Good morning, ladies and gentlemen. Welcome to the Chartwell Retirement Residences Q4 2018 financial results. Following the formal comments, we will hold a question and answer session. Please be advised that today's conference is being recorded. Now I would like to turn the meeting over to Mr. Brent Binions, President and Chief Executive Officer of Chartwell Retirement Residences. Sir, please go ahead.
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 Volodarski, 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&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 at sedar.com. It has been said that culture eats strategy for breakfast. We believe in the utmost importance of both of these concepts for the success of any business. Over the years, we've developed a strong Chartwell culture that has taken hold throughout the organization.
In fact, two of the top-scoring statements on our employee engagement survey of our now close to 15,000 employees have consistently been, "My work makes an important contribution to making people's lives better," and, "The company mission, vision, and values have been explained to me." On slide three, you'll see the what's our why wheel that summarizes our mission, vision, values, and cultural beliefs and defines our key stakeholders and our unique value proposition. We consistently use these concepts to guide our decisions, actions, and communications internally and with our stakeholders. After 10 years of the hard work stabilizing, improving, and growing our company, we felt it was time to update our business strategy and set clear targets for ourselves for the next five years to clearly define our competitive advantage and articulate what we will and, as importantly, will not do.
We strongly believe that only highly engaged employees will go above and beyond to deliver exceptional experiences to our residents through personalized services. We know that the majority of our move-ins come from referrals of our existing residents and their families, and that highly satisfied residents are four times more likely to recommend their residence to their friends and become true ambassadors in our communities. Therefore, we believe that high employee engagement and customer satisfaction scores will drive significant growth in our portfolio occupancy and generate strong cash flows. As talented as our people are and as strong as our management platform is, we realize that we cannot nor should we be all things to all people. We felt it was very important to clearly define the segments of the market in which we will not participate and activities that we will not undertake.
As a result, we defined our scope as upscale and mid-market. This means that we will not operate properties offering base-level services, usually older properties with limited staff and amenities, due to high operating risks and the lower returns these properties generally deliver. We will also not operate a very premium upscale residence due to the relatively small size of this niche market. We will continue to strive towards majority ownership of the properties we operate. We'll continue to invest in development of our own properties and will not, with a few exceptions, manage properties for others or invest in properties managed by others. We will not operate properties located in smaller rural markets with populations less than 25,000 within a 10-kilometer radius of the property, nor will we operate properties that would generate less than CAD 1 million of NOI at stabilized occupancies.
At this time, we expect to remain operating in the four most populous properties in Canada, Ontario, Quebec, Alberta, and B.C., will not consider expansion into other markets unless there's some very specific identified circumstances. We remain committed to our smaller long-term care business, which represents 16% of our suites and 10% of our NOI. This business generates stable cash flows, meaningful economies of scale, and significant operating expertise, particularly in the area of nursing care, and provides a good complement to our retirement operations. Our experienced long-term care team have been very successful in implementing programs to drive employee engagement and resident satisfaction in their highly regulated environment. I'd 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 five, as Brent indicated in our strategy statement, we believe highly engaged employees provide exceptional customer experience and that this leads to resident referrals. Each year, we measure employee and resident satisfaction through surveys where we specifically focus on highly engaged and very satisfied or top box scores. In 2018, we made significant gains by improving our employee engagement score by 15%, from 41% to 47% very engaged employees, and our resident satisfaction scores by 9.5%, from 53% to 58% very satisfied residents. In order to continue to increase these scores and reach our 2023 target of 55% very engaged employees, we will continue to focus on employee recognition and engagement, as well as succession planning for our aspiring leaders program for managers who have the interest and aptitude to become our future general managers and administrators.
In 2019, we are also implementing a profit-sharing program for our resident managers who overachieve their home's employee engagement, resident satisfaction, and occupancy targets. We also recently launched two new online learning management platforms in Ontario and Western Canada to assist our retirement home and LTC home staff members manage mandatory education requirements, including scheduling, compliance, reporting and tracking. Our frontline employees are required to complete upwards of 30 mandatory education sessions annually. It is already clear that automation of these learning modules will improve both operational efficiency as well as employee engagement. Finally, in 2019, we will complete the transition of payroll for all of our employees to our new human capital management platform, which will also set us up to provide more online services for our employees in 2020, including recruitment and additional online learning modules. Turning to slide six.
In order to reach our targeted 2023 resident satisfaction goal of 67% very satisfied residents, we will continue to implement our Welcome to Chartwell program, which focuses on the residents' experiences as they adjust to their first 90 days after move-in. We also continue to implement our proprietary Memory Living and assisted living programs in several of our homes across the country. In addition, in 2019, we will be developing and implementing a Made for Chartwell resident experience training program for all of our frontline employees, delivered by Chartwell customer experience trainers directly in our properties. Turning to slide seven. The growth in occupancy to 95% by 2023 will be achieved based on these investments in employee engagement and resident satisfaction, as well as demographic growth during this period. We will also continue to use our size and our unique sales and marketing strategies to stand out from the competition.
For example, our contact center continues to increase the number of personal visits booked in our homes quarter over quarter. Beginning in 2019, we now have contact center agents working in our Quebec office in addition to those working in Mississauga, which has improved the experience for our French-speaking prospects and their families. We also introduced cluster sales strategies in communities throughout Canada, where we have a number of homes in order to improve sales coverage and to enhance the prospect experience. With respect to marketing, Chartwell maintained strength in its TV investment through the end of Q4 with our Ask Edna and Les Conseils de Thérèse campaigns, which will continue to run until the end of April 2019. We also recently entered into an agreement with a new award-winning creative marketing agency, Cundari Group, and will launch a new marketing campaign later in 2019.
We're very excited to be working with the team from Cundari, who are Canada's largest independent creative agency and the sixth most awarded digital agency in the world. I would now like to turn it over to Vlad Volodarski, our Chief Financial Officer, to talk about our financial results. Vlad?
Thank you, Karen. As shown on slide eight, in 2018, net income was CAD 18.5 million compared to CAD 13.1 million in 2017. For 2018, FFO was CAD 193.6 million, or CAD 0.90 per unit, compared to CAD 182.5 million or CAD 0.93 per unit in 2017. The increase in FFO was primarily due to higher adjusted NOI of CAD 23 million, including a 3.3% increase in our same property portfolio. This was partially offset by higher G&A expenses of CAD 5.9 million, incurred to improve services delivered to our operating teams and to support growth in our portfolio and our increased development activities. Higher financing cost of CAD 5.7 million, primarily due to additional debt arranged to finance growth in our property portfolio. Lease cancellation fees of CAD 1.8 million related to the termination of our head office lease as we prepare to move into our new building, Chartwell Hub, in fourth quarter of this year.
In 2018, FFO was reduced by CAD 4.1 million of lease-up losses and imputed cost of debt related to our development projects. These items amounted to CAD 3.8 million in 2017. FFO per unit amounts were impacted by temporary dilution from the issuance of 17.7 million trust units in Q4 2017 to finance the acquisition of the Alberta portfolio, which, due to delays in obtaining government approvals, did not close until April 23rd, 2018. Slide nine details our financial position and certain credit metrics. At December 31, 2018, our liquidity, which includes cash and available credit facilities, amounted to CAD 416.5 million. In addition, our share of cash held in equity accounted joint ventures was CAD 10.3 million. In 2018, we meaningfully increased the value of our unencumbered asset pool, which at December 31st, 2018, included 33 assets valued at CAD 676.9 million, compared to CAD 405.2 million or 17 assets at December 31st, 2017.
Our coverage and leverage ratios remained strong in 2018, with interest coverage at 3.2 times net debt to adjusted EBITDA at 7.8 times and debt to capitalization ratio of 43.4%. Our indebtedness percentage, which is calculated using historical cost of our assets, was 49.3%. 2018 has been a busy year in growing and optimizing our real estate portfolio, as shown on slide 10. In 2018, we completed acquisitions of five properties in Edmonton for CAD 317.4 million, entered into a forward purchase agreement for another property in Edmonton for CAD 120 million, opened one development project, and sold our interest in four non-core properties. In February of this year, we opened another development property in Burnaby, B.C. Our development pipeline remains robust with six projects in construction and five in pre-development, totaling over 1,600 suites.
We also have options to acquire interest in nine projects being developed by Batimo in Quebec, totaling over 2,700 suites. Our fourth quarter results are summarized on slide 11. Q4 2018 FFO increased to CAD 48.5 million from CAD 48 million in Q4 2017, primarily driven by higher adjusted NOI, partially offset by lease cancellation fees incurred to terminate our head office lease, higher finance and G&A costs. Q4 2018 FFO was reduced by CAD 1.3 million of lease-up losses and imputed cost of debt related to our development projects compared to a CAD 1 million reduction in FFO in Q4 2017. Same property portfolio delivered a 2.2% growth in adjusted NOI. Average occupancy in the same property portfolio was 92%, at 0.9 percentage points lower than in Q4 2017 as a result of competitive pressures in certain of our markets. The results of our Ontario retirement properties are summarized on slide 12.
Same property adjusted NOI increased by 2.9% in the fourth quarter of 2018, and by 3.4% in the year ended December 31, 2018, compared to the same periods of last year. The growth in NOI was primarily driven by rental rate increases in line with competitive market conditions, higher ancillary revenues, and lower utilities, partially offset by lower occupancies, higher staffing, communication, marketing, and property tax expenses. The results of our Western Canada properties are summarized on slide 13. Same property adjusted NOI increased 3.5% in the fourth quarter of 2018, and by 5.2% for the year ended December 31, 2018, compared to the same periods last year. The growth in NOI was primarily driven by rental rate increases in line with competitive market conditions and higher ancillary revenues, partially offset by lower occupancies and higher staffing costs. The results of our Quebec properties are summarized on slide 14.
Same property adjusted NOI decreased by 4% in Q4 2018, and by 0.8% in the year ended December 31, 2018, compared to the same periods last year, primarily due to higher staffing costs or lower occupancies, partially offset by rent increases in line with competitive market conditions. The results of our LTC properties are summarized on slide 15. Same property adjusted NOI increased by 8.9% in Q4 2018, and by 8.5% for the year ended December 31, 2018, compared to the same period last year, primarily due to higher preferred accommodation and ancillary revenues, as well as the reversal of certain reserves of CAD 0.3 million in Q4 2018. I will now turn the call back to Brent to wrap up.
Thanks, Vlad. Our 2019 outlook is based on our expectations of slowing growth in the Canadian economy, a continuing strong labor market, stable housing market, and gradually rising interest rates. We see continuing competition from new developments in certain of our markets, such as Ottawa and Durham region in Ontario and Calgary in Alberta. We believe that we are well-prepared to compete with existing and new properties in our markets. With our highly engaged employees, our ongoing focus on customer experience, strong Chartwell brand, high-quality properties, and our innovative sales strategies, we believe we'll be able to maintain, and in certain cases, grow our occupancies and achieve rental rate increases in line with competitive market conditions in 2019.
In the past two years, we've been investing in our management platform and our people to enhance the services we deliver to our operating teams and to support our growing property portfolio, including our development activities. We will be implementing a number of new initiatives in 2019 to further enhance our platform, we expect the majority of the funding for these costs to come from the reallocation of existing resources. As a result, in 2019, we expect our G&A cost growth to be in line with inflation. We will continue our focus on external growth through developments and acquisitions and optimization of our asset portfolio. With the rapid construction cost escalations in 2017 and 2018, we have postponed and are now re-evaluating some of our development projects.
We expect construction cost growth to moderate in 2019, we will continue to be diligent in our evaluation of these projects to ensure that reasonable returns are achievable with an acceptable level of risk. In 2018, 3% of our distributions were classified as non-eligible dividends and 97% as return of capital. Based on our current forecast, we expect sufficient deductions and losses carried forward to eliminate any cash CIT taxes in 2019. Slide 17 shows the history of our distribution increases, I'm pleased to report that on Friday, our board approved Chartwell's fifth consecutive annual increase in monthly distributions. Monthly cash distributions will increase by 2% from CAD 0.049 per unit, or CAD 0.588 on an annualized basis, to CAD 0.05 per unit or CAD 0.60 per unit on an annualized basis, effective for the March 31, 2019 distribution payable on April 15, 2019.
Long-term prospects for our industry in general, and Chartwell in particular, are very promising. As you will see on slide 18, by 2036, across the country, the sector would need to add close to 600,000 new retirement and long-term care suites to address the demand generated by the expected senior population growth. That's getting close to 150% growth. Digging a little deeper and focusing solely on retirement suites demand in the four provinces Chartwell currently operates, the sector would need to add close to 250,000 suites by 2038, as you can see on slide 19. We believe that the retirement living industry has a great opportunity to create and service additional demand over and above the demand resulting from seniors population growth. I'll give you three reasons. The demand for government-funded long-term care is similar to the demand growth for retirement accommodation.
If governments are unable to fully address such demand growth, retirement operators will step up to serve people who cannot access government-funded long-term care beds. As an example of such opportunity, in Ontario today, there's approximately 35,000 people on the waiting list for long-term care accommodation, many of whom reside in retirement residences. Second reason, the existing inventory of 225,000 retirement suites in our four provinces includes a number of smaller, older homes, which are likely to become more obsolete over time, further increasing the need for new retirement suites. Thirdly, the acceptance of retirement living is significantly higher in Quebec than in the rest of the country, with a penetration rate defined as a ratio of available retirement suites to the number of people over the age of 75. Quebec's is 17.9%. This compares to 5.5% penetration rate in Ontario, 5.7% in Alberta, and 8.3% in B.C.
We believe the introduction of more flexible service offerings and pricing options across the country will increase the acceptance of retirement living and further drive demand for new suites. 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 our stakeholders. Thank you for your time and attention this morning, and we will now be pleased to answer any of the questions you may have. Lori?
Thank you. To the audience today, if you do have a question, please press star one on your touchtone phone. Just a reminder, if you're joining us via speakerphone today, make sure your mute function is turned off to allow that signal to reach our equipment. Once again, star one, a voice prompt on your phone indicates when your line is open. If you would please state your name before posing your question. We'll take the first question. Caller, please go ahead.
Hello. Hi there.
Hello.
Hey, it's Chris. Just a question for you guys on your 2023 target of 95% same-property occupancy. I'm just wondering if you could talk a little bit about how you intend to drive that. You've got a majority of your assets are in Ontario, and we've never seen occupancy really get that low in the province. Are you thinking that overall Ontario is going to improve, the province occupancy is going to improve, or you're just simply going to outperform the province?
I think it'll be a piece of both. I absolutely believe that our focus on employee engagement and customer satisfaction, which is where we actually are investing our dollars to get better every single day, will help us. A large chunk of people who move into our home come by way of referral, and as we continue to deliver quality services, we believe the number of people coming in based on referrals will go up. That is important, you also look at the demographics. The demographics in every province, including Ontario, are very positive over the next number of years, over the next five years anyway. We think that demographics will lift everybody in the province to some degree as well.
You don't think supply will be able to keep up with that demand?
Supply will continue along, I have no doubt, but I think the acceleration in demand will move ahead of supply.
Then maybe just on your recent supply disclosure, which is great. Thank you guys for putting that in the MD&A. If we're looking at this correctly, in your top 15 markets, new supply under construction equates to about 5% of inventory in the market. Does that sound fair?
Yes, it sounds fair. This supply is within 5-kilometer radius from Chartwell's properties. It's not all supply. This is supply that directly impacts our properties that located within the 5-kilometer radius.
Right. Total supply would arguably be higher than the 5%. I know it's only the first time you guys have disclosed this. It seems like it's probably above average, just wanted to get your thoughts on where the supply is currently versus historical trends.
Well, we've been saying this for a while, that supply has accelerated in the last couple of years, clearly this disclosure supports that. We've particularly focused on the markets that Brent mentioned, the Ottawa and Durham region in Ontario, and Calgary in Alberta is seeing significant new supply compared to the existing inventory. The rest of the markets, they're healthy. If you look at the number of the properties that are being built, what is being built now are larger properties, given the inventory numbers being relatively small, the impact on percentage-wise of these larger properties has higher impact on the existing inventory.
Okay. What would you say is a kind of a normal year? Should that be about 3% or
Yeah, the normal year should be in line with the demographic growth of the population. Now, if we look at the markets like Calgary as an example, where we had a number of years where there were no new supply being built, it's reasonable to see that there's more properties being built in that market now that the construction is actually economical in these markets. Generally, we would say that the growth in supply should equal the growth in seniors population.
Got it. Perfect. I'll turn it back. Thanks, guys.
We'll take the next caller. Please go ahead.
Hello?
Hello.
Hi.
Yes, proceed.
It's Brendon Abrams from Canaccord here. It looks like from your 2023 target in terms of occupancy and taking a look at some of the demand data you've outlined, how are you guys thinking about the business in the interim over the next few years, and driving occupancy higher as you await kind of that tipping point in 2022, 2023? What's going to drive that?
I would suggest that the growth will be more tempered in the first couple of years and will accelerate over the last three years of that five-year period of time.
Okay. Would you anticipate occupancy levels to remain fairly consistent with where they are today over the next, call it 12 to 24 months?
I think they'll be fairly consistent over the next 12 months, with very modest growth during that period of time. I think it'll begin to tick up after that, and it'll accelerate later on in the five-year cycle.
Okay. Just turning to your developments, I know you mentioned in the opening remarks you've either postponed or are reevaluating certain developments due to escalating costs, inflation. Can you highlight any of the projects that were perhaps shelved? Secondly, are you seeing other developers or operators in the space make similar decisions?
I can't comment on the other operators. For us, all projects that are listed now that are in pre-construction are being reevaluated in terms of the start of these developments, given the escalation of the construction costs, where we're looking at the design of the buildings in some cases. We're looking at what the current cost estimates could look like, and we're also looking at the income underwriting for these projects.
Okay. Specifically with respect to Sumach, one of your large projects here in Toronto. Currently just under 50% pre-leased it looks like. Is that in line with your expectations in terms of timeline in relation to finalizing construction, how were rental rates, I guess, versus your pro formas as well?
Yeah. There were slight delays in the completion of this project that did impact reservations a little bit. It's generally in line with the expectations, though.
Okay. That's it for me. Thank you.
We'll take the next caller. Please go ahead.
Hi there.
Hi.
Jonathan here. Just on the-
Yep
going back to the new supply. The 7,200 units, those are in the ground under construction right now?
That's correct.
Okay. You would expect them to sort of start lease up 2019, 2020, maybe even into 2021?
Yes.
Okay. Typically, in your experience, how does that really impact the occupancy at your existing properties as these projects lease up?
It really does vary. We had numerous examples where we had competing properties opening literally next door to our homes with virtually no impact on existing occupancy, and we had other examples where properties were opening within five-kilometer radius that did have an impact on occupancy, maybe even 10 percentage points or so decline in occupancy because people now have more options to go and shop for the accommodation. Whereas before the development property open sales center, people had only us as the option. Now they have somewhere else to go. It really varies. I think the worst one that we've seen was about 10 percentage points decline in occupancy.
Okay. That's helpful. Just, you gave pretty good outlook on revenue expectations for 2019 on the operating side. What do you guys expect on the cost side in terms of same property cost increased?
We think that, Jonathan, 3%-4% same property NOI growth is a reasonable target for this year, and we think it is sustainable going forward. Then as Brent pointed out, as we grow occupancy in the future years, that number might increase.
Okay. Then just lastly, on the G&A, you said that inflationary type increases. You did have kind of a year with two parts in it for your G&A. The first part of the year, you were kind of running around CAD 12 million, CAD 12.5 million. The second half, CAD 9.5 million-CAD 10 million. Is it based on the whole year or second half? How should we think about G&A?
Yes, it is based on the whole year. Our expectations are to be within the inflation in 2019. The quarterly numbers can fluctuate. There's numbers of things that happen from the timing perspective. We have conference in the first quarter of the year, where we take our managers and we have timing or valuation of the stock-based compensations that impact these numbers. Our expectation is for the full year will come with inflation and increase.
Okay, somewhere in the CAD 44 million-plus range?
Correct.
Okay, thanks. I'll turn it back.
We'll take the next question. Caller, please go ahead.
Thanks. Good morning. It's Pammi from Scotiabank. Just in terms of the new supply data, some of the markets certainly do have a fair amount under construction. A lot of this, you've talked about in the past, but it's helpful that we have some better data now. From an incentive standpoint, do you see the level of incentives being offered rising going forward? I'm just curious what types of incentives are you currently offering in parts of the portfolio?
In some cases, we do offer incentives when the new competition opens. We do very detailed analysis of new competition to understand how they position their property compared to ours. In some cases, it can drive incentives. I can tell you that in 2018 and 2017, we actually had the levels of discounts and incentives coming down in our portfolio, and our expectation that we will be very prudent in using these measures to compete. We are competing on our unique value proposition, being customer experience and delivering great services to our residents, and that makes a difference for us. Having said that, in some markets, there may be some additional incentives.
Right. Just looking at some of the competing assets coming on over the next couple of years relative to your assets in those markets, how does it impact your view on potential dispositions over the next couple of years, with respect to if your assets perhaps may not necessarily be as competitive, maybe it's just an oversaturated market? I'm just curious how you think about that.
We don't actually usually run from competition. That wouldn't be normal for us. We reinvest back into our properties pretty significantly on an ongoing basis in terms of putting capital back in and keeping our properties current. To the extent we're looking at dispositions, it will be in line with the strategy that we've enunciated of certain properties we don't think are ones that fall within the strategy we've set out. That's the reason that we would move properties, not because new competition comes in. We believe we can compete with anybody.
Okay. Just in terms of the long-term care segment, again, another unusually, I guess, strong quarter. How much was the reserve adjustment in Q4? Should we expect the overall 2020 outlook to normalize back into, call it that 1%-2% range for same property NOI growth?
The reserve adjustments was CAD 300,000. You are right that the growth in long-term care this year has been exceptional, driven primarily by preferred accommodation and ancillary revenue streams. Our expectations is consistent that the long-term care segment should grow between 1% and 2% a year on average. Some years we see significant growth, if you remember last year, we actually had negative growth. This year, I guess, we're compensating for that.
Right. Just coming back to, I guess, the Batimo projects and the developments overall. Several of the Batimo projects were, I guess, pushed out in terms of the stabilization dates. Is this really just a function of the competitive pressures in those markets, or were there other drivers involved?
Yes, there's some impact of competition and the slower lease-up on a two of these projects. The two projects that haven't started construction are still in the design stage, we're still working with Batimo to design those projects in Montreal and Charlevoix.
Got it. Just last one from me. Coming back to the data that you have provided, is this data that you are planning to, I guess, update annually, or is it possible for that to be updated a bit more frequently?
At this time, the plan is to update it annually, Pammi.
Okay. Thanks very much.
Once again, if you do have a question, please press star one. Caller, please go ahead.
Hi, it's Tal Woolley from National Bank. How are you?
Good.
I just wanted to, in your strategic update, you referenced some of the changes you're trying to make to your branding and marketing, and you mentioned earlier some of the initiatives you're taking on a new agency. Can you just talk about, maybe put some more insight around what exactly are the tweaks you're trying to make to the brand, and what is sort of centralizing the brand management sort of mean within the context of the organization?
We believe brand is extremely important. We want people to understand who we are and what we stand for. Our ultimate goal is to change the perception of how people view retirement and long-term care living in this country. We believe that we actually provide a service that does make people's lives better. We ensure that they have great socialization, which is one of the leading indicators of health.
As well as eating the right food and taking the right medications at the right time, we believe that having people understand the true value of what we deliver will make a difference in penetration rates. Our focus with our brand is around helping people understand the value that we bring to the table.
Okay. There was also a reference in that too, you had piloted some new sales techniques in Ontario that you're going to be rolling out too. Can you offer a little more color on exactly what that's about?
Karen?
We have a number of homes in some of those areas in particular that have a lot of competition, Ottawa, Durham, Calgary, and we're coming at those with more of a cluster strategy so that those homes are working together more effectively so that there is a better experience for the prospect. That would be one of the key examples I can give you.
Okay. When you're looking out on your sort of five-year horizon, in terms of development, you're going to deliver, I think, just over 600 units this year. Do you have a sort of idea of what you'd like to deliver to the market annually at this point?
Yeah, I wish, Tal, that developments worked like this, where we could set up ourselves the targets of how many we want to deliver every year and delivered it. Some years are going to be more, some years it's going to be less because it just takes a long time to bring projects to fruition. Generally, what we said is, with the existing platform that we have, we can manage up to five openings a year, we certainly will strive to do that. So far, we've been a little under that number. I expect that'll continue for at least the next couple of years.
Okay. Just lastly, on Quebec, it was obviously a little bit weaker organic growth this quarter, you'd sort of flagged the costs as the primary reason why. What are you sort of thinking about doing for next year to try and offset that?
You're talking about operating costs or development projects?
In Quebec.
Operating costs.
Operating costs.
Operating costs. You want to take it, Karen?
We did experience higher than usual overtime and agency costs. We do have recruitment and retention, and scheduling initiatives to help mitigate that in Quebec, and other markets where we're having those issues. We still expect to be able to get 3%-4% same property NOI growth. We are going to continue to make sure that we're focused on recruitment and retention to try to mitigate those costs.
Thanks very much, everybody.
Thank you.
Thanks.
Just a final reminder that it is star one if you do have a question. Caller, please go ahead.
Hi, guys. It's Chris Couprie again, CIBC. A couple follow-up questions. Number one, the flu season this year, if you could make any comments on it versus the prior year, and maybe some color on kind of how leasing trends are into Q1. On the supply growth, why do you think it is that supply has been growing as quickly as it has been recently, given your comments on rising escalating costs? If costs do in fact normalize as you expect, do you think development will re-accelerate? Thoughts around what you think is going on at all.
All right. We'll let Karen Sullivan answer the first part of that question.
Okay. On outbreak, we certainly saw that the flu shot seemed to have done a better job this year. We would've seen an increase in the number of our employees that got the flu shot. It went up 9.2%, we're pretty proud of that. We do see that permanent move-outs are down. Overall, I think, the better flu season is sort of helping us at the beginning of the year for sure.
On the development part of your question, why development's increased, I think everybody's seeing the growth in demographic and the seniors population and the introduction of these new models to Quebec type of models in other markets being successful. I think that's what drives development. I mean, lower interest rates are helping too, to finance these projects. I don't know. Again, can't comment on other people's, how they feel about the rising construction costs and whether it's going to impact their thinking about future developments. With the increasing demographic trends across the country, I expect that development will continue to be robust. It's hard to imagine, though, that it will be able to catch up with the demographic trends of the population.
Are there any other Quebec-like projects out there outside of the Sumach that you're aware of?
Yes, there are a few players that are trying to introduce this model in Ontario.
Would any of them be in that table that you present?
Yes.
Caller, please go ahead.
Hi, guys. It's Brendan here again. Just one follow-up question. You referenced 75 years old when quoting some of the demographic and demand drivers. Just curious, I guess two parts here. One, how did you come up with 75 versus, let's say, 80 or 85? Why is that maybe a more appropriate number? Secondly, just based on both of your experience, have you seen any shift in terms of the average age of a new resident coming in over the past, about 10-15 years, whether they're delaying coming into a residence based on maybe better health, or maybe they're coming in sooner. They're seeing some of the benefits of retirement living. Maybe you could just comment on that.
Sure. Brendan, 75 years old, you're right. More appropriate would be 80, 85. The average age of the entry outside of Quebec is low 80s. 75 years old is used by CMHC, and all penetration rates are calculated on that, so we're kind of forced to use that because that's the data that's available out there. When we calculate future demand, we apply penetration rates of people over the age of 75. If we were to do this for 80 years old, the penetration rates would have been higher. The end result is the same. In terms of the changes in age of people entering, I wouldn't say it's been substantial. Maybe there's a year or so that people are older now that they're moving in compared to 10-15 years ago, just because people are living longer and are healthier.
Right. Okay, that's helpful. Just last question from me. How much of a factor do you think the slowdown in the housing market in Ontario and B.C. has been in terms of occupancy?
We actually don't think the housing market is a significant indicator of occupancy for our homes as long as there's no buyer strike. The ability to sell the house is the critical piece. Homes are still selling out there. Maybe they're not selling for as much as they were, but our customer has lived in their house for the last 40 years, doesn't carry a mortgage, has seen huge capital appreciation in those properties. Even if it's come back 10%, 15%, even 20%, they still have the financial wherewithal to live in our homes for the rest of their lives, if that's what they choose to do. It's only when there are no buyers that we see an impact on our business.
Great. That's very helpful. Thank you.
I have no additional questions at this time. I'll turn the program back over to our speakers for any additional or concluding remarks.
All right. That wraps up today's conference call. Thanks again to everybody for joining us. As always, if you have any further questions, please do not hesitate to give us a call. Thank you and goodbye.
Once again, that does conclude today's conference. Again, I'd like to thank everyone for joining us today.