Q4 2023 Chartwell Retirement Residences Earnings Call
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This conference is being recorded so it goes to the homes that don't have as you see.
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Good morning, ladies and gentlemen, and welcome to the Chartwell retirement residents you're in in Q4, 2023 financial results Conference call.
No.
<unk>.
Darcy.
Thank you Carl good morning, and thank you for joining us today.
There is a slide presentation to accompany this conference call are available on our website at Chartwell Dot com.
Under the Investor Relations tab.
Joining me are Kevin Sullivan, President and Chief operating Officer, Jeffrey Brown, Chief Financial Officer, and Jonathan Blackout, Chief Investment Officer, and Chief Legal Officer.
Before we begin I dare.
Back to you to the cautionary statements on slide two during this call we will make statements containing forward looking information and non-GAAP and other financial measures are M. D N 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 measures more specifically I direct you to the disclosures in our 2023 MD&A under the heading into 'twenty 'twenty four 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 class website.
Turning to slide 320, 23 has been an unprecedented year of learning change and growth for our company.
We have been learning new ways of driving results faster through higher empowerment of people in our residences in offices, we have become more agile in how we market sell and operate our properties and we have made progress in repositioning our property portfolio towards high quality high growth properties in strong markets.
What is not changing is our dedication to our vision of making People's lives better and are focused on delivering personalized memorable experiences to our residents.
In 2023, our teams delivered exceptional increases in employee engagement and resident satisfaction scores record occupancy girls says.
We're all significant technology systems implementations.
And complete a transformation portfolio optimization transactions.
These achievements combined with the re imagining of our corporate support service models will serve as a strong foundation for profitable growth of our business in years to come.
To all Chartwell employees for your commitment to our residents their families and each other and for your deep and personal connection to our shared values and goals.
I will now turn the call to Karen to provide an operational update.
Moving to slide four in Q4 2023.
210, new permanent residents.
Canada, including 862 in the month of December alone and a total of 7211 for the year all of these permanent move ins.
Numbers are unprecedented in our history, our net PMI is less of a permanent move outs was plus 1411, ending our same property occupancy as of December 31st at 84, 9%.
Our sales process improved as evidenced by a one 5% increase in our closing ratios to 14%.
The number of Personalised tours from marketing sources increased by 24% year over year as our targeted digital marketing strategies resulted in higher quality leads.
Our new approach to Google ads resulted in a 205 per cent decrease in investment while delivering 130% more conversions.
Our prospect pool.
<unk> grew to 51000.
A 28% year over year. In addition, we have collected 25000, new marketing contact people who've agreed to be contacted.
Not yet chosen a specific chart where residents.
We will remarket chew through Facebook.
We also started the year with a January open house, which generated a strong pipeline of new leads for residences and similar initial contacts are IC volume to our September open House, which was the best week in 2023 for marketing leader and total Ics Historically, our September open house generates twice.
As many Ics is January.
In Q4, we entered into two new affinity partnerships with Scotia wealth management and the Alberta retired teachers Association to offer them one month free rent in exchange for exclusive access to educate their members and promote chartwell.
Turning to slide five.
We reduced our staffing agency caused by 44% from 2023 compared to 2022 based on a number of very targeted strategies. This included reducing the number of agencies. We are using through an RFP process in both Ontario, and Quebec specific strategies to recruit and retain nurses working with.
Specialized organizations to bring in new immigrants and improving our onboarding approach.
We have also implemented an electronic health record and over 70 of our residences in Ontario, and B C and will complete this initiative in these two provinces within the next two months. We also rolled out care assist a standardized approach to care services pricing and billing codes in Ontario, and B C and more recently in Quebec.
We will begin rolling out the electronic health record in Quebec, beginning in Q3.
Not only will this assists our frontline care staff with assessments and care plans, but should have a positive impact on our care revenue, which increased by over 14% in 2023 compared to 2022.
Finally, we continue to focus on individual strategies for specific homes to improve occupancy. One example of this is a new contract with Alberta Health services for 44 funded designated assisted living units in one of our Calgary retirement residences, which will dramatically increase our occupancy and provide additional care services.
To residents in this market our first resident moved in on February 20th and we expect all 44 to be in place by the end of Q2.
I'll now turn it over to Jeff to take you through our financial results great. Thank you Karen.
As shown on slide six net income in 2023 was $128 3 million compared to $49 5 million in 2022.
2023, net income included a gain on sale from the Ontario long term care platform, which was completed on September six 2023.
<unk> from continuing operations was up 19, 7% to $122 2 million as compared to 2022 and F. F. O from total operations increased four 9% to $133 2 million in 2023 compared to 2022.
<unk> growth was driven by strong operating results at our property portfolio.
2023, same property occupancy increased 250 basis points to 81, 1% and our same property adjusted NOI increased 14, 3% or $23 6 million.
2023, <unk> growth was partially offset by higher finance costs from rising interest rates and $10 8 million of higher G&A expenses, primarily due to $4 7 million of higher unit based compensation costs related to the increase in value of our trust units to $4 million of CFO transition.
Costs, and $1 6 million of higher performance based compensation costs.
Looking at Q4 2023, net loss was $13 2 million compared to net income of $47 5 million in Q4 of 2022, primarily due to lower gains on asset sales negative changes in fair values of financial instruments, primarily due to increases in trading prices of terminal Trust units.
Impairment losses.
Lower income from discontinued operations due to the sale of the Ontario long term care platform and higher G&A expenses. These were partially offset by higher deferred tax benefit higher resident revenue and lower direct operating expenses.
In Q4, 2023 F F O from continuing operations is up 41, 4% and <unk> from total operations increased 17, 2% compared to Q4 2022 as operating results in our core property portfolio continued to show strong improvement.
In Q4 2023, our same property occupancy increased 460 basis points to 84, 1% and our same property adjusted NOI increased by $9 million or 21, 5%.
<unk> growth was partially offset by $4 1 million of higher G&A expenses, primarily due to higher unit based compensation costs of $2 8 million due to the increase in value of our trust units and 0.7 million of higher performance based compensation costs.
Moving to slide seven which summarizes our same property operating platform results all of our platforms posted occupancy gains in Q4 of 2023 compared to Q4 2022.
Our Western Canada platform same property adjusted NOI increased $1 7 million or 11, 6%.
Ontario platform same property adjusted NOI decreased $5 5 million or 24% and our Quebec platform same property adjusted NOI increased $1 8 million or 39%.
Yeah.
Turning to slide eight at March 7th 2023 liquidity amounted to approximately $368 4 million, which included $32 4 million of cash and cash equivalents and $336 million of borrowing capacity on our credit facilities.
And 'twenty 'twenty four we have $181 6 million of mortgage debt maturing at a weighted average interest rate of $3. One 4%, we expect our redo or refinance these loans during the year.
I also have 125 million term loan maturing in May 2024, we expect to refinance or repay this loan with the proceeds from the sale of our noncore assets.
At March 7th 2020 for 10 years. So you may see insured mortgage rates are estimated at approximately four 3% and five year conventional mortgage financing is available at approximately five 4%.
I will now turn the call back to glad to wrap up.
Thanks, Jeff moving to slide nine our 'twenty 'twenty four outlook is based on the continuation of favorable industry dynamics that benefited the senior housing sector in 2023.
We expect strong demand for our services driven by the demographic growth of the population of people over the age of 75.
Lower pace of construction activity, continuing shortages of long term care beds and obsolescence for some of the existing inventory.
We expect these favorable conditions to support occupancy and revenue growth in our portfolio in 2024.
We expect continued moderation of inflation and interest costs in 'twenty 'twenty four positively impacted impacting our operating and financing costs.
We expect our April 'twenty 'twenty four occupancy to be 85, 7% 80 basis points higher than our December 'twenty three occupancy reversing the usual seasonal declines experienced in prior years.
We anticipate continued occupancy growth in 'twenty 'twenty four as we continue executing our proven sales and marketing strategies, we expect to achieve resident services rate increases of approximately 5% in 2024 and as a result of this expected occupancy and rate growth. We expect our same property adjusted opera.
Margin to increase to approximately 38% in 'twenty 'twenty four from 34% in 2023.
We will continue our war, we imagine and corporate support services, where we make data insights tools and training available to our residents as management to empower more independent faster data informed decision making.
This will allow us to make this corporate support more effective and cost efficient.
We expect these initiatives to result in sustainable reduction of our G&A costs to upset the reduction of management fees associated with the wind up of our joint venture with a well tower.
With improved operating results strengthening of our balance sheet and additional liquidity generated through noncore asset sales, we expect to grow our portfolio with newer high quality properties through our partnership with bad at all and for potential third party acquisitions.
We have also recommends feasibility and planning work on several development opportunities within our portfolio.
We will continue to optimize our asset portfolio through accretive investments in our core properties and dispositions of non core properties in 2024 and beyond.
While we work to position our portfolio for long term success. It is important to note that we operate in a sector with exceptional supply demand characteristics, which are likely to continue for many years to come as illustrated on slide 10.
Demographic growth of the senior population combined with the existing postal dynamic pent up demand and improving customer sentiment towards retirement living meets all time low construction starts and the continuing shortages of long term care abouts across the country. These dynamics combined with the obsolescence obsolescence of some of the existing inventory.
Over the next 10 years will support strong growth in occupancy and resident services rates in our sector.
Our teams remain highly committed to capitalize on these positive dynamics to deliver sustainable long term growth to all our stakeholders.
It is now becoming our tradition I will close our prepared remarks for the story for one of our residences the pick.
<unk> shown on slide 11 are from travel Imperial place in British Columbia, We're celebrating milestones has reached a whole new level of importance recent.
Recently, our residents' lifestyle consultant.
Nicola discovered a remarkable group of longtime residents, including one who has been living at Imperial play since 2007.
In total six residents celebrated a decade or more at chartwell Imperial place last year inspired by their decade long connections Nicola together with front desk manager Ashley and the foodservice team orchestrated a special celebration.
Their families were treated to a special evening of his devotees which included a gourmet steak dinner accompanied by wine and specialty coffees. They even created Costa lives caused the customized design deck up lost metals for the residents to wear this initiative is a great example of the commitment and creativity.
All of our amazing employees, who are always looking for ways to create exceptional experiences that are personalized and memorable.
Thank you for your attention. This morning, we would now be pleased to answer your questions.
Thank you we will now take questions from the telephone lines. If you have a question. Please press star one on your devices keep it you mean canceled your question that anytime by pressing Star two please press star one at this time, if you have a question.
The first question is from Jonathan <unk> of <unk>. Please go ahead. Thanks good morning.
First the first question just on the.
Occupancy gains that you've seen so far this year that are not really typical what what's what's been driving that has been like the warmer winter or maybe even a little bit of color on that.
I think that has helped you know everything from the outbreak season hasn't you know and as bad as in previous years too.
Pent up demand that we have and are expecting so and then a lot of our strategies in both marketing and sales.
I just think it's a frankly a combination of all of those things a lot of effort and some things sort of going the other way.
Okay.
And then on me.
38% margin target you gave some color on what you expect the rate.
Rate increases to be but what what sort of what's your thinking on occupancy to get to that 38 is it sort of similar growth that we saw in 2023 or does it accelerate.
Yeah, It's a combination of all things that really drive the margins, it's golf in rental and services rates that we indicated continuous growth in occupancy at a pretty healthy pace that we've seen in the last 18 months or so and continuous work on controlling our expenses.
Okay.
And sorry, and Karen just on the stuff you're the prospect pool at 51000.
Versus the 25000 contactless, what's what's the difference between those two.
The 25000 these are people, who they're not you know they haven't said, hey, I want to come to desktop or that's what they have said you know I might be interested in the future and so we're serving them our content and information.
And it's very continue the journey to make a decision around that that's what the differences.
And in the 51000 or people that have toured or said I wanted to come look at this place.
Or this home.
Yes.
Okay, and then your closing ratio that the 14% you talked about would that be against the 51000.
Am I thinking about that correctly no that that's against initial contacts so that's against people who first contacted us.
And then move ins over initial contacts so that's the 14% ratio.
Okay.
That's helpful I'll turn it back thanks.
The next question is from <unk> of RBC capital markets. Please go ahead.
Thanks, Good morning.
Regionally you clearly have some good traction in all three of your core markets.
Do you think about this year, where do you expect sort of the biggest games and any markets maybe that you expect will probably just.
It may just continue to lag.
We expect to continue gaining occupancy in all of our markets, where we operate we historically talked about four markets, where we had more challenges than in the others, Quebec City of Calgary Durham region in Ottawa.
Quebec City has been recovering the fastest of all of these four markets. They are gaining occupancy at a really rapid pace throughout 2023 and into 'twenty 'twenty four mm Calgary has started coming back the issue there that our properties were primarily independent living.
Karen spoke about one example, where we adding a foreign government funded care that will drive occupancy in that particular building and the other ones are coming back at a pretty healthy pace now Durham region started recovering at the back end of 2023 and their continued into 2024.
And Ottawa has seen some occupancy gains in 2023 some of it came from some of the closures that are happening that happened in the marketplace at that point of time, they're still on the positive occupancy trends now, but auto market will continue to be challenging in 2024, as well given the oversupply and continuous.
Supply coming into that market.
Thanks, a lot that's helpful. Just going to your comments and karen's comment on debt agreement with I think it was Alberta health.
Have you been able to do those types of arrangements in other markets and are there more of those types of opportunities available.
You kind of think about the next.
Couple of years.
Alberta is a unique market for funded our assisted living.
So we have other D S L a.
In some of our homes, particularly at Edmonton.
So that was you know an opportunity in this home in Calgary to add those but there isn't funded assisted living for example in Ontario.
Right Okay.
And then maybe just coming back to again the outlook for occupancy.
You'd previously talked about getting to pre COVID-19 levels by the end of this year, which would put you at 89%.
Obviously, you've made some very good traction there so.
So far this year, so is that still the expectation it looks like your 2025 outlook hasn't changed so.
95% is the target still but just curious if that 85% is still what you're aiming towards.
Yeah, we're pushing as hard as we can to gain as much occupancy as possible in this positive environment and so yeah. Our expectation is to continue to grow occupancy and to get to 95% by the end of 2025.
Heart failure.
Even better.
Okay just on the.
Last one for me on the G&A.
It has been tracking heavier as you've seen over the last year or so and I think in Q4 as well.
I know you talked about you know realizing some savings in 'twenty 'twenty four but there's also expected to be reached and costs. So just wondering if you can maybe frame that for for this year and what sort of the G&A overall may look like and if you could you do have an estimate of the estimated I guess restructuring costs related to the wildcards.
Yeah, so our expectation that on a run rate basis, our G&A will be reduced in line with the management fees that will go away with the well tower transition when that happens 'twenty 'twenty four will have some noise in the numbers because the changes in the G&A.
They're driven by the timing of the closing of the wildfire transaction, which we're hoping to heart and in Q2, but exactly when in Q2, we don't know yet depending on the approvals were waiting on the lender's approvals to get this transaction closed.
And then the estimate of severance costs I'm not prepared to give you at this point in time, but we are committed to make sure. It's very clear they are disclosed in our filings are when we enter our actual cost.
Okay and then just on that last point is will that all hit in <unk>.
One particular quarter or will it be spread out over the course of the year or.
Maybe spread out the majority, though it would probably be in one quarter.
Okay.
Okay, I will I'll turn it back thanks, so much.
Once again, please press star one on your devices keypad, if you have a question.
The next question is from Himanshu Gupta of Scotiabank. Please go ahead.
Thank you and good morning.
So just looking at the NOI margin in Q4.
It was a downward on 100 basis point quarter over quarter leases.
So what led to that quarter over quarter decline in NOI margin.
Well, we were not I think it's maybe not the right to look at the margins on a quarter by quarter basis. There is some seasonality impact and the timing of different costs. We did not have a leaner cost structure at the staff cost structure. So when properties hit certain occupancy levels. So you can expect some increases in margins in the next quarters you might have.
Nothing even though the occupancy continues to increase.
So generally our revenues were up by a significant amount, 10% a year over year and direct operating expenses increased.
In line with that they're actually a lot lower than that but because of the occupancy increases. There's also some timing of marketing costs in Q4 and performance based incentives for our teams that exceeded their targets for this year that hit Q4 that you did not have in Q3.
Okay fair enough.
Now, let's take a look on the NOI margin for 'twenty 'twenty four.
And I think you could why do you put the same corporate default the majority for the 28%.
How about the growth portfolio like what are your assumptions regarding the group before.
Yeah, Yeah, Hi, Matt you were.
We're not able to provide estimates on the specifics of the growth portfolio because there is quite a diverse mix of properties in there.
But on the same property basis, we are anticipating it to grow from 34% to 38% in 2024.
Okay, and just to go with but who knows basically bobo toddler assets, which are all keeping well is it fair to say that.
Yeah, the wall tower assets that we are keeping because of the change in our ownership levels move into the growth portfolio.
This year.
Okay.
The disclosure you provided I'm getting to around 26% NOI margin for the portfolio.
So is it fair to assume that that also goes to a 28%.
How much is this that so there are other properties I was like well tower properties and the girls portfolio. Some of the properties that we acquired that have not hit the stabilized occupancy levels. Some of the development properties that have not had stabilized occupancy levels. So it's not just cell tower portfolio and this time, we're not able to provide the guidance for the margins on that.
Okay. Okay. So.
Okay. So maybe you know turning attention towards the.
Acquisition side.
Two basketball properties it looks like you wouldnt, although the quality.
What kind of Capex should resume.
And it looks like you know these are stabilized properties.
Yeah. Her two properties that were actively.
Working on to acquire <unk>.
And we would expect to pay once we finalize the pricing we would expect to be in the low to mid six cap rate.
Most of them are six okay.
Sticking to the balance sheet.
What kind of leverage.
Assumption do you have for the event.
It was really in the NOI margin.
Occupancy.
It happens as well.
What does the target leverage by doing a deal.
Well, our long term targets are.
Is to run the company at debt to EBITDA below seven and a half times and interest coverage at over three times.
You know specific timing of when we are achieving these is dependent not only on the operating performance of our property portfolio, but also on the timing of the noncore asset sales closings and.
And potential growth initiatives that would have in our pipeline, but we're committed to get to those targets over time.
Okay. Okay. Okay fair enough and then you know the value clause Scott it looks like that humans don't happening in the near term do you have a sense of timing on closing.
Yeah, we would expect it to close in the first half of the year. So you know by the middle of summer alluded to not disclose but it's still in construction and so that's our.
Our best expectation.
And just on the pricing level, she didn't know or should we still assume are they similar fiscal you shouldn't place for that.
Yeah. So the the sale agreement can be terminated by either side. If we don't meet people first date, which we will not but we.
She puts and takes on both sides in the valuation of yes. It. So at this point our expectation is that we would sell it for at least the price that we disclosed.
Okay. Okay. Thank you al and then I think in your prepared remarks, you mentioned about even excluding development opportunities on more acquisitions.
When you say acquisition outside of Baltimore as well or are you were talking to just about those two properties that youre buying and then another two properties, which you could be forced to buy cars.
Sure So I can take that.
We are partly referring to bottom over half the two that are in the immediate pipeline in two more.
But it reached stabilization and and but we are seeing a number of opportunities across the.
The geographies that we're in and we are actively looking at some of those opportunities.
Joining them nothing to discuss right now, but we are seeing a number of opportunities.
And on the development side he mentioned sorry.
We have a number of as you know a number of potential development opportunities within our portfolio and besides that we already own and through our portfolio.
Management activities, we identified a number of other potential opportunities. So there's a lot of work being done on feasibility analysis on all of these the numbers don't quite yet panned out, but with a continuous growth in rental rates and hopefully some moderation in construction costs and interest rates are.
My expectation is that some of them will come very close and when they do and we're comfortable to proceed we might commence development on some of these sites.
Okay.
And so you know I love. This question so all of these acquisitions and development.
In the context of keeping leverage at some of them.
That's that's the target.
Okay. Okay. All the very best to me when I was talking back too much.
Once again, please press star one on your devices keypad. If you have a question. The next question is from Jacob.
Of CIBC. Please go ahead.
Hey, good morning, all I'll keep this brief.
In terms of the pace of margin expansion should we look at it in terms of the kind of a regular seasonality I know I know the occupancy gains kind of blew the whole seasonal trend out of the water.
So are we expecting with the same seasonality as normal or is that margin expansion in 2024 expected to be kind of steady throughout the year.
Yeah, I'd really prefer to look at the margins on an annual basis. There is different things that can happen during a short periods of times that can move it a little bit one way or another for now if you halfway yes, let's assume usual seasonality.
Okay, Yeah understood and then still the same topic and I guess looking at it on an annual basis. When you kind of reach that stabilized maybe 95% occupancy level, how should we think about margin expansion there well it will not exceed pre COVID-19 levels or do you have a kind of a range in mind when you're at that stabilized.
Let's see.
Oh for sure it'll have to exceed the pre pandemic levels, because we have not been a 95% occupancy pre pandemic. So clearly occupancy is the biggest driver right. There in occupancy the biggest driver of the margins and in our business and so when we get to 95% occupancy margins should be significantly higher than the 38% that we're expecting.
This year.
Okay. Okay. Thanks.
That's it for me I'll turn it back.
There are no further question, but just looking at this time I would now like donated meeting over to Mr of all of our Skus.
Thanks, everybody for joining us today and as always if you have any further questions. Please do not hesitate to give any one of us a call goodbye.
Yes.
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