Q3 2024 Chartwell Retirement Residences Earnings Call
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Speaker Change: Good morning, ladies and gentlemen, and welcome to the Chartwell Retirement Residence Q3 2024 Financial Results Conference Call. I would like to turn the meeting over to the CEO, Vlad Volodarski. Please go ahead.
Vlad Volodarski: Thank you very much. Good morning and thank you for joining us today. There is a slide presentation to accompany this conference call available on our website at charwell.com under the investor relations tab.
Vlad Volodarski: Joining me are Karen Sullivan, President and Chief Operating Officer, Jeffrey Brown, Chief Financial Officer, and Jonathan Boulakia, Chief Investment Officer and Chief Legal Officer.
Vlad Volodarski: Before we begin, I direct you to the cautionary statements on slide 2, because during this call, we will make statements containing forward-looking information and non-GAAP and other financial measures.
Vlad Volodarski: Our MD&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.
Vlad Volodarski: More specifically, I direct you to the disclosures in our Q3 2024 MD&A under the heading 2024 Outlook and Risks and Uncertainties and forward-looking information for a discussion of risks and uncertainties.
Vlad Volodarski: These documents can be found on our website or on CDER Plus' website.
Vlad Volodarski: Turning to slide 3, our team delivered another quarter of strong operating and financial performance.
Vlad Volodarski: In Q3 2024, they increased occupancy in our same property portfolio by 610 basis points.
Vlad Volodarski: grew NOI by 17.1% and achieved a 200 basis points expansion in an adjusted operating margin, which drove a strong 43.2% growth in FFO.
Vlad Volodarski: Importantly, we made great strides toward achieving our aspirational 2025 strategic objectives. Our 2024 employee engagement score of 57% of highly engaged employees exceeded our 2025 target of 55%.
Vlad Volodarski: Our 2024 resident satisfaction score of 66%, very satisfied residents, was within one percentage point of our 2025 target.
Vlad Volodarski: Remember, these scores only count top-box, strongly agreed responses on a 5-point scale.
Vlad Volodarski: Combining respondents who marked boxes 4, agree, and 5, strongly agree on their surveys, which show the employee engagement score of 86% and resident satisfaction score of 89%.
Vlad Volodarski: Our teams continue to focus on occupancy growth. We now forecast December 2024 same property occupancy to grow to 90.2%. They're working hard to continue the pace of occupancy growth achieved in the last two years to reach our third 2025 strategy objective, 95% occupancy in the same property portfolio.
Vlad Volodarski: 2024 is shaping up to be a record year of transactional activity for Charwell. To date, we have announced transactions valued at over $1.2 billion, adding newer, well-located, high-quality properties to our portfolio, and divesting older, non-core assets.
Vlad Volodarski: Our investment team continues their great work investigating many other growth and portfolio optimization opportunities to further our strategy of portfolio renewal and growth.
Vlad Volodarski: It is wonderful to see the fruits of our team's labor in so many aspects of our business.
Vlad Volodarski: On this call, Jeff will walk you through our Q3 results and our financing initiatives in more detail, and Jonathan will provide you with an update on our recent investment and portfolio optimization activities. First, I will ask Karen to provide some more color on our ongoing operating initiatives.
Vlad Volodarski: Thanks Vlad. Moving on to slide 4, our leasing activity continued to be strong in Q3.
Vlad Volodarski: with a positive net permanent move-in to permanent move-out of 752 units year-to-date and a steady increase in our closing ratios leading to a same-store occupancy of 88.9% by the end of Q3, with continued positive momentum to the end of the year.
Vlad Volodarski: Our open house events have continued to assist us in increasing high-quality initial contacts.
Vlad Volodarski: including our fourth and final Open House event for 2024, held in September, which resulted in 594 personalized tours, just 4% shy of our most successful Open House in September 2023, which had 620 PTs.
In Q3 2024, marketing strategies were driven
Vlad Volodarski: through a strategic blend of digital and traditional marketing efforts and investments.
Vlad Volodarski: in always-on channels such as Google and Facebook, non-paid organic channels such as blogs, emails, and our website forms, and cross-channel advertising including radio and TV ads for specific priority properties.
Vlad Volodarski: Our sales force recently came together for in-person training in each province where we operate in order to continue to improve their sales skills and learn about our strategies and initiatives to continue to improve occupancy in 2025 and beyond.
Vlad Volodarski: We are continuing with our property-specific pricing strategies to grow market rates in homes with higher occupancy, eliminating recurring discounts for some communities, targeting specific suites for discounts to accelerate lease-up, or continuing with broader base discounts depending on occupancy levels and competitors' rates.
Vlad Volodarski: Turning to slide 5, we reduced our staffing agency cost by 43% in Q3 2024 compared to Q3 2023 and 56% year to date through focused recruitment and retention activities and are now consistently below pre-pandemic levels.
Vlad Volodarski: We have specific strategies in place for harder to fill positions such as RPMs, as well as for areas of the country where recruitment remains a challenge. This includes working with an immigration specialist to bring a group of people from Cameroon into our Quebec homes to fill care and food service positions.
Vlad Volodarski: In Q1 and Q2, I provided updates on some of our individual property strategies to better meet the needs in our local communities and subsequently increase occupancy.
Vlad Volodarski: but also based on our performance, led to Alberta Health recently increasing the number of funded beds. This initiative has helped us increase occupancy from 67% at the beginning of the year to 87%.
Vlad Volodarski: In addition, our strategies to better meet the needs of the Asian population in Markham have led to Chartwell Rouge Valley increasing their occupancy from 79% to 92% in 2024.
Vlad Volodarski: We are now focused on strategies to better meet the needs of the Jewish population in Thornhill at Chartwell Constantia.
Vlad Volodarski: We also repositioned our apartment units at one of our properties in Cornwall, which are now 100% occupied and are in the process of changing the service model in the ISL portion of this home to better serve this price-sensitive community.
Vlad Volodarski: The integration of the five properties that we recently acquired in Saint-Jerome, Terrebonne, Gatineau, Sherbrooke and Saint-Jean-sur-Richelieu
Vlad Volodarski: have gone extremely smoothly for both staff and residents. The Quebec operations team is now focused on the upcoming integration of five more properties as part of our new partnership with Group Champlain. And our Western Canada team is working to integrate our new properties on Vancouver Island.
Speaker Change: I will now turn it over to Jeff to take you through our financial results.
Jeff: Thank you, Karen. As shown on slide 6, in Q3 2024, net income was $23.6 million compared to $158.2 million in Q3 2023. That included the gain on sale of $178.9 million due to the completed LTC transactions.
Thank you for your attention.
Jeff: Bronger operating results and lower G&A expenses positively contributed to net income and were partially offset by deferred tax expense, negative changes in fair value of financial instruments driven by the increase in trading price of our trust units and higher finance costs.
Jeff: FFO from continuing operations increased 54.8%, and total FFO increased 43.2% in Q3 2024 compared to Q3 2023 from strong operating results in our core property portfolio.
Jeff: lower G&A expenses of 2.7 million, one-time retroactive government funding related to LCC discontinued operations of 1.4 million, and higher interest income of 0.3 million.
Jeff: partially offset by higher finance costs of $5.1 million and lower management fees of $0.3 million.
Jeff: In Q3 2024, our same property occupancy increased 610 basis points to 88.5%, and our same property adjusted NOI increased by $9.3 million, or 17.1%.
Jeff: Slide 7 summarizes our same property operating results for each platform. All of our platforms posted occupancy gains in Q3 2024 compared to Q3 2023 which positively impacted our results.
Jeff: Our Western Canada platform same property adjusted NOI increased $2.9 million or 16.8%.
Jeff: Our Ontario platform same property adjusted NOI increased 4.3 million or 14% And our Quebec platform same property adjusted NOI increased 2.1 million or 32.4%
Jeff: Turning to slide 8, at November 14, 2024, liquidity amounted to approximately $401.3 million, which included $54.1 million of cash and cash equivalents and $347.2 million of borrowing capacity on our credit facilities.
Jeff: For the remainder of 2024, we have 98.8 million of mortgage debt maturing at the weighted average interest rate of 7.08 percent. We are in the process of refinancing these loans.
Jeff: At November 14, 2024, 10-year CMHC insured mortgage rates are estimated at approximately 4% and 5-year conventional mortgage financing is available at approximately 5%.
Jeff: We are also excited to be establishing Chartwell's inaugural At-The-Market program, which is designed to provide us with additional financing flexibility should it be required in the future.
Speaker Change: Charbois intends to use the net proceeds from the ETM program, if any, for future property acquisitions, development and redevelopment opportunities, repayment of indebtedness, and for general trust purposes.
Speaker Change: Moving to slide 9, with the continuing strong prospect traffic and leasing activity, we expect occupancy to continue to grow in 2024. We now forecast to achieve 90.2% same property occupancy by December of this year.
Speaker Change: We have been using targeted incentives in certain markets to support this rapid occupancy growth.
Speaker Change: As more residences achieve higher occupancy rates, we expect to gradually reduce the use of these incentives.
Speaker Change: We believe that improving occupancies, combined with lower new supply coming to market, will support higher-than-historical market rate increases over the next several years. We expect these dynamics will result in the growth of our adjusted operating margins and the current levels.
Speaker Change: I'll now turn the call to Jonathan to discuss our recent acquisitions and portfolio optimization activities.
Thank you, Jeff.
Jonathan Boulakia: Turning to slide 10, over the past few months we announced the acquisition of several newer high-quality residences in the province of Quebec.
Jonathan Boulakia: On July 22nd, 2024, we closed on the acquisition of a portfolio of five modern residences totaling 1,428 suites in the Greater Montreal Area, Gatineau, and Sherbrooke for a purchase price of $297 million.
Jonathan Boulakia: We expect to close the acquisition of a 50% interest in a portfolio of another five beautiful residences totaling 1,805 suites in Quebec City and Schoenigan in the next couple weeks.
Jonathan Boulakia: On October 31st, 2024, we acquired the 152-sweet Vista Retirement Residence, located in Victoria, B.C. with beautiful ocean views.
Jonathan Boulakia: The VISTA was built in 2023 and offers a continuum of care with independent support of living, assisted living, and memory care services, and is currently 28% occupied.
Jonathan Boulakia: It is an upscale residence located in the charming Victoria suburb of Esquimalt within walking distance to numerous retail and service amenities.
Jonathan Boulakia: The gross purchase price for the Vista was $103.9 million, of which $9.2 million will be held in escrow to support vendors' obligations under a 24-month net operating income guarantee.
Jonathan Boulakia: We also acquired Nanaimo Memory Care, located in Nanaimo, BC, and built in 2018, comprised of 77 suites.
Jonathan Boulakia: for $20.3 million, and announced the forward purchase of the Edgewater Retirement Residence located adjacent to the Nanaimo Memory Care, which is currently under construction.
Jonathan Boulakia: This beautiful waterfront property will be comprised of 155 suites offering independent supportive living services and will be acquired upon construction completion, which is expected in Q2 2025.
Jonathan Boulakia: The purchase price for the Edgewater will be $102.7 million, of which $8.7 million will be held in escrow to support the vendor's obligations under the 36-month NOI guarantee.
Jonathan Boulakia: Yesterday we also announced that we have entered into an agreement to purchase a 2021 constructed upscale independent supported living residence in Victoria BC for 75 million dollars.
Jonathan Boulakia: All 131 suites have full kitchens, en-suite laundry, and modern finishes, with many offering unobstructed views of Victoria's Harbour and other major landmarks.
Current occupancy is 28%.
Jonathan Boulakia: These transactions allow Chartwell to enter the Vancouver Island market, Canada's retirement destination, with scale.
Jonathan Boulakia: Moving on to slide 11, all of these newer high-quality assets are located in strong markets and in great locations within those markets.
Jonathan Boulakia: We acquired these premium residences at attractive pricing, significantly below replacement costs.
Jonathan Boulakia: We expect higher market rate growth out of these assets than our same store portfolio over the medium term, which will generate strong investment returns.
Jonathan Boulakia: 2024 has been a record year of investments for Chartwell. We're seizing opportunities to refresh our portfolio with high-quality assets at attractive pricing in our poor markets.
Jonathan Boulakia: We're still not done, with more exciting strategic acquisitions being evaluated and at various stages of negotiation.
Jonathan Boulakia: We also continue on the path of portfolio optimization, with a number of residences that we no longer consider core to our portfolio being repositioned, sold, or planned for sale.
Jonathan Boulakia: This process will continue into 2025 and 2026. Disposition of non-core properties will lower the average age of our portfolio, position our portfolio more strategically, and free up capital to pursue strategic growth opportunities.
I'll turn the call back to Vlad to wrap up.
Vlad Volodarski: Moving to slide 12, we believe we are at the front end of what is going to be a multi-year period of growth in retirement living in Canada.
Vlad Volodarski: Demand for our services should continue to grow for decades, driven by the senior population growth and lack of long-term care accommodation.
With persistently high costs, new construction has been virtually non-existent.
Vlad Volodarski: which, combined with the obsolescence of some of the existing inventory, is creating shortages of new suites.
Vlad Volodarski: These dynamics are likely to result in growing occupancies, market rates, and profitability of the existing operators.
Vlad Volodarski: As one of the largest participants in the senior living sector, Charwell stands to benefit from them.
Vlad Volodarski: We believe these dynamics present a unique opportunity to future-proof our portfolio, growing it with newer, more efficient assets and strong markets, and realize better value on dispositions of non-core properties, which generally are smaller, less efficient, and often located in secondary and tertiary markets.
Vlad Volodarski: We expect to continue building on our recent successes in our portfolio optimization initiatives.
Vlad Volodarski: We will also continue our work in transitioning our management operations to make them more agile and scalable. We achieve this by empowering our residences teams to take charge of developing and executing property specific strategies.
Vlad Volodarski: Our corporate support teams assist them with innovative training, valuable tools, and targeted support.
Vlad Volodarski: We are reimagining the way we work, looking to simplify our processes and remove barriers for faster decisions and actions. We are rapidly implementing technology solutions to drive more data-informed decisions and enhance efficiency of our operations.
Vlad Volodarski: We have accomplished a lot in this area in the last 24 months and we're driven to continue on this journey.
Vlad Volodarski: I will now close our prepared remarks with a story from one of our residents as pictured on slide 13.
Vlad Volodarski: Last year, we kicked off a project to support our residents' team in creating their own dedicated Facebook pages to share the stories about life in their homes and foster a sense of community among our team members, residents, their families, and communities at large.
Vlad Volodarski: The response has been fantastic. Engagement is growing, community connections are stronger than ever, and we're seeing a positive impact on our brand while driving some organic sales leads.
Vlad Volodarski: A recent success from our Charwell C. Desjardins team underscores the power of these pages.
Vlad Volodarski: They posted a creative reel featuring their office manager inviting their Facebook followers to an upcoming open house.
Vlad Volodarski: A person reached out to the home directly to confirm her attendance and reference that reel. When she arrived, the office manager personally welcomed her, gave her a tour, and just two days later, this person signed a lease and became a new resident.
Vlad Volodarski: This story is a perfect example of how our resident-specific Facebook pages are more than just communication tools, they're also powerful sales drivers.
Vlad Volodarski: Our Cedar Jardin team has built a following of nearly 1,000 people and their innovative use of social media is delivering impressive results, showing how digital tools can create meaningful outcomes for both our communities and for our business.
Vlad Volodarski: Thank you for your attention this morning. We would now be pleased to answer your questions.
Speaker Change: Thank you. We will now take questions from the telephone lines. If you have a question, please press star 1. You may cancel your question at any time by pressing star 2.
Speaker Change: Please press star 1 at this time if you have a question.
Speaker Change: The first question is from Jonathan Kichler from TD Cohen. Please go ahead.
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Thanks. Good morning.
Speaker Change: First question, can you just maybe, maybe Jonathan, give a little bit more color on the Victoria acquisition you guys announced yesterday? You said it was built in 2021 and so three years, only 28% occupied at this period of time.
All done.
Speaker Change: in the conversation just earlier, is Santa Rice in Victoria. We think it's a great location and a great property that we're going to add to our portfolio.
Speaker Change: Our operating plans for the property include changing the model slightly and the targeted customer base for the property, as well as focused marketing, and we think that's going to result in a faster lease up of the property with more success than the vendor had.
Speaker Change: Okay, so you think it was just under managed a little?
Speaker Change: Well, I'm not going to speak to how it was managed, but I'm going to speak to our plans for the property, which include a different operating model, and we think that that's going to see success.
Speaker Change: Okay, I think you guys hinted to this a little bit in the prepared remarks, but as the portfolio fills up, sort of hits that 95% target in either late next year, beginning of 2026, whenever you get there.
Speaker Change: How should we start to think about the uplifts that you think you'll be able to get on new leases or new tenants? How is that, and if we look today on your properties that are full, what sort of uplifts are you getting on new tenants?
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Speaker Change: So when the existing properties achieve these high occupancy rates, we believe that the ability to increase market rates will improve as well. We are doing, today, away with the discounts or incentives that we have in the properties that are now at high occupancies, and we expect that to continue.
Speaker Change: So, I think the growth after 95% occupancy will come more from rate, more efficiency of operations. And 95% is not, you know, the end of the road. In the environment that we're in, there's a possibility to run the higher occupancies as well.
Okay, that's helpful. I'll turn it back. Thanks.
Speaker Change: The next question will be from the participant Lauren Colmar. Please go ahead.
Lauren Colmar: Thanks, good morning, and congrats on another good show in this quarter.
Lauren Colmar: Vlad, obviously you guys have seen occupancy continue to pick up, and I know typically there's seasonality in the portfolio, given these are kind of, you know, a bit of different circumstances and historical. What are you expecting on the seasonality front? Do you have any insights as we, as of right now?
Speaker Change: No, it's always a bit of an unknown in terms of what the flu season would look like and how many outbreaks we
Speaker Change: or everybody else could experience. You know, since the pandemic, our infection prevention and control protocols have been enhanced. And, you know, last year, we've managed to grow occupancy during the what usually is
Speaker Change: slow winter season. So our hope is that that trend can continue, but it's hard to predict with certainty.
Speaker Change: Okay, fair enough. And then maybe just quickly on the G&A side of things, it was down quite a bit this quarter, and I believe there was an additional $1.5 million of severance, so you're kind of just above a $10 million charge for the quarter. How should we think about that going forward? Is that a good run rate, or do you expect to pick up a little bit?
Speaker Change: Yeah, hi Lauren, good morning. We do think that's a good run rate for G&A, where we're currently at. We will see some inflationary increases.
Speaker Change: and we'll continue to put additional investments into IT, but we are seeing those being offset by technology-driven efficiencies and then the reductions that we've talked about as part of the well-towered transaction.
Speaker Change: Okay, fair enough. And then just the last one for me, a lot of the recent acquisitions I think have been newer, built from developers. Obviously, you know, occupancy below stabilization perhaps going to be a bit diluted. Is that sort of the...
Speaker Change: the bread and butter of the program going forward. Do you think you can pick up some stabilized assets and portfolios as well?
Speaker Change: Lauren, I think it's been actually a blend of stabilized portfolios of five properties that we bought in the Montreal area, where largely stabilized three out of five properties that we're buying from Group Champlain in partnership with them are stabilized. One of the three on Vancouver Island.
almost stabilized.
Speaker Change: So, but there are some, you're right, that are not stabilized yet. We would like to add to our portfolio high-quality new properties.
at a reasonable price.
Speaker Change: There is a limit of how much non-stabilized acquisitions we could be doing, as you know, even when there is income support, it doesn't flow through FFO.
Speaker Change: And it does impact negatively our debt metrics for a period of time while properties are leasing up. So we won't be able to do the whole acquisition program around non-stabilized properties, but we'd like to continue to focus on adding high-quality properties, and if some of them come that are not yet stabilized, we will continue to look at those opportunities.
Okay, perfect. Thank you so much.
Speaker Change: Thank you. The next question will be from Himanshu Gupta from Scotiabank. Please go ahead.
Thank you and good morning.
Speaker Change: Qubec's property NOI growth continues to be the strongest compared to other regions. What are some of the reasons which are driving Qubec's properties to be the strongest?
Speaker Change: Good morning to Manchu. I'll take that. It's really much just the benefit of really good rate growth in Quebec.
Speaker Change: strong occupancy growth and that team is doing a very good job on DOE control. We're just seeing a faster top-line growth over expense growth which is driving the higher percentage growth in NOI.
Speaker Change: Thanks for that. Is it also because, you know, Cuba got more impacted because of agency staffing and that's where you're getting some benefits as well?
Speaker Change: Definitely seeing that benefit in Quebec, but we're also seeing very good benefit on agency reductions in Ontario, so it's not isolated to Quebec where we're seeing those agency savings.
Speaker Change: Okay, fair enough. And then if I look at next year in terms of same property NOI growth, would you say that, you know, all three regions will be very similar fund rate and, you know, QBEC will not be a standout next year?
Speaker Change: Well, the most room we have is in Ontario, so we are hoping that the Ontario platform will accelerate the occupancy recovery. Western Canada doesn't have much room to run, they're at 95-plus percent occupancy now, so in terms of where the growth is going to come.
Speaker Change: And it's probably more from Ontario next year, but all other regions, Quebec and Western Canada, our expectation is we'll continue to maintain high occupancy and grow incrementally.
Speaker Change: Okay, thank you. And then just turning attention to the margins and I'm looking at the growth portfolio. I mean, margins are pretty high in Q3. I mean, obviously now that includes the GMA portfolio as well.
Speaker Change: Is that the stabilized margins on GME portfolio, or do you think you have room to grow those margins as well?
Um,
Speaker Change: Well, we think that once the portfolio, our overall portfolio gets to 95% occupancy, we will be well within low 40% margins, maybe a little bit higher. So there's room to grow margins everywhere, and as I mentioned, once the high occupancy is achieved.
Speaker Change: We believe that there will be more ability to increase market rates, not rates to the existing residents, those who will grow with inflation or somewhere around that, but market rental rates, and that should also contribute to margin expansion beyond just occupancy-driven expansion.
Okay, fair enough.
Speaker Change: Thank you. And then just shifting gears, Batimo Acquisition Potential, I think the value is now $298 million.
Was it increased by $20 million in Q3?
Speaker Change: the value of our acquisitions on a per suite basis? No, I'm talking about, you know, those three properties where Vetimo has a put option as of first January next year. And I think the value of the assets you're talking is now $298 million, last quarter it was $278 million. So was it any appraisal done on Vetimo, these three assets?
Speaker Change: No, we continue to re-evaluate the values of these properties, and these are just our estimates. As you know, our agreements with NACIMO, there's a proof of call and mechanism for appraisal determination of the purchase price.
Thank you.
Speaker Change: As I mentioned before, we have not really gone through this appraisal mechanism or put call structures. In the past, we always negotiated the price with Batybo, so the ultimate price will be determined first by negotiations and if we have to through this appraisal mechanism.
Speaker Change: The numbers that we record in our financial statements are our estimates of current values.
Okay, thank you.
And my last question is on the ATM program.
Speaker Change: and you know what will you know trigger that ATM? Do you have a certain leverage in mind or do you have some equity price in mind before you you know tap on this program?
Speaker Change: Yeah, it's not that we don't expect to use it to deliver. We think that will happen organically, you know, through NOI growth we've come down from
10.2 times debt to EBITDA to 8.3 times this quarter.
Speaker Change: But we will look at using it potentially, but in concert with our other sources of capital as we look at capital needs.
Speaker Change: But it will be potentially a good way, cost-effective way, to raise smaller amounts of equity.
and Capital to Fund Our Growth.
Speaker Change: Got it. And maybe just to follow up on that, I mean, if I look at Q4, I mean, you have Vista, Nanaimo, and Quebec portfolio closing. So, there's still a funding gap. I mean, we will be using credit facility or like CMSC that is coming in Q4.
are focused on using the APM to fund.
that transaction is closing this quarter.
Awesome. Okay. Thank you guys. I'll turn it back.
Speaker Change: Thank you. The next question will be from Tommy Burr, RBC Capital Markets. Please go ahead.
Thanks, good morning.
Speaker Change: I just want to come back to the 95% occupancy target, maybe just a point of clarification. Are you anticipating any of that or the, I guess, how you get there? Do you expect any of that to come from dispositions of some underperforming properties?
Speaker Change: or are those assets not even part of the same property bucket, like are they in the repositioning bucket?
Speaker Change: Yeah, that's a good question, Pami. Yes, the short answer is yes. We are looking to continue our program of disposition of non-core properties. The composition of the same property portfolio we change once a year, unless we sell something that we previously classified to be the same property. And when we change the composition of the same property portfolio, we consider our plans.
Speaker Change: of repositioning certain properties or potentially divesting properties within the year time frame. So, yeah, we will have some properties that will come out of the same property bucket.
composition of the portfolio to expect in that year.
Thank you. Okay.
Speaker Change: Again, it's probably hard to kind of have a sense of how much of that could come from that sort of capital recycling exercise, because I guess maybe some moving parts of that, is that fair? That's fair. It's too early at this point to tell that.
Speaker Change: Okay, I wanted to come back to the just to the Victoria acquisition that was announced yesterday. How long do you expect that to get to stabilize occupancy?
the one we just announced?
Yes, yeah. Yeah, we would assume about two years.
Okay.
Thank you.
Speaker Change: And then just I wanted to touch on sort of the new supply picture, starts are obviously quite low, and Vlad, I think you've talked about this a bit with respect to where rents are, but at what point do you think rents, or how many years do you think it could take for rents to get to levels where we start to see new supply really start to accelerate at this point?
Speaker Change: Well, look, when we are thinking of developing a property, you think of a sort of five-year development cycle, maybe three or four years between you get the entitlement on the land and then execute on construction and open property. That's at least two, three, sometimes four years.
Speaker Change: And so you are underwriting sort of four-year future growth in rents by the time you open the property. So I can tell you there are some projects that we are continuing to evaluate that are getting closer with our expectation of rental rate growth.
Speaker Change: But those are mostly additions to our existing properties where we're expanding the footprint on the existing campus. So a lot of fixed costs already incurred operating. And so that makes them a bit closer to being feasible than others.
Speaker Change: Occupancy recovery and rental rate growth, then some more projects will become feasible and people will start building. But again, even if they start in a year's time, it's going to take two to three years for those to open and become a competition to the existing properties.
Speaker Change: Right, yeah, so still a decent runway. Last question, just on the acquisition side, clearly been a very active year.
Speaker Change: Yeah, are you seeing, and maybe just maybe on some of the more recent deals that you've gone through, are you seeing, or even what you're looking at today, are you seeing any changes in sort of the competitive landscape, is pricing getting a little bit more aggressive?
Speaker Change: More or lesser, what do you think? Or maybe some new entrants coming in?
Speaker Change: We do see some competition in the acquisition process, so it is somewhat competitive.
Speaker Change: Some of these opportunities, in fact, many of these opportunities that we've announced on, we've kind of had an upper hand in the acquisition process, largely because we just have a good reputation in the market.
Speaker Change: We do a lot of underwriting work early in the process, and we try our best to present credible offers to vendors quickly, and offers that we stand behind. So we do offer that kind of support.
Speaker Change: certainty of closing to vendors and I think that that has helped us land a number of these deals.
Speaker Change: in an advantageous way. So we lean heavily on our management platform and our reputation to provide kind of an edge on these deals, and we hope that that's helping us.
Speaker Change: Okay, thanks for that. Last one, sir, I forgot. On the Victoria acquisition yesterday, what was sort of the stabilized sort of cap rate range that you expect that to get to?
Speaker Change: The stabilized cap rate would be around six, high sixes, so six, eight, six, nine stabilized yield once it's leased out.
John Thomas, Jonathan Boulakia, Unknown Executive
But as I mentioned, it's at 28% now.
Right. Thanks very much. I'll turn it back.
Speaker Change: Thank you. The next question will be from Fred Blondeau from Green Street. Please go ahead.
Speaker Change: Thank you and good morning. One quick question for me. On the $115 million still due during the remainder of 2024, where do you stand on this and what kind of interest rates are you seeing right now?
Speaker Change: On the, hey Fred, good morning. Just, hey, so you said that's on the mortgage refinancings? Yes, sorry, yes. Yeah, so we're in the market with those now, primarily with CMHC and...
You're seeing 10-year rates around 4%.
Speaker Change: Yeah, okay, that's great. And then just looking at the bench here next year, can you remind us when is it due and what will be your strategy on that one, the 150?
Speaker Change: and some of the other realizations we have, including the Wealthower Transaction and other CMHC financings. So it really will be a decision closer to whether we refinance in the debenture market or repay that loan.
Okay, that's great. Thank you.
Thank you. The next question will be from.
Giuliano
Thornhill from National Bank Financial, please go ahead.
Speaker Change: Was there any kind of specific lines or questions that kind of, or I guess tracking higher than where you expected? Is there anything specific you could point to?
Speaker Change: Sorry, we missed the first part of your question, can you repeat it please?
Speaker Change: Yeah, just the, why did the employee engagement and guest satisfaction, why is it tracking a lot higher than you originally expected?
Speaker Change: Well, it's always hard to answer that kind of question directly. I mean, we'd like to take a lot of credit for all the work that we've been doing, our teams in fact, been doing in the field.
Speaker Change: to deliver exceptional resident experiences to our residents. This is our unique value proposition. This is what everybody's focused on.
Speaker Change: And we are trying to make sure that not only we deliver on their expectations for good services, care, good food, clean environment.
Speaker Change: But we also create experiences for them that are unique and personalized to what we learn about them during the discovery process and during their initial period staying with us. And so I think that result is reflective of those efforts of our residents' teams.
And then on the employee engagement is...
probably similar.
Speaker Change: sort of answer. There's a lot of obviously corporate initiatives to help people with the engagement. I think culture plays a huge role in that success.
Speaker Change: where people feel comfortable working for our company, people feel recognized, appreciated.
Speaker Change: and really cared for as an employee of the company and we're very happy to see those results and we'll work hard to continue to maintain these high engagement and satisfaction scores.
Speaker Change: Okay and then just on the rental hikes, Q1 you're around 5%, this quarter you're at 3.9%. I'm just wondering, you know, kind of what led to that decline over the past kind of nine months, given the increase and you would expect something like reversed of that?
Speaker Change: Yeah, we continue to offer targeted incentives across our portfolio and if you think about the rapid occupancy growth that we saw in the last two years.
Speaker Change: A lot of the sort of impact on the rate are from incentives that we've already granted to the residents that moved in with us.
Speaker Change: So, as we get to these high occupancies, 90 plus 95 percent, our expectation will be that the new residents who will come to us after that will require less incentives and will be asked to pay higher market rates, and therefore the rental rate growth will accelerate after the occupancy recovery.
Speaker Change: Okay and then do you know how much of an impact during the quarter the incentives had on the on the margins or on the profile there?
Speaker Change: No, I can't answer that mathematical question directly, other than saying, you know, overall NOI growth has been strong and we are really pleased with that outcome, and we continue to focus on occupancy recovery first, and we know that the rate will come after.
Speaker Change: Okay and and then just the last one on the KPIs for the well properties that you're going to acquire. How does the revenue per occupancy kind of grow and what what's the occupancy, how does it compare, and what's the margin profile there for the quarter?
And.
Thank you.
Speaker Change: The occupancy is just slightly lower than our overall occupancy of the portfolio but not very far. And rates, again, these properties are in different markets but compared to other properties in those markets, they will not be much different from the margin and rate standpoint.
Okay, thanks.
Thank you.
Speaker Change: Once again, please press star 1 if you have a question. The last question is from Dean Wilkinson from CIBC. Please go ahead.
Dean Wilkinson: Thanks. Good morning, everyone. Out of respect for everyone's time, I'll just keep it to one question.
Dean Wilkinson: Do you think the pace of acquisitions is something that you can maintain here or do you see that kind of trailing off and perhaps getting a little more involved in development either by yourself or in conjunction with some other parties? Thanks.
Yes.
Speaker Change: I think our focus is to grow a portfolio with high quality properties.
how long this is going.
Speaker Change: to last. Nobody knows. We're trying to work very hard to source these opportunities and working with our contacts in the sector. Jonathan's team has been doing tremendous work being out there and nurturing the numerous relationships that we have with people who have properties that would fit the profile that we're looking for. My hope is that we will be able to continue to do that.
Speaker Change: There are a large number of development opportunities that we have within our portfolio on the lands that we already own. A lot of them are additions to the existing properties that just intensifies the existing sites. And as I mentioned before, those...
Speaker Change: Math on those properties is a little easier to come by to justify the development because a lot of fixed costs are already there So we are preparing ourselves to start some of these projects. I hope we'll start some next year
but I don't know for sure.
Speaker Change: But in terms of focusing on one or the other avenue for growth, we just like to pursue all of them at the same time, because you never know which ones are going to pan out. And remember, the Canadian market, unlike the U.S. market, is not that deep and large, and so these acquisition opportunities...
Speaker Change: when they come it's great but it's not like there's a constant supply of them out there.
That's great, thanks.
Speaker Change: There are no further questions registered at this time. I would now like to turn the meeting over to Mr. Vlad Volodarski. Please go ahead.
Vlad Volodarski: Thank you, Myrna, and thank you, everybody, for joining us today. As always, if you have any further questions, please do not hesitate to give us a call. Goodbye.
The End of the World
Speaker Change: Thank you. The conference has now ended. Please disconnect your lines at this time. Thank you for your participation.
Okay, I got it marked. One minute.