CSH.UN Chartwell Retirement Residences

MISSISSAUGA, ON, Aug. 8, 2024 /CNW/ - Chartwell Retirement Residences ("Chartwell") (TSX: CSH.UN) announced today its results for the three and six months ended June 30, 2024.

Q2 2024 Highlights 

• Resident revenue increased by $21.4 million from Q2 2023.
• Net loss was $2.8 million compared to $7.5 million in Q2 2023.
• Funds from Operations ("FFO")⁽¹⁾ up 45.3% from Q2 2023.
• Same property adjusted net operating income ("NOI")⁽¹⁾ up 20.6% from Q2 2023.
• Same property adjusted operating margin⁽¹⁾ up 280 basis points ("bps") from Q2 2023.
• Weighted average same property occupancy up 660 bps from Q2 2023 and expected to grow to 88.7% by September 2024.

"Our teams delivered another quarter of strong operating performance and financial results in Q2 2024, achieving occupancy growth of 660 basis points, which drove an operating margin expansion of 280 basis points and a 45.3% growth in FFO. With continuing strength in our leading sales indicators - initial contacts, personalized tours and signed leases, we now expect to achieve 88.7% occupancy in our same property portfolio in September 2024 as we enter into our historically strong fall leasing season," commented Vlad Volodarski, Chartwell's CEO. "In the environment of growing demand and limited new supply, we are accelerating our portfolio optimization initiatives, including the recently announced acquisitions of 13 modern, high quality residences in Quebec. In 2024, we achieved an employee engagement score of 57% highly engaged, exceeding our aspirational 2025 target of 55%. Our teams remain focused on delivering personalized, memorable experiences to our residents, growing occupancy and optimizing our property portfolio, with the goal of creating sustainable long-term value for all our stakeholders."

Results of Operations 

The following table summarizes select financial and operating performance measures:

For Q2 2024, resident revenue increased $21.4 million or 12.7% and direct property operating expense increased $7.4 million or 6.5%.

For Q2 2024, net loss was $2.8 million compared to $7.5 million in Q2 2023 primarily due to:

• higher resident revenue,
• lower general, administrative, and Trust ("G&A") expenses, and
• higher net income from joint ventures,

partially offset by:

• higher direct property operating expense,
• absence of income from discontinued operations due to the sale of the Ontario Long Term Care platform ("OLTC Platform")⁽⁴⁾,
• deferred tax expense in Q2 2024 as compared to a deferred tax benefit in Q2 2023,
• net loss on asset sales as compared to net gain in Q2 2023,
• higher finance costs, and
• higher depreciation of property, plant and equipment ("PP&E").

For Q2 2024, FFO from continuing operations was $44.7 million or $0.18 per unit, compared to $25.9 million or $0.11 per unit for Q2 2023.  The change in FFO from continuing operations was primarily due to:

• higher adjusted NOI from continuing operations of $16.8 million,
• lower G&A expenses of $4.2 million,
• higher interest income of $0.3 million, and
• lower depreciation of PP&E and amortization of intangibles assets used for administrative purposes of $0.2 million,

partially offset by

• higher finance costs of $2.7 million.

For Q2 2024, FFO from continuing operations includes $0.3 million of Lease-up-Losses and Imputed Cost of Debt related to our development projects (Q2 2023 – $0.3 million).  Total FFO for Q2 2023 includes results of LTC Discontinued Operations of $4.8 million or $0.02 per unit.

For 2024 YTD, resident revenue increased $39.5 million or 11.8%, and direct property operating expense increased $10.9 million or 4.7%.

For 2024 YTD, net loss was $4.8 million compared to $16.7 million in 2023 YTD primarily due to:

• higher resident revenue,
• higher net income from joint ventures,
• lower G&A expenses, and
• lower depreciation of PP&E,

partially offset by:

• deferred tax expense in Q2 2024 as compared to a deferred tax benefit in Q2 2023,
• higher direct property operating expense,
• absence of income from discontinued operations due to the sale of the OLTC Platform,
• net loss on asset sales as compared to net gain in Q2 2023,
• higher transaction costs related to dispositions,
• higher finance costs, and
• higher negative changes in fair value of financial instruments, primarily due to increases in trading prices of our Trust Units.

For 2024 YTD, FFO from continuing operations was $83.9 million or $0.34 per unit, compared to $46.8 million or $0.20 per unit for 2023 YTD.  The change in FFO from continuing operations was primarily due to:

• higher adjusted NOI from continuing operations of $33.7 million,
• lower G&A expenses of $5.2 million,
• higher interest income of $0.6 million, and
• lower depreciation of PP&E and amortization of intangibles assets used for administrative purposes of $0.2 million,

partially offset by

• higher finance costs of $2.6 million.

For 2024 YTD, FFO from continuing operations includes $0.7 million of Lease-up-Losses and Imputed Cost of Debt related to our development projects (2023 YTD – $1.1 million).  Total FFO for 2023 YTD includes results of LTC Discontinued Operations of $8.3 million or $0.03 per unit.

Financial Position

As at June 30, 2024, liquidity⁽¹⁾ amounted to $376.2 million, which included $18.2 million of cash and cash equivalents and $358.0 million of available borrowing capacity on our credit facilities.  

The interest coverage ratio⁽⁵⁾ was 2.5 at June 30, 2024, compared to 2.3 at December 31, 2023.  The net debt to adjusted EBITDA ratio⁽⁵⁾ at June 30, 2024 was 8.5 compared to 10.2 at December 31, 2023.

2024 Outlook and Recent Developments 

An updated discussion of our business outlook can be found in the "2024 Outlook" section of our Management's Discussion and Analysis for the three and six months ended June 30, 2024 (the "Q2 2024 MD&A").

Operations

We continue to experience strong demand fundamentals having achieved occupancy growth through the historically weaker winter season.  Our same property portfolio occupancy increased from December to March by 40 bps compared to a 70 bps decline for the same period last year.  We expect to reach 88.7% occupancy in our same property portfolio in September 2024, representing 560 bps growth over the prior year.  Initial contacts and personalized tour activity remains robust, and we are experiencing strong conversion rates to permanent move-ins.  We expect this positive momentum to continue throughout 2024.  The growth in same property occupancy combined with our blended rental and service rate growth of 4.3%, resulted in an 11.7% increase in same property adjusted resident revenue⁽¹⁾ in Q2 2024 compared to Q2 2023.  2024 YTD same property adjusted resident revenue⁽¹⁾ grew 11.9% as compared to 2023 YTD from blended rental and service rate growth of 4.6% and 630 bps of occupancy growth.

The chart included (Figure 1) provides an update in respect of our same property occupancy.

Growth, Portfolio Optimization, and Repositioning Activities

We continue to execute on our portfolio strategies of enhancing our asset base to generate increased NOI, acquiring new strategic facilities in core markets and selling non-core assets, including:

• On May 3, 2024, we acquired an 85% interest in Chartwell Le Prescott ("Le Prescott") from Batimo. Le Prescott is a 324-suite retirement residence built in 2017 and is located in the Montreal suburb of Vaudreuil, Quebec. The purchase price was $80.2 million and was partially settled through the assumption of a $42.1 million variable rate mortgage bearing interest at the banks' prime rate ("Prime") plus 55 bps maturing on December 1, 2024. Acquisition-related costs of $0.7 million and mark-to-market adjustments of $0.4 million have been capitalized. The remainder of the purchase price, subject to normal working capital and other closing adjustments, was settled utilizing our cash on hand and credit facilities.
• On May 15, 2024, we acquired an 85% interest in Chartwell Trait-Carré ("Trait-Carré") from Batimo. Trait-Carré is a 361-suite retirement residence built in 2021 and is located in Quebec City, Quebec. The purchase price was $86.0 million and was settled through the assumption of a $58.4 million demand variable rate mortgage bearing interest at the Canadian Overnight Repo Rate Average ("CORRA") plus credit spread adjustment plus 260 bps. Batimo provided NOI support for six months and $0.2 million of the purchase price was held back for this obligation. Acquisition-related costs of $0.2 million have been capitalized. The remainder of the purchase price, subject to normal working capital and other closing adjustments, was settled utilizing our cash on hand and credit facilities.
• On June 21, 2024, we acquired an 85% interest in Résidence Légende ("Légende") from Batimo. Légende is a 368-suite retirement residence built in 2019 and is located in Greenfield Park, Quebec. The purchase price was $86.4 million and was settled through the assumption of a $59.1 million variable rate mortgage bearing interest at Prime plus 85 bps maturing on January 1, 2025, as well as settlement of an outstanding mezzanine loan. Batimo provided NOI support until the property achieves stabilization and $1.6 million of the purchase price is being held in escrow for this obligation. Acquisition-related costs of $0.3 million and mark-to-market adjustments of $1.0 million have been capitalized. The remainder of the purchase price, subject to normal working capital and other closing adjustments, was settled utilizing our cash on hand and credit facilities.
• On June 27, 2024, we entered into definitive agreements for strategic acquisitions of two seniors housing portfolios in Quebec from separate vendors for an aggregate purchase price of $511 million, consisting of the following:
  • Acquisition of a 100% ownership interest in a portfolio of five high quality, modern retirement residences with 1,428 suites, located in the greater Montreal area, Gatineau, and Sherbrooke, which we subsequently completed on July 22, 2024. The purchase price was $297.0 million and, subject to normal working capital and other closing adjustments, was settled utilizing our cash on hand, credit facilities and term loans.
  • Acquisition of a 50% ownership interest in a portfolio of five high quality, modern retirement residences with 1,805 suites located in the Quebec City area and Shawinigan (the "Quebec City Portfolio"). The purchase price at our share is $214 million and will be partially satisfied by the assumption of approximately $154.0 million of mortgages. The vendor has agreed to provide us with a two-year NOI guarantee, with $4.7 million of the purchase price to be held in escrow to support the vendor's obligation. The remainder of the purchase price, subject to normal working capital and other closing adjustments will be paid in cash utilizing cash on hand and credit facilities. We expect the closing of this transaction in Q4 2024. In addition, beginning on August 28, 2028, subject to a one-year extension at the vendor's option, the vendor will have an option to sell and we will have an option to purchase the remaining 50% ownership interest in the Quebec City Portfolio at the then fair market value.
• On July 8, 2024, we entered into a definitive agreement to sell one non-core property in Ontario for a sale price of $10.8 million which will be settled in cash.

Liquidity and Financing

As at August 8, 2024, liquidity amounted to $341.9 million, which included $41.9 million of cash and cash equivalents and $300.0 million of available borrowing capacity on our Credit Facilities.

As of the date of this release, we have $152.6 million of mortgage debt maturing in 2024 with a weighted average interest rate of 6.58%. At August 8, 2024, 10-year CMHC-insured mortgage rates are estimated at approximately 4.10% and five-year conventional mortgage financing is available at 5.0%.

In May 2024, we entered into amending agreements to extend the maturity dates of the secured and unsecured credit facilities from May 29, 2025 to May 29, 2027 with substantially the same terms with a change in pricing being the update of the benchmark from Bankers' Acceptance rate ("BA") to CORRA.

On June 27, 2024, we completed a public offering of 28,290,000 Trust Units inclusive of 3,690,000 Trust Units issued pursuant to the exercise in full of the over-allotment option at a price of $12.20 per Trust Unit for total gross proceeds of $345.1 million (the "Public Offering"). Underwriting commission and other offering related costs amounted to $13.2 million.

In June 2024, we fully repaid the $125.0 million unsecured term loan.

On July 22, 2024, we entered into a $150.0 million unsecured term loan agreement with a Canadian chartered bank. The terms of the loan include borrowings based on CORRA and Prime rates, with an initial term of six months and an optional extension for an additional six months.

Quarterly Investor Materials and Conference Call

We invite you to review our Q2 2024 investor materials on our website at investors.chartwell.com

Q2 2024 Financial Statements
Q2 2024 MD&A
Q2 2024 Investor Presentation

A conference call hosted by Chartwell's senior management will be held Friday August 9, 2024, at 10:00 AM ET.  The telephone numbers to participate in the conference call are: Local: (416) 340-2217 or Toll Free: 1-800-806-5484. The passcode for the conference call is: 2530753#.  Please log on at least 15 minutes before the call commences to register for the Q&A.  A slide presentation to accompany management's comments during the conference call will be available on the website. A live webcast of the call will be available at https://events.q4inc.com/attendee/706802475. Joining via webcast is recommended for those who will not be participating in the Q&A. 

The telephone numbers to listen to the call after it is completed (Instant Replay) are: Local (905) 694-9451 or Toll-Free: 1-800-408-3053. The Passcode for the Instant Replay is 7266565#. These numbers will be available for 30 days following the call. An audio file recording of the call, along with the accompanying slides, will also be archived on Chartwell's website at investors.chartwell.com.

Footnotes

Forward-Looking Information

This press release contains forward-looking information that reflects the current expectations, estimates and projections of management about the future results, performance, achievements, prospects or opportunities for Chartwell and the seniors housing industry. Forward-looking statements are based upon a number of assumptions and are subject to a number of known and unknown risks and uncertainties, many of which are beyond our control, and that could cause actual results to differ materially from those that are disclosed in or implied by such forward-looking statements. Examples of forward-looking information in this document include, but are not limited to, statements regarding our business strategies, operational sales, marketing and optimization strategies including targets, and the expected results of such strategies, predictions and expectations with respect to industry trends including growth in the senior population, a deficit of long term care beds and the slow down of new construction starts, expectations with respect to taxes that are expected to be payable in the current and future years and statements regarding the tax classification of distributions, and occupancy rate forecasts. There can be no assurance that forward-looking information will prove to be accurate, as actual results and future events could differ materially from those expected or estimated in such statements. Accordingly, readers should not place undue reliance on forward-looking information. These factors are more fully described in the "Risks and Uncertainties and Forward-Looking Information" section in Chartwell's Q2 2024 MD&A, and in materials filed with the securities regulatory authorities in Canada from time to time, including but not limited to our most recent Annual Information Form the ("AIF"). A copy of the Q2 2024 MD&A, the AIF, and Chartwell's other publicly filed documents can be accessed under Chartwell's profile on the SEDAR+ website at sedarplus.com.

About Chartwell

Chartwell is in the business of serving and caring for Canada's seniors, committed to its vision of Making People's Lives BETTER and to providing a happier, healthier, and more fulfilling life experience for its residents. Chartwell is an unincorporated, open-ended real estate trust which indirectly owns and operates a complete range of seniors housing communities, from independent living through to assisted living and long term care. Chartwell is one of the largest operators in Canada, serving approximately 25,000 residents in four provinces across the country. For more information visit www.chartwell.com.

For more information, please contact: 
Chartwell Retirement Residences
Jeffrey Brown, Chief Financial Officer
Tel: (905) 501-6777
Email: investorrelations@chartwell.com

Non-GAAP Financial Measures

Chartwell's condensed consolidated interim financial statements are prepared in accordance with International Financial Reporting Standards ("IFRS").  Management uses certain financial measures to assess Chartwell's operating and financial performance, which are measures not defined in generally accepted accounting principles ("GAAP") under IFRS.  The following measures: FFO, FFO per unit, same property adjusted NOI, adjusted NOI, adjusted operating margin, liquidity, interest coverage ratio and net debt to adjusted EBITDA ratio as well as other measures discussed elsewhere in this release, do not have a standardized definition prescribed by IFRS. They are presented because management believes these non-GAAP measures are relevant and meaningful measures of Chartwell's performance and as computed may differ from similar computations as reported by other issuers and may not be comparable to similarly titled measures reported by such issuers. For a full definition of these measures, please refer to the Q2 2024 MD&A available on Chartwell's website and on SEDAR+.

The following table reconciles resident revenue and direct property operating expense from our financial statements to adjusted resident revenue and adjusted direct property operating expense and NOI to Adjusted NOI from continuing operations and Adjusted NOI and identifies contributions from our same property portfolio, our growth portfolio, and our repositioning portfolio:

The following table provides a reconciliation of net income/(loss) to FFO for continuing operations:

The following table provides a reconciliation of net income/(loss) to Total FFO for total operations:

SOURCE Chartwell Retirement Residences (IR)