Good morning, ladies and gentlemen, and welcome to the Chartwell Retirement Residences Q1 2024 financial results conference call. I would now like to turn the meeting over to the CEO, Vlad Volodarski. Please go ahead.
Thank you, Giselle. Good morning, and thank you for joining us today. There is a slide presentation to accompany this conference call available on our website at chartwell.com under the Investor Relations tab. Joining me are Karen Sullivan, President and Chief Operating Officer, Jeff Brown, Chief Financial Officer, and Jonathan Boulakia, Chief Investment Officer and Chief Legal Officer. Before we begin, I direct you to the cautionary statements on slide two because during this call we will make statements containing forward-looking information and non-GAAP and other financial measures. Our MD&A and other securities filings contain information about the assumptions, risks, and uncertainties inherent in such forward-looking statements and details of such non-GAAP and other financial measures. More specifically, I direct you to the disclosures in our Q1 2024 MD&A under the heading "2024 Outlook and Risks and Uncertainties in Forward-Looking Information" for a discussion of risks and uncertainties.
These documents can be found on our website and on the SEDAR+ website. Turning to slide three, our teams successfully carried the strong momentum of occupancy and cash flow growth into Q1 2024 with occupancy increasing 610 basis points year-over-year, same property NOI growing 24.7%, generating FFO increase of 61.2%. We expect this occupancy growth momentum to continue and forecast June 2024 same property occupancy of 87.3%. Our teams continue to methodically execute our operational sales and marketing strategies focusing, as always, on delivering personalized, memorable experiences to our residents, peace of mind to their loved ones, and supporting each other. As I meet with our residents and team members in our residences across the country, I feel firsthand the kindness, warmth, and dedication to the residents' well-being that are the key components of the Chartwell experience. It makes me proud to be part of this great team.
I will now turn the call to Karen to provide an operational update.
Thanks, Vlad. Moving on to slide four. In Q1 2024, our marketing strategies led to an increase in personal tours from marketing sources of 33% compared to Q1 2023. Total personal tours from all sources increased by 13% quarter-over-quarter. In Q1, we had nine weeks of net positive activity, leases minus notices, eliminating our typical winter occupancy dip. We saw an increase in all sales KPIs in Q1 2024 compared to Q1 2023. Initial contacts were up 16%, personal tours up 13%, permanent move-ins up 16%, and signed leases up 13%. Since our website launched last year, we have consistently driven better quality conversions. Our new digital strategies, including continuous optimization of Google Search and analytics, resulted in higher quality of calls to our contact center. We've improved our website performance, particularly in content, speed, security, accessibility, and search engine optimization.
Our open house in January was very successful in driving new leads. ICs generated from this event were 1,384, an increase of 400 prospects in comparison to January 2023. We've already held our first open house of Q2 in April with very strong traffic, further increasing our pool of qualified prospects. Plans are underway for another open house event in June. We continue to use a diverse range of digital and traditional media channels to support our open house campaigns. In order to continue to enhance our prospect pool, our dedicated business development managers are working with hospital discharge planners and local seniors groups. Other strategies for the coming months include exclusive presentations at several key conferences, including the Economic Developers Alberta Conference, the Independent Financial Brokers of Canada Conference, the Elder Planning Issues Conference, and the Alberta Retired Teachers' Association Conference.
Turning to slide five, we reduced our staffing agency costs by 60% in Q1 2024 compared to Q1 2023 through focused recruitment and retention activities. We continue to concentrate on a targeted nursing strategy that incorporates a referral bonus program, agency staff conversions, reaching out to non-practicing nurses that recently left the profession, exploring strategic partnerships with expert immigration organizations, and campus outreach activities for recent graduates. We have now fully implemented an electronic health record in our residences in Ontario and BC and have begun the process to roll this out in our Quebec homes, which should be completed by the end of the year. Not only will this assist our frontline care staff with assessments and care plans, but it's already having a positive impact on our care revenue, which increased by 23% in Q1 2024 compared to Q1 2023.
We announced the closure of Chartwell Heritage Glen Retirement Residence on March 19th, and to date, we have found alternative accommodation for 155 of the 187 residents. We are continuing to work with our third-party placement consultant on plans for the remaining residents. We also continue to focus on locally driven, property-specific strategies to improve occupancy and drive overall performance of each of our residences. One example of this is the repositioning of Chartwell Rouge Valley in Markham, Ontario, to better serve the Chinese community. We have made changes to our programs and activities and dining services and have a number of staff and managers who are able to speak Cantonese and/or Mandarin. This strategy resulted in a 2,900 basis point occupancy growth in the last 12 months with current occupancy at 96%. I'll now turn it over to Jeff to take you through our financial results.
Thank you, Karen. As shown on slide six, in Q1 2024, net loss was CAD 2 million compared to a CAD 9.3 million loss in Q1 2023, primarily due to higher resident revenue, lower depreciation of property, plants, and equipment, higher net income from joint ventures, and lower G&A expenses. Partially offset by deferred tax expense in Q1 2024 as compared to a deferred tax benefit in Q1 2023, higher direct property operating expenses, absence of income from discontinued operations due to the completed LTC transactions, lower gain on asset sales, and higher negative changes in fair value of financial instruments, primarily due to increases in trading prices of our trust units. FFO from continuing operations increased 87.6%, and FFO from total operations increased 61.2% in Q1 2024 compared to Q1 2023, as operating results in our core property portfolio continue to show strong improvement.
In Q1 2024, our same property occupancy increased 610 basis points to 86.1%, and our same property Adjusted NOI increased by CAD 11.3 million or 24.7%. FFO growth benefited from CAD 1 million of lower G&A expenses, primarily due to lower compensation costs as we continue to execute on our plan to achieve efficiency improvements. Q1 2024 G&A included CAD 0.6 million of severance related to these efficiency initiatives. Slide seven summarizes our same property operating platform results. All our platforms posted occupancy gains in Q1 2024 compared to Q1 2023, which positively impacted our results. Our Western Canada platform, same property Adjusted NOI increased CAD 3.1 million or 20.1%. Our Ontario platform, same property Adjusted NOI increased CAD 6.5 million or 25.8%. Our Quebec platform, same property Adjusted NOI increased CAD 1.7 million or 33.3%.
Turning to slide eight, at May 9th, 2024, liquidity amounted to approximately CAD 279.5 million, which included CAD 37.5 million of cash and cash equivalents and CAD 242 million of borrowing capacity on our credit facilities. For the remainder of 2024, we have CAD 141.1 million of mortgage debt maturing at the weighted average interest rate of 3.32%. We expect to renew or refinance these loans during the year. We also have a CAD 125 million term loan maturing in May 2024. We expect to refinance or repay this loan with proceeds from CMHC financings on our unencumbered properties. At May 9th, 2024, 10-year CMHC insured mortgage rates are estimated at approximately 4.57%, and five-year conventional mortgage financing is available at approximately 5.75%. Moving to slide nine, with the continuing strong prospect traffic and leasing activity, we expect occupancy to continue to grow in 2024.
We now forecast to achieve 87.3% Same Property occupancy by June of this year. We have been using targeted incentives in certain markets to support this rapid occupancy growth. As more residences achieve higher occupancy rates, we expect to gradually reduce the use of these incentives. We believe that improving occupancies, combined with lower new supply coming to market, will support higher-than-historical market rate increases over the next several years. We expect these dynamics will result in the growth of our adjusted operating margins above the current levels. I will now turn the call back to Vlad to wrap up.
Thank you, Jeff. There has never been a better time to be in the senior living business in Canada. With strong demand for our services driven by the demographic growth of the senior population, slower pace of construction activity, continuing shortages of long-term care beds, and the obsolescence of some of the existing inventory, our sector is poised for sustainable long-term growth. Our teams are hard at work to position Chartwell to be at the forefront of this growth. As illustrated on slide 10, our company continues to focus on three key areas to accelerate this growth. We are in business of providing seniors with a great place to live. We strive to provide our residents with personalized, memorable experiences because we believe that these experiences will result in high resident satisfaction rates. Very satisfied residents are four times more likely to refer their friends to Chartwell.
With over 50% of our move-ins coming from referrals, increasing the volume of referrals will drive and sustain high occupancy rates, which in turn will improve profitability. We believe that only highly engaged, caring, and dedicated employees can deliver these personalized, memorable experiences to their residents. That is why we focus most of our time and investments on employee engagement, resident satisfaction, and occupancy growth. We're also in the process of transitioning our management operations to a more agile and scalable platform. Over the last four challenging years, we learned that we could do things faster. We're doing more to empower those closest to the customer to make decisions, to take actions, and experiment. We're leveraging our platform to provide them with the necessary tools, including various technology solutions, training, and targeted support to help them outperform.
We're reviewing all our corporate support processes and eliminating low value-add work, implementing technology solutions to enhance efficiency of our support services, and reimagining our corporate support functions to align with this new way of working. We continue driving our portfolio optimization and growth initiatives, investing in our existing properties to ensure their long-term competitiveness, pursuing acquisitions of newer, high-growth properties in strong markets, and divesting non-core residences. To date in 2024, we completed the acquisition of one property, expect to close on the second acquisition from Bâtimo in the next few weeks, and announce an operation closure of another non-core property. We continue to investigate several other strategic growth opportunities in our markets. I will now close our prepared remarks with a story from one of our residences, as pictured on slide 11.
I'm thrilled to share a recent media story about our incredible residents at Chartwell Allandale Station in Barrie. Residents Shirley Monger, Christine Maxamenko, and Eleanor Ball put their baking skills to test, turning out more than a dozen apple pies as a thank you to local first responders. With the assistance of General Manager Kyla Krawczyk and armed with their freshly baked goods, the group set out to hand-deliver these pies to the local fire hall, police station, hospital, and ambulance stations. This act of kindness is part of Chartwell Allandale Station's HOPE initiative, helping others through purposeful engagement, allowing residents to utilize their skills and lifelong hobbies while giving back to their communities. Kyla said it's best. When our seniors give to our community, it allows them to experience fulfillment, autonomy, and connection to their community.
This is just one example of the amazing contributions that our residents and employees are making in their communities across the country. I invite you to visit our Media Center page on Chartwell.com to read more stories about our residents making headlines across the country. Thank you for your attention this morning. We will now be pleased to answer your questions.
Thank you. We will now take questions from the telephone lines. If you have a question, please press star one on your device's keypad. You may answer your question at any time by pressing star two. Please press star one at this time if you have a question. There will be a brief pause while the participants register for questions. Thank you for your patience. The first question is from Lorne Kalmar from Desjardins. Please go ahead.
Thanks. Good morning, everybody.
Morning.
On the Heritage Glen closure, and apologies if I might have missed it, what type of pricing do you expect? I believe you're selling it. What would be the NOI impact once it's closed?
Thanks for the question. It's Jonathan here. So you would know that we were operating it as a retirement residence at less than 60% occupancy for many years. And so it's being repurposed and renovated as a multi-residential building. The property wasn't well suited to continue as a retirement home. And when you look at the vacancy rate in the region of retirement homes versus multi-res, it makes a lot of sense for everyone for it to be repurposed as multi-residential. But the sale is still conditional. And as such, we're not giving details just yet on price and impact.
Fair enough. And then I think there was a mention of another operational closure. Could you maybe give us a little bit of detail around that and maybe also just an outlook in terms of how many of these are kind of left in the portfolio and the pace at which you expect to close them, maybe on an annual basis if you can?
There was no other operational closures that we mentioned. We meant Heritage Glen. That's the only one that is in progress now. In terms of the future, there are no immediate plans of doing any other closures of the homes. We continue to look at our portfolio and performance and continue to evaluate each asset on its merit. At this time, there are no other plans.
Okay. Fair enough. And then lastly, just on the announcement around the Ballycliffe sale, I think the original disposition proceeds were CAD 64.5 million. Can you give us an idea of what you think you can get now with the revisions to the LTC funding model?
Yeah. So the building's still not fully constructed or handed over to operations. We will relaunch the sale process, as we said, once it is. And we are in discussions with the original buyer in terms of their interest to buy it. Like you said, we think it's going to be worth more than the CAD 64 million that was in the forward purchase agreement. I don't have a number for you now, but the new funding model is going to positively affect its value. Other considerations also come into play for a buyer, including financing costs and what other considerations they might have. But certainly, the funding model is going to help the value.
Okay. Great. Thank you so much for taking my questions. I'll turn it back.
Thank you. The next question is from Jonathan Kelcher from TD Cowen. Please go ahead.
Thanks. Good morning. Just to close out on Heritage Glen, I guess at 60% occupancy, it wouldn't have been contributing much, if any, NOI. Is that fair to say?
That's correct.
Okay. On the Bâtimo , you're acquiring the two properties this quarter. There's two more where they have the right to put the assets to you. Do you expect to be acquiring those later this year?
We're working with Bâtimo . We have been continuously on finding the right strategy and the right timing to acquire these properties. Right now, we're focused on the one that we just closed last week and the one that we expect to close in the next few days. There might be one more down the pipe, but we're not actively working on anything that's imminent.
Okay. And then I think, if I recall correctly, in the MD&A one, both those ones you're acquiring have north of 8% debt. I think on the one you've acquired, you said the debt's due December 1st, and you can refinance it. But what about the other asset? Should we think about that as a similar timeframe in terms of refinancing?
We're going to be pursuing, hey, Jonathan. We're going to be pursuing financing with CMHC on both of those. And so we'll kick-start that as soon as the second closes. So the timing may even be earlier than December. That's just the maturing of the existing facility.
Okay. But both will get done this year. It's fair to say.
Yeah. We anticipate both being done this year.
Okay. And then last for me, just on the Karen, on the electronic health records, can you maybe walk us through how you sort of translate to more use of that as increasing the care revenue? And then what's the potential going forward there? And lastly, how material is it? What's sort of the dollar amount we're talking about?
Because we're capturing it electronically, we can track it so much better. We do assessments on a regular basis. That's when we can determine whether people need additional care services and then add those to the assessment, which hooks directly to the billing. That's what I think is helping us rather than it all being paper-based and more disjointed from the billing portion. That's sort of the practical application of that.
And Jonathan, it's a combination of electronic health records and the Care Assist program, Karen's team rolled out over the last couple of years. Our homes that makes access to this additional care a lot easier for the consumer. It's much more clear than what ourselves and other competitors had in place in the past. And so I think the pickup in the care revenue is a combination of those two things, not just electronic health records. And in terms of materiality, it is not a significant portion of our overall revenue, but it is significant for improving the lives of our residents and helping them to stay longer with us, which is very important.
Okay. That's great color. I'll turn it back. Thanks.
Thank you. Once again, please press star one on your device keypad if you have a question. The next question is from Himanshu Gupta from Scotiabank. Please go ahead.
Thank you and good morning.
Morning to Himanshu.
So on the sales KPI, I think you mentioned permanent move-ins were up 13% in Q1. Can you tell how many actual move-ins were there in the quarter and then how they are trending in Q2 so far?
We don't have the absolute numbers at our fingertips. In terms of the trends, they continue to be very positive, and we continue to see pretty strong traffic. Karen mentioned the open houses. Both January and April saw the highest number of initial contacts and people coming in checking us out that we've ever seen. That gives us a lot of encouragement that the positive trends will continue for the remainder of the year and beyond.
Got it. Okay. So I think in Q4, you disclosed something like, I think, 2,200. Would that be in the ballpark or maybe even higher than that? Or you can come back to me on that.
Yeah. We'll have to come back to you.
Okay. Fair enough. Fair enough. Okay. And then on the sticking to occupancy, good occupancy momentum on the same property portfolio. But is there a reason why there was no occupancy growth in the growth portfolio in Q1?
No. We'll have to take a look at it and get back to you on that as well. There may be some specific properties that are being repositioned or the composition of portfolio.
Yeah. Because some properties moved out of the growth portfolio into the same property portfolio as well. But we can follow up with you on that.
Yeah. These ones are harder to compare, right, because properties get added and taken out of the growth portfolio over the years. So it's not the same subset of properties there. That's why the focus always is on the same property, which that property is that we own for a continuous period of time. So the comparison is apples to apples. In the growth portfolio, it's not the case.
Okay. So maybe let's clarify here. The repositioning portfolio is the one which you are going to sell to Welltower. So that category goes away, kind of goes away from Q2.
Not all of it. Not all of it.
But most of it.
The majority of it is that. But there are also properties that we're either changing the capacity or investing significant capital or that are seeing some other activities on the side.
Okay. Okay. That's repositioning. Now the growth portfolio is the one which you are retaining from Welltower and the JV.
That and also properties that were recently acquired that were not stabilized or that were recently developed that are in lease-up still.
Okay. Do you think the growth portfolio should ideally outperform the same property portfolio in the next one year in terms of the upside on NOI?
Yeah. Probably. This will be newer properties in that portfolio that have higher growth, and we should see higher growth on that. Having said that, as I just mentioned in my remarks, the environment out there is very positive for everybody who is in the sector. And we still have quite a bit of room to grow in our same property portfolio. So our intent is to realize both these opportunities in both portfolios.
Okay. Okay. Fair enough. And then maybe just turning to the margins, Same Property NOI margins. I think if I recall, last time you mentioned Same Property margins could go to 38% this year. Is that still the view?
We did have strong margin growth in Q1 2023 over Q1 2024 or 2023 at 35% versus 32%. We are tracking towards growth and still believe we can attain the 38% by year-end.
Which is basically the full year 2024 at 38%.
That's our expectation.
Okay. So that is unchanged. So just clarifying that. Okay. Okay. Fantastic. Last question is on the balance sheet. I think CAD 125 million term loan. I think that is due in May, right, this month itself. And so do you have CMHC debt financing room available? I think you mentioned you want to access CMHC for that.
Yeah. We have a number of financings in the pipeline with CMHC that they're just working through the process. So depending on timing, we'll either use those to repay the CAD 125 million loan that's due at the end of this month or may extend that loan for a short duration while those financings get completed.
Okay. Okay. Fantastic. Thank you. And I'll turn back.
Thank you. Next question is from Pammi Bir, RBC Capital Markets. Please go ahead.
Thanks. Good morning. You had specifically cited, I guess, the CAD 15 million of investments in the same property portfolio, I guess, to modernize it. Just, I'm curious, do you see that as sort of the is that maintenance-related? And just curious how you see that spending trending over the next year or so?
I think, Pammi, you should assume that we will continue to invest in our property portfolio at about similar levels that we have been doing in the past, so anywhere between CAD 70 million and CAD 90 million a year, depending on the year. These investments are in upgrades of common areas and resident suites. In some cases, you have to do them because suites are not rentable in any other condition. In other cases, we're accelerating these upgrades because we think we can generate higher rate increases from new residents moving in into upgraded suites. And so it's really difficult to differentiate which is which. Therefore, we're just showing you the total amount that we're investing back in our properties in these particular areas.
Okay. So yeah, it sounds like a mix of both in terms of that bucket. I'm not sure if you can answer this one, but with respect to the consolidated sort of class action claim, now that it's been certified, what can you share in terms of what's happening there and next steps, if any? And as all of this ultimately, do you expect this to really get covered by the Recovery Act? And just curious if you can shed some light on that.
Sure. I can take that. It's Jonathan. So I guess at the outset, what I would say is we're still very confident that our handling of the pandemic, both on the corporate side and in our residences, was appropriate. We always had the health and safety of our residents as our number one consideration. That gives us a lot of confidence on this class action. You noted, and it's correct, that the class action was certified. There were some issues that were resolved in the certification process, including the fact that the standard is a gross negligence standard, which is a higher bar across, obviously, than just a negligence standard, which was sought by the plaintiffs. There are some specifics that I'm not going to get into because they're quite technical related to that certification that we object to. So we filed for leave to appeal.
We haven't heard back on that yet. The next step in the process, assuming we get that leave to appeal, would be to hear our appeal on those technical issues. Otherwise, we will go forward with the class action trial for which we are insured.
Okay. So yeah, I guess if this were to result in any sort of damage awardments sorry, awards, your insurance proceeds would cover that type of outcome.
We believe we're adequately covered. Yes.
Yeah. Okay. All right. Thanks very much. I'll turn it back.
Thank you. There are no further questions registered at this time. I would now like to turn the meeting back over to you, Mr. Volodarski.
Thank you. That wraps up our today's conference call. Thank you for joining us. As a reminder, our AGM will be held virtually and in person on Tuesday, June 4th, at 5:00 P.M. Further details will be posted on our website later today. We're looking forward to you joining us then. As always, if you have any further questions, please do not hesitate to give any one of us a call. Goodbye.
Thank you. The conference has now ended. Please disconnect your lines at this time. We thank you for your participation.