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Stock to watch: Amica Mature Lifestyles a bargain boomer play

Amica Mature Lifestyles Inc.

Last close: $8.85, up 10 cents, or 1.1 per cent

52-week trading range: $8.50 to $10.01 a share

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Annual dividend: 42 cents a share for yield of 4.8 per cent

Analysts' ratings: There are 5 buys, 1 hold and 1 sell, according to Bloomberg data. Target prices ranged from $9.75 a share as estimated by CIBC World Markets analyst Brad Sturges to $11.25 a share by Canaccord Genuity Corp. analyst Mark Rothschild.

Recent history: Shares of the Vancouver-based developer and operator of luxury seniors' residences have been treading water, losing about 1 per cent (including dividends) over the past year. Amica Mature Lifestyles manages 23 residences in Ontario and British Columbia, and is also developing several properties. The company has historically grown by developing seniors' homes with joint-venture partners, and then buying part or all of their stakes. While it did purchase a Belleville, Ont.-based Quinte Gardens retirement residence in late 2011, Amica has not been able to increase the occupancy rate as fast as it had expected. When Amica released third-quarter results last week, its chief executive officer Samir Manji told analysts that the company would not be aggressively buying retirement homes in the near future. "We are not currently seeing many acquisition opportunities that would meet our brand standards," he said. That has taken a bit of steam from any investor expectations that new retirement home purchases would be a growth driver.

Manager insight: Amica Mature Lifestyles, whose stock has tumbled from last summer's 52-week high at just over $10 a share, appears ripe for bargain hunters. "It looks cheap to us," says Chris Couprie, a portfolio manager at First Asset Investment Management Inc., which owns the stock in several funds. "It's trading below our estimated net asset value [NAV] of $9.60 a share. Our target over the next 12 months is $10."

That contrasts with some of Amica's closest peers, which are trading at a premium to NAV, he said. These operators include Chartwell Retirement Resident Real Estate Investment Trust; Regal Lifestyle Communities Inc., which went public last fall, and Leisureworld Senior Care Corp., which operates both seniors' residences and long-term care homes.

But Amica has the best cash-flow growth outlook among those same peers, Mr. Couprie suggested. He expects more than 20 per cent growth in adjusted funds from operations [AFFO] at Amica over the next year versus mid-to-high single digits for the other three operators in the seniors' housing space. Part of that will come from the refinancing of Amica's debt in the current low-rate environment, and improved leasing at four retirement homes that currently have less than a 70-per-cent occupancy rate, he said.

Amica, which has more than 3,000 suites, is developing over 400 new ones so there is internal growth, but it can also grow by buying out the roughly $250-million in equity interest in various residences from its joint-venture partners, he said. "It won't do it all in one shot, but the pipeline exists."

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The forecast cash-flow growth over the next year could drive the payout ratio down to about 70 per cent from 85 per cent, and that bodes well for a potential dividend increase, he suggested. "They last increased the dividend in January, 2012, so it could be this year."

He likes the fact that management is aligned with shareholders, noting that Mr. Manji and his brother own about 18 per cent of the company. "The CEO has basically been buying stock in the open market this year," he said. "He has acquired about $400,000 worth of stock at an average of $9.20 a share."

The risk in Amica shares is not whether there is a market for upscale seniors' homes, he said, but rather whether these consumers can sell their homes quickly enough to move into an Amica residence given a softening in the domestic housing market.

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