Q3 2023 Chartwell Retirement Residences Earnings Call
Some of them, yes, we lapped a silty duckenfield they'd be touched soup the level pre owned at the end of Hulu I had thought of it get it gives us the meaningful isn't necessarily the best guilty.
[music].
This conference is being recorded so it goes to the homes that don't go as you see.
Please standby your meeting is about to begin good morning, ladies and gentlemen, and welcome to the Chartwell retirement residences Q3 2023.
Financial results conference call.
I'd now like to turn to me, you know where to the C. E O light of all the dark. Please go ahead.
Thank you Dana good morning, and thank you for joining US today. There is a slide presentation to accompany this conference call available on our website at <unk> Dot com under the Investor Relations tab.
Joining me are Kevin Sullivan, President and Chief operating Officer and.
Blackout, Chief Financial Officer, and Chief investment Officer, as usual legal officer.
I'd like to take this opportunity to thank Jonathan for taking all the CFO responsibilities on five months ago.
His excellent work fulfilling this duty and for never missing a beat driving forward, our investment and development asset management portfolio.
Portfolio optimization illegal initiatives. Thank you Jonathan.
Definitely brown, our incoming CFO. He's also in the room with us today.
Been quite a busy first few weeks for him and getting to know our people diving into many strategic projects underway.
Our board meetings I think so far I kept my promise that he will not be BARDA terrible.
I have no doubt he will be highly successful his role.
They'll help us shape and execute strategies to deliver sustainable growth and value to all our stakeholders now and in the future welcome Jeff.
Before we begin I direct you to the cautionary statements on slide two because during this call we will make statements containing forward looking information.
non-GAAP and other financial matters.
R M D L. A and other securities filings contain information about the assumptions risks and uncertainties inherent in such forward looking statements and details of such non-GAAP and other financial matters.
More specifically I direct you to the disclosures in our Q3 2023 MD&A under the heading 2023 outlook and the risks and uncertainties and forward looking information for a discussion of risks and uncertainties. These documents can be found on our website or on SEDAR website.
Turning to slide three.
The strong results in the previous quarter, our Q3, 2023 financial and operating performance reflected our team's excellent execution of our operating sales and marketing strategies.
Same property NOI grew 19, 7% occupancy increased 300 basis points and that's a fall from continuing operations increased 27, 6% from Q3 2022.
Importantly, with the strong occupancy trends continue with the same property portfolio occupancy forecast to reach 84, 2% in December.
Our saves leading indicators initial contacts personalised tours in lease signings remain strong.
With marketing activity is driving more qualified prospects our sales closing ratios continue to improve.
This sets us up well to continue this occupancy momentum into 2020 four.
We believe that highly engaged employees deliver exceptional personalized experiences to our residents, which in turn drives higher resident satisfaction rates and.
Through resident referrals resolved and high occupancy rates.
In 2023, both employee engagement and resident satisfaction scores exceeded my expectations.
Employee engagement score increased five percentage points from last year to 54% highly engaged and resident satisfaction scores three seven percentage points from last year to 61% very satisfied residents.
Remember our scores, we only count top box strongly agree scores in our results.
These are tremendous achievements by our teams.
Thank you to all Char with employees for your commitment to our residents their families and each other and for you to deep and personal connection to our shared values and goals.
That note I will turn the call over to Karen to provide an operational update.
Moving on to slide four we continued to see impressive signs of occupancy recovery in Q3, including 11 positive net activity weeks this quarter.
We've gained occupancy every week, except for one since February initial.
Initial contacts were up 4% compared to Q3 2022, and most importantly, there are of higher quality as evidenced by increased personalized tours and permanent move ins.
In early 2023, we shifted our paid Google strategy to drive higher qualified traffic through tighter keywords and geographic parameters and new advertising tactics. We've now added more investment to expand our audience and test new strategies, including paid Facebook campaigns.
Our recently updated website, which is driving more traffic include suite plans for all our properties as well as pricing transparency, including current promotions and discounts for them.
Uh huh.
In Q3, we launched campaigns in 80 priority properties that include a personalized calls to action.
Range of advertising mediums, including print radio Billboard signage direct mail and social and digital media.
Also focused on Chartwell brand campaign advertising in August and September on television and sponsored content and across paid social media channels. In addition residents Facebook pages.
For the first cohort of over 80 homes.
Hartwell click to connect call center has always been a competitive advantage that ensures that we do not miss prospect calls and provides a positive and high quality experience for potential residents.
Who are seeking timely and useful information in Q3, we transitioned our call center into a more stable and modern system with improved reporting capabilities. Our call center agents increase their personalized tour conversion rate by 12% compared to Q3 2022.
Finally in mid September we hosted our most successful open house to date welcoming over 2000, new prospects, representing an almost 40% increase compared to our April open house event. All of these collective sales and marketing efforts have resulted in an increase in lease volumes of 15% compared to Q3 2022.
Turning to slide five employee turnover declined across all job categories and staffing agency spend was 31% lower in Q3 2023 compared to the same quarter in 2022.
Expect this trend to continue in Q4 based on a number of efforts, including re re tendering for preferred agency partners in light of increased competition among staffing agency providers.
We also remain focused on recruitment and retention efforts, including a targeted nursing strategy that incorporates a referral bonus program agency staff conversions, reaching out to Nonpractising nurses that have recently, Alaska profession, exploring strategic partnerships with expert immigration organizations and campus outreach.
<unk> for recent grads, we're also steadily increasing our employee review rating from Glassdoor, and indeed, and gaining more five star reviews from current employees and positive testimonials about why they love their job and working at Chartwell.
Finally, I am so proud of our team's continued focus on an exceptional resident experience, which is our stated unique value proposition each year, we measure our progress through our annual resident satisfaction survey, which is conducted by a U S firm that specializes in the seniors housing sector, we focused and evaluate our success based.
On strongly agree responses, because we know that very satisfied residents are four times more likely to recommend their residents than merely satisfied residents.
Our 2023 very sad so satisfied score of 61% a seven percentage point increase from our score of 54% in 2022 they.
The combined strongly agreed agree scores were an impressive 86% and our participation rate increase from 72% to 77%.
With resident referrals, having the highest closing ratios compared to all other types of initial contacts this will only help continue.
Continue to help us with the momentum of our occupancy recovery.
I will now turn it over to Jonathan to take you through our financial results.
Karen.
Shown on slide six in Q3, 2023, net income was $158 $2 million compared to net income of $4 $3 million in Q3 2022.
This net income included a gain on sale of our Ontario long term care platform completed on December six 2023.
<unk> from continuing operations was up 27, 6% from.
From total operations increased to 22, 3% in Q3 2023 compared to Q3 2022 and operating results in our core property portfolio have shown strong improvement.
Our same property occupancy increased 300 basis points to 81, 4% and our same property adjusted NOI increased by $10 million or 19, 7%. This.
This growth was offset by $3 $2 million higher G&A expenses, primarily due to higher unit based compensation expenses, resulting from the increase in the trading price of our crushing as regular staff compensation increases and higher professional fees.
Q3, 2023, <unk> was also impacted by higher finance costs from rising interest rates.
Slide seven summarizes our same property operating platforms results.
All of our platforms posted occupancy gains in Q3, 2023, compared to Q3, 2022, which positively impacted our results our.
Our Western Canada platform same property, adjusted NOI increased $1 $7 million or 12%.
Our Ontario platform same property, adjusted NOI increased $5 $3 million or 20%.
Our Quebec platform same property adjusted NOI increased $3 million or 29, 4% with the strong occupancy growth of 400 basis points.
Turning to slide eight our same property retirement portfolio occupancy was 83, 2% in October.
We forecast it to grow another 100 basis points to 84, 2% by December of 480 basis points growth for the full year of 2023.
We expect to see continued occupancy growth in 2023 and beyond supported by accelerating demographic growth shortages of long term care beds and fewer seniors housing construction starts.
We are also achieving our expected rate increases and expect to continue reducing our staffing agency spend.
The remainder of the year.
Turning to slide nine on November nine 2023 liquidity amounted to approximately $455 $2 million.
Which included $43 $3 million of cash and cash equivalents and $411 $9 million of borrowing capacity on our credit facilities of which $200 million specifically for the repayment of our series a debentures maturing on December 11th 2023.
For the remainder of 2023, we have no mortgage debt maturing.
On November nine 2023, 10 years see MHC insured mortgage rates are estimated at approximately four 9%.
And five year conventional mortgage financing is available at approximately five 9%.
On September six 2023, we completed the previously announced sale of our long term care operations in Ontario.
The gross sale price on September six 2023, excluding the forward sale of Valley's Swift LTC was $378 $7 million net proceeds after property specific debt working capital adjustments and transaction costs and taxes was $148 $9 million, which was used to pay down amounts outstanding.
<unk> on our secured credit facility.
Now I'll turn it back to <unk> to wrap up.
Thank you Jonathan our real estate group led by Jonathan in partnership with operations Finance and legal teams have been busy executing our portfolio optimization strategies as shown on slide 10 to date in 2023, we closed the sale of our Ontario long term care business, we see in the operations of three noncore underperforming residences.
Salt to have these false alternate abuse, we sold another noncore operating property and yesterday, we announced an agreement with well tower to wind up our joint venture.
These transactions will help reposition our portfolio towards high growth high quality assets and improve our financial and operational flexibility to invest in our strategic priorities, including future portfolio growth. Our teams are working on several other important investment and portfolio optimization opportunities.
Turning to slide 11, we established our partnership with well tower in 2012 with equal ownership of the properties, where the interest of both parties. We're strongly aligned over the years. He will work together to enhance the services delivered to our residents improve our assets and drive results for our investors as the parties strategic priorities.
Well evolved we work in the same spirit of collaboration to arrive at a mutually beneficial arrangement to divide the portfolio to allow each party to independently pursue its strategic objectives.
Under the terms of the agreement Chartwell will convey its ownership interest in 23 assets with 4633 suites to well tower in exchange for well towers ownership interest in 16 assets with 3511 suites and $97 2 million in cash we.
We estimate net proceeds to chartwell after taxes and closing costs to be approximately 71 million.
Housing of the transaction subject to the required regulatory and lender approvals is expected in Q2 'twenty 'twenty four.
On closing, we will assume approximately $143 million in debt.
The chart will assets bearing interest at a weighted average interest rate of two 8% and a weighted average start to mature at a 4.4 years.
So that change to total debt on Charles balance sheet will be a reduction of approximately $51 million before any impact of the cash consideration.
The data in cash consideration estimates above are based on an assumed closing as of April <unk> 2024.
While the work to position our portfolio for long term success. It is important to note that we operate in a sector with exception of supply demand characteristics, which are likely to continue for many years to come as illustrated on slide 12.
Demographic growth of the seniors population combined with the existing post pandemic pent up demand and improving consumer sentiment towards retirement living meets all time low construction starts and continuing shortage of long term care beds across the country. These.
These dynamics combined with the obsolescence of some of the existing inventory over the next 10 years will support strong growth in occupancy and rather than services rates in our sector. Our teams remain highly committed to capitalize on these positive dynamics to deliver sustainable long term value to all our stakeholders.
As it is now becoming our tradition I will close our prepared remarks with a story from one of our residences.
Pictured on slide 13, we have an unusual one to share with you this time.
As you know we still have a few suites available that's out of our homes I hope it doesn't last too long.
For now one of our residents as teams at Chartwell Carnival voucher in Calgary, Alberta found a wonderful use for a few of their rooms that created an amazing experience for their residents and also help some young athletes from overseas.
It all started with our retirement living consultant and former curler Cassandra Mary responded to a Facebook posts from the New Zealand Lance Curling team, who are looking for accommodations, while they trade in the Carling Mecca that if Calgary.
The team arrived that apparel voucher in September and quickly became the most popular F N D that happy hour.
The bond between food and our residents with almost immediate sharing meal advise and cheering squad are just a few of the ways. Our residents have adopted the young T V.
This story has been covered by major new broadcasters around the country, including C. B C and C. T D with T S and planning to cover the Olympic hopefuls during the wall World Men's Curling Championship in Switzerland next months.
Aside from all the National bus our residents recently hosted the report or from the New York Times Pictures on the slide who flew in for two days to cover the story shining a light on the virtuous of intergenerational living.
They've culture, the hearts of millions around the world at a time when we can all use a heartwarming and uplifting story.
I Hope you agree that this is sort of a new twist on retirement living.
Thank you for your attention. This morning, we would now be pleased to answer your questions.
Thank you, we'll now take questions from the telephone lines. If you have a question and Youre using a speakerphone. Please pick your handset before making your selection. If you have a question. Please press star one on your devices keypad. If you wish to cancel the question. Please press star two.
Press Star one at this time, if you have a question there'll be a brief pause for participants register thank you for your patience.
And the first question is from Himanshu Gupta from Scotiabank. Please go ahead.
Thank you and good morning.
Alright.
So question is on the right.
So I'm not sure how much management fee income associated with this JV.
And how much reduction in associated Jamie are you would expect.
Thanks for the questions about show there was approximately $7 million of management fees. Our expectation is that we will find efficiencies in our structure to compensate for loss of these management fees and we expect this transaction to be earnings neutral or overtime positive for chartwell.
Okay.
Like in terms of your one so do you live in chassis would be I would say the lives over the next two years. So in the first tier I.
Are we expecting immediate reduction in January or is this something overtime well be unexpected.
It will take some time for us to implement the efficiencies I mean, we've been over the past few years investing in process improvements in technologies to enable us to become a more agile organization that can more.
More rapidly adjust to the changing world and scale up or down based on the volume of business we have.
We expect to further go down this path and simplify and scale our operations to reflect the new size of our temporarily smaller size of our portfolio and including compensation for this loss of management fee income.
Okay Alright.
And then just on the you know the assets.
How did you decide you know what assets you will keep on what sort of go over what was there some criteria Oh Wow, how did you split.
Well that was the negotiations with both parties as I said.
Working collaboratively to arrive at an outcome that is favorable to both parties I think we've achieved that that outcome you know from our perspective, we obviously looked at the geographic locations of the properties and Hum our belief in their future potential.
Okay.
And then maybe just to close the loop how did you agree on the path.
I mean, effectively you do like a $1 million to $2 million this condition.
And like Howard if I decided I know you don't lose that $7.7 million lower.
Lower NOI from the assets, which is.
We're just getting the schools here I'm, just wondering any any color on the pricing.
I mean as you can see this is basically trade properties for properties our interest in the properties for properties and then we ended up with a smaller portfolio. So we were in that seller for that so I cannot offer you much more than it was negotiated settlement and both parties are satisfied with the outcome and you can see in our disclosures.
Implications for travel on the balance sheet and historical earnings.
Okay fair enough.
Thank you.
Yes.
Thank you.
And the next question is from Jonathan Couch It from TD Colin. Please go ahead.
Thanks Mark.
Just the occupancy targets for Q4.
I guess when you say so.
And your third.
Most of December.
Probably at least get a little bit of it.
Sure.
Is it and you're expecting this year based on your currently staying with her leagues.
Jonathan you were breaking up a little bit if I understood. You correctly, you were asking our Q4 occupancy expectations than what they were based on the expectations are based on long leases and notices in hand, plus our our estimate for mid months move ins. This is Matt.
The methodologies that we've consistently employed in developing our.
Two months out one two months out occupancy forecast I hope it answered your question.
Yeah.
Coming up next here. So I'll just ask one one more and then turn it back to you that it could be fair to say that it's still a little bit of a dip.
January.
Too smart for April.
Yeah. This is the unknown that we have in our business it will depend on the.
The severity of the flu season or lack there off a you could see that our pre pandemic average depths, where a lot larger than what we experienced both in 2022 and certainly this year. When it was only 40 basis points I think we'd have a number of things that are going our way.
This time, all the things that we've put in place to drive occupancy even through the winter months, plus what I believe still exists and assistant pent up demand from the pre pandemic period, the demographic growth of the population and lower levels of new supply at all of these should help to moderate.
That that winter depth, but if you're asking how we budget, we do budget for some of that winter dip.
Okay. Thanks al.
Goodbye.
Thank you once again, please press star one at this time, if you have a question.
Question is from Paul <unk> from RBC capital markets. Please go ahead.
Thanks.
Going back to the to the to the windup of the JV on that some.
At some point center, roughly 8 million did that and why did you disclose that the you know the last 12 months, but what would that look like on a on a stabilized basis.
Yeah. It's.
Not really prepared to talk about that that I can tell you that the occupancy was the differentiator that difference in the occupancy was this portfolio was at about a low to mid 80% occupancy.
Okay Alright.
That was already on the on the portion that can be dangerous.
It's really both pieces.
Oh, okay.
Okay, and then just in terms of the maybe just thinking about.
You talk about reserving a couple of hundred million dollars from our credit facilities for the the debenture maturity.
Thinking back to this.
Curious, how you're thinking about ultimately that that draw the line or intent.
We intend to use I guess the proceeds from this.
This net disposition to ultimately pay that down or maybe what's the thinking there.
Yeah, I I think we are as we said before trying to keep as many options as possible for as long as possible. So we do have there's different delayed draw credit facility available to take down debenture when it matures in December we are also expecting a D var S to complete.
Complete their review after we release these quarterly results.
As you remember in their initial report from last year.
They commented that they would like to continue to see occupancy recovery and the sale of long term care portfolio closed both of these things I think they've seen and my hope would be that they would remove negative trend on our rating and then we'll assess whether a win the most appropriate time.
For us to access unsecured debt or use some of the proceeds from the asset sales.
Take down the debentures or to use our credit facility that is available for us to do that so so all options are available for us at this time, it's just a question of timing.
Okay Alright.
And then just.
With respect to the agency cost.
I think Karen mentioned that they're down 50% year over year, you know at this point.
Are you on pace to maybe get back to 2019 levels I think your target was at some point next year is that still sort of the key objectives.
But it is I mean, we have made significant progress as you can see we have some difficult markets are mostly in Quebec, particularly Quebec city.
And some of that was kind of a resort areas in Ontario, calling Woodbine land them, but I would also say and I went through them in my remarks, we had a.
A number of strategies.
He is in place in particular to focus on nurse nurses, because they're the ones that are still difficult to get but yeah. We are trending towards that for sure.
And then just lastly, thinking about margins.
I think you hit your target in Q in this quarter for I guess your overall target by year end, it sort of that mid 30% range.
Again, just maybe thinking about the outlook and your targets I think you started at 89% by the end of next year from an occupancy standpoint, again, because all of us.
It's still moving in the right direction and you're on pace to.
Those are at those goals.
Yeah, it's all about the occupancy problem as we've talked about before our rent increases we put through what we say, we're going to do 4% to 7% depending on where the properties are located and we'll probably do something similar next year, Although we will give you more definitive guidance.
All of this our year end results and so with those rent rent increases and the momentum that we have in occupancy recovery the margins should be where we expect them to be which is kind of high thirty's range next.
Next year.
Thanks, very much I'll turn it back.
Thanks.
Thank you.
There are no further questions registered at this time I would like to turn the call back over to Mr. Pollock.
Thank you everybody for joining us today as always if you have any other questions. Please do not hesitate to give us a call goodbye.
Thank you. The conference has now ended please disconnect your lines at this time and we thank you for your participation.