Q2 2021 Chartwell Retirement Residences Earnings Call
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Good morning, ladies and gentlemen, and welcome to the Chartwell retirement residences Q2, 2021financial results conference call I would now like to turn the meeting over to the CEO glad for the Lazarski. Please go ahead.
Thank you Melanie and good morning, and thank you for joining US today. There is a slide presentation to accompany this conference call are available on our website of Chartwell Dot com under the Investor Relations tab.
Joining me today are Karen Sullivan, President and Chief Operating Officer, Sherry Harris, Chief Financial Officer, and Jonathan Block, yet chief investment and she's legal officer.
Let me remind everyone that during this call we may make statements containing forward looking information of the non-GAAP measures I direct you to our M DNA and the other securities filings for information about the assumptions risks and uncertainties inherent in such forward looking information and details of such non-GAAP measures more specifically I direct you to the out of disk.
Closures in our Q2, 2021M D N a under the heading COVID-19 business impact of unrelated risks for a discussion of risks and uncertainties related to the pandemic.
These documents can be found on our website or SEDAR dot com.
For the last 17 months, our focus has been on keeping our residents their families and our staff safe during the most significant public health challenge of our lives the COVID-19 pandemic.
For the new variance of the virus the opposing heightened risk. This pandemic is not over and we are continuing to the vigilant and careful having said that it is refreshing to see that high vaccination rates in the Canadian Society overall and in our residents of specifically contributed to a reduction of new COVID-19 cases hospitalizations and deaths.
I am optimistic that the resulting relaxation of various public health restrictions combined with the pent up demand for our services will support a strong occupancy recovery in the causes of months.
We have already begun to see the signs of it they saw the recovery.
Our leading indicators web traffic the website traffic initial contacts and personalised tours as well as the volume of move ins have been gradually improving for several months and now reaching pre pandemic levels.
I'm also confident of the numerous initiatives our operations marketing and sales teams are putting in place across the country will continue to position chartwell as the national leader in our sector manifest in better services and care delivered to our residents and ultimate you translate to improving financial results cash.
The Sherry will provide you more color of these trends and initiatives and I will now turn the call over to Karen to do just that Karen Thanks fun turning to slide for I'm pleased to report that we currently do not have any long term care homes or retirement residences and outbreak.
This has been made possible through the high due to the high vaccination rates on the efficacy and the effectiveness of the vaccine.
I'm also pleased to report that 96% of our residents have received 1 dose with 95 per cent of having received both shops or long term care staff lead the way with the vaccination of rate of 19% with at least 1 dose.
86 per cent of our retirement residences stocks have had at least 1 shot.
Quebec staff vaccination rate for slightly lower at 79% because of these essential workers got access to the vaccines later and in the rest of Canada. We expect these percentages to continue to increase and are currently implementing of policy whereby staff, who are not vaccinated will be tested prior to every shift and we'll have to where additional people.
We also require all new stuff and agency staff to be vaccinated.
Oh, hi, vaccination rates among residents and staff in retirement residences of long term care homes as well as high immunity immunization rates and society overall have led to a significant reduction in restrictions for our residences across the country. We are now able to have residents E and larger groups in our dining rooms resumed group activities.
The more visitors and leave for overnight stays the return return to a more normal resident experience will no doubt assist us in improving the number of resident referrals that we received which have the highest conversion rates of any of the her initial contacts.
To support this we've developed a comprehensive new referral program called the Chubb Club Chartwell it.
It is directed at residents family members and staff with an emphasis on the advantages of living in a socially engaging environment and the benefits of recommending this lifestyle for those who would thrive and of retirement residents.
Our.
The call to action make a friend of the neighbor is focused on earning referrals not buying the we strongly believe given the product and service we are offering to our residents that this is a much more genuine and compelling approach. The easing of restrictions has allowed us to open up to offer in person personalized tours across the country.
Which more and more of our prospects are taking advantage of all of this has led to improvements in our leading indicators, including a 14% increase in initial contacts in Q2 compared to Q1, and 141% increase compared to Q2.2020 overall.
Overall in Q2, we have had the highest initial contacts since before the pandemic and we have seen 3 straight quarters of growth. In addition, our personalized tours are up substantially compared to last year are permanent move ins were close to double that of Q1 and are at 70% of Q2.2019 volumes.
Our move outs in Q2 decreased by 9 per cent compared to Q1, and our <unk> 18 per cent lower than Q2.2019.
Our occupancy remained flat in July and is forecasted to grow slightly in August and we expect based on these leading indicators that we will see this.
In the early fall.
Working with our health system partners. We have also been gradually increasing occupancy in our long term care of hubs.
Turning to slide 5 to support our recovery efforts are of marketing campaign remains multifaceted and agile. This includes our it's time to live again multimedia campaign, which will be followed by a new campaign beginning of the last week of August and running until mid November which is our peak leasing season, our customer experience.
<unk> strategy continues to rollout, including a recently produced online and virtual training sessions on the chartwell experience to augment our in person sessions delivered by our directors of customer experience throughout the pandemic. We believe this focused effort has helped us to stand out from the competition as evidenced by our <unk>.
Increasing number of Google reviews, and an increase in our score from 456 out of 5 in 2019, 2 for 7 and 2 in 2021 with an increase in the 5 star reviews from <unk> 83 per cent to 88 per cent in that same period.
Finally, turning to slide 6 the operations team is also focused on enhancing our care services to assist our residents to stay with us longer as the health it needs to change and to welcome more residents who need these services with the launch of our new care of assist program in Ontario earlier. This year, we are now better positioned to deliver more of them much.
Needed care and assistance to our residents are and as a result, we are beginning to see steady growth in care revenue month over month. In addition, all of our residents in Ontario will soon have access to virtual physician services.
We're also working on our staff schedule project in order to create more of full time positions and our residences across the country and better align the staff based on occupancy and care service offerings in each of them.
Finally, we're beginning to see a reduction in some of our expenses such as PPE and additional staffing that was previously required to deliver meals for suites and provide additional meal seatings and our dining rooms based on reduced capital requirements overall with the success of the vaccination program in our sector combined with the easing of the.
Restrictions, we believe we are now on the road to recovery.
Now I would like to turn it over to Sherri to discuss our financial results. Thank you Kevin.
As shown on slide 7 in Q2, 2021, net loss was $4.6 million compared to a net loss of $1.9 million in Q2.2020.
For Q2, 2021S. F O was $34.8 million or <unk> 16 per unit compared to 39 million or 18 cents per unit in Q2.2020.
The decrease is primarily due to lower occupancy.
Continued investments in resident care and infection prevention and control measures and lower interest income.
Which were partially offset by lower finance cost and general and administrative and interest expenses.
Turning to slide 8 I will discuss our same property operating platform results.
Our same property adjusted NOI decreased 4.4 million or 6.5 per cent in Q2.2021 compared to Q2.2020.
The same property occupancy was 77.5 per cent in Q2.2021 compared to 85, 6% in Q2.2020.
Same property of retirement occupancy was $76.6 per cent for Q2.2021.
Compared to $84.5 per cent for Q2, 'twenty 'twenty or a decline of 7.9 percentage points, which resulted in lower revenue of approximately $14.5 million compared to Q2.2020.
We are pleased with the continued lifting of pandemic related restrictions occupancy stabilized in June 2020.1.
Moving have significantly rebounded compared to Q2, 'twenty 'twenty and improved since Q1.2021.
Move outs remains slightly below the pre pandemic levels move ins still remained lower than move outs in Q2, 2021 which resulted in declining occupancy for the quarter overall.
In addition to the impact of lower Occupancies on our Q2.2021 results. The following factors affected our same property retirement of operations results.
We continue to make investments and initiatives to enhance resident in the south safety, we have maintained and enhanced our staffing levels.
And we had experienced higher repairs and maintenance and insurance expenses.
We partially offset these negative impacts by generating increased revenue from inflationary of market based rental and service increases and also from the provision of the additional care and services as residents age with longer.
With fewer departures during the pandemic of long term care their needs have increased.
Our food and supplies cost also continue to be lower due to lower occupancies.
Our net pandemic expense recoveries for $3.2 million in Q2.2021 compared to net pandemic expenses of $4.6 million in Q2 'twenty 'twenty.
Our same property long term care home of occupancy was $83.1 per cent compared to 92.6 per cent in Q2 'twenty 'twenty.
A decrease of 9.5 percentage points as a result of reduced moving activity during the pandemic as well as government. The rest of limited occupancy in our class B and C. Bad long term care of homes.
Occupancy protection provided by the on top of carry the government remains in place until the end of August.
2020.1.
There continue to be significant waiting lists for admission with approximately 38000 people on the waiting list for long term care requirements of acquiring these essential services that is about 8.6% higher than the pre pandemic level.
Compared to Q1, 2021 of our long term care of occupancy increased by 4.3 percentage points with June 2021 occupancy at 85.2 per cent for them.
Property.
For Q2, 2021 same property adjusted long term care NOI increased 0.8 million or 14, 2% as Q2, 'twenty 'twenty NOI was affected by unfunded and kinds of all kinds of expenses.
This was partially offset by lower preferred of accommodation rocky as revenues of zero point of 2 million in Q2, 'twenty 'twenty 1.
Turning to slide 9 you will see our monthly occupancies.
Pandemic related restrictions in government directives affecting operations have resulted in reduced move in activity in our retirement residences compared to the normal pre pandemic levels and as a result have resulted in lower occupancy with the large scale vaccination program the advocacy of which has proven highly effective.
The current public Health agency of Canada modeling projects, the pandemic related restrictions can be gradually lifted without exceeding the hospital capacity of this fall.
Through July of 'twenty, and 'twenty, 1 restrictions have been significantly reduced in all 4 of provinces in which we operate and we've seen a corresponding increase in personal tour bookings lease signings and permanent move ins, which are approaching pre pandemic levels and.
And as a result occupancy stabilized in June 2020, 1 at $76.3 per cent. We believe that is pandemic related restrictions continue to ease as expected move ins and occupancy in our retirement residences will begin to rebound in the fall.
As restrictions are lifted.
Lifted government support has also begun to decline and this is likely to result in higher direct property operating expenses in the short term, while the gradually phase out of the associated additional staffing had supply growth.
Yeah.
We collected substantially all rent in the service fees for July and August consistent with past experience.
As you can see on slide 10, our interest coverage ratio was 2.8 times at June 30 of the 2021of our debt to gross book value of calcium.
Calculated using the historical cost of our assets was 52, 8% at June 30 of 2021 or.
Our net debt to adjusted EBITDA ratio was 10.2 times.
Turning to slide 11 of August 5th 2021 liquidity amounted to $439.8 million, which included 75 point for millions of cash and cash equivalents and 364 point for millions of borrowing capacity on our credit facilities.
In addition, our share of cash and cash of 1 of them kind of in our equity accounted J D is was $15.5 million.
As of August 5th for 'twenty, and 'twenty, 1 we have $48.2 million of mortgage maturities remaining in 2021 that are proceeding in the normal course.
In addition, chartwell share of remaining mortgage maturities held in its equity accounted for JV is out of that August 5th for 2020..1 is $15.1 million refinancing of which is also proceeding in the normal course.
Our mortgage maturities for me and well staggered with the average terms of maturity of 6.5 years at June 30 of 2021.
At June 30 of 2021, our unencumbered assets had a balance of approximately $1 billion.
We currently have for for projects under construction, which are budgeted to require an additional 100.2 million as noted on slide 12, we are recommencing. Our construction of the nineties suite of addition to rich plant retirement residence in Kamloops P C.
In addition, we regularly reinvest capital in our owned property portfolio with the goal of growing our property NOI and protecting and maintaining our properties. We expect to continue to be selected from our capital allocation in 2020.1.
As noted on slide 13 distribution.
Reinvestment program, the drip, which was temporarily suspended in March 'twenty 'twenty was reinstate of stated effective with the May of 2021distributions paid on June 15th for 'twenty 'twenty 1.
Our drip offers of unit holders the opportunity to receive their distributions in new chartwell units with a 3% discount and no Commission unit holders can contact for their investment advisor to enroll.
For our participation rate for the June 30 of 2021 distributions paid on July 15th with 24 per cent.
I will now turn the call back to <unk> to wrap up.
Thank you Sherry.
I'm proud of how Chartwell responded and the persevered through this pandemic. This response, which continues to day is a clear testament to our people and our culture, making People's lives better is our purpose. It is why we exist the heroism of with which our people have been living our culture and our values through these trying times has been extraordinary.
We are now ready and excited to welcome new residents the chartwell properties across the country and create personalized memorable experiences for each 1 of them our culture and our people give me confidence that we will overcome the spend anika will emerge from the stronger than before.
I'm optimistic that we have begun our path to recovery with a strong leading indicators and numerous initiatives being put in place and our hopes.
The long term prospects of our sector remain bright.
We deliver much needed services and care of the candidates seniors. This need has not gone away likely it has been exacerbated by the pandemic, creating of pent up demand for our services, which will support continued occupancy recovery.
The growth in population of people over the age of 75 is beginning to accelerate was 2022 growth projected at $5.3 per cent. This growth will remain robust over the next 20 plus years supporting demand for our services. There continues to be a shortage of LTC beds across the country and why was the very.
Most governments are taking steps to reduce the shortage. It is unlikely that they will be able to fund new batch to fully satisfy the existing and growing demand retirement residences are well positioned to fulfill this void.
In the medium term the slowdown of new construction starts during the pandemic will result in fewer new residents openings in 'twenty 'twenty, 2 and 'twenty 'twenty 3 further supporting occupancy recovery.
Housing markets remain robust across the country, which makes it easier for our prospective residents to sell their homes and finance for their retirement living.
I want to finish by thanking our employees and our residences and corporate offices for everything you have and continue to do in supporting and serving our residents and their families and each other in this time of great need for your courage and sacrifice for your kindness and empathy for the resilience and tenacity and for doing the right thing all the time every time.
Thank you for everything.
Thank you for your time of the passion of this morning, and we would now be pleased to answer the questions Melanie over to you.
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We will now take our first question.
Please go ahead, Jonathan the Seltzer.
Sure.
Right. So good morning.
Right.
First the first question just like.
I guess the lead off on the on the retirement do you expect to get any more government funding in the back half of the year.
Jonathan I think it'll be significantly reduced as the director of the kind of lifted him. There are reduced supports for some of those incremental expenses and we do expect those to come down through Q3 and Q4 and.
Not being material into Q into 2022.
Okay, and I guess any of I guess, just sticking with costs on the retirement side of you guys.
Of the MD&A you talked about the remaining elevated.
For the for the time being but it gets carried in your remarks, you were talking about expenses coming down could you maybe.
Work is true what you're expecting and I think what I'm really trying to get out of the if we look forward of 2022.
How far do you have to look work day. Thank you.
Can sort of get back to 2019 cost levels.
So the the expenses that are already reducing or a P. P E because we.
We don't when you have outbreaks you just use so much more of that so that we see reducing over the last number of.
Weeks several weeks, where we haven't had an outbreak and then the other big change with the restrictions has been around dining so where we were having to have people sit at the table for 2 instead of the typical for all of that meant we had to add additional shifts to cover that off and we don't have to do that anymore.
Sure and so we're starting to see a reduction in our dining staff for example.
You didn't disinfection, it always slightly down for them.
The requirements, although its still higher than what we would've done pre pandemic.
Although I think it's fair to say that would be expenses will remain elevated in 2021, we will be gradually bringing them down, but we will not do anything to compromise safety of our residents. So the expectation should be that the gradually coming down throughout 2021, and assuming there's no other ways or other outbreaks, which should come back.
Back to close to the pre pandemic levels in 2022.
Okay. The other.
That's helpful. And then just lastly on the long term care.
The I guess, the the funding of the funding guarantee runs out the.
At the end of this month.
In June of stuff that you guys said you were at 85% of so occupancy do you do you think you got most of your homes to 97 per cent by the end of the smoke.
Yes.
They are mostly on track to do that absolutely.
Okay. That's.
That's it for me, Thanks, I'll turn it back.
Thank you.
We will take the next question. Please go ahead Kim on sugar pill.
Thank you and good morning.
The song a retirement home occupancy. So August occupancy is expected to be flat with respect to July and June.
Any markets or the province, where you obtained all of a softball team spiking higher than the.
The previous 2 months I'm on I mean, the question is are there any regions, which are meeting the kombucha zone.
So as we would've expected the western Canada platform is leading the way on recovery.
Followed by Ontario, Quebec is a little slower due to you know the.
The more independent nature of our residents, which makes it somewhat more discretionary.
So it's going in that order.
Yeah.
Would you say you know listen Canada, all of you know about it.
Colombia is a bunch of how does seem like positive month over month of August was the July for example, yes, yes.
Okay, that's great.
And then you know on the same lines the and you look at the U S. You know all kudos have seen some recovery in Q2 over Q1, so any need of costs, we're talking about like what needs to happen to see that kind of took off.
I think it's it's as we expected him and shoot and we we knew that we would be sort of in that 3 of 4 has lagged behind the U S. In the summer months in Canada, which is where we felt the occupancy recovery for Canada was going to be really start in the fall of 2020, 1 I think our expectation continues.
To support our leading indicators of.
Been increasing through July.
Up to pre pandemic levels. So we're quite quite pleased with that.
Okay got it and maybe you know I'll do the strips inside of the wellness of.
Most of the restrictions have been lifted.
Any new orders for some expected with respect to go on top of events.
Anything of bugs from public to public template for what I'll sort of the movie of the company.
Not at this time Ah they have been reduced we still you know have some isolation requirements, but most are everything else has has been lifted or significantly change. So we don't.
You know, we don't know of any other changes that are coming.
Okay.
Maybe just final question on coupons are on.
And all of the Scoop, so big at all points of declines quarter over quarter.
Because of the bogie of NOI declines as well on both of the other.
The call themselves or anything special with all of the either you did mentioned, but oh, they are kind of like.
And on the occupancy side, but the only thing on the staffing caused some bodies from some of the in store.
I don't think that there's anything specific to the Quebec market outside of this larger occupancy declines than anywhere else and that is driven by the independent the nature of the residents there and the severity of restrictions that were put on them during the pandemic.
And so other than that I don't think there's anything specific to Quebec.
Okay fair enough of them.
Thanks for the couple of out of them.
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Thank you once again, please press star 1 at this time, if you'll have the question.
We'll take the next question. Please go ahead per cent Tal T. A L and the lessons will ease of U O O L. L E y.
Hey, good morning, I, just thought I'd spell my name out for you.
[laughter] for yourself.
[laughter] Oh I wanted to talk maybe but if you know first of all I just saw.
On the Labor obviously, you know it was it was a pressure point pre COVID-19. It became very much of a pressure point during COVID-19.
Ken kind of labor picture get better coming out of it how are you.
Are you thinking about how the labor market is kind of transform for your business going forward.
So I think it's the great question I think it will take time for the labor market to stabilize as you pointed out of the ratios pre pandemic pandemic exacerbated them significantly.
The issues are just pure shortage of staff now the the the exacerbation. The pandemic caused them was primarily because of the single side of orders those once they lifted will help them to kind of balance out I guess, the the labor situation of some homes, but generally it will have to take time and we are putting.
A number of initiatives in place of Chartwell to make sure that we're as well positioned as possible to compete in this labor market, including creating more of a fulltime jobs for the staffing and project that we have ongoing in our retirement homes and long term care homes I'm, putting some systems in place that would make recruitment. These.
Here.
And many other things like that but generally it will take probably changes to immigration policy of what we started bringing more people in debt would be willing to work in the the.
Of these settings.
And that will take time.
Yeah.
Okay.
And then I'm just wondering to know that you know everyone's kind of starting to reemerge until more normal.
World, How do you think competitively things, we're going to kind of play out yeah, hopefully youre going to see a surge of demand, but occupancies are low people who've been her hurting do you think like are where you're going to see of consolidation phase here or are we going to see maybe you know a little bit more aggressive pricing to try and get.
Occupancy is moving in the right direction.
What's the sort of survey of if you survey the market what do you think youre, probably going to free over the next year or 2.
So we already are seeing some discounting going on across the country by our competitors and we've been pretty clear with respect of our approach to that we wanted to understand what matters to the prospects.
And try to deliver that to them to the extent possible as opposed to doing blank of discounting for everybody else.
That's not chartwell approach our approach is personalized the experience and it starts before people will become our residents for you need to understand what matters to them and they will try to deliver that and that's how we are competing.
In terms of overall market consolidation.
It remains to be seen the a lot of <unk>.
Good quality properties already concentrated in institutional hands.
And those as far as I know are not for sale and so consolidations of being happening in the sector for the last 10 years I expect that will continue.
Okay.
And 1 thing we used to talk about a lot of pre pandemic and sort of thoughts of the way. So it was off of development too.
You took some steps during the pandemic the kind of no manager balance sheet exposure and pull from projects off the board.
Just sort of rejigger things a little bit.
Your balance sheets of being a little bit more levered now how are you thinking about sort of restarting that going forward.
Yeah, I can take that so as Jerry mentioned in the presentation. We are recommencing construction on rich point.
Oh, the west it's still a good project and are in the good market. So we are restarting that and we are starting to reevaluate the other projects that we had in preconstruction.
Hum, but had put a pause button on so we are looking at them. We have 1 long term care are rebuilding in construction and we have others in pre construction and the planning phases and as Karen mentioned and as you said.
We think we're on the road to recovery and so now we can look at this through that lens, but we're still looking at it cautiously.
Okay.
And just lastly on the credit rating, obviously, you know the unsecured market. It's not your biggest source of capital by any stretch.
But just with the credit rating agencies.
Starting to pipe up over the last couple.
A couple of quarters across the real estate sector.
Where do you think you need to get your leverage ratios from by what sort of time horizon to avoid any sort of further action.
Yeah. So you know.
Certainly came into the pandemic with a strong balance sheet and able to letter of storms. You know we've continued to work with our a rating agency to ensure that.
Continued our relationships. So you know the pandemic has affected our earnings we are pleased with the stabilization of our Occupancies recently and the uptick in our leading indicators. We continue to closely monitor our debt metrics. They were in line with our expectations for.
For Q2 and.
And we will continue to over time very closely monitor though.
And is there like is there a mark you have to hit with respect to a given the ratio by a certain time point or.
I think there is not.
A specific timeframe certainly in art and discussions there's an understanding that this is our occupancies are expected to recover with pent up demand and the reopening of lifting of restrictions and reopening that's in line with 1 of our expectations were so very consistent with what our.
Patients had been in Q1 as well. So we're pleased that things are trending where we had expected.
And if I could just put it back for the development pipeline again 2 of I like your pre construction projects that you had prior to the pandemic like as you start to reevaluate. These.
Do the deals look a lot of different in the sort of new environment or.
Do you know from what you can sort of kind of like it's like yeah, it's still kind of hold up and offer us potentially the same returns.
Yeah. So we're going to look at them on a case by case basis, and theyre not going to be I don't think.
The same as they were prepaying.
Pre pandemic for a couple of reasons..1 is we may rethink the programming and these developments in light of what we've learned over the pandemic and what we think of the market wants.
And as I think everyone knows construction costs have gone up them, both on the labor side and on the material side over the last while and so we.
Hum too.
Redo our analysis, taking those increased costs into consideration, but it'll be done on a on a project by project basis.
Okay. That's great. Thanks, very much everyone.
Thank you for yourself.
Thank you.
There are no further questions registered at this time I'll turn the meeting back over to Mr. Polo Dot ski.
Thank you that wraps up today's conference call. Thanks, again to everybody for joining us as always of you have any further questions. Please do not hesitate to give us the call goodbye.
Okay.
Thank you.
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The conference has now ended please disconnect your lines at this time, we thank you for your participation.