Amica Mature Lifestyles Inc Annual Report

Transcription

1 Amica Mature Lifestyles Inc Annual Report

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3 We are doing things now that we never thought we would be doing because the opportunities are now available; they weren t before. We are extremely happy! Residents (couple), Amica at Thornhill (Thornhill, ON)

4 There is heart. It is a little more than masonry, bricks and fancy furniture. It goes deeper than that. Each person involved cares in their own way. Resident, Amica at Erin Mills (Mississauga, ON) B

5 Our Brand Elegant living goes beyond the beautiful surroundings and luxury finishes of our retirement residences. It goes beyond our fine dining, our Wellness & Vitality programs and convenient services. With 22 communities in operation, we take great pride in attending to each and every detail that adds to the comfort, security and enjoyment of retirement living. Our Wellness & Vitality services, programs and initiatives are designed to ensure that our residents are informed, supported and encouraged to embrace a lifestyle that has continued meaning, purpose and value. Amica s Wellness & Vitality philosophy draws upon the therapeutic recreation model of wellbeing. As a result, program offerings are provided under six broad dimensions: physical, social, emotional, spiritual, cognitive and vocational. Together these dimensions comprise the whole person and respect mature adults abilities to make independent choices based on their personal interests, capacities and related needs. Our mpower Strength and Conditioning Program has allowed many of our residents to develop greater body strength, balance and muscle. Our SECURA Safety & Security Program focuses on the safety and security of our residents and the physical environment in which they live. VITALIS is our uniquely designed Assisted Living Program for residents wanting extra assistance delivered with a hospitality flare. Our brand is to help our residents live well and enjoy life. Our SAPPHIRA Personal Concierge offers extraordinary services and attentive pampering for those who like to indulge.

6 ROur Residents Residents and their families have come to know what to expect from the Amica brand. Our team within each Amica Wellness & Vitality Residence is committed to making the experiences of each and every one of our residents second to none. How do we do this? We consistently provide an experience that has a luxury resort inspired service quality. We listen and encourage our residents and their families to provide us with feedback and suggestions to further enhance their experience. We delight in delivering this brand of service with passion, commitment, dedication and care. We want to see each resident enjoy his or her day, every day. The harmony and warmth you share with all who enter Amica is truly appreciated and has not gone unnoticed. Congratulations for making a difference in people s lives. Resident s family member, (Toronto, ON)

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8 Real customer service means delivering on promises. Part of the promise includes foreseeing the needs and wishes of our residents and making sure we accommodate those needs as a team. General Manager (retired), Amica at West Vancouver (West Vancouver, BC) P

9 Our People Our residents physical, mental and spiritual well-being is of paramount importance to us, and activities are planned to offer a variety of opportunities for learning, socializing and fun with physical and mental stimulation being a natural component of the daily events. The well-being of our residents is the focus of everyone within every level of our organization. Designing beautiful buildings and creating stimulating environments is only the first step. The key is the magic created within the walls of each and every Amica residence. Our people are committed to ensuring that every resident who lives in an Amica community has the consistent, high quality experience they have come to expect. Our exceptional people are delivering on this expectation every day.

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11 Message to Our Shareholders The Amica brand was established ten years ago with a vision to one day make it the premier brand in the retirement residence industry in Canada. Since then, we have witnessed a number of events, internally and externally, that have shaped the destiny of our Company, most recently, the dramatic downturn in the domestic and international financial markets that began in 2008 and continued in In light of the circumstances at the time, we made the decision prior to the start of our 2010 Fiscal year that we would focus our attention and resources internally to manage the various issues we were facing, a strategy that we themed Solidifying Our Foundation, which would serve as our overarching philosophy for this past fiscal year. Today, we are pleased to report the following outcomes from the key initiatives undertaken during Fiscal 2010: We reduced our general, administrative and corporate cash expenses by $0.6 million compared to Fiscal 2009 (on annualized basis we estimate savings are approximately $1.0 million) and we were able to do so while ensuring we did not compromise on the quality of service provided to our residents in our communities, thereby ensuring our brand remained whole. In fact, our brand became stronger as we focused on improving our service and standards while other operators reduced costs through reduction in services; Cash was conserved where possible and, when invested, ensured the capital requirements of our communities under development or lease-up were being addressed in what was otherwise a challenging financing market; Focusing on occupancy improvement initiatives, without reducing rents, so as to ensure that we could sustainably deliver to our residents the quality of service, programming and accommodation that they were promised when choosing Amica as their home; No new developments were initiated, instead, we focused on ensuring our existing developments were completed so as to substantially reduce our overall exposure to development risk which can now be managed to a more reasonable proportion of our overall asset mix; We resolved our conflict related to a US development that was otherwise creating uncertainty and potential contingent liabilities. While this unfortunately led to an accounting write down of $4.5 million (pre-tax), it removed any uncertainty and also, as part of the settlement, enabled us to increase our ownership in a flagship west coast retirement community; We opened Amica at Whitby (Whitby, ON) and shortly after year-end, opened Amica at Bayview Gardens (North York, ON) and Amica at Windsor (Windsor, ON), collectively representing nearly $200 million of developments (including the condominiums at Amica at Bayview Gardens); We augmented our overall capital liquidity by raising $15 million of equity financing on a bought deal basis; and We invested in our existing communities to the tune of approximately $3.5 million of capital expenditures, to ensure our buildings remained at their very best, while taking advantage of lower construction costs due to the economic downturn. All of the above mentioned accomplishments were achieved while simultaneously ensuring everyone in the organization was aligned and working towards the continuous strengthening of the Amica brand by improving processes, training, hiring, service, standards and delivery to our residents and employees, across the country.

12 On the occupancy front, we ended Fiscal 2010 with 91.3% occupancy in our mature same communities, up from 90.8% at May 31, Although Monthly Average Revenue Per Available Suite (MARPAS) for the year decreased by 0.5%, we experienced positive MARPAS growth for the last five consecutive months of the fiscal year, an achievement that highlights the impact of the decision noted earlier to not reduce rents to buy occupancy. While we still have a ways to go to bring our overall occupancy back to historical highs of over 96% in our mature communities, the progress we made during the second half of Fiscal 2010 is a trend we hope to see continue during Fiscal This will be a key factor in our ability to improve our overall earnings and cash flow, something we are committed to working hard to achieve for our shareholders. With a stronger foundation now in place and a generally improved economic climate, we can focus on building an even stronger company poised for sustainable and profitable growth. Our Fiscal 2011 goals and objectives have been established based on the overall theme of Building a Stronger Amica. One significant shift in our overall strategy that we are implementing this year, as discussed in this annual report, is to increase our ownership in certain mature communities. We will do this only if the economic terms make sense for our shareholders. This in turn will contribute towards our goal of building revenues and overall cash flow from operations in a sustainable fashion. We are confident that the commitment, loyalty, creativity and passion of the finest team in the industry will allow us to achieve our overall long term goal of establishing Amica as the premier brand in the retirement residence industry. the passion we have for our residents, the passion our people have for their job, and the passion our residents have in calling Amica home. All of us at Amica have worked hard to bring Amica to where it is today and when we ask ourselves what is it that has enabled us to achieve this, no doubt the single, most important factor is our dedicated people. Our love for our residents is what makes us unique. We have established an ambitious agenda for Fiscal It has been formally documented in a business plan that all of our key corporate and community management have committed to and we are confident that through successful execution on all fronts, this will be an exciting and strong year for Amica and its shareholders. Thank-you to each and every one of our staff and management for your continued passion for what you do, each and every day. Thank-you to our shareholders for your continued support and confidence in Amica. Finally, we express our gratitude and appreciation to our Board of Directors for their guidance, direction and dedication. Samir A. Manji Chairman, President & CEO We have prepared our Fiscal 2010 annual report to reflect back on the past fiscal year, to share with you our Fiscal 2011 strategy, and to celebrate with you the Amica passion

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14 Our Fiscal 2010 key objectives were based on the theme of Solidifying Our Foundation. Together our teams within our communities and our corporate offices achieved this on many fronts. As a result, we finished Fiscal 2010 having accomplished exactly what we set out to do: end the year with a foundation that is stronger than it was 12 months earlier. Ultimately this has translated to the further enhancement of the Amica brand and reputation in the marketplace. Our overarching theme for Fiscal 2011 is Building a Stronger Amica

15 A Shift in Strategy Since inception, we have evolved from an owner/operator whereby we owned 100% of all our retirement residences to a manager/operator with a focus towards growth in the number of Amica communities in operation (Management Operations) but in which we did not have a significant ownership interest (Ownership Operations). Going forward, while we will maintain our brand manager business model, we will now additionally focus on increasing our ownership position in some of our mature communities. Where this ownership interest reaches beyond 50%, we will consolidate these communities in our financial statements thereby increasing our total assets on the balance sheet and including the revenues, operating results, and cash flow generated by such communities in our financial statements. Additionally, we will evaluate opportunities to acquire ownership positions in, and management contracts for, qualified seniors residences not currently owned or managed by Amica. We believe current market conditions will result in opportunities surfacing that could either immediately or through repositioning be branded as an Amica Wellness & Vitality Residence. Management Operations remains a key and essential part of our business. Future growth in Management Operations will come from: (1) improving occupancy, MARPAS and net operating income at each Amica community; and (2) the addition of new Amica communities under management. We believe that shareholder value can be created through both increased Ownership Operations and Management Operations, thereby improving earnings and cash flow.

16 Our Growth Our growth plan is based on two key components: internal growth through increasing our ownership position in some of our mature Amica Wellness & Vitality Residences and by advancing the development of some of our existing pre-development properties; and external growth by way of acquiring or developing additional luxury retirement residences that will be added to the Amica portfolio. Internal Growth As noted earlier, our strategy now includes a growth plan that will include increasing our ownership position in some of our mature communities. Where this results in Amica s ownership position reaching over 50% in any community, this community will then be consolidated on our balance sheet and will also have its revenues and expenses consolidated on our statements of operations and cash flows. This will not only bring better balance to our current risk/ reward profile, it will also substantially enhance our consolidated asset base and the corresponding revenues, operating results, and cash flow generated from these communities. Over time, we hope that this will enable us to increase our dividend and create strong value creation for all shareholders. Portfolio Growth Today, our portfolio of 25 Communities, of which 22 are operational and three are in pre-development, includes a presence in many key Canadian markets. We have achieved our goal of establishing Amica as the premier brand in the luxury independent living retirement market in Canada. We believe the current environment may result in acquisition opportunities for higher end retirement residences that have not been otherwise available over the past several years. Through prudent evaluation of such opportunities we aim to grow our strong base of existing luxury retirement residences through acquisitions. We will also continue to evaluate new development opportunities but intend to minimize ownership in such opportunities during the development and lease-up phase.

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18 Financial Highlights Cash Flow from Operations (millions) $6.0 $ $ $ $6.1 Diluted Cash Flow from Operations (per share) $0.35 $ $ $ $0.41 EBITDA (millions) 2010 $ $ $ $ $11.1 Diluted Earnings (Loss) (per share) 2010 $(0.25) 2009 $(0.03) 2008 $ $ $0.15

19 MANAGEMENT S DISCUSSION AND ANALYSIS The following Management s Discussion and Analysis ( MD&A ) of Amica Mature Lifestyles Inc. (the Company and Amica ) for the twelve months ended May 31, 2010, is provided as of August 10, This MD&A should be read in conjunction with the audited consolidated financial statements for the same period and the MD&A and audited consolidated financial statements for the year ended May 31, All dollar amounts referred to in this document are in Canadian dollars unless otherwise indicated. The consolidated financial statements are prepared in accordance with Canadian generally accepted accounting principles ( GAAP ). This MD&A makes reference to the following terms cash flow from operations, EBITDA, mature same communities and MARPAS which are defined as follows: Cash flow from operations is a supplemental non-gaap measure of operating performance and is equal to net earnings (loss) and comprehensive income (loss) adjusted for (i) stock-based compensation; (ii) depreciation and amortization; (iii) amortization of deferred financing charges; (iv) future income taxes (recovery); (v) cash distributions in excess of income (loss) from equity-accounted investments; (vi) non-controlling interest; (vii) accretion of discount on mortgage and loan receivable; (viii) unrealized interest rate swap and foreign exchange gains/losses; and (ix) write-down of deposits/investments. Cash flow from operations may not be comparable to similar measures presented by other entities in the same industry. Management considers cash flow from operations to be a useful measure for reviewing the Company s operating and financial performance because, by excluding non-cash expenses and depreciation and amortization which can vary based on estimates of useful lives of real estate assets, cash flow from operations can help to compare the operating performance of the Company between financial reporting periods and with other entities in the same industry. Earnings before interest, taxes, depreciation and amortization ( EBITDA ) is equal to net earnings (loss) and comprehensive income (loss) before the following items: (i) interest expense; (ii) income tax expense (recovery); (iii) depreciation and amortization; (iv) interest and other income; (v) non-controlling interest; (vi) fees credited to investments, and (vii) write-down of deposits/investments. EBITDA is the same as earnings (loss) before other operating items as disclosed in the consolidated financial statements. EBITDA is not intended to represent cash flow from operations as defined by Canadian generally accepted accounting principles, and EBITDA should not be considered as an alternative to net earnings (loss), cash flow from operations or any other measure of performance prescribed by Canadian generally accepted accounting principles. EBITDA of Amica Mature Lifestyles Inc. may not be comparable to EBITDA used by other companies, which may be calculated differently. EBITDA is included because the Company s management believes it can be used to measure the Company s ability to service debt, fund capital expenditures and expand its business. See Note 1 on page 33 for a reconciliation of net earnings (loss) to EBITDA. Mature same communities: Historically, the definition for same communities was mature communities that were classified as income-producing communities for thirteen months after reaching 95% occupancy. The definition was modified effective June 1, 2009 to be mature communities that are classified as income-producing properties for thirteen months after the earlier of reaching 95% occupancy or 24 months of operation. Amica at Bearbrook has been re-classified as a mature same community for both the current and comparative period. MARPAS is defined by the Company as Monthly Average Revenue Per Available Suite and includes non-consolidated communities and is equal to gross monthly revenues generated at the seniors residences divided by the number of suites available for rental. MARPAS is used by the Company to measure period-overperiod performance of its properties. 18

20 THE COMPANY Amica is involved in the design, development, marketing, management and ownership of luxury housing and services for mature lifestyles. The Company owns varying percentage interests in and manages twenty-five seniors rental residences (including two that opened in June and July 2010 and three currently in pre-development), predominantly in Ontario and British Columbia, Canada. These twenty-five Amica Wellness & Vitality Residences when all completed are anticipated to comprise a total of 3,388 suites, of which an estimated 578 suites are in pre-development. All of the Amica Wellness & Vitality Residences provide luxury independent living to seniors, and twenty of the twenty-five residences either currently include or will include an assisted living floor. Typically, a new Amica community will have approximately 20% of its suites dedicated to Vitalis assisted living suites while the balance, approximately 80%, are dedicated to independent living. Only one of the Company s residences is licensed to provide intermediate care. AMICA S PORTFOLIO The following table summarizes Amica s portfolio of Wellness & Vitality Residences including the Company s ownership interest therein at May 31, 2010 and the applicable methodology for accounting for such ownership interest: Community Location Ownership Number of Suites Date Opened/ Acquired Accounting Methodology 100% Ownership Consolidated Arbutus Manor Vancouver, BC % 115 Jun % Balmoral Club Toronto, ON % 63 Sept % Beechwood Village Sidney, BC % 106 Jan % Douglas House Victoria, BC % 104 Dec % Mayfair Port Coquitlam, BC % 86 Sep % Rideau Manor Burnaby, BC % 142 Jun % Somerset House Victoria, BC % 136 Nov % Greater than 50% and less than 100% Ownership Consolidated Villa Da Vinci Vaughan, ON 62.50% 124 Jul % 50% Ownership Proportionate Consolidated Erin Mills Mississauga, ON 50.00% 134 Oct % Swan Lake Markham, ON 50.00% 116 May % Swan Lake Expansion Markham, ON 50.00% 141 Pre-Development (1) 50.00% Richmond Hill Richmond Hill, ON 50.00% 156 Pre-Development (1), (2) 50.00% 20% and less than 50% Ownership Equity City Centre Mississauga, ON 34.00% (3) 136 Nov % London London, ON 32.63% 163 Mar % Thornhill Thornhill, ON 22.00% 147 Nov % West Vancouver West Vancouver, BC 45.19% (4) 121 Apr % Aspen Woods Calgary, AB 24.40% 147 Pre-Development (1) 24.40% Bayview Gardens North York, ON 34.00% (5) 148 Jun % Windsor Windsor, ON 31.00% 181 Jul % Less than 20% Ownership Bayview North York, ON 15.00% 140 Jul % Bearbrook Ottawa, ON 10.00% 101 May % Dundas Dundas, ON 17.00% 134 Mar % Newmarket Newmarket, ON 16.00% 137 Mar % Westboro Park Ottawa, ON 12.50% 137 Sep % Oakville Oakville, ON 19.50% 134 Pre-Development (1) 19.50% Whitby Whitby, ON 19.94% 139 Nov % (1) The number of suites is estimated based on preliminary project plans and the actual number of suites could change. (2) In addition to the planned rental suites there are approximately 130 condominium units in pre-development which would cater to seniors and are adjacent to the planned Amica rental residence. (3) In August 2010, the Company anticipates completing the acquisition of an additional 34% ownership interest in Amica at City Centre, bringing the Company s ownership position to 68%. Accordingly, the Company will change from equity accounting for this investment to consolidation. (4) An additional 35.16% ownership interest in Amica at West Vancouver was acquired in July 2010, bringing the Company s ownership position to 80.35% and accordingly the Company will change from equity accounting for this investment to consolidation. (5) An additional 1% ownership interest in Amica at Bayview Gardens was acquired in July In August 2010, the Company anticipates completing the acquisition of an additional 0.50% interest in Amica at Bayview Gardens, bringing the Company s ownership interest to 35.5%. Cost 19

21 ACQUISITION OF ADDITIONAL OWNERSHIP INTERESTS IN CO-TENANCIES In February 2010 and March 2010, the Company purchased additional 1.5% and 5.0% interests, respectively, in Amica at Westboro Park, increasing its ownership interest to 12.5% from 6.0%. In February 2010, the Company participated in an additional equity financing for Amica at Whitby increasing the Company s ownership interest to 19.94% from 18.0%. In March 2010, the Company received an additional 32.51% interest in Amica at West Vancouver pursuant to the settlement of the Bellevue dispute (see OPERATIONAL REVIEW AND ANALYSIS TWELVE MONTHS ENDED MAY 31, 2010 OTHER ITEMS Write-down of Deposit ), increasing its ownership interest to 45.19% from 12.68%. Accordingly, the Company changed from a cost basis of accounting for this investment to the equity basis of accounting effective April 1, In July 2010, the Company completed the acquisition of an additional 35.16% in Amica at West Vancouver, bringing the Company s ownership position to 80.35%. In August 2010, Amica anticipates completing the acquisition of an additional 34% in Amica at City Centre, bringing the Company s ownership position to 68%. As a result of the Company s ownership position increasing to greater than 50%, the Company will consolidate the assets, liabilities, operating results and cash flows of both these communities in its financial statements commencing in the first quarter of Fiscal 2011 (June 1, 2010 August 31, 2010). The aggregate purchase price for these acquisitions was $24.7 million (West Vancouver $14.8 million; City Centre $9.9 million), including: cash consideration of $3.7 million; and the assumption of the vendors share of mortgages payable on the properties of $20.5 million (West Vancouver $12.7 million; and City Centre $7.8 million) and $0.5 million in other net liabilities. The Amica at West Vancouver property has a total of 121 units of which 9 are condominium units connected to the rental residences (2 of these units are currently listed for sale and the other 7 are operated as part of the rental operations). Amica at West Vancouver is currently at 90% occupancy. The Amica at City Centre property has a total of 136 rental units and is currently at 93% occupancy. Based on stabilized net operating income at 95% occupancy the Company estimates that the cap rate paid was 7.25% on the Amica at West Vancouver acquisition (excluding the condominium units) and 8.25% on the Amica at City Centre acquisition. COMMUNITY UPDATE Overall occupancy in the Company s mature communities at May 31, 2010 was 91.3%, an increase of 0.5% from 90.8% at May 31, Although mature same community MARPAS increased by 0.7% for the quarter ended May 31, 2010 compared to the same period the prior year, MARPAS for the year ended May 31, 2010 was down 0.5% compared to the previous year. The lease-up in Amica s new communities continue to make progress: Amica at Dundas (opened March 2008) has 87.1% occupancy. Amica at Westboro Park (opened September 2008) has 54.1% occupancy, which is anticipated to increase to 60.7% following 9 additional net pending move-ins. Net pending move-ins reflects suites that have been reserved with a deposit made for the reservation, less suites for which notice of termination has been received. Amica at Thornhill (opened November 2008) has 50.3% occupancy, which is anticipated to increase to 55.9% following an additional 8 net pending move-ins. Amica at London (opened March 2009) has 34.2% occupancy, which is anticipated to increase to 40.4% following an additional 10 net pending move-ins. Amica at Whitby (opened November 2009) has 29.9% occupancy, which is anticipated to increase to 35% following an additional 7 net pending move-ins. Amica at Bayview Gardens (opened June 2010) has 19.2% occupancy, which is anticipated to increase to 28.8% following an additional 14 net pending move-ins. 20

22 Amica at Windsor (opened July 2010) has 11.7% occupancy, which is anticipated to increase to 19.6% following an additional 14 net pending move-ins. Construction was completed on the 101 condominium units that form part of the Amica at Bayview Gardens development. Seventy per cent (70%) of the units have been sold and the sales closed since May 31, At May 31, 2010, Amica had a 3.2% equity interest in these condominiums and in July 2010 Amica acquired an additional 0.8% ownership interest, increasing its ownership interest to 4% and in August 2010 the Company anticipates completing the acquisition of an additional 0.4% increasing its ownership interest to 4.4%. Purchasers of the condominiums pay fees for the use of the services and amenities in the adjoining rental residences. Alternatively, the properties designated for condo development could be changed to seniors rental residences. OPERATING SEGMENTS The Company s operations are comprised of two distinct operating segments: 1) Management Operations; and 2) Ownership and Corporate Operations. Under its Management Operations segment, the Company generally supervises all aspects of operations of the seniors rental residences, including: marketing, accounting, purchasing, budgeting, design and implementation of resident programs and the hiring, training and supervising of staff. For providing these services, the Company receives a base management fee calculated as a percentage of gross revenues of the seniors residences, and monthly accounting fees as well as nominal licensing fees for the use of the Amica trade name, marketing and management processes. In addition, the Company may receive incentive fees based on the operating performance of the seniors residences. This segment also includes design fees, pre-leasing fees and marketing bonuses earned during the development and lease-up of newly built and renovated seniors rental residences. As well, Management Operations includes design fees, marketing fees and sales bonuses on the development and sale of condominium units. The owners of the seniors residences (including the Company) are responsible for their proportionate share of all capital expenditures and working capital of the seniors rental residences, including all employment and operating costs. Under its Ownership and Corporate operations segment, the Company reports the operating results of the seniors residences in which it has a 50% to 100% interest, and the equity results of the seniors residences in which it owns greater than a 20% and under a 50% interest. Income is derived from seniors residences that are wholly or proportionately owned and the income or distributions from seniors residences the Company accounts for under the equity and cost methods, respectively. Corporate and ownership expenses include the operating expenses of the seniors residences in which it has a 50% to 100% interest, expenses that are not directly attributable to the Company s Management Operations or are allocations between the two segments, and fees paid to and reported as income in Management operations. This segment also reports any gain or loss from the sale of condominium units in which the Company has an ownership interest. Reallocation of Certain General and Administration Expenses Between Operating Segments For the year ended May 31, 2010, and the prior year ending May 31, 2009, the Company has reallocated certain expenses formerly reported as general and administrative expenses in its Management Operations segment. This reallocation was done to better reflect the expenses associated with the revenues generated from Management Operations. Formerly the Company had reported all general and administrative costs in the Management Operations segment. Management conducted a detailed review of the composition of general and administrative expenses to identify those that relate to the Management Operations business. Expenses not attributable to Management Operations have been reallocated to the corporate and ownership expenses in the Company s Ownership and Corporate Operations segment. The following costs formerly reported as general and administrative expenses in the Management Operations segment have now been allocated to corporate and ownership expenses in the Ownership and Corporate Operations segment: legal, audit and insurance costs of $0.5 million (Fiscal $0.4 million); salaries, wages, benefits and stock-based compensation of $0.8 million (Fiscal $0.9 million) for staff not engaged in the Management Operations segment; 21

23 allocation of administrative and corporate office expenses of $0.2 million (Fiscal $0.1 million) related to staff in the Ownership and Corporate Operations segment; and $nil (Fiscal $0.4 million) of costs incurred during due diligence of potential business development opportunities. The following table summarizes the impact of the reallocation of general and administrative expenses on the previously reported Fiscal 2009 results of the two operating segments: (Expressed in thousands of Canadian dollars) Before After Change $ $ $ MANAGEMENT OPERATIONS: General and administrative expenses 7,294 5,542 (1,752) Contribution of Management Operations to EBITDA (412) 1,340 1,752 OWNERSHIP AND CORPORATE OPERATIONS: Corporate and ownership expenses 649 2,401 1,752 Contribution of Ownership and Corporate Operations to EBITDA 10,856 9,104 (1,752) EBITDA 10,444 10,444 - FINANCIAL HIGHLIGHTS CONSOLIDATED BALANCE SHEET HIGHLIGHTS (Expressed in thousands of Canadian dollars) Assets $ $ Properties and co-tenancy investments 144, ,519 Cash and cash equivalents 8,212 12,876 Receivables and other assets 32,620 35,097 Total assets 185, ,492 Liabilities and Shareholders Equity Mortgages payable 103, ,253 Payables and accrued liabilities 6,745 6,672 Future income taxes 5,491 5,020 Non-controlling interest 1,161 1,249 Total liabilities 117, ,194 Share capital and contributed surplus 78,225 62,688 Deficit (9,994) (1,390) Total shareholders equity 68,231 61,298 22

24 OPERATING HIGHLIGHTS (Expressed in thousands of Canadian dollars, except per share amounts) Q4/10 Q4/ $ $ $ $ Consolidated Revenues 10,652 10,703 41,334 42,382 MANAGEMENT OPERATIONS: Revenues Management fees from 100% owned communities ,840 1,841 Management fees from less than 100% owned properties 1, ,478 2,987 Design and marketing fees - new developments under construction ,054 1,582 1,896 5,985 6,882 General and administrative expenses (1,340) (1,212) (4,885) (5,542) ,100 1,340 OWNERSHIP AND CORPORATE OPERATIONS: Retirement communities operating revenues 9,470 9,310 37,329 37,567 Income (loss) from equity-accounted investments (153) (12) (322) (14) Distributions from cost-accounted investments ,534 9,369 37,436 37,883 Expenses: Retirement communities operating (6,586) (6,018) (25,100) (23,981) Corporate and ownership (546) (814) (2,281) (2,401) Fees paid to and reported in management operations (617) (574) (2,409) (2,397) 1,785 1,963 7,646 9,104 EARNINGS (LOSS): EBITDA 2,027 2,647 8,746 10,444 Net loss and comprehensive loss (230) (1,848) (4,333) (585) Basic and diluted loss per share (0.01) (0.11) (0.25) (0.03) Weighted average basic and diluted number of shares 19,168 17,115 17,176 17,048 CASH FLOW: Cash flow from operations 1, ,976 6,024 Basic cash flow from operations per share Diluted cash flow from operations per share Weighted average basic number of shares 19,168 17,115 17,176 17,048 Weighted average diluted number of shares 19,254 17,130 17,238 17,048 23

25 OPERATIONAL REVIEW AND ANALYSIS THREE MONTHS ENDED MAY 31, 2010 ( Q4/10 ) Compared with the three months ended May 31, 2009 ( Q4/09 ) OVERVIEW A review of the financial results for Q4/10, compared to Q4/09, reflects the following: consolidated revenues remained unchanged at $10.7 million; mature same community MARPAS increased by 0.7%; net loss decreased $1.6 million to $0.2 million; EBITDA decreased by $0.6 million to $2.0 million; basic and diluted net loss decreased $0.10 per share to a loss of $0.01 per share; cash flow from operations increased $0.8 million to $1.5 million; and basic and diluted cash flow from operations per share increased by $0.04 to $0.08 per share. The decrease in the net loss of $1.6 million was primarily due to a $2.2 million write-down recorded Q4/09. Not included in net earnings or cash flow from operations for Q4/10 are $0.2 million (Q4/09 - $0.5 million) in management, design and marketing fees (see Other Items Fees Credited to Investments below) and $0.4 million (Q4/09 - $0.2 million) in interest credited to the co-tenancy investments (see Other Items Interest and Other Income below). This is attributed to the Company having acquired additional ownership interest in certain co-tenancies during Fiscal 2009, which resulted in a switch from cost to equity accounting for such investments. Previously, management, design and marketing fees and interest earned by the Company on these co-tenancies was reflected in earnings and cash flow from operations whereas under equity accounting, they are netted against the Company s co-tenancy investments and reported in cash flow from investing activities until the properties are considered to be income-producing. MANAGEMENT OPERATIONS Compared to Q4/09, fee revenues decreased by $0.3 million to $1.6 million and general and administrative expenses increased by $0.1 million to $1.3 million (Q4/09 $1.2 million). Earnings from Management Operations in Q4/10 decreased by $0.5 million to $0.2 million (Q4/09 $0.7 million). Management fees from 100% owned communities of $0.5 million increased 2.6% and management fees from less than 100% owned communities of $1.0 million increased 16.1%. The decrease in fee revenues and earnings from Management Operations is primarily due to a $0.5 million reduction in design and marketing fees from new developments under construction nearing the end of construction and no new developments starting construction in Fiscal 2009 or Fiscal Going forward, the Company will earn marketing bonuses on one project that is currently in lease-up (Amica at Whitby) and two recently completed projects (Amica at Bayview Gardens; and Amica at Windsor). The Company can earn design and marketing fees on the three projects currently in pre-development (Amica at Oakville, Amica at Richmond Hill, and Amica at Aspen Woods). During Fiscal 2009, the Company deferred $0.3 million in design and marketing fees related to Amica at Richmond Hill and Amica at Oakville. The Company intends to begin recognizing design and marketing fees in income once zoning approval has been obtained, construction documents have been completed, construction financing has been secured. OWNERSHIP AND CORPORATE OPERATIONS Earnings from Ownership and Corporate Operations in Q4/10 decreased by approximately $0.2 million to $1.8 million (Q4/09 $2.0 million). Retirement communities operating revenues increased $0.2 million (1.7%) to $9.5 million (Q4/09 - $9.3 million). Overall occupancy in Amica s mature same communities at the end of Q4/10 was 91.3%, compared to 90.8% at the end of Q4/09. Same community MARPAS increased 0.7% compared to the prior year same quarter due to higher average occupancy later in the fiscal year. 24

26 Retirement communities operating expenses increased by $0.6 million (9.4%) to $6.6 million (Q4/09 - $6.0 million). This was due to increases in same community expenses consisting primarily of wages and salaries, increased repairs and maintenance and property taxes. Corporate and ownership expenses decreased by approximately $0.3 million (38%) primarily due to the expensing of deferred due diligence costs in Q4/09. The loss from equity-accounted investments increased to $0.2 million primarily due to lower revenue in equity accounted properties and the switch to equity accounting for Amica at West Vancouver. EBITDA For Q4/10, EBITDA decreased by $0.6 million to $2.0 million (Q4/09 - $2.6 million). This decrease is attributable to the $0.4 million decrease in earnings from Management Operations and the $0.2 million decrease in earnings from Ownership and Corporate Operations, both as described above. OTHER ITEMS Interest Expense Interest expense decreased by $0.4 million to $1.4 million (Q4/09 - $1.8 million) primarily due to the repayment of a maturing mortgage on a 100% owned property in March Interest and Other Income Interest and other income remained decreased by $0.1 million to $0.2 million (Q4/09 - $0.3 million). Fees Credited to Investments Fees credited to investments of $0.2 million in Q4/10 (Q4/09 - $0.5 million) are an offset to design and marketing fees and management and accounting fees for properties under development that are recorded as revenues in Management Operations. This offset is required as the properties are accounted for under the equity method and the fees are recorded as a reduction in the Company s investment in the co-tenancy. Income Taxes The income tax recovery decreased by $0.4 million to $0.1 million in Q4/10 due to a $2.2 million write-down recorded in Q4/09. NET LOSS AND LOSS PER SHARE The Company incurred a net loss of $0.2 million or $0.01 basic and diluted per share in Q4/10 compared to a net loss of $1.9 million or $0.11 basic and diluted per share in the same period in the prior year. The weighted average number of shares outstanding for Q4/10, was 19,168,405 shares (Q4/09 17,114,982 shares) and on a dilutive basis was also 19,168,405 shares (Q4/09 17,114,982 shares). 25

27 OPERATIONAL REVIEW AND ANALYSIS TWELVE MONTHS ENDED MAY 31, 2010 ( FISCAL 2010 ) Compared with the twelve months ended May 31, 2009 ( Fiscal 2009 ) OVERVIEW A review of the financial results for Fiscal 2010, compared to Fiscal 2009, reflects the following: consolidated revenues decreased $1.0 million to $41.3 million; mature same community MARPAS decreased by 0.5%; EBITDA decreased by $1.7 million to $8.7 million; net loss increased $3.7 million to a loss of $4.3 million; basic and diluted net loss per share increased $0.22 to $0.25 per share; and cash flow from operations was unchanged at $6.0 million ($0.35 per share). The increase in net loss of $3.7 million was primarily due to a $4.4 million write-down of a deposit related to the potential purchase of a development site in Bellevue, WA (see OTHER ITEMS Write-down of Deposit below); a $1.7 million reduction in earnings from operations; and a $1.5 million reduction in interest and other income, which were partially offset by a $1.7 million change in income taxes (Fiscal $1.1 million recovery; Fiscal $0.6 million expense) and a Fiscal 2009 $2.2 million write-down of investments, mortgages and loans receivable. Not included in net earnings or cash flow from operations for Fiscal 2010 are $0.9 million (Fiscal $0.9 million) in management, design and marketing fees (see Other Items Fees Credited to Investments below) and $1.5 million (Fiscal $0.3 million) in interest credited to the co-tenancy investments (see Other Items Interest and Other Income below). This is attributed to the Company having acquired additional ownership interest in certain co-tenancies during Fiscal 2009, which resulted in a switch from cost to equity accounting for such investments. Previously, management, design and marketing fees and interest earned by the Company on these co-tenancies was reflected in earnings and cash flow from operations whereas under equity accounting, they are netted against the Company s co-tenancy investments and reported in cash flow from investing activities until the properties are considered to be income-producing. MANAGEMENT OPERATIONS Compared to Fiscal 2009, fee revenues decreased by $0.9 million to $6.0 million (Fiscal $6.9 million) and general and administrative expenses decreased $0.7 million to $4.9 million (Fiscal $5.6 million). Earnings from Management Operations decreased by $0.2 million to $1.1 million (Fiscal 2009 $1.3 million). Management fees in Fiscal 2010 from 100% owned communities remained unchanged at $1.8 million. Management fees from less than 100% owned communities in Fiscal 2010 increased by $0.5 million (16%) to $3.5 million (Fiscal $3.0 million) as a result of the opening of four new communities: Amica at Thornhill which opened in November 2008, Amica at London which opened in March 2009, Amica at Westboro Park which opened in September 2008, and Amica at Whitby which opened in November Design and marketing fee revenue in Fiscal 2010 decreased by $1.4 million to $0.7 million (Fiscal $2.1 million), due to developments nearing the end of construction and no new developments starting construction in Fiscal 2009 or Fiscal Going forward, the Company will earn marketing bonuses on one project that is currently in lease-up (Amica at Whitby) and two recently completed projects (Amica at Bayview Gardens and Amica at Windsor). The Company can earn design and marketing fees on the three projects currently in pre-development (Amica at Oakville, Amica at Richmond Hill, and Amica at Aspen Woods). During Fiscal 2009, the Company deferred $0.3 million in design and marketing fees related to Amica at Richmond Hill and Amica at Oakville. The Company intends to begin recognizing design and marketing fees in income once zoning approval has been obtained, construction documents have been completed, construction financing has been secured. The $0.7 million reduction of general and administrative expenses is primarily due to staff reductions at the head office which took place in Q2/09. 26

28 OWNERSHIP AND CORPORATE OPERATIONS Earnings from Ownership and Corporate Operations in Fiscal 2010 decreased by $1.5 million to $7.6 million (Fiscal 2009 $9.1 million). Retirement communities operating revenues declined by $0.3 million to $37.3 million (Fiscal $37.6 million), due to a decrease in occupancy levels at mature same communities. Overall occupancy in Amica s mature same communities at the end of each quarter was: Fiscal 2010 Fiscal 2009 Q4 - May % 90.8% Q3 - February % 91.9% Q2 - November % 93.5% Q1 - August % 94.4% Mature same community MARPAS for Fiscal 2010 decreased 0.5% compared to Fiscal 2009 due to lower occupancy levels. Retirement communities operating expenses increased by $1.1 million to $25.1 million for Fiscal 2010 (Fiscal $24.0 million). This was due to increases in same community expenses consisting primarily of salaries, advertising and marketing and repairs and maintenance. Corporate and ownership expenses decreased by $0.1 million to $2.3 million (Fiscal $2.4 million) primarily due to staff reductions and the expensing of deferred due diligence costs. The loss from equity-accounted investments increased to $0.3 million primarily due to lower occupancy and the resulting decrease in revenue from one equity accounted property and the switch to equity accounting for Amica at West Vancouver. EBITDA In Fiscal 2010, EBITDA decreased by $1.7 million to $8.7 million from $10.4 million in Fiscal This decrease is attributable to the $0.2 million decrease in earnings from Management Operations and the $1.5 decrease in earnings from Ownership and Corporate Operations, as described above. OTHER ITEMS Interest Expense Interest expense decreased by $0.1 million to $6.8 million (Fiscal $6.9 million) due to a reduction in loan principal from the repayment of a mortgage on a 100% owned property in March 2010 and the change in fair value of an interest rate swap of $0.2 million (see Financial Instruments ). Interest and Other Income Interest and other income decreased $1.5 million to $1.7 million for Fiscal 2010 (Fiscal $3.2 million). Approximately $1.2 million of this decrease is due to the switch from cost to equity accounting for certain co-tenancy investments in the prior year as a result of an increase in the Company s ownership interest in such co-tenancy investments. Previously, interest income earned on these co-tenancies was reflected in interest and other income whereas under equity accounting, it is credited against the Company s investment in the co-tenancies. 27

29 Fees Credited to Investments Fees credited to investments of $0.9 million in Fiscal 2010 are unchanged from Fiscal 2009 and are an offset to design and marketing fees and management and accounting fees for properties under development that are recorded as revenues in Management Operations. This offset is required as the properties are accounted for under the equity method and the fees are recorded as a reduction in the Company s investment in the co-tenancy. The additional ownership interests acquired on various co-tenancies which resulted in a switch from cost to equity accounting for these investments began occurring in Q3/09. Write-down of Deposit Prior to the write-down described below, Other Assets included $5.9 million of installments (the Deposit ) paid toward the purchase of a potential development site for a retirement community in Bellevue, Washington. In March 2007, the Company entered into a contract with Bel-Green Developments (Bellevue) Limited Partnership ( Bel-Green LP ) to acquire the site. By virtue of Bel-Green LP s failure to satisfy a condition precedent to the purchase prior to the closing date of March 31, 2009, the purchase did not complete. The Company then made demand of Bel-Green LP for repayment of the Deposit. Following its receipt of the demand, Bel-Green LP delivered a Notice to Arbitrate a dispute pursuant to an arbitration clause in the contract (the Arbitration ) and subject to the terms of the British Columbia Commercial Arbitration Act. An arbitration panel was appointed and the matter was scheduled to go to arbitration in May If the Company was unsuccessful in defending its position in the Arbitration, it may have been obligated to provide a further US$6.9 million to complete the purchase of the development site under the terms of the contract, or some unspecified amount for damages. In April, 2009, the Company commenced an action in the Supreme Court of British Columbia against three guarantors of the obligations of Bel-Green LP for repayment of the Deposit, relying on the guarantee given by each of them of Bel-Green LP s obligations, including its obligation to repay the Deposit (the Guarantee Action ). Effective March 31, 2010 the Company settled the Arbitration and the Guarantee Action described above for total agreed consideration of $1.45 million. Pursuant to the settlement, the Company received $0.65 million in cash and an aggregate 32.51% interest in the Amica at West Vancouver co-tenancy. During the year ended May 31, 2010, the Company wrote down the Bellevue Deposit by $4.47 million and recorded a foreign exchange loss of $0.25 million on the Bellevue Deposit. Income Taxes In Fiscal 2010, income tax expense decreased $1.7 million to a recovery of $1.1 million as a result of estimated losses available to carry back to recover taxes paid in prior years. NET LOSS AND LOSS PER SHARE The Company incurred a net loss of $4.3 million or $0.25 basic and diluted per share in Fiscal 2010 compared to a net loss of $0.6 million or $0.03 basic and diluted per share in Fiscal The weighted average number of shares outstanding for Fiscal 2010 was 17,175,597 compared to 17,048,322 in the prior year. 28

30 BALANCE SHEET ANALYSIS The following table summarizes significant changes in the Company s assets and liabilities at May 31, 2010 compared to May 31, 2009: Balance sheet element Change Explanation (Expressed in millions of Canadian dollars) $ Income-producing properties (0.4) - $3.4 million increase due to capital expenditures. - $3.8 million decrease due to depreciation expense. Properties under development $0.4 million increase due to capital expenditures. Co-tenancy investments (1.1) - $2.9 million decrease due to equity accounting offsets of management fees, design and marketing fees and interest revenues at four equity accounted properties. - $0.3 million decrease due to distributions from Amica at City Centre. - $0.9 million increase due to additional equity investment in Amica at Whitby. - $0.4 million increase due to additional ownership interest acquired in Amica at Westboro. - $0.8 million increase due to ownership interest in Amica at West Vancouver received on settlement of the Bellevue property dispute. Accounts receivable $0.4 million decrease in management fees receivable from Amica at Bayview Gardens rentals and Amica at Windsor. - $1.1 million increase in construction costs due from co-tenancies, principally Amica at Bayview Gardens and Amica at Windsor. - $0.7 million increase in interest receivable. - $0.5 million increase in accrued guarantee fees. - $0.1 million increase in other receivables. Mortgages and loans receivable $0.1 million increase in loans advanced to co-tenancy investments including accreted interest on Amica at Bearbrook loans. Mortgages payable (15.5) - $14.0 million decrease from repayment of mortgage at Amica at Somerset House. - $2.7 million decrease due to monthly principal repayments. - $0.7 million increase due to amortization of deferred financing charges. - $0.5 million increase due to receipt of holdback on a mortgage. Other Assets (6.1) - $4.7 million decrease due to write-down of a deposit paid towards the Bellevue property and foreign exchange loss. - $1.5 million decrease related to consideration received on settlement of the Bellevue property dispute. - $0.1 million increase related to fair value of interest rate swap. CASH FLOW FROM OPERATIONS Fiscal 2010 cash flow from operations before other changes in non-cash operating working capital remained unchanged at $6.0 million compared to Fiscal Other changes in non-cash operating working capital items used $3.5 million of cash flow from operations in Fiscal 2010 as compared to $1.2 million used in Fiscal The primary use of cash in Fiscal 2010 was a $2.0 million increase in accounts receivable and a $1.5 million increase in current income taxes receivable. 29

31 LIQUIDITY AND CAPITAL RESOURCES Cash Resources The Company s consolidated cash and cash equivalents balance at May 31, 2010 was $8.2 million compared to $12.9 million at May 31, The $4.7 million decrease in cash and cash equivalents is primarily attributable to: $5.4 million cash used in financing activities, including: $16.2 million in mortgage principal payments net of mortgage proceeds; less $14.1 million net proceeds (before future income tax benefit) from a bought deal equity financing and $0.8 million in proceeds from the exercise of stock options, less $4.1 million in dividends paid; $2.4 million cash provided by operations after changes in non-cash working capital items; and $1.7 million cash used in investing activities, including: $3.9 million in capital expenditures, less $1.5 million received from co-tenancy investments, $0.6 million recovery of land deposit, and $0.1 million from loans and mortgages receivable. Amica has financed its operating and investing activities to date primarily through debt financings on its real estate investments, co-tenancy investor participation in its real estate investments, operating cash flows and equity financings. On February 18, 2010, the Company completed a bought deal public offering of 2,655,000 common shares at a price of $5.65 per common share for gross proceeds of $15.0 million. Expenses of the transaction are $0.6 million net of future tax savings of $0.3 million, for net proceeds of $14.4 million (after tax effect). In March 2010, the Company used $13.8 million of its cash and cash equivalents to pay out the maturing mortgage on Amica at Somerset House, a 100% company owned community. In August 2010, the Company obtained a $20 million corporate line of credit secured by this property. Amica believes that its funds on hand at May 31, 2010, combined with funds from operations, the Company s co-tenancy investments, the new $20 million corporate line of credit as described above, expected debt re-financings and/or extensions of maturing debt for Amica at The Balmoral Club and Amica at Richmond Hill as further described below and existing debt financing arrangements are sufficient to fund its operating and capital expenditures for greater than the next 12 months. To support its operations and growth objectives, Amica may raise additional funds in the future from co-tenancy investors for new projects and to support existing co-tenancies as required, debt re-financings for maturing debts, debt financings utilizing the equity available in the Company s wholly-owned real estate assets, sales of property and/or equity financings. Refinancing for Amica at The Balmoral Club, a 100% Company owned community, is to be completed in November The Company anticipates being able to refinance this property at a principal amount at least equal to the maturing principal balance plus transaction costs. Refinancing or extension of the current loan for Amica at Richmond Hill (Richmond Hill, ON), a 50% Company owned pre-development property, is to be completed by December Approximately $37.1 million of the mortgages payable are held by conduit lenders, which the Company anticipates replacing as the debt matures with conventional lenders either through conventional financing or by using CMHC insured financing. 30

32 Future principal payments as a percentage (%) of total mortgage principal payable at May 31, 2010 and the weighted average effective interest rates of maturing debt for each of the next five fiscal years ending May 31 and in the aggregate thereafter, assuming that the mortgages payable due on demand of $2.0 million are classified as repayable in Fiscal 2011, are as follows: (Expressed in thousands of Canadian dollars) Principal Payments During Year Debt Maturing During Year Total Mortgage Principal Payments Percentage of Mortgage Principal Weighted Average Effective Interest Rate $ $ $ % % Year ending May 31, ,429 8,802 11, Year ending May 31, ,475-2, Year ending May 31, ,449 16,811 19, Year ending May 31, ,520 40,077 41, Year ending May 31, ,668 4, Thereafter 1,087 26,304 27, Mortgages payable before deferred financing costs 10,603 95, , Financing Provided to Co-tenancies The Company, has funded certain cash shortfalls in operating co-tenancies and co-tenancy investments under development. The Company charges interest on these advances and is indemnified by the other capital participants or co-tenancy investors. As at May 31, 2010, advances to co-tenancies totaled $25.0 million compared to $25.0 million at May 31, Proportionate Share Mortgages Payable Non-Consolidated Co-tenancies and Guarantees Provided In Excess of Such Proportionate Share The Company s proportionate share of mortgages payable by co-tenancies on properties not included in the consolidated financial statements because they are accounted for on a cost or equity basis is $81.0 million at May 31, 2010, compared to $52.3 million at May 31, The Company has provided guarantees on the mortgages payable by certain of these non-consolidated co-tenancies. The majority of these mortgages are term loans payable on demand under certain circumstances. The Company s past experience has been that these loans have been available for their term. During Fiscal 2012 loans from third parties totaling $126.0 million on properties owned by non-consolidated co-tenancies will reach the end of their term. The Company anticipates that it will be able to complete take-out financings and/or extend the terms of these loans. The Company s proportionate share of the underlying mortgages on non-consolidated properties where it has provided guarantees in excess of such proportionate share totaled $48.7 million at May 31, 2010, compared to $30.3 million at May 31, Guarantees provided by the Company in excess of its proportionate share of such mortgages totaled $80.8 million at May 31, 2010 and $58.0 million at May 31, The Company is indemnified by the other investors and the underlying properties are available to satisfy any claims under these guarantees and to reimburse the Company for any advances made to the co-tenancies. Recovery from co-owners of any amounts guaranteed beyond the realization values of their respective co-tenancy interests is uncertain. 31

33 The following table summarizes the Company s proportionate share of mortgages payable by non-consolidated co-tenancies and the guarantees provided by the Company in excess of its proportionate share of the mortgages payable: (Expressed in thousands of Canadian dollars) May 31, 2010 May 31, 2009 Non-consolidated co-tenancies Proportionate share of mortgages payable Guarantee in excess of proportionate share Proportionate share of mortgages payable Guarantee in excess of proportionate share $ $ $ $ Mortgages with Guarantees by Amica Properties under development 27,779 32,523 14,433 32,219 Income-producing properties 20,881 48,311 15,908 25,745 48,660 80,834 30,341 57,964 Mortgages without Guarantees by Amica Properties under development 17,799-17,529 - Income-producing properties 14, ,340-21,920 - Total of non-consolidated co-tenancies 81,000 80,834 52,261 57,964 The $22.8 million increase (May 31, $80.8 million vs May 31, $58.0 million) in guarantees provided by the Company in excess of its proportionate share of mortgages relates primarily to financings for two co-tenancies: a $14.8 million increase in respect of a 100% joint and several guarantee provided on the Amica at Bayview take-out financing; and a $9.7 million increase in respect of the Amica at Windsor construction financing. The take-out financing for Amica at Bayview (North York, ON), in which the Company has a 15% ownership interest, was completed in February The property was refinanced for $24.8 million at a rate of 3.39% for a five year term. In June 2010 a construction loan in the amount of $29.1 million at May 31, 2010 for the Bayview Gardens condominiums, in which the Company has a 4% ownership interest, was fully repaid with proceeds from the sale of condominium units. Two co-tenancies for which the Company has provided guarantees in respect of mortgages on the underlying properties, did not meet the debt service covenant requirements of the mortgages at May 31, Based on past experience and communications with the mortgage holder the Company does not anticipate the mortgage holder to take any action on these mortgages. At May 31, 2010, the guarantees provided by the Company on these properties were $7.6 million and exceeded the Company s proportionate share of the mortgages by $5.6 million. The Company is indemnified by the other investors in the co-tenancies for the guarantees provided in excess of the Company s proportionate share of the mortgages payable and the underlying properties are available to satisfy any claims under these guarantees and to reimburse the Company for any advances made to the co-tenancies. Capital Expenditures In Fiscal 2010, the Company incurred $3.9 million in capital expenditures on its wholly-owned or proportionately consolidated communities and corporate operations, including the major renovation of Amica at Arbutus Manor. The major renovation of Amica at Arbutus Manor commenced in November 2008 and was substantially completed in Fiscal The total cost was originally projected at approximately $5.1 million, of which $1.6 million was spent in Fiscal 2009 and $1.8 million was spent in Fiscal Total capital expenditures for consolidated income producing properties for Fiscal 2012 are budgeted at $2.0 million inclusive of scaled back renovations at Arbutus Manor. 32

34 Contractual Obligations As at May 31, 2010, the Company s contractual obligations for each of the next five fiscal years and thereafter, assuming that mortgages payable due on demand of approximately $2.0 million are classified as repayable in Fiscal 2010, are as follows: Contractual Fiscal Fiscal Fiscal Fiscal Fiscal (Expressed in thousands of Canadian dollars) Obligations Thereafter $ $ $ $ $ $ $ Debt Repayment Mortgage principal maturing or payable on demand 95,662 8,802-16,811 40,077 3,668 26,304 Debt Repayment Mortgage principal payments 10,603 2,429 2,475 2,449 1, ,087 Commitments to provide financing to co-tenancies (1)(2) 7,095 4,935 1, Capital expenditures - budgeted 2,000 2, Premises Leases Total 116,122 18,364 3,875 20,368 41,641 4,358 27,516 (1)Reflects the Company s obligations to provide mezzanine, completion and other loans to four non-consolidated co-tenancies currently in lease-up. The amount and timing for funding of these commitments has been estimated by management based on the expected cash requirements of the co-tenancies and such estimate will change periodically. The Company may also provide completion and other loans to these co-tenancies in excess of contractual amounts, however the Company does not have the obligation to do so. (2) Excludes contractual obligations to provide financing of $9.1 million to co-tenancies currently in pre-development. The timing for the Company to provide the financing to these co-tenancies is dependent on future decisions to proceed with development of the properties and the Company is currently only funding select pre-development activities for these properties. Normal Course Issuer Bid In January 2009, the Company filed a notice of intention to conduct a second Normal Course Issuer Bid (the NCIB ), which received approval from the TSX on January 12, The NCIB allowed Amica to purchase and cancel up to 1,179,626 of its common shares, representing 10% of the public float at December 31, The NCIB commenced on January 15, 2009 and terminated on January 14, As of May 31, 2009, the Company had purchased 823,500 shares under the NCIB, representing a total purchase cost including commissions of approximately $2.76 million, or an average of $3.34 per share, excluding commissions. The 823,500 shares purchased pursuant to the NCIB were cancelled as follows: 811,900 during Fiscal 2009; and 11,600 in June No purchases of shares were made under the NCIB program during Fiscal Dividends Amica has paid a quarterly dividend since the fiscal year commencing June 1, The quarterly dividend was $0.05 per share during Fiscal 2007 and this was increased to $0.06 per share starting in Fiscal The Company declared $4.3 million in dividends during Fiscal 2010 of which $1.2 million was payable at May 31, 2010 (paid June 15, 2010). Additionally, on August 10, 2010, the Company s Board of Directors (the Board ) approved a quarterly dividend of $0.06 per common share on all issued and outstanding common shares to be paid on September 15, 2010, to shareholders of record on August 31, Future dividends will depend on a number of factors, including current and expected operating cash flow, growth opportunities, and liquidity and no assurance can be provided on the amount of dividends, if any, paid in future quarters. Related Party Transactions A Board member and the Chief Executive Officer (including holding companies thereof) participated in certain co-tenancy investments on terms identical to the other investors. They have direct or indirect equity interests of between 4% and 20% in thirteen (May 31, 2009 twelve) co-tenancies. Another Board member participates for a 1% interest in a co-tenancy (May 31, 2009 one), on terms identical to the other investors. The share of guarantees provided by the Company on behalf of related parties at May 31, 2010, totaled $9.6 million (May 31, 2009 $5.7 million) and the related parties benefit from the funding shortfalls provided by the Company. Funds advanced to co-tenancies in which the related parties participated at May 31, 2010, totaled 33

35 $19.3 million (May 31, 2009 $12.3 million) and are included in mortgages and loans receivable. The Company charges interest ranging from 8.3% to 15% on these advances in accordance with the contracted terms. The Company has six mortgages with a total value of $52.7 million which have been guaranteed in the amount of $34.4 million by the Chief Executive Officer jointly and severally with the Company. The Chief Executive Officer received aggregate guarantee fees of $0.1 million in Fiscal 2010 related to these loans (Fiscal 2009 less than $0.1 million). The Company has indemnified the Chief Executive Officer for these guarantees. Related Party Transactions with Non-Consolidated Co-Tenancies For Fiscal 2010, the Company earned the following amounts from co-tenancies in which it is the manager and an owner: $3.3 million (Fiscal 2009 $4.2 million) in management fees and design and marketing fees from co-tenancies of which $0.9 million (Fiscal $0.9 million) is later deducted as fees credited to investments in respect of equity-accounted investments where the property is under development, interest income of $1.3 million (Fiscal 2009 $2.6 million), and guarantee fees of $0.3 million (Fiscal 2009 $0.4 million) included in interest and other income. Additionally, for Fiscal 2010, the Company reduced its investments in equity-accounted co-tenancies where the property is under development for the following items charged to the co-tenancies: $1.5 million (Fiscal $0.3 million) in interest on loans to the co-tenancies; and $0.4 million ( $nil) in guarantee and other fees. As at May 31, 2010, included in accounts receivable is co-tenancy loan interest, management, design and marketing fees receivable of $1.8 million (May 31, 2009 $1.5 million). Related party transactions are recorded at the exchange amount, which has been agreed to by the parties. The transactions are with co-tenancies that are not consolidated in these financial statements which are all in the normal course of business. OUTSTANDING SHARE DATA Designation Outstanding as of August 10, 2010 Common shares 19,204,255 Options to acquire common shares 1,007,750 LOOKING AHEAD The Company s long term vision is to become a world leader in the independent living retirement sector and to this end, has defined its vision To be the best in the world at delivering superior Wellness & Vitality within exceptional independent living retirement communities. The Company s current focus is on owning, managing, acquiring and developing Amica Wellness & Vitality Residences in Canada. The Company s portfolio of managed and owned residences has been shaped to focus on its core business of providing luxury accommodations and services to primarily independent seniors. Since inception, the Company has evolved from an owner/operator whereby it owned 100% of all its retirement residences to a manager/operator with a focus towards growth in the number of Amica communities in operation (Management Operations) but in which the Company did not have a significant ownership interest (Ownership and Corporate Operations). Going forward, while Amica will maintain its brand manager business model, the Company will now additionally focus on increasing its ownership position in some of its mature communities. Where this ownership interest reaches beyond 50%, Amica will consolidate these communities in its financial statements thereby increasing its total assets on the balance sheet and including the revenues, operating results, and cash flow generated by such communities in its financial statements. Additionally, the Company will evaluate opportunities to acquire ownership positions in, and management contracts for, qualified seniors residences not currently owned or managed by Amica. The Company believes current market conditions will result in opportunities surfacing that could either immediately or through repositioning be branded as an Amica Wellness & Vitality Residence. 34

36 Management Operations remains a key and essential part of the business. Future growth in Management Operations will come from: (1) improving occupancy, MARPAS and net operating income at each Amica community; and (2) the addition of new Amica communities under management. The Company believes that shareholder value can be created through both increased Ownership and Corporate Operations and Management Operations, thereby improving earnings and cash flow. The Company currently has no definitive plans for the acquisition of new properties or for proceeding with the development of any specific co-tenancy property currently in pre-development. The Company is evaluating the opportunity to commence construction on one or more new developments in 2010 or 2011, including those currently in pre-development. The Company s business and growth strategy contemplates the development of further luxury senior residence properties. This relates to its overall objective to generate stronger revenues in its ownership operations and Management Operations, which collectively contribute to the overall earnings and cash flow. The Company s current policy is to have committed construction financing in place before commencing construction of new luxury senior residences. The amount of construction financing required will be dependent on the property or properties that are ultimately selected to advance into development. The Company estimates that construction financing for each rental property in pre-development will range from $28 million to $35 million. There can be no guarantee that such financing will be available or available on terms that are acceptable to the Company. DISCLOSURE CONTROLS AND PROCEDURES Management is responsible for establishing and maintaining a system of controls and procedures over the public disclosure of financial and non-financial information regarding the Company. Such controls and procedures are designed to provide reasonable assurance that all relevant information is gathered and reported, on a timely basis, to senior management, including the Chief Executive Officer (CEO) and the Chief Financial Officer (CFO), so that appropriate decisions can be made by them regarding public disclosure. As required by CSA National Instrument , Certification of Disclosure in Issuers Annual and Interim Filings (NI ), an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures was conducted, under the supervision of management, including the CEO and CFO, as of May 31, The evaluation included documentation review, enquiries and other procedures considered by management to be appropriate in the circumstances. Based on that evaluation, the CEO and the CFO have concluded that the design and operation of the system of disclosure controls and procedures were effective as of May 31, INTERNAL CONTROLS OVER FINANCIAL REPORTING The Company s management under the supervision of, and with the participation of the Company s CEO and the CFO, has designed and implemented internal controls over financial reporting, as defined under NI The purpose of internal controls over financial reporting is to provide reasonable assurance regarding the reliability of financial reporting, in accordance with Canadian GAAP, focusing in particular on controls over information contained in the annual and interim consolidated financial statements. The internal controls are not expected to prevent and detect all misstatements due to error or fraud. As required by NI , an evaluation of the Company s internal controls over financial reporting was conducted, under the supervision of management, including the CEO and CFO, as of May 31, Based on that evaluation, the CEO and CFO have concluded that the internal controls over financial reporting were effective as of May 31, Management has evaluated whether there were changes in our internal controls over financial reporting during the fourth quarter of Fiscal 2010 and Fiscal 2010 that materially affected, or are reasonably likely to materially affect, the Company s internal controls over financial reporting. Management has determined that no material changes occurred during the fourth quarter of Fiscal 2010 and Fiscal

37 RISKS AND UNCERTAINTIES RISK RELATED TO AMICA AND THE INDUSTRY General Business Risks The Company is subject to general business risks and to risks inherent in the seniors housing industry and the ownership of real property. These risks arise from a wide range of factors including changes in general and local economic conditions, varying levels of demand for retirement living and related services, fluctuations in the price of equipment and supplies, changes in the cost of construction, changes in the availability and cost of labour, competition from other owners, developers and operators, which may impact the supply and demand for seniors housing accommodations, the recurring need for renovation, refurbishment and improvement of properties, changes in trends, technology and service requirements in the seniors housing industry, changes in cash flow, liquidity and interest rates, the availability of financing for development, operating or capital needs, changes in real estate and other taxes and other operating expenses and the ability of the Company to secure management contracts. In addition, the potential for reduced revenue growth exists in the event that the Company is unable to maintain its managed properties at a level that meets the expectation of its residents thus affecting the corresponding occupancy levels within these properties. Real Property Ownership Real property investments are subject to a degree of risk. They are affected by various factors including changes in general economic conditions (such as the availability of mortgage funds) and in local conditions (such as an oversupply of space or a reduction in demand for real estate in the area), the attractiveness of the properties to residents, competition from other available space and various other factors. In addition, fluctuations in interest rates may affect the Company. By specializing in one segment of the real estate industry, the Company is exposed to adverse effects on the industry and does not benefit from the diversification of its portfolio by type of property. If properties do not generate revenues sufficient to meet operating expenses, debt service and capital expenditures, the Company s results from operations and ability to make distributions to shareholders could be adversely affected. The performance of the economy in each of the areas in which the properties are located affects occupancy, market rental rates and expenses. These factors consequently can have an impact on revenues from the properties and their underlying values. The financial results and labour decisions of major local employers may also have an impact on the revenues from and value of certain properties. Certain significant expenditures involved in real property investments, such as real estate taxes, insurance costs, maintenance costs and mortgage payments, represent liabilities which must be met regardless of whether the property is producing any income. Some of the expenditures are variable, and beyond the control of the Company. There is a real possibility that the Company may experience inadequate or negative cash flow on a property as a result of escalating operating costs or declining revenue. Reliance on Ability of Capital Participants to Meet Their Obligations The Company provides advances and mezzanine financing and guarantees the indebtedness of certain co-tenancies in excess of the Company s proportionate interest. Generally, the equity available in the cotenancy is in excess of the advances and indebtedness guaranteed although not during development. This is particularly the case as equity in new developments is generally around 20% of the pro forma cost of development. Until lease-up, the Company faces risks that are significantly higher than its pro rata ownership share. If the Company s guarantee is called upon, or mezzanine debt cannot be repaid through refinancing and there is insufficient equity in the property, and the capital participants are unable to fund their proportionate share of the indebtedness, the Company may be unable to recover the amount paid in excess of its proportionate interest. The Company may remedy such an event by acquiring such defaulting co-owners interests at below cost, however the Company would have to fund such co-owners share of the mezzanine debt or guarantee. The Company may also be exposed to adverse developments, including a possible change in control, in the business and affairs of its co-tenancy partners, which could have a significant impact on the Company s interests in the co-tenancies or affect the value of its interests, cause the Company to incur additional costs, impact upon the Company s ability to dispose of its interests in the co-tenancies, or compel the Company to purchase the balance of the co-tenancies. 36

38 Market Risk Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices, will affect the Company s income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters while optimizing the return on risk. The Company is not materially exposed to equity price risk but does have exposure to interest rate risk and foreign exchange rate risk. To mitigate interest rate risk, the Company s consolidated mortgages payable portfolio consists of primarily fixed-rate debt with staggered maturity dates with the exception of three mortgages payable which are carried at variable rates. One of the variable rate mortgages is a land loan for the Amica at Richmond Hill property in which the Company has a 50% ownership interest. The mortgage has a principal balance outstanding of $4.0 million of which $2.0 million is the Company s 50% share at May 31, 2010, and the mortgage has an interest rate of prime plus 2.5%. The Company entered into interest rate swaps (notes 9 and 13b to the Consolidated Financial Statements) to reduce the Company s exposure to interest rate changes on $14 million of two variable rate mortgages in the amount of $14.5 million for the Amica at Beechwood property, bearing interest at bankers acceptance plus 2.5% and bankers acceptance plus 3.75%. Although the majority of mortgages payable are at fixed rates there can be no assurance that as debt matures, renewal interest rates will not significantly impact future net income and cash flow. The Company is also subject to the risk that it may not be able to refinance existing mortgage debt as it matures, or that construction financing may be unavailable or declines in appraised values of properties or declines in loan to appraised value ratios may result in reductions in the amounts available for refinancings. To mitigate this risk, the Company has endeavoured wherever possible to negotiate and lock in fixed mortgage terms of between 5 and 10 years, and effective calendar 2008 the Company s policy is not to commence construction on a new development until committed financing is in place at acceptable terms. The Company has one consolidated property that has a mortgage payable of approximately $7 million and one proportionately consolidated property that has a mortgage payable of approximately $4 million that mature prior to May 31, The Company s outstanding mortgages payable are summarized in LIQUIDITY AND CAPITAL RESOURCES above. For mortgages payable that bear interest at fixed rates, no material interest rate risk currently exists. For mortgages payable that bear interest at variable rates, the Company s interest costs will change to the extent the prime rate or bankers acceptances rate changes. At May 31, 2010, there are no material sensitivities to interest rates on variable rate mortgages at changes of 50 to 250 basis points. All mortgages and loans receivable are at fixed rates and are not subject to variable interest rate risk. Global Financial Conditions Current global financial conditions have negatively impacted access to public financing and may impact the Company s ability to obtain future financing on favourable terms. Additionally, the factors which have precipitated the current global financial crisis may cause decreases in asset values that are deemed to be other than temporary, which may result in impairment losses. If such increased levels of volatility and market turmoil continue, the Company s operations could be adversely impacted and the trading price of Amica s common shares could be affected. Credit Risk Credit risk is the risk of financial loss to the Company if a customer or counterparty to a financial instrument fails to meet its contractual obligations. The Company is exposed to credit risk as a result of its accounts receivable, management fees receivable and mortgages and loans receivable. 37

39 The majority of accounts receivable is interest receivable due from mortgages and loan advances to co-tenancies and joint ventures. The Company has guarantees from the investors that are established within the terms of the co-tenancy agreements, however such guarantees may not be sufficient or effective in securing payment of the mortgages and loan advances to the co-tenancies and joint ventures. Accounts receivable also includes unpaid amounts for rental and services rendered to the Company s residents at the retirement properties. Under the terms of residents leases, collection occurs at the first of every month in the form of cheque or pre-authorized debit. It is the Company s policy to review trade receivables on a monthly basis and follow up for collection. Accounts receivable also includes management fees receivable due from properties under management, as well as design and marketing fees and miscellaneous fees earned in accordance with terms stipulated in the cotenancy agreements for each property. Certain construction financing precludes the Company from collecting receivables until certain construction financing milestones are achieved. The timing of the collection of these receivables can be delayed significantly beyond what would normally be expected for trade accounts receivable due to its nature. The Company has guarantees from the investors that are established within the terms of the co-tenancy agreements, however such guarantees may not be sufficient or effective in securing payment of the fees receivable from the co-tenancies and joint ventures. The Company s mortgages and loans receivable consist of fixed-rate debt from co-tenancies and joint ventures in which the Company has management contracts. While there is credit risk from these receivables in the event of inadequacy of cash flow generated by the co-tenancy or joint venture or from scheduled financing draws, the Company has guarantees from the investors that are established within the terms of the co-tenancy agreements. Recovery from co-owners of amounts guaranteed beyond the realization value of their respective co-tenancy interests is uncertain. The following represents the status of the Company s accounts receivable as at May 31, 2010: Total as at May 31, (Expressed in thousands of Canadian dollars) Current days Over 120 days 2010 $ $ $ $ Accounts Receivable 2, ,088 4,240 Liquidity Risk Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. Real property investments are inherently relatively illiquid and cannot be quickly converted to cash. Liquidity is even more constrained where the Company s interest takes the form of an interest in a joint venture, co-ownership or development project. The Company s approach to managing liquidity is to ensure, as far as possible, that it will have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions without incurring unacceptable losses or risking damage to the Company s reputation. The Company manages its operating cash flow and its cash resources to ensure sufficient cash is on hand to meet its obligations and growth objectives including capital expenditure commitments. The Company has a $20 million line of credit secured by a first mortgage on a 100% company owned community. The Company may in the future be able to increase its debt on certain of its 100% owned communities to generate additional financial resources. 38

40 The following table summarizes the contractual obligations of the Company s consolidated financial liabilities at May 31, 2010 for each of the next five fiscal years ending May 31 and in the aggregate thereafter, assuming that the mortgages payable due on demand of $2.0 million are classified as repayable in Fiscal 2011: (Expressed in thousands of Canadian dollars) Carrying Amounts Contractual Amounts Fiscal 2011 Fiscal 2012 Fiscal 2013 Fiscal 2014 Fiscal 2015 Thereafter $ $ $ $ $ $ $ $ Accounts payable and accrued liabilities 5,594 5,594 4, Dividends payable 1,151 1,151 1,151 Mortgages payable principal payments 10,603 10,603 2,429 2,475 2,449 1, ,087 Mortgages payable maturing debt or payable on demand 93,111 95,662 8,802 16,811 40,077 3,668 26,304 Development Risk 110, ,010 16,794 2,800 19,585 41,922 4,518 27,391 The Company will continue to seek and advance new developments with experienced developers and capital participants; however, new developments increase the risk that projected financial returns may not be achieved and that cost overruns or start-up losses may require further equity injections. In addition, adverse impact from new developments will reduce the availability of capital from affected investors in co-tenancies for future developments. The Company evaluates each development separately including an extensive supply and demand analysis and establishing capital participants, to ensure certain criteria have been met. The Company attempts to reduce its development risk by entering into co-tenancy agreements with experienced developers and other investors, and the Company attempts to reduce future investments by relying upon its co-tenancy participants to provide the majority of capital required to acquire or develop Amica Wellness & Vitality Residences. However, in such instances the ability of co-owners to fund their share of existing debt (including mezzanine debt) and guarantees, and/or fund additional capital requirements adds to our risk (see Reliance on Ability of Capital Participants to Meet Their Obligations and Guarantee Risk ). The Company is also subject to growth restrictions if it is unable to attract equity investors to enter into new co-tenancy agreements when new opportunities are identified. Guarantee Risk Amica has provided guarantees in excess of its proportionate share on the mortgages of certain co-tenancies, whose properties and mortgages payable are not included in the consolidated financial statements because they are accounted for on a cost or equity basis (see LIQUIDITY AND CAPITAL RESOURCES Proportionate Share Mortgages Payable Non-consolidated Co-tenancies and Guarantees provided in excess of Such Proportionate Share ). The majority of these mortgages are term loans payable on demand under certain circumstances. The Company s past experience has been that these loans have been available for their term. During Fiscal 2012 loans from third parties totaling $126.0 million on properties owned by non-consolidated co-tenancies will reach the end of their term. The Company anticipates that it will be able to complete take-out financings and/or extend the terms of these loans. Amica s proportionate share of the underlying mortgages on these specific non-consolidated properties totalled $48.6 million at May 31, 2010, compared to $30.3 million at May 31, Guarantees provided by Amica in excess of the proportionate share of such mortgages totaled $80.8 million at May 31, 2010 and $58.0 million at May 31, Amica is indemnified by the other investors and the underlying properties are available to satisfy any claims under these guarantees and to reimburse Amica for any advances made to the co-tenancies. Recovery from co-owners of any amounts guaranteed beyond the realization values of their respective cotenancy interests is uncertain (see also Reliance on Ability of Capital Participants to Meet Their Obligations ). Two co-tenancies for which the Company has provided guarantees in respect of mortgages on the underlying properties, did not meet the debt service covenant requirements of the mortgages at May 31, Based on past experience and communications with the mortgage holder the Company does not anticipate the mortgage holder to take any action on these mortgages. At May 31, 2010, the guarantees provided by the Company on these properties were $7.6 million and exceeded the Company s proportionate share of the mortgages by $5.6 million. The Company is indemnified by the other investors in the co-tenancies for the guarantees provided in 39

41 excess of the Company s proportionate share of the mortgages payable and the underlying properties are available to satisfy any claims under these guarantees and to reimburse the Company for any advances made to the co-tenancies. Continued Growth The Company s growth in recent years has been from the development of new seniors rental residences in which it held a partial interest (under 35%). Since the Fall of 2008, due to the economic environment, the Company did not anticipate significant growth and was focussed on solidifying its business including completing construction of the new residences that were already in progress. Amica is now looking to grow its business in several ways, including: increasing its ownership interest in certain existing Amica residences where Amica owns less than a 100% interest; advancing the development of properties currently in pre-development; acquiring seniors rental residences currently owned and operated by others; and acquiring new development properties. In addition to the general economic environment, the Company s growth prospects are essentially dependent on Amica s ability to: successfully acquire additional ownership interests in targeted existing Amica residences; obtain approvals and construction financing for properties currently in pre-development and to successfully complete the construction and lease-up of the development; and to find acquisition opportunities or new development opportunities in locations that meet Amica s stringent criteria. There is a risk that even should economic conditions remain the same or improve, the Company may not be able to achieve growth. Geographic Concentration A substantial portion of the business and operations of Amica is conducted in Ontario where fifteen out of twenty-two Amica retirement rental residences in operation are situated and where there currently are two properties under development. The market value of these properties and the income generated from them could be negatively affected by changes in local and regional economic conditions. Competition Many other developers, managers and owners of seniors housing facilities compete with Amica in seeking residents. Competition for residents is based primarily on convenience of location, quality of the residence, rental rates and the range and quality of food, and the services and amenities offered. Competition for residents and prospective residents for Amica s residences could adversely affect occupancies and Amica s ability to attract residents and the rents which may be charged could affect Amica s revenues and, consequently, its ability to meet its debt obligations. Amica competes with various health care service providers and the hospitality operators in attracting and retaining skilled and qualified personnel to manage and operate the Company s communities. A shortage of trained and qualified personnel may require the Company to enhance wage and benefits packages in order to compete. No assurance can be given that labour costs will not increase, or that if they do increase, they can be matched by corresponding increases in rental and management revenue. Many other entities have resources in excess of those of the Company and its partners for investment in real estate. An increased availability of investment funds in real estate would tend to increase competition for real property investments and may increase purchase prices, reducing the yields on such investments or making it more difficult for the Company and its partners to locate and purchase suitable properties. Reliance on Attracting Seniors with Sufficient Resources to Pay The Company currently, and for the foreseeable future, expects to rely primarily on its residents ability to pay rents and purchase services from their own or familial financial resources. Generally, only seniors with income or assets meeting or exceeding the comparable median in the region where the Company s properties are located can afford the Company s services. Inflation or other circumstances that adversely affect the ability of seniors to pay for the Company s services could have an adverse effect on the Company. If the Company encounters difficulty in attracting seniors with adequate resources to pay for its services, its business, operating results and financial condition could be adversely affected. It is important to note that revenues in the seniors housing industry are not immune from economic factors (notably interest rates on retirees savings, the ability 40

42 of seniors to sell their existing residences and the value they will realize from such sales, and concerns about the funding of pension plans). Reliance on Rentals and Rental Increases Upon the move-out of any resident, there can be no assurance that the resident will be replaced or that a new resident will pay the same or greater rent. The failure to achieve rentals and maintain or increase rents may have an adverse effect on the financial condition of the Company. Reliance on Attracting Capital Participants The Company currently and in the future relies upon its co-tenancy participants to provide the majority of the equity capital required to acquire or develop Amica Wellness & Vitality Residences. These co-tenancy participants enter into long term management contracts with the Company for the management of the property that will be developed. There is no guarantee that the Company will be able to attract co-tenancy participants to provide the majority of the equity capital required for future acquisitions or developments. As well, there is no guarantee that the Company will be able to continue to obtain additional long term management contracts. Operational Risks The Company is exposed to all of the operational risks inherent in managing and owning independent living and assisted living rental retirement properties for seniors. There is no assurance that the Company s policies and procedures to address these operational risks will be adequate or effective. The Company maintains insurance to cover some of these risks. See Liability and Insurance. Litigation and Other Disputes May Adversely Affect the Company s Assets and Share Price The Company is involved in disputes with third parties and may in the future become involved in other disputes, litigation or arbitration proceedings. The results of these proceedings cannot be predicted with certainty. If the Company is unable to resolve these disputes favourably, it may have an adverse impact on the Company s financial position, results of operations and the price of Amica s common shares. Labour Relations As of August 10, 2010, the Company and its co-tenancies employed approximately 1,107 employees at its residences and corporate offices. Approximately 31% of the Company s employees are represented by four major labour unions. Labour relations with these unions are governed by eight certifications. There can be no assurance that the Company will not experience job action including strikes and/or labour stoppages, or any other type of conflict with unions or employees, which could have a material adverse effect on the Company s business, operating results and financial condition. Personnel The Company s success depends in large part on its ability to attract and retain key management, and operating personnel. As Amica expands its portfolio of retirement residences, it will require more skilled, qualified personnel. Recruiting personnel for the retirement industry is highly competitive. Amica s failure to attract or retain qualified personnel could have a material adverse effect on its business. Liability and Insurance The Company s business entails an inherent risk of liability. Management expects that from time to time the Company may be subject to lawsuits as a result of the nature of its business. The Company maintains general and professional liability, business interruption and property insurance policies in amounts and with such coverage and deductibles as deemed appropriate, based on the nature and risks of the business, historical experience and industry standards. However, certain types of losses are either uninsurable or not economically insurable. There can be no assurance that claims in excess of our insurance coverage or claims not covered by our insurance will not arise. A successful claim against the Company not covered by, or in excess of, our insurance could have a material adverse effect on the Company s business, operating results and financial condition. 41

43 Possible Environmental Liabilities Under various federal and provincial environmental laws and regulations, a current or previous owner or operator of real property may be held liable for the costs of removal or remediation of certain hazardous or toxic substances, including without limitation, asbestos containing materials that could be located on, in or under such property. Such laws and regulations often impose liability whether or not the owner or operator knew of, or was responsible for, the presence of the hazardous or toxic substances. The costs of any required remediation or removal of these substances could be substantial and the liability of an owner or operator to any property is generally not limited under such laws and regulations, and could exceed the property s value and the aggregate assets of the owner or operator. The presence of these substances or failure to remediate such substances properly may also adversely affect the owner s ability to sell or rent the property, or to borrow using the property as collateral. In connection with the ownership or operation of its properties, the Company could be liable for these costs, as well as certain other costs, including government fines and injuries to persons or properties. As a result, the presence, with or without the Company s knowledge, of hazardous or toxic substances at any property held or operated by the Company could have an adverse effect on the Company s business, operating results and financial condition. The Company conducts Phase I environmental assessments and, where required, Phase II environmental assessments on each property prior to acquiring it. The results of those assessments have disclosed no material remediation or other expenditure requirements on properties owned by the Company. The assessments did disclose the presence of asbestos in specified contained areas at three properties acquired by the Company. The reports concluded that no remedial action would be required unless renovations were undertaken that would disturb the asbestos. The Company periodically renovates its properties and may need to undertake maintenance activities which require such remedial actions to be taken. The Company has a comprehensive Asbestos Abatement policy outlining standard procedures and practices, and contracts consultants and contractors who are qualified to perform the required work. Changes in the Regulatory Environment Laws periodically change and regulatory bodies may impose licensing requirements for certain facilities, health standards or services, change the terms of licences or impose more stringent environmental. Inspections may identify deficiencies in our operations. Changes in the law and regulations and inspections could have an adverse effect on the Company s operations and financial condition. RISKS RELATED TO THE STRUCTURE OF AMICA Change of Control Samir A. Manji, Chairman, President and Chief Executive Officer of Amica, beneficially owns or controls directly or indirectly 17.4% of the common shares of Amica. Such concentration of ownership and control could have the effect of delaying, deterring or preventing a change of control of Amica that might otherwise be beneficial to its shareholders and may discourage acquisition bids for Amica or limit the amount certain investors may be willing to pay for the common shares of Amica. Dilution The authorized number of common shares of Amica is unlimited. Amica may issue additional common shares from time to time, and the interests of the holders of common shares may be diluted thereby. Dividends The amount of dividends paid by Amica will depend on numerous factors, including profitability, debt covenants and obligations, the availability and cost of acquisitions, fluctuations in working capital, the timing and amount of capital expenditures, applicable law and many factors beyond the control of Amica. Dividends are not guaranteed and will fluctuate with the Company s performance. Nor can there be any assurance as to the amounts of dividends, if any, to be paid by Amica. The market value of Amica s common shares may deteriorate if Amica is unable to pay dividends in accordance with its dividend policy in the future, and such deterioration may be material. 42

44 Disclosure Controls and Internal Controls Over Financial Reporting Amica s business could be adversely impacted if there are deficiencies in disclosure controls and procedures or internal controls over financial reporting. The design and effectiveness of Amica s disclosure controls and procedures and internal controls over financial reporting may not prevent all errors, misstatements or misrepresentations. While management continues to review the effectiveness of the Company s disclosure controls and procedures and internal controls over financial reporting, it can not assure that Amica s disclosure controls and procedures or internal control over financial reporting will be effective in accomplishing all control objectives all of the time. Deficiencies, particularly material weaknesses, in internal control over financial reporting which may occur in the future could result in misstatements of the Company s results of operations, restatements of Amica s financial statements, a decline in share price, or otherwise materially adversely affect Amica s business, reputation, results of operation, financial condition or liquidity. Key Executives Amica is dependent on the services of key executives, including the Chairman, President and Chief Executive Officer and a small number of other highly skilled and experienced executives and personnel. The loss of these persons or Amica s inability to attract and retain additional highly skilled employees may adversely affect its business and future operations. Conflicts of Interest Certain of the directors and officers of the Company are also directors, officers and/or shareholders of other real estate companies. Such associations may give rise to conflicts of interest from time to time. The directors of the Company are required by law to act honestly and in good faith with a view to uphold the best interests of the Company and to disclose any interest that they may have in any project or opportunity of the Company. If a conflict of interest arises at a meeting of the Board, any director in a conflict must disclose his interest and abstain from voting on such matter. In determining whether or not the Company will participate in any project or opportunity, the directors will primarily consider the degree of risk to which the Company may be exposed and its financial position at the time. FINANCIAL INSTRUMENTS a) Types of Financial Instruments The Company has the following financial instruments: Cash and cash equivalents and other assets restricted cash designated as held for trading; Management fees receivable, mortgages and loans receivable, accounts receivable and income taxes receivable classified as loans and receivables; Interest rate swaps classified as held for trading; Accounts payable and accrued liabilities, dividends payable and mortgages payable classified as other liabilities. b) Fair Values Certain of the Company s financial instruments, including cash and cash equivalents, restricted cash, other assets restricted cash, management fees receivable, accounts receivable, income taxes receivable, dividends payable and accounts payable and accrued liabilities, the carrying amounts at May 31, 2010 and May 31, 2009 approximate their fair values due to their ability for prompt liquidation or short term to maturity. The fair values of mortgages payable have been estimated by management by discounting the future contractual cash flows under current financing arrangements at discount rates which represent estimated borrowing rates presently available to the Company for loans with similar terms, risks and maturities. The carrying value and estimated fair value of mortgages payable was as follows: 43

45 (Expressed in thousands of Canadian dollars) Contractual Value of Deferred Finance Carrying Value of Fair Value of Mortgages Payable Costs Mortgages Payable Mortgages Payable $ $ $ $ May 31, ,265 (2,551) 103, ,643 May 31, ,454 (3,201) 119, ,414 The fair value of the interest rate swaps which were entered into in February 2009, is a financial asset of $0.1 million at May 31, 2010 and is recorded in other assets (May 31, 2009 a financial liability of less than $0.1 million and was recorded in accrued liabilities). During Fiscal 2010 the change in fair value of the interest rate swaps is a gain of $0.2 million (Fiscal 2009 a loss of less than $0.1 million). The change in the fair value of the interest rate swaps is included in interest expense. Fair value information has not been disclosed for the Company s mortgages and loans receivable due from co-tenancies in which the Company has an ownership position as there is no quoted market price for these financial assets and their fair value can not be measured reliably. As at May 31, 2010, the carrying value of these mortgages and loans receivable was $25 million (May 31, $25 million). These mortgages and loans receivable are classified as Loans and Receivables and the Company does not plan to dispose of these financial assets. The Company is unable to measure the fair value of these financial assets reliably as: there is no active market for these financial assets; payments to the Company are from future re-financings of debt on the co-tenancy properties and/or cash flow from the properties after debt servicing costs and capital expenditures; and the value of the indemnities provided by the co-tenancy co-owners is uncertain. Fair value hierarchy Financial instruments carried at fair value as at May 31, 2010 have been categorized under three levels of fair value hierarchy as follows: Level 1 - Inputs are unadjusted quoted prices of identical instruments in active markets. Level 2 - Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 3 - One or more significant inputs used in a valuation technique are unobservable in determining fair values of the instruments. Financial Instruments at Fair Value May 31, 2010 (Expressed in thousands of Canadian dollars, except per share amounts) Level 1 Level 2 Level 3 Total $ $ $ $ Financial assets Cash and cash equivalents 8, ,212 Other assets restricted cash Other assets interest rate swap asset Total 8, ,461 Financial liabilities Determination of fair value and the resulting hierarchy requires the use of observable market data whenever available. The classification of a financial instrument in the hierarchy is based upon the lowest level of input that is significant to the measurement of fair value. 44

46 SIGNIFICANT ACCOUNTING POLICIES The significant accounting policies used by the Company in preparing its consolidated financial statements are described in note 2 to the Company s consolidated financial statements for the year ended May 31, 2010, available on the Company s website at or on SEDAR at and should be read to ensure proper understanding and evaluation of the estimates and judgments made by management in preparing those financial statements. The Company s financial statements are prepared in accordance with Canadian generally accepted accounting principles. CRITICAL ACCOUNTING ESTIMATES The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The significant areas requiring the use of management s judgment include: the estimated future cash flows of the Company s properties and the useful lives of the Company s income-producing properties, which impacts the periodic charges against income, the recoverability of investments in and advances to co-tenancy investments, and the net realizable value of any properties held for sale. Impairment in Value of Assets Impairment in Value of Assets under Canadian GAAP requires management to write down to fair value any long-lived asset or financial asset that is determined to have been impaired. The Company s assets consist of real estate assets and assets indirectly related to real estate (income properties, properties under development, mortgages and loans receivable). The fair value of the income properties and properties under development is dependent upon future cash flows over the holding period. The review of anticipated cash flows involves assumptions of estimated occupancy, rental rates and residual value. In addition to reviewing anticipated cash flows, management assesses changes in business climates and other factors, which may affect the ultimate value of the property. These assumptions may not ultimately be achieved. In the event these factors result in a carrying value that exceeds the sum of the undiscounted cash flows expected to result from the direct use and eventual disposition of the property, an impairment would be recognized. The fair value of the mortgages and loans receivable depends upon the financial stability of the borrower and the economic value of the underlying security. Amortization The Company records amortization on its income properties on a straight-line basis. Under this method, amortization is charged to income on a straight-line basis over the remaining estimated useful life of the property. A significant portion of the acquisition cost of each property is allocated to building. The allocation of the acquisition cost to building and the determination of the useful life are based on management s estimates. In the event the allocation to building is inappropriate or the estimated useful life of the building proves incorrect, the computation of amortization will not be appropriately reflected over future periods. Tax Provisions The measurement of current income taxes as at the balance sheet date required management to make estimates and assumptions regarding the deductibility of certain amounts for tax purposes. Actual results could differ from those estimates. The measurement of the future income tax asset as at the balance sheet date required management to make estimates and assumptions, including estimates and assumptions regarding the timing of when temporary differences are expected to reverse and regarding future allocations of taxable income between the various partners of the limited partnerships under the control of the Company. Actual results could differ from those estimates. 45

47 CHANGE IN ACCOUNTING POLICIES The accounting policies applied in the consolidated financial statements for the year ended May 31, 2010 are consistent with those applied in the audited consolidated financial statements for the year ended May 31, 2009, with the following exceptions: Goodwill and Intangible Assets: In February 2008, the CICA issued Handbook Section 3064, Goodwill and Intangible Assets, replacing Handbook Sections 3062, Goodwill and Other Intangible Assets and 3450, Research and Development Costs. Various changes have been made to other sections of the CICA Handbook for consistency purposes. The new section establishes standards for the recognition, measurement, presentation and disclosure of intangible assets. Standards concerning goodwill are unchanged from the standards included in the previous Section This new standard became effective for the Company on June 1, The application of this standard had no impact on the Company s consolidated financial statements. Credit Risk and the Fair Values of Financial Assets and Financial Liabilities: In January 2009, the Emerging Issues Committee of the CICA issued Abstract EIC 173 (EIC 173), Credit Risk and the Fair Value of Financial Assets and Financial Liabilities, which states that an entity s own credit risk and the credit risk of the counter party should be taken into account in determining the fair value of financial assets and financial liabilities, including derivatives. EIC 173 became effective for the Company on June 1, 2009 and had no impact on the Company s consolidated financial statements. Financial Instruments: In June 2009, the CICA amended Handbook Section 3855 Financial Instruments Recognition and Measurement to clarify the application of the effective interest rate method subsequent to the recognition of an impairment write-down of a financial asset (other than a loan or receivable). Interest income on the instrument is measured using the same interest rate used to measure the discounted cash flows to determine the impairment. Additionally, the CICA amended Handbook Section 3862 Financial Instruments Disclosures which require an entity to provide disclosure on financial instruments measured at fair value on its balance sheet using a three level fair value hierarchy that distinguishes between market value data obtained from independent sources and market value determined based on non-market inputs using the Company s own assumptions. The section also expands liquidity risk disclosure requirements and requires a maturity analysis for derivative financial liabilities based on expected maturities. Neither of these amendments had an impact on the amounts recorded in the Company s consolidated financial statements and the required new disclosures are reflected in the consolidated financial statements. FUTURE CHANGES IN ACCOUNTING POLICIES The following accounting policy change will be adopted by the Company in future accounting periods: Business Combinations In January 2009, the CICA issued CICA Handbook Section 1582, Business Combinations, which replaces CICA Handbook Section 1581, Business Combinations. The CICA also issued CICA Handbook Section 1601, Consolidated Financial Statements and CICA Handbook Section 1602 Non-Controlling Interests, which replaces CICA Handbook Section 1600 Consolidated Financial Statements. These new sections are based on the International Accounting Standards Board s (IASB) IFRS 3, Business Combinations. The new standards replace the existing guidance on business combinations and consolidated financial statements. The objective of the new standards is to harmonize Canadian accounting for business combinations with the international and U.S. accounting standards. The new standards are to be applied prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after January 1, 2011, with earlier application permitted. Assets and liabilities that arose from business combinations whose acquisition dates preceded the application of the new standards will not be adjusted upon application of these new standards. The Non-Controlling Interests standard should be applied 46

48 retrospectively except for certain items. The Company will be assessing the impact that these new standards will have on its financial position and results of operations in conjunction with its changeover to IFRS. INTERNATIONAL FINANCIAL REPORTING STANDARDS In January 2006, the CICA Accounting Standards Board ( AcSB ) adopted a strategic plan for the direction of accounting standards in Canada. In February 2008, the AcSB confirmed that it will require publicly accountable enterprises to adopt International Financial Reporting Standards ( IFRS ), as issued by the International Accounting Standards Board ( IASB ), for interim and annual financial statements relating to fiscal years beginning on or after January 1, For Amica, the transition from Canadian GAAP to IFRS will be applicable for the first quarter Fiscal 2012 (i.e. June 1, 2011 to August 31, 2011) with IFRS comparative figures for the first quarter Fiscal 2011 (i.e. June 1, 2010 to August 31, 2010). The Company expects the transition to IFRS to have an impact on its financial reporting, business processes, information systems, disclosure controls and procedures and internal controls over financial reporting. It may also have an impact on taxes and contractual commitments involving GAAP based clauses such as debt covenants. Accordingly, the Company s implementation plan includes measures to train key finance personnel, to review relevant contracts and agreements and to increase the level of awareness and knowledge amongst management, the Board, the Audit Committee and investors. In Q3/10 the Company completed its initial assessment phase that included the identification of significant differences between existing Canadian GAAP and IFRS at a high level as relevant to the Company. The results of this phase were presented to the Company s Audit Committee in January Also in Q3/10, the Company started a detailed assessment which includes: Identification and evaluation of accounting policies available to Amica under IFRS; Identification of the potential business impacts resulting from the identified accounting differences such as debt covenants, key internal control processes, disclosure controls and procedures, regulatory matters and others as identified during this phase; Assessment of IFRS 1 elections; Information systems impact analysis During Q4/10 management met with the Audit Committee to review the results to date of the detailed assessment phase including certain preliminary policy and IFRS 1 election recommendations and the implementation plan. Going forward, the Board and Audit Committee will be updated on a quarterly basis. Internal Controls over Financial Reporting and Disclosure Controls and Procedures The Company will be updating business processes for key controls and procedures that will be affected by transition to IFRS after the detailed assessment phase. Testing will be conducted during and after implementation to ensure compliance and effectiveness. Senior management and management will review and sign off accordingly for accuracy and effectiveness. IFRS 1 IFRS 1 applies only at the time of transition and includes a requirement for retrospective application of IFRS with certain exceptions and provides optional exemptions to assist in the transition to IFRS. Impact of IFRS Accounting Policies Our initial assessment identified the following key areas that may have an impact on our financial statements. These key areas consist of: consolidation; property, plant and equipment; investment property; impairment; and financial statement presentation. The following discussion of key areas should be considered a preliminary summary and not a complete analysis of the impact of IFRS on the Company. Furthermore the Company has not quantified the impact of IFRS on its financial statements. Consolidation The Company currently proportionally consolidates its 50% interest in joint ventures (Amica at Erin Mills, Amica at Swan Lake and Amica at Richmond Hill). This method of accounting is currently permissible under IFRS however a new standard is expected to be issued which will eliminate proportionate consolidation for joint ventures and require that the equity method be adopted. This requirement will result in significant 47

49 changes to the Company s balance sheet and income statement as the Company s interest in these entities will no longer be reflected on a line-by-line basis. Additionally, the Company has a 62.5% controlling interest in its Amica at Villa Da Vinci investment. Under Canadian GAAP, the non controlling interest is classified as a liability, whereas under IFRS it would be classified within equity. Investment Property or Property, Plant and Equipment The Company is currently reviewing the classification of its Income Producing Properties and Properties Under Development under IFRS. Under IFRS, a property is classified as investment property where it is held to earn rental income or for capital appreciation or both and the ancillary services provided are a relatively insignificant component, otherwise our properties would be classified as property, plant & equipment. IFRS allows entities to account for investment properties using the fair value model (recognizes changes in fair value in the income statement) or the cost model. The cost model is measured at depreciable cost (same as in Canadian GAAP) but fair value must be disclosed. IFRS allows entities to account for property, plant and equipment using the cost model or if fair value can be measured reliably the fair value/revaluation model may be used. Operating losses incurred during the lease-up period are not allowed to be capitalized under IFRS and these costs must be expensed in the income statement when incurred. The Company s current accounting policy capitalizes these losses subject to a maximum lease-up period of two years from completion of construction. Under IFRS 1 for property, plant and equipment, the Company can elect to use fair value as deemed cost at the date of transition, rather than applying the cost method retroactively to the original date of acquisition. The election is on an asset by asset basis and the fair value becomes the cost for subsequent depreciation. This one time revaluation adjustment is recorded in retained earnings. Impairment In Canadian GAAP, an impairment loss is recognized when the carrying amount of an amortized long-lived asset exceeds its recoverable amount. Recoverable amount is based on undiscounted cash flows. Under IFRS, an impairment loss is recognized when the carrying amount of an asset or cash generating unit is greater than its recoverable amount like Canadian GAAP, however, under IFRS recoverable amount is based on estimated future cash flow discounted by a current market risk free rate of interest. This could have a significant impact on the testing for impairment on the Company s consolidated properties and investments in co-tenancies. Financial Statement Presentation Classification of the Company s balance sheet is required between short and long-term items unless classification by order of liquidity provides reliable and relevant information. Classification of the income statement requires that expenses be classified according to nature or function (currently the Company uses a mixture of the methods). In general, the transition to IFRS is expected to result in a significant increase in the amount of note disclosure in the Company s financial statements. Debt Covenants The Company has debt covenants that will need to be assessed as to the effect that IFRS will have on the covenants. These debt covenants include debt service ratios (measure of operating cash flow before interest expense compared to the sum of mortgage principal and interest payments). Once the impacts of the chosen IFRS policies are known the Company will need to determine the course of action to be taken with each lender. IFRS Changeover Plan The following table is based on management s current assumptions and expectations which could change as our IFRS changeover progresses and based on future IFRS changes: 48

50 KEY ACTIVITY MILESTONES STATUS Detailed analysis of IFRS policies compared to Canadian GAAP and the impact on the Company Board approval of policy choices Implementation plan Mock interim and annual IFRS financial statements Accounting Policy Assess IFRS impact on the Company Identify, evaluate and recommend IFRS accounting policies and IFRS 1 elections Select IFRS policies IFRS mock financial statements Financial Reporting Expertise Define expertise for change-over to IFRS Ensure appropriate level of IFRS knowledge Assess training of finance, senior management and Board which includes the Audit committee Quarterly updates to the Board and Audit Committee Finance Managers to complete IFRS courses Education of senior management The majority of the analysis of IFRS and selection of policies will be completed in Q1/11 Audit Committee and Board approval of the policy choices will be completed in Q1/11 The mock IFRS financial statements will be started in Q2/11 and completed in Q4/11 Project team leader was chosen in Q3/10 and hired additional Finance manager Training is on going Initial assessment IFRS Gap analysis presented to Audit committee in Q3/10; meeting held with Audit committee is in Q4/10 to review progress and preliminary recommendations of the detailed assessment phase Internal Controls and Disclosure Controls over financial reporting For all accounting policy changes, assess material areas that need to be updated and assess implications Assess areas of testing for effectiveness Business Activities and external communication Assess debt covenants, bonuses, performance measures etc. of the IFRS policies Assess communication to investors Assess public reporting requirements Documentation is complete and key controls are tested for effectiveness Determine the impact of the new IFRS policies on the Company s activities Determine regulatory changes and how they impact the Company Develop a process to manage external inquiries concerning IFRS Analysis is ongoing and will be completed in Q4/11 The major impacts on business activities will be started in Q1/11 and completed in Q4/11 IFRS disclosure in the MDA will be updated quarterly in accordance with CSA Staff Notice Manager of Investor Relations is involved in the IFRS planning 49

51 Information Systems Assess IT for required IFRS changes Assess areas of testing Identify all IT areas that need to be updated to IFRS standards Design and develop specific initiatives Implementation plan Testing plan to ensure accuracy Identification of system changes will be completed by Q1/11 The design and development of the new systems will be completed Q2/11 New systems will be implemented in Q3/11 Testing of the systems will be completed by Q4/11 HARMONIZATION OF GOODS AND SERVICES TAX ( GST ) AND PROVINCIAL SALES TAX ( PST ) The Ontario and British Columbia provincial governments have enacted legislation to harmonize the PST with the Federal GST into one Harmonized Sales Tax ( HST ) which became effective July 1, Neither GST or HST is collected by the Company on retirement community rents, however the Company can not claim credits for the GST or HST that it pays on costs incurred in its operating retirement communities. Under the broader tax base of HST, the higher combined tax rate of 12% (BC) or 13% (ON) is applied to a range of services that were previously subject to only the GST rate of 5%. Examples include gas, electricity, management fess and various maintenance and other services. The Company and its rental communities are absorbing the additional tax cost on business inputs to the extent it is unable for competitive reasons to pass these incremental costs on to residents and others. The Company has reorganized the ownership structure of some of its wholly-owned communities to simplify its corporate structure and this has also eliminated the application of HST to management fees on these communities. ADDITIONAL INFORMATION Additional information about the Company, including the most recent Annual Information Form, is available through the internet on the System for Electronic Document Analysis and Retrieval ( SEDAR ), which can be accessed at 1. Reconciliation of EBITDA (Expressed in thousands of Canadian dollars, except per share amounts) Q4/10 Q4/ $ $ $ $ $ Net loss and comprehensive loss (230) (1,848) (4,333) (585) 4,569 Add: Interest expense 1,343 1,725 6,763 6,867 6,234 Income tax expense Fees credited to investments Depreciation and amortization 1, ,818 3,678 3,655 Write-downs - 2,193 4,465 2,193 - Deduct: Interest and other income (198) (325) (1,692) (3,159) (1,793) Income tax recovery (112) (486) (1,096) - - Non-controlling interest (16) (3) (88) (40) (121) EBITDA 2,027 2,647 8,746 10,444 12,972 50

52 2. Selected Annual Information $ $ $ Consolidated revenues from operations 41,334 42,382 44,634 Net earnings (loss) and comprehensive income (loss) (4,333) (585) 4,569 Basic earnings (loss) per share (0.25) (0.03) 0.26 Diluted earnings (loss) per share (0.25) (0.03) 0.26 Total assets 185, , ,301 Total liabilities 117, , ,983 Cash dividends per share Two Year Summary By Quarter (1) 4 th Quarter 3 rd Quarter 2 nd Quarter 1 st Quarter (Expressed in thousands of Canadian dollars, except per share amounts) $ $ $ $ $ $ $ $ Consolidated revenues from operations 10,652 10,703 10,144 10,870 10,297 10,461 10,241 10,348 Earnings (loss): Management Operations (78) 279 (44) Ownership and Corporate Operations 1,785 1,963 1,862 2,304 1,999 2,410 2,000 2,427 EBITDA 2,027 2,647 1,989 3,082 2,451 2,332 2,279 2,383 Net earnings (loss) and comprehensive (loss) (230) (1,848) (3,737) 175 (353) 549 (13) 539 Basic earnings (loss) per share (0.01) (0.10) (0.22) 0.01 (0.02) Diluted earnings (loss) per share (0.01) (0.10) (0.22) 0.01 (0.02) Cash flow from operations 1, ,692 1,838 1,720 1,796 1,032 1,705 Basic cash flow per share from operations Diluted cash flow per share from operations (1) The earnings (losses) from Management Operations and Ownership and Corporate Operations for each of the quarters reflect the reallocation of general and administrative expenses as discussed in OPERATING SEGMENTS Reallocation of Certain General and Administrative Expenses Between Operating Segments. Generally, the Company s business is relatively stable and does not produce significant swings from quarter to quarter due to any seasonality issues. Quarter to quarter variations in the Company s consolidated revenues from operations are driven by occupancy levels and the number of new developments generating design and marketing fees. Where fewer new developments are underway, this results in lower revenues from Management Operations. Also, the last six quarters reflect the change from cost to equity accounting for four of the Company s co-tenancy investments with properties classified as properties under development. This change results in design and marketing and other fees earned from these co-tenancies being deferred against the equity investment until the properties are considered to be income producing properties. These fees are included in Management Operations revenues with an offset to Fees credited to Investments in Ownership and Corporate Operations to properly reflect the impact on the Management Operations segment of the Company s operations. In addition, interest charged on loans and mortgages receivable from these co-tenancy investments are also credited directly to the investment whereas previously they were recorded as interest income. This, combined with write-downs of: $4.5 million in Q3/10 of a deposit for the potential purchase of a development site; and $2.2 million in Q4/09 in the investment in Amica at Kingston and the Amica at Bearbrook mortgage 51

53 and loan receivables, account for the significant fluctuations in net earnings and comprehensive income shown in Q3/10 and Q4/09. FORWARD LOOKING INFORMATION This MD&A contains forward-looking information within the meaning of applicable securities laws ( forward-looking statements ). These forward-looking statements are made as of the date of this MD&A and the Company does not intend, and does not assume any obligation, to update these forward-looking statements, except as otherwise required by law. Users of forward-looking statements are cautioned that actual results may vary from forward-looking statements contained herein. Forward-looking statements include, but are not limited to, statements regarding the Company s growth prospects, including the completion of the acquisition of additional ownership interests in Amica at City Center and Amica at Bayview Gardens (rentals and condos); the number of new developments it will undertake; the opportunity to acquire existing qualified residences; commencing construction on one or more new developments in 2010 or 2011; the number of suites/condominium units that will be available for lease/sale; future occupancy rates; future services that will be provided by the Company; changes in the Company s method of accounting for Amica at West Vancouver and Amica at City Center; the Company s business model and strategy going forward; anticipated future revenues and financial results; future growth and value for shareholders; MARPAS and operating income; expected future financing opportunities, the ability of the Company to refinance or extend mortgages on favorable terms; the holder of two mortgages not taking any action in respect of two co-tenancy mortgages not meeting their debt service covenants; the potential to earn future marketing bonuses and design and marketing fees; capital expenditures of $2 million in Fiscal 2012; the Company s ability to fund operating and capital expenditures for greater than 12 months; management of cash resources; the timing for payment of contractual obligations; dividends; the potential impact that International Financial Reporting Standards (IFRS) will have on the Company and the Company s plans for implementing IFRS and other similar statements concerning anticipated future events, conditions or results that are not historical facts. In certain cases, forward-looking statements can be identified by the use of words such as plans, expects or does not expect, is expected, budget, scheduled, estimates, forecasts, intends, anticipates or does not anticipate, or believes, or variations of such words and phrases or statements that certain actions, events or results may, could, would, might or will be taken, occur or be achieved. While the Company has based these forward-looking statements on its expectations about future events as at the date that such statements were prepared, the statements are not a guarantee of the Company s future performance and are subject to risks, uncertainties, assumptions and other factors which could cause actual results to differ materially from future results expressed or implied by such forward-looking statements. Such factors and assumptions include, amongst others, the effects of general economic and market conditions; actions by government authorities, including the granting of zoning and other approvals and permits; uncertainties associated with potential legal proceedings and negotiations, including negotiations with respect to construction financing and debt refinancing; and misjudgements in the course of preparing forward-looking statements. In addition, there are known and unknown risk factors which could cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Known risk factors include, among others, risks related to dependence on the ability of Amica s co-tenancy participants to meet their obligations; interest rate volatility in the marketplace; job actions including strikes and labour stoppages; possible liability under environmental laws and regulations, relating to removal or remediation of hazardous or toxic substances on properties owned or operated by Amica; risks associated with new developments, including cost overruns and start-up losses; the ability of seniors to pay for Amica s services; regulatory changes; risks inherent in the ownership of real property; operational risks inherent in owning and operating residences; the risks associated with global events such as infectious diseases, extreme weather conditions and natural disasters; the availability of capital to finance growth or refinance debt as it comes due; Amica s ability to attract seniors with its services and keep pace with changing consumer preferences, as well as those factors discussed in the Risks and Uncertainties section of this MD&A and in Amica s Annual Information Form dated August 11, 2010, filed with the Canadian Securities Administrators and available at Although the Company has attempted to identify important factors that could cause actual actions, events or results to differ materially from those described in forward-looking statements, there may be other factors that cause actions, events or results not to be as anticipated, estimated or intended. There can be no assurance that forward-looking statements, or the material factors or assumptions used to develop such forward looking statements, will prove to be accurate. Accordingly, readers should not place undue reliance on forward-looking statements. 52

54 Management s Responsibility for the Financial Statements The consolidated financial statements and the information contained within the Annual Report are the responsibility of the management of the Company. Management s Discussion and Analysis and the consolidated financial statements have been approved by the Board of Directors. The financial statements have been prepared in accordance with Canadian generally accepted accounting principles prescribed by The Canadian Institute of Chartered Accountants. Financial information contained in the Annual Report is consistent with the information contained in the financial statements. Management maintains a system of internal controls that provide reasonable assurance that the assets of the Company, its subsidiaries, joint ventures and partnerships are safeguarded. These controls also facilitate the preparation of relevant, timely and reliable financial information that reflects, where necessary, management s best estimates and judgments based on informed knowledge of the facts. The Company s external auditors, KPMG LLP, have performed an independent audit of the consolidated financial statements. The Audit Committee of the Board of Directors of the Company has reviewed the consolidated financial statements and Management s Discussion and Analysis with management and the external auditors, KPMG LLP, and recommended their approval by the Board of Directors. The auditors have full access to the Audit Committee, with and without management being present. Samir A. Manji, CA Chairman, President & Chief Executive Officer Arthur J. Ayres, CA Chief Financial Officer & Corporate Secretary Vancouver, Canada August 10, 2010 Auditors Report to Shareholders We have audited the consolidated balance sheets of Amica Mature Lifestyles Inc. as at May 31, 2010 and 2009 and the consolidated statements of operations and comprehensive loss, changes in shareholders equity and cash flows for the years then ended. These financial statements are the responsibility of the Company s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with Canadian generally accepted auditing standards. Those standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of the Company as at May 31, 2010 and 2009 and the results of its operations and its cash flows for the years then ended in accordance with Canadian generally accepted accounting principles. CHARTERED ACCOUNTANTS Vancouver, Canada August 9,