Good morning, ladies and gentlemen. Welcome to the Chartwell Retirement Residences Q4 and Year End 2019 Financial Results Conference Call. Following the formal comments, we will hold a question and answer session. Please be advised that this call is being recorded. I would now like to turn the meeting over to Mr.
Brent Binions, President and Chief Executive Officer of Chartwell Retirement Residences. Please go ahead, Mr. Binions.
Thank you. Good morning and thank you for joining us today. There's a slide presentation to accompany this conference call available on our website at chartwell.com under the Investor Relations tab. Joining me are Vlad Volodarsky, Chief Financial Officer and Chief Investment Officer and Karen Sullivan, Chief Operating Officer. Let me remind everyone that during this call, we may make statements containing forward looking information and non GAAP measures.
I direct you to our MD and A and other securities filings for information about the assumptions, risks and uncertainties inherent in such forward looking information and details of such non GAAP measures. These documents can be found on our website or@sedar.com. Before we discuss our Q4 results, I'd like to take a few minutes to reflect on the progress we have made in 2019 in executing on our strategy. Our strategy statement is, in 2023, we will achieve in our retirement residents employee engagement of 55% highly engaged, resident satisfaction of 67% very satisfied and same property occupancy of 95% to drive strong IFFO per unit growth by providing exceptional resident experiences through personalized services in our upscale and mid market residences in urban and suburban locations. The sequence of the key targets in our strategy statement is deliberate.
We believe that only highly engaged employees will deliver the exceptional resident experiences that will drive high resident satisfaction. Exceptional experiences are always personal. We get to know our residents before they come in to reside with us and tailor our service offering to their individual preference and needs. Only various satisfied residents and their friends and families will become Chartwell ambassadors in their communities and will generate a growing number of referrals. Referrals is our most important source of new resident move ins.
Operating our properties at high occupancy rates will drive strong cash flow per unit growth. And lastly, an even more focused geographical footprint and service offering will make us more efficient in our ability to deliver exceptional services to our residents and deliver on our vision of making people's lives better. In 2019, we made solid progress towards achievement of our 2023 goals in our retirement residences. Our employee engagement score increased to 48% highly engaged from 47% highly engaged in 2018. And we were extremely pleased with the significant improvement in our resident very satisfied in 2019, up from 58% very satisfied in 2018.
In 2019, we continue to put the building blocks in place to drive results in these two areas. The most important one being the development of our proprietary multiyear customer experience program, which I have no doubt will set us apart from competition and help us deliver on our goals. The first phase of the customer experience training for our corporate and retirement residents is in progress and will be completed by the end of Q3. The second phase is in development now and the training will begin later this year. We are moving ahead with the implementation of our human capital management system, which when fully rolled out over the next few years will allow us to standardize payroll, improve our ability to analyze employee related data and enhance our ability to recruit, train and develop our employees.
In early 2020, we completed the development of our new corporate office, the Chartwell Hub, 130,000 Square Foot state of the art building with numerous green features and training and collaboration spaces in our own Bistro 7,070, which serves as a training kitchen for our residences' chefs. We are already seeing how this new space changes the way we work, making us more creative and efficient. I'd also like to highlight the great results our long term care achieved in 2019. Our long term care operations provide Chartwell stable cash flows, meaningful economies of scale and significant operating expertise, particularly in the area of nursing care and infection control and remain important part of our business. Our long term care team has consistently has been consistently implementing programs to drive employee engagement and resident satisfaction, which is especially difficult to do in their highly regulated environment that's heavily dependent on government funding.
These rising above the regs programs include our innovative Imagine training program for management and frontline staff and they're producing exceptional results. In 2019, our long term care team achieved a 59% resident satisfaction score, an 8 percentage point increase from their 2018 score of 51%, which exceeded their initial 2023 target of 57%, and we have now reset that target to 67%. Their employee engagement score increased to 43% in 2019 from 42% in 2018 and all quality and compliance metrics in our Ontario long term care residences are better than provincial averages. In 2019, our teams opened 7 new residences, including 2 residences managed at Fort Batamot in Quebec and the newly acquired Chartwell Emerald Hills Retirement Residence in Edmonton, Alberta. In addition, our partner Signature Living commenced operations Kingsbridge Retirement Residence in which we own a 60% interest.
These new state of the art projects will add significant cash flows and value to our portfolio over time. We also continue to streamline our property portfolio in accordance with our strategy and in 20 19 completed sales of 3 non core assets and entered into a definitive agreement to sell 4 non core older LTC residences. I would now like to turn it over to Karen Sullivan, our Chief Operating Officer to talk about some operational initiatives that she and her team are working on. Karen?
Thanks, Brent. Turning to Slide 7. As I reported last quarter, despite increasing competition in some markets, we started to see improvements in our leading indicators. This improvement continued with a 12% increase in initial contacts and a 7% increase in personal visits compared to Q4 of last year. Our contact center also continues to be a very effective differentiator, including now having contact center agents in our Vancouver office to add to those working in our Mississauga and Montreal offices.
This will allow us to have coverage over a longer period each day and will also enhance the personalized service for our Western Canada prospects. Our concerted efforts to focus on business development strategies have led to agreements with a number of national and provincial organizations that will enhance our opportunity to increase referrals. We now have much more purposeful plans for business development and community engagement in our properties. Our 2019 brand awareness survey conducted by Ipsos Reid shows that awareness of Chartwell is at an all time high, including top of mind awareness, known as unaided awareness. Our most statistically significant gains have been in the last 2 years.
Against the competition, Chartwell dominates in English Canada, and since 2015, our unaided awareness has tripled in Quebec, where we now rank 2nd. Based on all of these encouraging results, we believe that our sales, business development and marketing efforts are effectively helping us to stand out from the competition and will lead to increased occupancy going forward. Turning to Slide 8. In Q4, we also continued to focus on the customer experience as our unique value proposition. This included completing a 2 day training session for all of our retirement home managers across Canada and beginning our frontline training program that is delivered directly in our retirement homes by one of our 4 directors of cultural experience.
To date, we have trained over 3,000 employees and expect to have all 9,000 employees trained on this first unit by the end of Q2. Ongoing training of both our managers and frontline staff is a key element of this multifaceted approach that is designed to improve employee engagement program called Imagine, which is being delivered to managers and frontline employees in our Ontario long term care homes. This 4 day training program helps participants understand and support those living with dementia, introduces Montessori techniques, helps make fans of families, assist in overcoming resistance and improves leadership skills. Finally, with respect to controlling expenses, our supply chain management team negotiated a number of national contracts in 2019 that led to annual savings of $2,800,000 Also, recently we entered into a new contract that begins on March 1, which will yield future savings with respect to the purchase of medical supplies and equipment and incontinence products. I would now like to turn it over to Vlad Volodirsky, our Chief Financial Officer, to talk about our financial results.
Vlad? Thank you, Karen. As you can see on Slide 9, in 2019, we continued to build financial flexibility. We increased our unencumbered asset pool, which at December 31, 2019 had value of $915,600,000 compared to $676,900,000 at December 31, 2018. This allowed us to add a new $125,000,000 unsecured loan, further expanding options to finance our growth.
In 2019, our real estate finance team arranged 269 $200,000 of new mortgages, which carried interest at the weighted average rate of 2.92% and had a 10.1 year term to maturity. The majority of these new mortgages are CMHC insured. Our mortgage maturities remained well staggered with an average term to maturity of 6.8 years at December 31, 2019. At December 31, 2019, our liquidity amounted to $414,700,000 which included $22,900,000 of cash and cash equivalents and $391,800,000 of available borrowing capacity on our credit facilities. Addition, at December 31, 2019, our share of cash and cash equivalents held in our equity accounted JVs was 5,000,000 dollars Interest coverage ratio was 3.1 at December 31, 2019 compared to 3.2 at December 31, 2018.
Our indebtedness percentage calculated using historical cost of assets was 51.7% at December 31, 2019 and our debt to capitalization was 45%. Net debt to adjusted EBITDA ratio increased to 8.3x compared to 7.8x at December 31, 2018. The increase in this ratio is primarily due to financing of 5 newly developed and 1 acquired properties that have not yet achieved stabilized occupancy and EBITDA contribution. In 2019, these properties collectively contributed negative $1,700,000 of adjusted NOI. Upon achievement of stabilized occupancy of 96%, these properties are expected to contribute $22,000,000 of adjusted NOI.
Our results in 2019 continue to be impacted by new competition in certain markets. We expect the pace of new construction to moderate in the second half of twenty twenty. In the meantime, as Karen discussed, the implementation of our branding, sales and marketing strategies resulted in strong improvements in our leading indicators, which positions us well to begin occupancy recovery in 2020. As shown on Slide 10, in 2019, net income was 1 point $1,000,000 compared to $18,500,000 in 20.18, primarily due to higher direct property operating expenses, finance costs, depreciation and amortization expenses, impairment losses, lower gains and asset sales, partially offset by higher revenues through measurement gains and lower deferred tax expenses. In 2019, FFO was $199,700,000 or $0.92 per unit compared to $193,600,000 or $0.90 per unit in 2018.
The increase in FFO was primarily due to higher adjusted NOI of $11,700,000 including a $3,900,000 increase in our same property portfolio, higher interest income, lower G and A expenses, lower lease and lease termination costs, partially offset by the increase in finance costs and other in higher corporate depreciation of PP and E and intangible assets. 2019 FFO was impacted by $8,200,000 of lease up losses and imputed cost of debt related to our development projects compared to 2018 amount of 4,100,000 dollars Included in 2019 FFO is $1,600,000 of recovery of prior year's property taxes and related interest income. Property occupancy was 90% in 2019 compared to 91.2% in 2018. As shown on Slide 11, in Q4 2019, net loss was $11,500,000 compared to loss of $13,100,000 in Q4 2018, primarily due to lower deferred tax expenses, impairment losses and higher contributions from property operations. For Q4 2019, FFO was 50 $1,900,000 or $0.24 per unit compared to $48,500,000 or $0.23 per unit in Q4 2018.
Increase in FFO was primarily due to higher adjusted NOI of $2,100,000 consisting of $200,000 increase in same property adjusted NOI and $1,900,000 increase in contributions from acquisitions and developments, higher management fee revenue, lower G and A expenses, lower lease termination lease expenses, partially offset by higher finance costs and higher corporate depreciation of PP and E and intangible assets. In Q4 2019, FFO was impacted by $1,800,000 of lease up losses and imputed cost of debt related to our development projects compared to 2018 amount of 1,300,000 dollars Same property occupancy was 89.9 percent compared to 91.4% in Q4 2018. Turning to our operating platform results, as shown on Slide 12, in 2019 and Q4 2019, our Ontario same property adjusted NOI increased by $3,400,000 $600,000 or 2.4% and 1.7% respectively as rental rate increases in line with competitive market conditions were partially offset by lower occupancies and higher staffing costs. Occupancy in both 2019 and Q4 twenty nineteen was 84.8% compared to 86.5% and 86 0.7% in 2018 and Q4 2018 respectively. In 2019, our West and Canada same property adjusted NOI decreased $100,000 or 0.1 percent primarily due to lower occupancies and higher staffing costs partially offset by rental rate increases in line with competitive market conditions.
In Q4 2019, our Western Canada same property adjusted NOI increased $100,000 or 0.9 percent, primarily due to rental rate increases in line with competitive market conditions, partially offset by lower occupancies and higher staffing costs. Occupancy in 2019 and Q4 2019 was 95.1% 95% respectively compared to 96.2% and 96.3% for the respective periods in 2018. In 2019, our Quebec same property adjusted NOI decreased $300,000 or 0.6 percent primarily due to lower occupancies, higher staffing costs, food and repairs and maintenance expenses partially offset by rental rate increases in line with competitive market conditions and lower property tax expenses as a result of successful appeal of certain prior year's assessments. In Q4 2019, our Quebec same property adjusted NOI decreased $200,000 or 1.8 percent primarily due to lower occupancies and higher staffing costs, partially offset by rental rate increases in line with competitive market conditions and lower utilities expenses. In 2019 and Q4 2019, same property occupancy was 90.9% 90.6% respectively, compared to 92.2% 92.3% for respective periods in 2018.
Our Ontario same property Ontario LTC platform same property adjusted NOI increased $800,000 or 2.9 percent in 2019, primarily due to higher preferred accommodation revenue. Adjusted NOI decreased $300,000 or 3.5 percent in Q4 2019 compared to the same period in 2018, primarily due to timing of expenses. 2019 and Q4 2019 same property occupancy was 98.6% 98.5% respectively, compared to 98.3% 98.5% for the respective periods in 2018. While we expect that competition in some of our markets will continue to be robust in the near term, we are looking to 2020 with optimism. We believe that our initiatives in employee engagement, customer experience, branding, sales, marketing, recruitment and information technology will continue to move Chartwell forward.
Our 2020 outlook is based on our expectation of a stable Canadian economy and housing market, a continuing strong labor market and slowly rising interest rates. We expect our operating platform to deliver solid operating results in 2020 with gradually improving occupancies, rental rate growth in line with competitive market conditions of between 2% 3% and ongoing expense optimization through our centralized supply chain management programs. We expect G and A expenses to grow in line with inflation as we fund new corporate initiatives within the existing cost footprint. Development will continue to be one of our core growth strategies. Of the 3 projects currently in construction, 1 is scheduled for delivery in 2020 and 2 in 2021.
We expect to commence construction of 3 to 4 new projects in 2020. A number of other projects are undergoing design, municipal approval and feasibility activities. We continue to source and evaluate other opportunities, including development opportunities in our owned lands with an estimated development and redevelopment potential of close to 2,500 additional suites. We will continue to search for opportunistic acquisitions and we'll continue to evaluate our property portfolio and sell properties that do not fit our strategic direction. 2 of Charwal Datimo developments in Quebec have now achieved stabilized occupancy and we expect to acquire interest in these projects in the coming months.
Another, Charwell Lattisdale Phase 2 is expected to achieve stabilized occupancy later this year. Slide 17 shows the history of our distribution increases, and I'm pleased to report that yesterday, our Board approved Charbel's 6th consecutive annual increase in monthly distributions. Monthly cash distributions will increase by 2% from $0.05 per unit, $0.60 per unit on an annualized basis to $0.051 per unit, dollars 0.612 on an annualized basis effective for the March 31, 2020 distribution payable on April 15, 2020. In 2019, 100 distributions were classified as return of capital for tax purposes. Based on our current forecast, we expect to have sufficient deductions and losses carried forward to eliminate any cash SIF taxes in 2020.
Long term prospects of our industry in general and Chartwell in particular are very promising. In the four provinces Chartwell currently operates, the sector needs to add 262,000 retirement suites by 2,039 as you can see on Slide 18. We believe that the retirement living industry has a great opportunity to create and service additional demand over and above the demand resulting from the seniors population growth alone. The demand for the government funded long term care is similar to the demand for retirement accommodation. If governments are unable to fully address such demand growth, retirement operators will need to step up to serve people who cannot access government funded LTCs.
As an example of such opportunity in Ontario today, there 36,000 people on the waitlist for LTC accommodation, many of whom reside in retirement residences. The existing inventory of 232,000 retirement suites in our 4 provinces includes a number of smaller older homes, which are likely to become obsolete over time, further increasing the need for new retirement suites. The acceptance of retirement living is significantly higher in Quebec than in the rest of the country with a penetration rate defined as the ratio of available retirement suites to the number of people over the age of 75 of 18.4%. This compares to 5.5% penetration rate in Ontario, 5.7% in Alberta and 8% in BC. We believe the introduction of more flexible service offering and pricing options, including a la carte services across the country may increase the acceptance of retirement living and further drive demand.
So we see many opportunities to leverage our leading position in the Canadian retirement living market to continue to make people's lives better and to create sustainable value for all of our stakeholders. I will now turn the call back to Brent to wrap up.
Thanks, Vlad. As previously announced, I will be retiring in 2 weeks. I originally sold my family business to Chartwell in 2 1003 and after holding several positions with the company, I was appointed its President and CEO in 2,009. It has been a great run. I'm proud of our achievements, not only in bringing the company back to health after its tough early years and the financial crisis, but more importantly in putting solid building blocks in place for its future success.
I know I leave the company with an exceptional culture, clear vision, mission and strategy, a company with world class corporate governance and a strong and committed board, a company with experienced and dedicated senior leadership team and most importantly, a company of 15,300 engaged and dedicated people that come to work every day with a goal of making people's lives better. I note I'm very pleased that I will continue to serve Chartwell as a Board member. Thank you for your time and attention this morning, and we would now be pleased to answer any questions you may have.
Thank you, Mr. Binions. We will now take questions from the telephone lines. And the first question is from Jonathan Kelsher with TD Securities. Please go ahead.
Your line is now open.
Thanks. Good morning and congrats Brenton. Hope you enjoy the retirement.
Thank you very much.
First question is just on your outlook. I guess you're looking for a little bit of occupancy gain in 2020 and 2% to 3% revenue growth. Is there anything on the cost side or any cost pressures that would prevent that from translating into same property NOI growth in the 3% plus range?
We do not expect that there'll be anything on the cost side that would preclude us from achieving that kind of NOI growth. We spoke before about some pressures in certain markets in terms of recruitment and where we're incurring additional overtime and agency costs. We expect these pressures will continue in 2020, but that should not be driving a significant growth in the labor cost.
Okay. And then just on the occupancy, you were talking about the increase in leading indicators and that translated into some occupancy growth in Q4. Q4. Are you seeing further occupancy growth into Q1 or is there a seasonal slowdown there?
Yes. No, we are seeing the same types of trends with respect to our initial contacts and personal visits and the number of leases is up January 2020 over January 2019.
Okay. And then just lastly on the longer term 95% occupancy target, is that do you see that as being sort of a linear progression or more back end weighted as new supply slows down and demand picks up?
It's we see it as a more back end weighted, not just because of the supply slowdown and demand picking up, but because the initiatives that we're putting in place right now will take time to help to take calls. We are confident that they will make a huge difference in our resident satisfaction, employee engagement and by extension occupancy. It will take time for us to roll all these things out that we have planned to do. So the growth in occupancy, we see more robust at the back end of this now 4 year period.
Okay. Thanks. I'll turn it back.
Thank you. The next question is from Himanshu Gupta with Scotiabank. Please go ahead.
Thank you and good morning.
Good morning.
On the outlook for Ontario region, you expect around 3% rent growth in 2020. So are the market rents growing at a similar rate or do you expect to be higher or lower than the market?
No, this is will be in line with what our expectations for the markets would be.
Okay. And what rental growth rate did you achieve in 2019?
About the same.
Okay. That's fair enough. And then on the new supply and the projects in preconstruction. So if I look at the disclosure, Chartwell at Oshawa is no longer in the consideration. So what has changed your decision?
And yes, any color there?
Yes. We've been talking about it for a while that we have delayed a number of projects that we thought would be in construction by now, and we are revisiting them again because of the acceleration in the pace of construction costs and in some cases the competitiveness of the markets. So the projects that we're showing in preconstruction, we still expect to commence construction. It's just going to be a little later. There's a number of projects that are not on this chart that we're working through municipal approvals and feasibility analysis that we might also begin construction in 2020.
But this is really just out of abundance of caution and making sure that we're comfortable with the cost and projected returns.
Okay. And on the same subject of new supply, so with respect to the new supply data information, projects which were competing with your properties and now there are only 30 projects. So do you know if these 10 projects, they got canceled or they got postponed compared to the last year?
No. So what we're showing in this chart, Himanshu, is the projects that are currently in construction. So whatever was in construction last year, some of these projects have been completed and so they're off that chart. And then some new projects had started, so they were added to the chart. So it's a fluid situation.
But if you start analyzing it from year to year, you'll see the impact that it has on these on our properties in these top 15 markets. So you correctly pointed out that last year, we had 7,200 competing suites within 5 kilometer radius of our properties in those markets. And this year that number is I think 5,200. So there's a little lower number or quite a bit lower of competing suites in those markets. Having said all of that, you'll see that Durham and Ottawa market continue to be competitive.
Got it. And just staying on the new supply data, so it's focused on 5 kilometer radius of your existing charter property. Do you internally track like new supplies with respect to say 10 kilometer or a broader radius as well?
Yes, we absolutely do track internally all supply around our properties. In terms of disclosure, it's the rule of thumb that about 70% of the people that come to live with you come within 5 kilometer radius of the properties. So this is pretty indicative of the immediate competition for these properties. So that's why we selected that reporting.
Okay. Okay. And maybe just last question, like development continues to be an important priority in this year as well. So are you looking for some disposition of older properties in the portfolio in this year?
Yes. This is an ongoing program where we analyze and review our property portfolio every year. And as part of those reviews, we may determine that some assets do not fit strategic direction of the company and we'll dispose them. You'll see our track record. We've been pretty active seller every year of the properties that you should expect that, that will continue.
Okay. Thank you guys. I'll jump back.
Thank you. The next question is from Chris Couprie with CIBC. Please go ahead.
Good morning.
Couple of questions. First on the Batimo projects, a couple of them have seen their stabilization dates pushed out a little bit. Are these related to delays in construction or is lease up going slower than expected?
Probably a combination of both. The ones that's been open for a while are because of the lease up going slower. The ones that recently opened, there were some delays in construction.
Okay. And then the 2 that, Lunique and Saint Gabriel, what's the timing for you guys with respect to your requirement to acquire those properties?
Our expectation is that Saint Gabriel will close shortly in the next week or so and Lunique probably shortly thereafter in the next month or so.
Okay, great. Thanks. And then a question on the Sumach. So it looks like we're 51% leased compared to 48% in the prior quarter. Just curious if the leasing is going according to your expectations?
And with what you've kind of experienced so far, what your eagerness is to do more of these same types of properties?
Yes. We started, I guess, a little bit behind. Our expectation is that on opening, we would have a bit higher pre leasing ratios. We had some issues construction delays in this project that impacted that. The current lease velocity is satisfactory in line with what our expectations are and our desire to build more of these is pretty big.
We want to continue to do that. We think there is a big potential for this type of model outside of Quebec and we are searching for more sites to do more of these.
And how much of your portfolio could you see this type of asset becoming?
Well, I mean, it takes time to build these projects. So everything almost everything that we build now has some component of these apartments. They may not necessarily all be as large as Sumac, but everything that we're building has some components of these apartments with an a la carte service offering. So we expect that that part of the portfolio will continue to grow. Now we will continue to own and operate 100 and 60 other retirement residences.
Those are not going
away. Thanks. Thank you. The next question is from Troy MacLean with BMO Capital Markets. Please go ahead.
Good morning. You mentioned an increase in leading indicators. Is that true for markets where you're seeing a lot of oversupply?
Yes. It's pretty consistent. Absolutely.
And then, you mentioned, I was now curious the rising construction costs. Are you starting to see, how are other developers dealing with that? Are you seeing any accepting lower development yields just to get a project started? Or is most of the industry taking the same approach that you are and then holding off on getting in the ground?
I think if we do the averages, we see the same sort of reaction from the rest of the people who are developing. As we mentioned numerous times, majority of development at the present time is being done by experienced developers and or operators. And so people are more disciplined in this development cycle than they were in the past development cycle. So we're seeing people deferring their projects as well when they see the acceleration of construction costs or occupancy pressure on the existing inventory given the competitiveness of the market.
And then what's the biggest driver of employee engagement in the survey? Is it wages, opportunities for advancement, training? What do you think? Where do you get the best bang for your buck in trying to improve the score?
I would tell you it's all about leadership. And we put a lot of effort into developing our local leaders and making sure that they are very good at recognizing and communicating with our employees and allowing them to make a difference in the home. And we see those scores going being important and also increasing year over year.
And then just with a tight job market, is it getting tougher to keep employees? And I was wondering if if you could comment on both the LTC and the retirement homes?
So, yes, there are definitely pressures around that in particular markets. And we have a number of strategies that we are putting in place. Some of our employee engagement initiatives are to retain the people that we have. And I think that those are effective, including that training we're doing for customer experience for frontline employees. The feedback from the employees has been tremendous.
But in terms of recruitment, we're also developing a number of strategies, including programs to train people to become PSWs in our homes, partnerships with schools, additional recruitment advertising, doing job fairs, those types of things.
Thank you. That's good color. I'll turn it back.
Thank you. The next question is from Brandon Abrams with Canaccord Genuity. Please go ahead.
Hi, good morning. Just on the supply chart in your MD and A, I think you answered Himanshu's question on why the 5 kilometers. I'm just wondering what that might look like in terms of the impact on number of properties, suites or NOI, if you extended the competitive set from 5 kilometers to say 10 kilometers?
Brennan, I won't be able to answer that question because we haven't done the work to put this consolidated stats together. We are tracking, as I mentioned, competition in all of our markets that is outside of 5 kilometer radius. We all must often feel the most pressure from the properties that are within that 5 kilometer radius and that's why we choose to report it that way. So I will not be able to give you any sense of the 10 kilometer radius issues or 15 kilometer radius issues because that data is not available on a consolidated level.
Right. Okay. And just in terms of the completed projects in the, I guess, forecasted stabilized NOI. Just to confirm, the NOI you referenced, the negative $1,600,000 I assume that for 2019 and the $14,200,000 would be upon stabilized occupancy obviously looks like 2 years from now, give or take?
It depends on the subset of properties that we're talking about. So I would reference projects that we opened in 20 19 and a project that we acquired in 2019 that was right after development. Those projects contributed a negative 1.7 $1,000,000 of NOI in 2019 and they expect it to contribute $22,000,000 of NOI on stabilization. They will achieve that stabilization at different times. But once they all stabilize at 96% expected occupancy, they will be contributing $22,000,000 of NOI.
Okay. And just going back to, I guess, some of the lease up in these recently completed projects, maybe the Sumac and Westcott specifically. Sumac, it looks like occupancy increased 3% quarter over quarter, which would translate to about 10 suites. Is that in line or with your expectations or below expectations? And I guess similarly, the Westcott, I guess, moved from 36% to 38%?
Yes. On Sumach, as I mentioned, we see pretty good velocity of traffic and people coming through in high interest and the it's just a question of closing these sales. We believe that this newness of this model in the Ontario marketplace is what causing a bit slower than what we originally expected in terms of the lease up of the property. But generally, it is in line with expectation right now. Westcott is a bit slower than expected.
We are expecting to pick up on occupancy later in the year.
And I guess a lot of talk on the fundamentals focused on the supply. Just turning to the demand, wondering if you may not have the exact stats now, but directionally with respect to, let's say, leads or traffic or conversions, would you say that that's up, flat, down to what it was a year ago? I guess my question being, is it an issue with getting the traffic and prospective residents through the door? Or and they're just choosing to go with 1 of your competitors or is the traffic maybe not up to your expectation?
Well, right now, as Karen mentioned, we have seen now for 5 months a significant increase in meeting indicators. So that means traffic, initial contacts, that means personal visits, people who come visit us and our closing ratio actually have been increasing as well. So right across the board, we're seeing pretty positive signs in terms of the demand. And we are closing these people more than what we had before. Now it's only 5 months phenomenon.
During the early days of 2019, the situation was different. So right now, that's what causes us to look with optimism to 2020.
Great. Okay. That's helpful. I'll turn it over. Thank you.
Thank you. The next question is from Pammi Bir with RBC Capital Markets. Please go ahead.
Thanks. Good morning. Just in terms of the comments around new supply perhaps slowing in the back half of the year, What signs are you seeing that give you that confidence for, I guess, the back half? And then is it based on stabilization perhaps at some of the competing properties or your own initiatives? I'm just curious what gives you that confidence.
Thanks, Batya. So what we're talking about is the pace of new construction starts. And what causes us to believe that this will slow down at the back end 2020 is the escalation of the construction costs and the fact that the projects are taking longer to lease up in this environment in some of the competitive markets. So we've been mentioning that we were deferring our own project starts because of these issues and we know that others are doing the same thing. So those two things cause us to believe that it will slow down.
The pace of new construction starts will slow down at the back end of 2020.
Right. So this is, I guess, been happening for probably the last 6 to 9 months. I guess that gives you that visibility.
That's correct. The projects that
are currently in construction, they will be delivered.
Right. And just on that, can you maybe provide some context and perhaps how lenders are altering maybe their underwriting standards for development? Are you seeing any change in the availability of credit for development?
So it would be difficult for me to comment on others. For us, it's never been a problem to borrow for development or otherwise, but our situation probably is different than the majority of individual developers out there. But for Charlevo, it's always been not very hard to borrow the money for the projects. And you should know the projects that we're developing on our own balance sheet, we usually do not borrow specifically for the project. We just finance it with our existing credit facilities or other sources.
And then we refinance project with CMHC insured financing when it's built and achieve stabilized occupancy.
Right.
Maybe just one last one in terms of the changes or I guess possible changes in the long term care compliance premiums. Has your outlook changed at all for same property NOI growth in that segment? I know it's a small piece, but just curious.
No, we still think that we can do between 1% and 1.5%, 1% 2% same property NOI growth in our long term care portfolio. All the initiatives and successes that Brent and Karen talked about will translate to the same kind of same property NOI growth.
So I guess overall, just going back to the earlier comments, it sounds like you're sticking with your typical, call it, 3% to 4% same property NOI growth for the year?
Yes. Our expectation that we should be within that range.
Thanks very much. I'll turn it back.
Thank you.
And the next question is from Paul Woolley with National Bank Financial. Please go ahead.
Hi, good morning.
Good morning, Tal.
Just wanted to say congratulations on a good quarter in a tough market and congratulations, Brent. Here's to a successful retirement. Thank you. I wanted to start and just ask maybe take advantage of your I'm assuming this is going to be your last time on the call. And so if you talk about if you think about the last 10 years and the future trajectory of this industry, how is your thinking about development as a growth factor for Chartwell evolved over that 10 years?
Because one of the things I've been impressed with this year is how sort of judicious you guys have been at managing the pipeline. Taking projects off the board is not an easy thing to do and you have to worry about signaling and stuff like that. But I think it's been a real positive to sort of exercise that financial discipline. So maybe if you can walk me through like higher things evolved on development over time?
Okay. I think if we go back before I was CEO, I think our process was any and all development is good, no matter what. And we all saw the results of that. It was not. That was not the case.
So, we decided to take a much more judicious approach as a strategy development. We still believe quite strongly that development was a terrific mechanism for growth for us. We get the buildings that we want and the markets we want built the way we want. But we wanted to do it on our own terms and certainly at a much more cautious level. So we kind of set a target 3 to 5 in any given year to start up and we've stayed with that.
That's what we believe we can effectively manage, build and then open with the teams we've had. We've added some people during that period of time on the opening side. We have our real estate integration team, which was an adjustment to our strategy a couple of years ago, and that's proved tremendously successful. So we think the pace that we set for ourselves is appropriate. We're not looking to do more than that.
And where the numbers don't pencil out as they getting tougher in this market with construction costs, We've said, no, if it doesn't meet our standard, it doesn't meet our standard on the return side. So I don't think there'll be any change on that strategy as we go forward. We're going to continue to be judicious in our developments and take advantage where we can to grow the company.
And Vlad, do you have anything to add to that?
I can confirm the previous statement.
Okay. The next question is just regarding capital budgeting. You've got about, I think, about $70,000,000 committed to the Batimo acquisitions this year. Could you just talk maybe about what you see the spending envelopes would be for your regular CapEx and what you would have committed for development spending this year?
So a regular CapEx is easier. It will be in line with what we've been kind of trending over the last couple of years between $80,000,000 $85,000,000 a year. That's what you should be expecting us to invest back in our existing property portfolio. Development is trickier. We will complete obviously the projects that are in construction right now, but the rest of the development spend will be dependent on the timing of the construction starts.
And that is always uncertain because some of it is our reevaluation of the project feasibility, in some cases redesign, in some cases it's just timing of getting approvals and getting shovels in the ground. So I will not guide you to that number because whatever the guidance would be, it's going to be different.
Okay. And then any like acquisitions, do you are you anticipating this to be an active year for you guys or not, apart from the Batimo stuff?
Yes. Apart from the Batimo side, it's going to be just like it's been every other year. We are opportunistic at looking at acquisitions. If we have a great opportunity that fits our strategy where we can create a difference and create value by utilizing our management platform, we will do it, otherwise we won't. So it's the same.
It's not going to change. We do not have any specific targets about the volume or the size of acquisitions that we do every year. But if you look at the track record, there hasn't been a year where we haven't done something. So my expectation is that something will come up.
Okay. And then this is more of an accounting question than anything else. But a lot of the other companies we follow who have development arms capitalize certain expenses and a lot do sort of capitalize the G and A. Do you guys capitalize any of your G and A right now?
Of course, we do. We have people who specifically dedicated to the development activities, and we capitalize the time of these people. A lot of people are invested in the development activities since they are part of our company because of the fact that we have these development activities. So those people stand capitalized and expenses that are related to that.
Do you have the rough amount that you guys are capitalizing right now annually?
No, I do not have that amount with me right now. And it fluctuates depending on the volume of the development activities that we have every year.
Okay. Maybe I will follow-up with that offline. Thanks for your time, gentlemen. Appreciate it.
Thank you.
There are no further questions registered at this time. I would now like to turn the meeting back over to Mr. Binion.
All right. That wraps up today's conference call. Thank you again to everybody for joining us. Now I want to note, you should join us at our Annual General Meeting, which scheduled for Thursday, May 14, 2020 at 4:30 this year. Make note, it will be held at our new offices located at 707 Dairy Crest Drive in Mississauga rather than downtown.
So, as always, thank you for your questions. Anything else, give us a call. It's been a pleasure working with all of you and goodbye.
Thank you. The conference has now ended. Please disconnect your lines at this time. Thank you for your participation.