Good morning, ladies and gentlemen. Welcome to the Chartwell Retirement Residences Q1 2018 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, sir.
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 security 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 atsedar.com. Guided by our vision of making people's lives better and our mission, values and cultural beliefs, our key focus remains on delivering exceptional services and quality care to our residents. We believe that this key focus will be able to with this key focus, we'll be able to continue to build long term sustainable value and deliver growing earnings based on our 4 priority areas as shown on Slide 4. Our operating teams with the support of our corporate office departments delivered solid operating results in the Q1 of 2018 despite some strong headwinds from increased competition in certain markets and another tough winter flu season.
In April, we completed the previously announced acquisition of 4 residences in Alberta and issued $150,000,000 of new a new series of unsecured debentures maturing in 2025, further strengthening our balance sheet and setting our foundation for ongoing success. Our financial position remains strong as shown on Slide 5. At March 31, 2018, liquidity amounted to $269,800,000 Our interest coverage ratio for Series A debentures maintained a strong 3.2 and net debt to adjusted EBITDA ratio was 7.7 at March 31, 2018. We continue to build value in our real estate portfolio through portfolio and asset management programs, development of new properties and opportunistic acquisitions as shown on Slide 6. These value added activities are supported by extensive industry and market research and by rigorous risk management practices.
Year to date 2018, we have sold interest in 3 non core properties for $32,000,000 Work continues on our development pipeline of 1338 suites with 6 projects in construction, 3 projects in predevelopment, and these projects are expected to generate meaningful development returns to grow our property portfolio with new efficient state of the art residences. We continue to add future projects to our development addition, we have options to acquire close to 2,800 additional suites in Quebec through our partnership with Batimo. I'll now turn it over to Karen Sullivan, our Chief Operating Officer to talk about some operational initiatives she and her team are working on.
Thanks Brent. Turning to Slide 7, our 180 sales consultants completed sales training in Q1 focused on building trust rapport with prospects as well as how to communicate with prospects regarding the benefits of retirement home living as opposed to home care. They also reviewed mystery shop results from 2017 and focused on areas for improvement. Our mystery shop schedule for 2018 is underway, which this year will also evaluate the customer's experience with Chartwell centralized contact center. The contact center still continues to produce improved results year over year, including an increase of 16 Turning to Slide 8, with the flu season behind us and finally some nice spring weather, we held a very successful open house on a sunny and mild Sunday, April 29.
We added over 1800 initial contacts that weekend, an increase of 10% over the average from our last 3 years. April was also a net positive month for occupancy resulting in potentially an earlier end to the typical winter dip. Our sales consultants are now focused on following up with these new leads and our operations teams are focused on retention of current residents and increased referrals through our strategies to enhance customer experience.
We'll now turn it over to Vlad to discuss our Q1 2018 financial performance. Vlad?
Thanks, Brent. As shown on Slide 10, for Q1 2018, FFO was 42,800,000 dollars or $0.20 per unit compared to $42,100,000 or $0.22 per unit in Q1 2017. The following items impacted the change in FFO from continuing operations: higher adjusted NOI of $3,100,000 consisting of $800,000 increase in same property adjusted NOI and $2,300,000 increase in contributions from acquisitions and developments and higher management fee revenue of $1,000,000 partially offset by higher G and A expenses of $2,100,000 and higher financing costs of 900,000 dollars For Q1 2018, FFO per unit amounts were impacted by the issuance of 17,700,000 trust units in Q4 2017 to finance the acquisition of the Alberta portfolio, which did not close until April 23, 2018. Turning to our operating platform results. As shown on Slide 11, our Ontario Retirement Platform same property adjusted NOI increased $800,000 or 2 point 6 percent as rental rate increases in line with competitive market conditions and lower utilities expenses were partially offset by lower occupancies and higher staffing costs, property tax and marketing expenses.
In Q1 2018, combined same property occupancy was 88 0.2% compared to 88.6 percent in Q1 2017. In Q1 20 18, our Western Canada same property adjusted NOI increased $300,000 or 2.4 percent, primarily due to rental rate increases in line with competitive market conditions, partially offset by higher staffing costs and shown on Slide 12. Q1 2018 occupancy was 96.2%, same as in the Q1 of 2017. On Slide 13, you will see our Quebec platform same property adjusted NOI decreased $200,000 or 1.2 percent in Q1 2018, 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. Combined same property occupancy was 92.3%, a 1.2 percentage points decrease from Q1 2017 occupancy of 93.5%.
Shown on Slide 14, our Canadian long term care platform adjusted NOI decreased 3% in Q1 2018 primarily due to a 2.1% decrease in adjusted NOI in the same property portfolio related to timing of certain expenses. Weighted average occupancies in the same property portfolio were 97.7% compared to 98% in Q1 2017.
I will now turn
the call back to Brent to wrap up.
Thanks, Vlad. As shown on Slide 16, we believe that by focusing on enhancing our resident experience in our homes, we will generate strong financial results and long term sustainable value creation for our unitholders. We recognize that only highly engaged employees will deliver exceptional services and quality care to our residents, and we continue to make significant investments in recruitment, training and development of our team members. We continue to improve corporate support delivered to our operating teams, including the implementation of new technology solutions to better understand our customers, communicate with our employees and reduce administrative time commitment in the field. We are putting the infrastructure in place to successfully execute on significant development program we set for ourselves for 2018 and beyond as we are confident that these new state of the art properties will meaningfully contribute to value creation for our unitholders over time.
We also remain open to and proactively seek additional acquisition and development opportunities in our core markets. Thank you for your time and attention this morning. We will now be pleased to answer any questions you may have.
Thank you. We will now take questions from the telephone lines. The first question is from Jonathan Kelcher with TD Securities. Please go ahead.
Thanks. Good morning.
Good morning.
First, just on the lower same property NOI in Quebec on the lower occupancies. Was the flu season worse in Quebec than the rest of the country? Or is it or is that mostly just new supply related?
No, it was pretty similar across the country and quite similar actually to last year. Slightly higher though in terms of the number of days that we would have been in outbreak. But all across the country, we actually saw that April was looking better than last year, Jonathan. So we're quite optimistic that the rest of the quarter is going to be positive as well. But Quebec wasn't different in terms of the flu season.
Okay. So would you say the flu season sort of started earlier ended earlier this year versus last year?
It definitely started earlier. And I'm not sure it ended earlier, but the number of days that we would have stayed in outbreak was a little longer. But I guess ended a little bit earlier based on the fact that April was better.
Okay. And just on, I guess, Good Friday being in Q1 this year negatively impact the long term care. But does that have much of an impact on operating expenses in the retirement portfolio?
Yes, Jonathan. There is impact on the retirement portfolio as well, just the timing related because of the statutory holiday pay. In total, those both in retirement and long term care, this amounted to about $1,100,000 of shifted expenses from 1 quarter to another.
Okay. That's fair enough. And then lastly, just on the G and A at $12,500,000 was higher than, I guess, the sort of rough $10,000,000 that you've been guiding to in the past. Just maybe give a little bit of color on that and what to look for, for the next three quarters.
Sure. We continue to invest in our management platform and our people to support the growth in our portfolio that we've experienced over the years and our growing development activities. Having said that, in Q1 of this year, there are some expenses that are timing related. We had more our leadership conferences in the Q1 of this year than we had in the past, and that's a very important investment for us in the development of our staff, which also helps with retention of talented people. I suggest that we still expect at this time that the annual expenses will be within $40,000,000 to $41,000,000 range.
Okay. That works for me. Thanks.
Thank you. The next question is from Pammi Bir with Scotia Capital. Please go ahead.
Thanks. Maybe just tacking on to the flu season question. Can you just maybe share the occupancy trends that you've seen, I guess, post Q1 in some of your well, I guess, specifically in Ontario and Quebec?
Just that the futures are in fact looking better. April was better already than last year and the futures are looking better also. Our pre leasing is going well in our developments and both of those are positive signs for us. Okay.
And then just, I guess, some of the new supply pressures that were cited. Can you maybe provide a little bit more color there in terms of which specific markets in Quebec and Ontario where it's most visible?
Well, all across the country, I'll just go through those. So Calgary, Ottawa, pockets of Montreal and Quebec City would be where we see the most competition.
And then I guess just with that, do you see any sort of pressures creating, I guess, a longer term headwind for occupancy growth based on some of this supply creeping up?
Well, we look at it not only supply has crept up a little bit in these markets, although I note that Calgary was so badly undersupplied. It's just catching up to where it needs to be. But the demographics are improving. Every year, the demographics are better. They've turned up nicely 2018.
If we look at the numbers down to the detail, we do not see at the present time any growth in supply that's above the growth in demand. We think it's relatively balanced. There's always a little bit of pressure when the place just opens on the surrounding homes, but we do not see anything systemic that concerns us at the present time.
Thanks. And I guess, just layering, I guess, the comments together on the flu season and occupancy, are you still comfortable with the overall internal growth outlook in that 3% to 4% range?
Yes.
Okay. I guess and just one last one, was there any or if you can quantify the if there was any sort of minimum wage impact that we've seen so far?
As we said, minimum wage would have some impact on us, but we said it would not be material and it is not material, has not been material.
All right. Thanks very much.
Thank you. The next question is from Chris Couprie with CIBC. Please go ahead.
Hi, guys. A couple of quick ones. On the management fees in the quarter, it was a little higher than normal. Is that indicative of anything?
I can't recall anything being special there, Chris. I'll have to check and get back to you on that.
Okay. So you've had 2 successful unsecured debenture issues. Just wondering what your thoughts are in terms of when you look at your debt stack, how you see that evolving going forward?
Yes. We look at the flexibility that these debentures provide as the supplemental financing alternative for us, and so we like them for that. At this point, we target about 20% of our total debt to be in unsecured markets. So we are presently at about that level now. And so we certainly expect to continue to access this market subject to positive market conditions as we continue to grow our portfolio in the future.
Okay. And this one might be a long shot, but given your relative cost of capital, would you ever consider going back into the U. S?
The U. S. Is we left the U. S. For a couple of reasons.
We did not have the right to manage our own properties there and we wanted we felt there was more value to us to be managing our own properties. So we got rid of the properties that we did not manage and we replaced with the properties we did. We also saw some massive increase in supply coming into the U. S. And we felt on a both strategic and opportunistic basis, it was time a good time to exit.
We still believe that was by far the right decision. As far as going back, there's nothing in the American marketplace that concerns us. It would be though if we went back, it would be on an opportunistic portfolio in a much in a narrow area. We could go back in at some point in time managing the Marcellus, but we'd have to get enough scale to do it in a localized market. No plans at this time whatsoever.
Okay, thanks.
Thank you. The next question is from Derek Nicoll with MacLean Family Office. Please go ahead.
Good morning. For the new development that you have completion in 2018, do you have permanent financing for these projects?
Well, it really depends. We manage our debt portfolio as portfolio. So sometimes we do put individual projects financing on our development projects. In most cases, we finance them through our credit facilities.
Okay. And how would this affect the yield on new developments on stabilized occupancy?
When we analyze the project returns, we look at them on a non levered basis, so without regards to any debt financing.
Okay, perfect. Thank you.
Thank you. There are no further questions registered at this time. I would like to turn the meeting back over to Mr. Binion.
Thank you. I'd like to remind everyone that our annual unitholders meeting will be held on Thursday, May 17 at 4:30 pm at Vantage Venues, formerly the St. Andrew's Club and Conference Center at 150 King Street West on the 16th floor. Note that's different from prior years when it was on the 27th floor. We hope you can join us.
And that wraps up today's conference call. Thanks again to everybody for joining us. And as always, if you have any questions, please do not hesitate to give us a call. Thank you and goodbye.
Thank you. The conference has now ended. Please disconnect your lines at this time and we thank you for your participation.