased to $0.137 diluted from $0.205 diluted and were significantly below our expectations. On a consolidated basis, the decrease is primarily due to higher general, administrative and trust expenses (including $1.6 million or $0.017 per unit diluted in costs related to the strategic review process) and higher interest expense due to both higher levels of debt and floating interest rates;

- Distributable income per unit decreased to $0.167 diluted from $0.224 diluted. The same factors affecting funds from operations have affected distributable income;

- Distribution payout as a percentage of funds from operations was 76.4% compared to 98.6%. The decrease is primarily attributed to a reduction in monthly distributions from $0.070 per unit to $0.035 per unit effective with the July 2006 payment;

- Net loss per unit decreased to $0.099 diluted from $0.166 diluted; and,

- One retirement home in Saskatoon, Saskatchewan was acquired and one retirement home in Hamilton, Ontario was sold.

Derek Watchorn, Retirement REIT's President and Chief Executive Officer stated, "Retirement REIT's financial performance for the third quarter of 2006 did not meet the expectations we had when we developed our business plan in the latter part of 2005. As discussed in previous quarters, the strategic review process has been time-consuming, expensive and restrictive in terms of management's ability to implement a number of initiatives designed to improve operating results. A slower than expected recovery in our Ontario retirement homes, continuing challenges in our U.S. Skilled Nursing Facilities and higher general, administrative and trust expenses have also contributed to the financial results. The strategic review process has concluded and the Public Sector Pension Investment Board ("PSPIB") has made a take-over offer to acquire all of the issued and outstanding units of Retirement REIT at a price of $8.35 cash per unit. The offer will be open for acceptance until 5:00 pm EST on January 15, 2007, and is subject to customary conditions. Our Board of Trustees has unanimously recommended that unitholders accept the offer from PSPIB."

DIVISIONAL RESULTS:

Canadian Long Term Care Operations - Net operating income for the Canadian Long Term Care Operations decreased to $22.6 million from $23.2 million in the third quarter of 2005. Average daily census in the portfolio of same long term care homes increased to 9,939 days from 9,745 days in the third quarter of 2005. The most significant improvement was in the Toronto area, where average daily census increased by 14.1% over the third quarter of 2005. Despite the overall increase in average daily census, net operating income declined because expenditures for certain programs which are funded on a cost recovery basis exceeded the maximum potential cost recovery compared to the third quarter of 2005.

Canadian Retirement Operations - Net operating income for the Canadian Retirement Operations decreased to $31.0 million from $31.2 million in the third quarter of 2005. Within Ontario, average daily census declined to 5,529 days from 5,829 days in the third quarter of 2005. Average daily census in the balance of the portfolio of same homes declined to 4,042 days from 4,091 days in the third quarter of 2005. Census has not improved as expected and this is partially attributed to increasing our profitability thresholds for new residents and our ongoing renovation program which will ultimately lead to improved net operating income.

U.S. Skilled Nursing Facilities - Net operating income increased to US$8.3 million from US$5.4 million in the third quarter of 2005 for the U.S. Skilled Nursing Facilities due to the incremental net operating income of US$3.1 million from recent acquisitions. Average daily census in the portfolio of same homes declined to 2,058 days from 2,103 days in the third quarter of 2005. Rates across all payor source categories improved however this did not offset the decline in the quality of our revenue mix and decrease in average daily census.

Other Operations - Net operating income for the U.S. Retirement Operations increased to US$1.6 million from US$1.4 million in the third quarter of 2005. Average daily census in the portfolio of same homes declined to 456 days from 466 days in the third quarter of 2005. Net operating income for Canadian Home Health Care increased to $0.6 million from $0.5 million in the third quarter of 2005.

Foreign Exchange - The increase in value of the Canadian dollar, compared to the third quarter of 2005, has reduced net operating income by $0.5 million in our portfolio of U.S. Retirement and U.S. Skilled Nursing Facilities.

Growth Activities - The strategic review process has constrained our ability to pursue new acquisitions and engage in significant development opportunities. However, our relationship with the Caleb Group resulted in the acquisition of two retirement homes in Saskatchewan. On August 4, an 85% interest in Caleb Manor in Saskatoon was acquired for approximately $11.2 million and on November 1, a 100% interest in The Bentley in Regina was acquired for approximately $18.4 million. On September 16, we welcomed residents to Windermere on the Mount, a historic facility which has been converted into a 91 suite retirement home in London, Ontario. Construction at Riverside Place in Windsor, Ontario is on schedule for completion in the first quarter of 2007.

General, administrative and trust expenses have risen to $14.8 million from $10.8 million in the third quarter of 2005 primarily because of our continued commitment to an appropriate governance structure and control environment as well as support to our business units. A portion of the increase relates to new initiatives designed specifically to increase revenue. Other general and administrative costs, which are not anticipated to be ongoing expenses, included $1.6 million related to the strategic review process.

Distributions - Under the terms of the agreement with PSPIB, Retirement REIT can continue to pay distributions equal to the lesser of (i) $0.035 per unit per month and (ii) adjusted funds from operations per unit as calculated by Retirement REIT excluding costs associated with the strategic review process (or "AFFO") since August 31, 2006. During September 2006, Retirement REIT generated AFFO of $0.030 per unit. Accordingly, in subsequent months Retirement REIT will have to generate sufficient AFFO to eliminate the $0.005 per unit deficiency that is carried forward or reduce monthly distribution payments to eliminate any deficiency for September and any subsequent months. The Trustees will continue to carefully monitor financial performance and will reduce the monthly distribution payments if required.

Proposed Tax Legislation - On October 31, 2006, the Canadian Federal Minister of Finance announced tax proposals, whose stated purpose was to tax income trusts in a similar manner to Canadian public corporations. Indicators are that certain real estate investment trusts will be excluded from this proposed legislation. At this time, it is too early to determine the extent to which the proposed legislation may affect Retirement REIT if it were to remain a publicly traded entity.

To view Retirement REIT's Management's Discussion and Analysis and Financial Statements for the quarter ended September 30, 2006, please visit our website at www.retirementreit.com.



SUMMARY OF FINANCIAL HIGHLIGHTS

OPERATING RESULTS
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For the three For the nine
months ended months ended
September 30, September 30,
(Millions) 2006 2005 2006 2005
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Revenues $306.8 $268.8 $858.1 $789.9
Direct operating expenses 241.6 205.8 673.2 610.6
Income before interest,
depreciation & amortization, gain
on sale of licenses, provisions for
impairment, non-controlling
interest, income taxes and
discontinued operations 50.3 52.2 142.4 147.7
Net income (loss) (9.2) (15.3) (21.1) (22.8)
Funds from operations (1) 12.7 19.6 38.8 53.5
Distributable income (1) 15.6 21.8 45.2 58.7
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(1) These measures are not defined by Canadian generally accepted
accounting principles and there is no standardized measure for
this item.


PER UNIT AMOUNTS
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For the three For the nine
months ended months ended
September 30, September 30,
2006 2005 2006 2005
-----------------------------------

Basic net income (loss) per unit $(0.099) $(0.166) $(0.228) $(0.248)
Diluted net income (loss) per unit (0.099) (0.166) (0.228) (0.248)
Funds from operations per unit(1) 0.137 0.214 0.419 0.583
Diluted funds from operations per unit(1) 0.137 0.205 0.419 0.570
Distributable income per unit(1) 0.169 0.237 0.489 0.639
Diluted distributable income per unit(1) 0.167 0.224 0.485 0.620
Distributions paid 0.105 0.210 0.525 0.630
Payout Ratio as a percentage of:
Funds from operations (1) 76.4% 98.6% 125.3% 108.2%
Distributable income (1) 62.3% 88.5% 107.4% 98.7%
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(1) These measures are not defined by Canadian generally accepted
accounting principles and there is no standardized measure for
these items.


FINANCIAL POSITION
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As at As at
(Millions) September 30, 2006 December 31, 2005
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Total assets $2,992.8 $2,868.3
Total debt $2,022.5 $1,815.4
Unitholders' equity (book value) $ 652.1 $ 724.6
Units outstanding at end of period 92.8 92.4
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Retirement REIT is the largest provider of accommodation and care for seniors in Canada. Retirement REIT owns 223 retirement and long term care facilities, including 40 facilities in select United States markets, and provides management services to 8 homes for other parties, with an aggregate resident capacity in excess of 26,500. Retirement REIT also provides nursing placement and in-home health care through its Central Health Services unit. For further information, see the Retirement REIT website at www.retirementreit.com.

Certain statements contained in this press release constitute "forward-looking statements". The results or events predicted in these statements may differ materially from actual results or events. These forward-looking statements relate to, among other things, Retirement REIT's objectives, goals, strategies, intentions, plans, beliefs, expectations and estimates, and can generally be identified by the use of statements that include phrases such as "believe", "anticipate", "expect", "estimate", "forecast", "plan", "intend", "likely", "will", "may", "could", "should", "would" and similar expressions are intended to identify forward-looking statements.

Although Retirement REIT believes that the expectations reflected in such forward-looking statements are reasonable, such statements involve risk and uncertainties, and undue reliance should not be placed on such statements. Certain material factors or assumptions are applied in making forward-looking statements, and actual results may differ materially from those expressed or implied in such statements. Important factors that could cause actual results to differ materially from these expectations include, among other things: industry risk, risks inherent in the ownership of real property, changes in the regulatory environment and licensing requirements for Retirement REIT's facilities, competition, financial leverage, additional funding requirements, capital requirements for growth, interest rates, dependence on skilled staff, labour disruptions, geographic concentration, foreign exchange risk, environmental liability risk, credit risk, availability of cash flow for distribution and liquidity risk. Additional information about these factors and about the material factors or assumptions underlying such forward-looking statements may be found in the body of this document as well as in Retirement REIT's regulatory filings available on its website and at www.sedar.com. These are not necessarily all of the important factors that could cause actual results to differ materially from those expressed in any of Retirement REIT's forward-looking statements. Other known and unpredictable factors could also impact its results. Consequently, there can be no assurance that the actual results or developments anticipated by Retirement REIT will be realized or even if substantially realized, that they will have the expected consequences to, or effects on, Retirement REIT. Unless otherwise required by applicable securities laws, Retirement REIT disclaims any intention or obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Contact Information

  • Retirement Residences Real Estate Investment Trust
    David Beirnes
    Chief Financial Officer
    (289) 360-1222
    (289) 360-1228 (FAX)
    or
    Retirement Residences Real Estate Investment Trust
    Tim Benson
    Vice President, Investor Relations & Corporate Finance
    (289) 360-1224
    (289) 360-1228 (FAX)