RBC Just found this report that was published on 25 April. RLC is rated Sector Perform with a $9.50 target. GLTA
Company Profile
Regal Lifestyle Communities (Regal, RLC, or the Company) is Canada's newest publicly listed owner
and manager of current generation, private-pay retirement communities. The company was formed on
April 11, 2012 and completed its IPO on October 16, 2012. In conjunction with the public equity raising,
Regal acquired 10 income-producing retirement communities encompassing nearly 1,400 suites
located in St. John's Newfoundland, the National Capital Region, the Golden Horseshoe areas of
Ontario, and Regina Saskatchewan.
Investment Rationale
We see a number of attractive dynamics behind Regal Lifestyle Communities Inc. (RLC), including:1)
High-quality properties (the 10 properties have an average age of less than six years),2) Favourable
demographics (across Canada we see market demand for nearly 4,000-5,000 new private-pay
retirement home suites annually over the next 15 years),3) A fully-internalized structure (which allows
all value-creation to accrue to shareholders),4) Significant growth-by-acquisition potential (the industry
is fragmented, and we believe RLC has a cost of equity capital that can facilitate AFFO/share-accretive
growth),5) Refinancing potential (as mortgages naturally mature, a number could be refinanced with
CMHC insurance, thus lowering interest expense and driving AFFO growth), and6) A high dividend
yield of nearly 7.6% (which, at 98% of 2013E AFFO, appears sustainable yet subject to limited growth
potential over the next several years).Based on RLC's still developing track record, share valuation,
and relative risk-adjusted return considerations, we rate the common shares Sector Perform.Potential
Catalysts:1) Operating results (i.e., NOI that exceeds our forecast and expectations), and2)
Acquisitions (i.e., additional retirement community purchases that are accretive to AFFO/share and
NAV/share, in part via issuing equity at a premium to NAV).Key Risks To Our Thesis:We believe the
following are the key potential risks to our investment thesis: 1) competition from other property owners
and/or geographic concentration (nearly 60% of RLC's suites are located in the Ottawa area), 2) still
limited public market track record, 3) increases in interest rates, 4) competition for skilled labour and
union relations, 5) changes in government regulation, and 6) competition for new property acquisitions.
Valuation
Our one-year price target price of $9.50 is derived via the application of a 13.5x multiple to our 2014
AFFO/share estimate and represents a 12% premium to our NAV/share estimate, one-year hence. We
believe our target valuation metrics reasonably reflect Regal's high quality private-pay portfolio of
retirement communities, its near- and intermediate-term internal and external AFFO/share growth,
financial leverage, smaller market cap, and yet to be established track record as Canada's newest
publicly listed seniors housing owner/manager.
Price Target Impediments
Impediments to the achievement of our price objective include the risks associated with the ownership
of real property. Other potential factors include any that may have a negative impact on the business
could include government intervention, changes in the regulatory environment, and competition from
other property owners, including those that operate on a not-for-profit basis