Chartwell Retirement Residences (CSHUN) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. Welcome to the Chartwell Retirement Residences Annual General Meeting Conference Call. I would like now to turn the meeting over to Mr. Mike Harris, Chair of the Board. Please go ahead, sir.

Good morning and welcome to the Annual Meeting of the Unitholders of Chartwell Retirement Residences. My name is Mike Harris, I'm Chair of the Board. Before adding Vlad Volodarski, Chartwell's CEO to Chair the meeting, I would like to make some preliminary remarks. I would like to begin by extending on behalf of the Board our sincere gratitude and heartfelt thanks to the employees of Chartwell, most especially in our residences. Their commitment and dedication is exemplary, and their selfless efforts are nothing short of heroic. We also appreciate the tremendous efforts of the regional and corporate teams that have worked tirelessly from the very beginning of this pandemic to providing a clear direction and communication and support to allow our residences' staff to focus on services and care for our residents. We understand how difficult this time has been for our residents and for their families, especially those in long-term care homes. This pandemic has tested our resilience and stretched all of our resources, and I know that our unitholders will understand that our first priority, especially during this difficult time, has been our residents and our frontline employees. The Board also extends its full support and confidence to Chartwell's leadership team and their management of COVID-19. Their focus on the safety of our residents and staff and decisive response to this pandemic utilizing the company's strong cross-functional expertise has been exceptional. Earlier this week, Chartwell announced that together with its industry partners, it created the Senior Living CaRES Fund, dedicated to providing emergency financial relief to senior living workers of all retirement and long-term care residences across the country that may be facing financial hardship as a result of COVID-19. Chartwell committed $500,000 to this $2 million initiative. Senior living workers have been on the front lines in the fight with this pandemic. And we all should be grateful to them for their extraordinary commitment to our residents, their families and each other. Our Board is incredibly touched by this vision, and all Board members unanimously agreed to forgo a portion of our compensation to allow the company to contribute an additional $225,000 to this initiative. I will now turn the meeting over to Vlad.

Thank you, Mike. Good morning, and welcome to the Annual Meeting of the Unitholders of Chartwell Retirement Residences. My name is Vlad Volodarski, and I'm the Chief Executive Officer and a member of the Board of Directors of Chartwell Master Care Corporation. Due to the provincial emergency order prohibiting organized public events and social gatherings of more than 5 people due to COVID-19, the number of attendees in person at this meeting is restricted. However, no one who is entitled to attend the meeting was turned away from attending as a result of these restrictions. All unitholders, not attending in person, may listen to the meeting in real time via conference call or over the Internet through our website at www.chartwell.com. The dial-in details have been posted on our website. I will now call the meeting to order. With the consent of the meeting, I will act as Chair of this meeting, Zelia dos Santos will act as Secretary of the meeting and Computershare Trust Company of Canada by its representative, Louise Waltenbury, will act as scrutineer. Would the Secretary please confirm that notice of this meeting was properly provided?

Yes, the notice, information circular and proxy form were provided on April 7, 2020, to each unitholder of record as of March 26, 2020.

Thank you, Zelia. I'll declare that the notice calling the meeting has been properly given. With the consent of the meeting, we will dispense with the reading of the minutes of the last annual meeting of unitholders. The agenda for today's meeting will be as follows: one, the presentation of the financial statements of Chartwell for the period ended December 31, 2019; two, the election of the trustees of Chartwell, the nomination of trustees for CSH Trust and the nomination of directors for Chartwell Master Care Corporation; three, the reappointment of auditors for Chartwell; four, the resolution ratifying an amendment to Chartwell's deferred unit plan; five, resolution ratifying certain amendments and authorizing certain other amendments, the Chartwell's 14th amended and restated declaration of trust dated May 4, 2017; six, an advisory resolution on Chartwell's approach to executive compensation; and seven, management's presentation to unitholders. Unitholders or proxyholders in attendance in person may speak with respect to each matter before the meeting. As said on our website, all other unitholders have been provided with the opportunity to submit written questions with respect to any matter before the meeting and to the extent of any such questions, I will address them at the appropriate time. After the business of the meeting has been completed, there will be a general question period during which unitholders attending the conference call can ask questions, which the operator of this call will facilitate. I request that you hold any general questions concerning the operations of Chartwell unit to the general question period. I would like to take this opportunity to introduce the other trustees, directors, and senior officers of Chartwell and its subsidiaries who are in attendance today in the room or on the phone. Mike Harris, Director and Chair of the Board; Lise Bastarache, Director; Brent Binions, Director; Ann Davis, Director; André Kuzmicki, Director; Sharon Sallows, Director; James Scarlett, Director; Huw Thomas, Director; Karen Sullivan, President and Chief Operating Officer; Sheri Harris, Chief Financial Officer. The scrutineer will report on the number of units represented at this meeting and will compute and record votes on the matters submitted for consideration at this meeting. I am advised that there is a quorum of unitholders present as required by Chartwell's Declaration of Trust. I declare the meeting to be duly called and properly constituted for the transaction of business. We have a number of matters to vote on. To vote each holder of trust units must have previously submitted voting instructions or designated a representative to attend the meeting on his or her behalf. All of the special voting units are registered in the name of the persons holding them directly and may be voted in person or by proxy. In order to allow the meeting to proceed efficiently, we have arranged for certain unitholders to make the motions required to put before the meeting, the various resolutions to be voted upon. Voting on all resolutions will be conducted by ballot after the last item of business has been introduced. I wish to present to the meeting the financial statements of Chartwell for the period ended December 31, 2019, and the report of the auditors on those statements. Copies of these financial statements were mailed to those unitholders of Chartwell who requested them and are available on our website at www.chartwell.com. I do not propose to read the financial statements to the meeting nor is approval of the financial statements by unitholders required. The next group of related items of business is the election of trustees for Chartwell, the approval of directions regarding the elections of trustees, CSH Trust and directions regarding the election of directors of Chartwell Master Care Corporation. Chartwell has a policy that entitles unitholders to vote for each nominee on an individual basis. We will proceed first with the election of the trustees of Chartwell. The number of trustees of Chartwell has been fixed at 3. I will now ask Sheri Harris to move the nomination of the 3 trustees. Sheri?

I nominate Lise Bastarache, Ann Davis and Huw Thomas to serve as trustees of Chartwell Retirement Residences.

As no other nominations were submitted within the required time frame set out in Chartwell's Declaration of Trust, I declare the nominations closed. Unitholders of Chartwell are also entitled to direct the trustees of Chartwell to elect nominees who will serve as the 3 trustees of CSH Trust. I will now ask Sheri to move a motion in favor of the election of nominees as the 3 trustees of CSH Trust.

I move that the trustees of Chartwell be directed to vote the units of CSH Trust held by Chartwell in favor of the election of Mike Harris, André Kuzmicki and Sharon Sallows as Trustees of CSH Trust.

As no other nominations were submitted within the required time frame set out in Chartwell's Declaration of Trust, I declare the nominations closed. Unitholders of Chartwell are also entitled to direct the trustees of Chartwell to elect nominees who will serve as the 9 directors of Chartwell Master Care Corporation. I will ask now Sheri to move a motion in favor of the election of nominees as the 9 directors of Chartwell Master Care Corporation.

I move that the trustees of Chartwell be directed to vote the common shares of Chartwell Master Care Corporation held by Chartwell in favor of the election of Lise Bastarache, Brent Binions, Ann Davis, Mike Harris, André Kuzmicki, Sharon Sallows, James Scarlett, Huw Thomas and Vlad Volodarski as Directors of Chartwell Master Care Corporation.

As no other nominations were submitted within the required time frame set out in Chartwell's Declaration of Trust, I declare the nominations closed. The next item of business is the reappointment of auditors for Chartwell, and I believe that Sheri Harris has a motion in this regard.

I move that KPMG LLP be reappointed auditors of Chartwell until the next annual meeting or until a successor is appointed and that their remuneration as such be fixed by the trustees of Chartwell.

The next item of business is to consider, and if thought advisable, to pass the resolution to ratify the amendment to Chartwell's deferred unit plan as set out in Appendix A of the Management Information Circular. In order to be effective, this resolution must be passed by a majority of votes cast by the unitholders who vote on this resolution. I will now ask Sheri Harris to make a motion in this regard.

I move that the resolution as set out on Appendix A of the Management Information Circular be approved.

Thank you, Sheri. The next item of business is to consider, and if thought advisable, to pass the resolution ratifying certain amendments and authorizing certain other amendments to Chartwell's 14th amended and restated declaration of trust in Appendix B of the Management Information Circular. In order to be effective, this resolution must be passed by a majority of votes cast by the unitholders who vote on this resolution. I will now ask Sheri Harris to make a motion in this regard.

I move that the resolution as set out on Appendix B of the Management Information Circular be approved.

Thank you. The last item of business is to consider, and if thought advisable, to approve the advisory resolution on approach to executive compensation set out on Page 20 of the Management Information Circular. In order to be effective, this resolution must be passed by a majority of votes cast by unitholders who vote on this resolution. I will now ask Sheri Harris to make a motion in this regard.

I move that the resolution as set out on Page 20 of the management information circular be approved.

Thank you. We will now conduct a vote by ballot on the matters before the meeting. Unitholders or proxyholders, who registered with the scrutineer, received a ballot. Unitholders, who have previously completed a proxy, should not vote by way of ballot on a motion unless they wish to revoke their proxy. [Voting]

I declare that the poll is closed with respect to voting on all items of business. The scrutineer has collected the ballots, and I have a preliminary report on the ballots cast with respect to each of the motion voted upon at the meeting. Based on the preliminary report, I can now confirm the results of your votes today. On the first motion, the election of trustees of Chartwell, the scrutineer reports that each of the 3 nominees received a majority of the votes cast. Therefore, I declare Lise Bastarache, Ann Davis and Huw Thomas to be duly elected as trustees of Chartwell Retirement Residences to hold office until the next annual meeting or until their successors are elected or appointed, subject to the provisions of Chartwell's Declaration of Trust. On the second motion, the nomination of trustees of CSH Trust, the scrutineer reports that each of the 3 nominees received a majority of the votes cast. Therefore, I declare the trustees of Chartwell are hereby directed to vote the units of CSH Trust held by Chartwell in favor of the election of Mike Harris, André Kuzmicki and Sharon Sallows as trustees of CSH Trust. On the third motion, the nomination of directors of Chartwell Master Care Corporation, the scrutineer reports that each of the 9 nominees received the majority of the votes cast. Therefore, I declare the trustees of Chartwell are directed to vote on the common shares of Chartwell Master Care Corporation held by Chartwell in favor of the election of Lise Bastarache, Brent Binions, Ann Davis, Mike Harris, André Kuzmicki, Sharon Sallows, James Scarlett, Huw Thomas and Vlad Volodarski as directors of Chartwell Master Care Corporation. On the motion to appoint auditors, I declare KPMG LLP have been appointed auditors of Chartwell in accordance with the motion and that the trustees of Chartwell are authorized to fix their remuneration. On the motion to ratify the amendment to the deferred unit plan, the scrutineer reports that the resolutions have been approved by a majority of votes cast by the unitholders represented at this meeting. Accordingly, I declare the resolution carried in accordance with the motion. On the motion to approve the amendments to the declaration of trust, the scrutineer reports that the resolution has been approved by a majority of votes cast by the unitholders represented at this meeting. Accordingly, I declare the resolution carried in accordance with the motion. On the last motion, the advisory resolution on executive compensation, the scrutineer reports that the resolution has been approved by a majority of votes cast by the unitholders represented at this meeting. Accordingly, I declare the resolution carried. The official voting results will be available on sedar.com following today's meeting. The formal business of the meeting is now concluded. As there is no further business, with the consent of the meeting, I now terminate the meeting. On behalf of Chartwell, I would like to thank you all for attending today's meeting. I will now make some remarks about the operations of Chartwell, which will be followed by a general question period. Before I begin, let me remind everyone that during this call, we make statements containing forward-looking information and non-GAAP measures. I direct you to our MD&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. More specifically, I direct you to the added disclosure in our Q1 2020 MD&A under the heading Forward-Looking Information and COVID-19 Risk for a discussion of risks and uncertainties introduced by the COVID-19 pandemic. These documents can be found on our website or at sedar.com. I'd like to begin with a sincere thank you to our employees, thank you for everything; for showing up every day, taking a personal risk in order to care for someone else's loved one; for the selfless commitment to our residents, not just providing care and support but also compassion and connection at a time when they needed it most. It is because of you that our residents, while currently separated from their loved ones, are not alone. Because of you, they are never alone living at Chartwell. I know beyond any doubt that our Chartwell employees hold a very special place in the hearts of our residents and their family members. How do I know this? Because from the early days of this pandemic to today, I have witnessed an amazing outpouring of gratitude, affection and support that our residents and family members are expressing toward them. At one residence, a family member left care packages for our employees, each one had a gift tag that said, "You were always essential." An e-mail came into one of our general managers with a quote from a family member saying, "You are protecting our precious seniors. You are doing heroic work. Thank you so much." Another e-mail from a family member said, "I am so thankful for the excellent care and forethought given by the staff and management for my mom and other residents. They were well ahead of the curve in social distancing and bringing in protective measures. They have shown dedication and self-sacrifice with love, to her in monitoring and caring for her needs. A heartfelt thank you from a very grateful family." On March 11, 2020, the World Health Organization declared COVID-19 a global pandemic. While we have always had strong infection prevention and control protocols at our residences and are used to dealing with viral outbreaks, this virus has presented challenges never seen by the world before. The speed of its transmission and the profound impact it has on those with preexisting medical conditions and/or compromised immune systems, which describes many of the residents we serve and care for, has never been experienced before. The strength of our management platform and the depth and expertise of our leadership team allowed us to react swiftly and activate teams and systems to support our residences' staff, so that they could fully focus on keeping our residents, their families and each other safe. We activated our Critical Incident Command on March 11, 2020, a cross-functional group of senior leaders and subject matter experts in operations, nursing care, labor relations, human resources, supply chain management, communications, information technology and finance. The following are some of the outcomes of the Critical Incident Command's work. We developed and rolled out enhanced infection control protocols, including active screening, modified dining arrangements, enhanced cleaning practices and health monitoring at all our residences. We established, rolled out and trained our employees on COVID-19 outbreak protocols in all our communities. Each one of our residences practiced these outbreak preparedness procedures, so they would know exactly what needs to be done if an outbreak is declared. We received numerous letters from the residents' families and homes that did experience an outbreak with words of gratitude for our timely communication and clarity of our procedures. We launched a recruitment campaign, which resulted in over 12,000 applications and 1,200 hires so far. We have over 60 corporate staff involved in helping us with these recruitment activities. We established a bilingual 24/7 hotline to quickly respond to any questions that our on-site managers may have in the areas of nursing care, operations, information technology, human resources and/or personal protective equipment inventory. We sourced sufficient quantities of personal protective equipment and established timely distribution strategies to allow us to exceed public health requirements in providing this protection to our staff and residents. To date, our supply chain management team has sourced almost 3 million pieces of this equipment at an investment of close to $4 million. We worked with our partners and associations in supporting the senior housings sector through informing government's emergency response, including special funding to support the industry and frontline employees, sharing operational information to support smaller operators, participating as a founding member of the Canadian Alliance to Protect and Equip Senior Living, a collective established to source personal protective equipment. As a founding member, we contributed $1.5 million to this initiative with 35% of this contribution dedicated to support smaller operators to have access to the much-needed personal protective equipment at cost. We're proud to announce our role as a founding partner in the launch of Senior Living CaRES Fund, inspired by the heroic efforts of long-term care and retirement residence employees, most especially during the COVID-19 pandemic. Born from an idea of Chartwell's President and Chief Operating Officer, Karen Sullivan, a 33-year sector veteran and a passionate people leader, the CaRES Fund will offer onetime financial grants of up to $10,000 for urgent financial needs to employees of all retirement and long-term care operators in Canada. The CaRES Fund founding members, Chartwell Retirement Residences, Revera, Extendicare and Sienna Senior Living, have committed an initial capital investment of $2 million to this initiative. In appreciation for the dedication of all senior living workers on the front lines and for their selfless commitment to residents' families and each other, our Board of Directors have waived a portion of our 2020 compensation to allow Chartwell to contribute an additional $225,000 on top of its original $500,000 contribution. My congratulations to the residents and families, and most importantly, our staff at 24 residences, including 22 retirements and 2 long-term care communities, which have now moved out of COVID-19 outbreak with no new cases. Chartwell operates over 200 residences with close to 30,000 suites, of which long-term care represents approximately 11% or 23 residences with 3,385 beds. While we are predominantly a retirement company, LTC plays an important role in the Canadian health care system, and we take great pride in the unmatched expertise, long-standing experience and dedication of our long-term care team. Quality of care is about caring for people, seeing our residents as individuals, knowing that they are loved by their families and that living in a Chartwell long-term care residence brings not only support but care, compassion and connection for our residents. Chartwell has a strong record of performance with respect to the publicly reported quality indicators when compared to Ontario's provincial average. And since the third quarter of 2018, Chartwell has been better than the provincial average on all 6 of these quality indicators. Unfortunately, the impact of this virus has been much more profound in our long-term care residences. We care for our most vulnerable and most frail residents in our LTC homes. It is well documented that approximately 90% of long-term care residents have some form of cognitive impairment; 86% need extensive help with activities, such as eating or using the washrooms; 80% have neurological diseases; and 76% have heart conditions. I am sorry that despite the tremendous efforts of our long-term care teams and strong support from our health care community partners and government, we could not protect all of our residents from the effect of this virus. Sadly, out of 108 COVID-related deaths at Chartwell homes, 92 occurred within our long-term care residences. Each one of these deaths is one too many. My sympathy and thoughts are with the families directly affected by this pandemic. As of May 13, 2020, we had 21 retirement homes and 13 long-term care homes in COVID-19 outbreak. The human and economic toll of this pandemic has been tremendous. It is in times like this when people and companies' strength, leadership and resilience are being tested. Our people have clearly risen to these challenges, and these qualities are in abundance within Chartwell as a company, a company that is built with the mission of making people's lives better, a company that has a strong culture, clear customer-focused strategy, exceptional corporate governance and unmatched execution capabilities. Due to the restrictions in visits and move-ins during the COVID-19 pandemic, our occupancy declined. While these restrictions are in place, we expect occupancy to continue to be impacted. The extent of the impact will be dependent on the duration of the current restrictions and the speed of the eventual recovery. That said, we are a needs-driven business. The inability of those in need to move in now should create pent-up demand and support the eventual recovery. As this pandemic progressed, our sales team pivoted to providing virtual companionship and moral support to seniors in communities where we operate to alleviate loneliness and isolation and to stay in touch with our prospective residents. We received an excellent response and overwhelming gratitude from these prospects with many being interested in moving in as soon as possible. We're in the final stages of updating our move-in safety protocols to allow safe and efficient move-ins. We have spent many years building a strong foundation to withstand operational downturns and financial dislocations. While the full impact of this pandemic is unknown and many risks and uncertainties exist, Chartwell is a large, well-capitalized company with strong liquidity and access to capital even in these times. As of May 7, 2020, our liquidity was $363.3 million, including $173.3 million of cash on hand. Our unencumbered asset pool is valued at $957.3 million, which would allow us to access additional debt financing if required. Over the years, we developed strong relationships with our capital providers, including lenders, and we're grateful for their continuing support of Chartwell. Our goal is to earn the trust of our stakeholders by making a positive difference in the lives of our residents and their families, our employees, our investors and in the communities where we operate. For everyone at Chartwell, this desire for continuous improvement is part of a shared commitment to making people's lives better. Earlier this year, we introduced the environmental, social governance report which tracks our progress on advancing our sustainability goals. I encourage you to read the full report, which can be found on our website, www.chartwell.com. Our strong corporate governance has been consistently recognized. In 2019, we ranked #3 out of close to 250 issuers in Canada by the Globe and Mail Board Game publication and recognized as one of the leaders in the diversity in Women Lead here publication in early 2020. In closing, I want to once again thank our frontline staff for their heroic work. I also want to thank our regional and corporate teams for their work supporting our homes around-the-clock in this pandemic. I want to thank our residents and their families for their ongoing support and encouragement. It matters now more than ever. My partners and our senior executive team, your decisive leadership and quick but thoughtful actions in these exceptional circumstances have been nothing but exemplary. It gives me confidence that we will always do what is right and make decisions that consider the interest of all our stakeholders no matter what the pressures of the moment might be. To our directors, your diverse expertise, wisdom and highest ethical standards have helped Chartwell to achieve strong recognition for its governance. Thank you for your support and direction, especially during these extraordinary times. To you, our unitholders, thank you for your trust and your support. We know that without your investment in Chartwell, we would not be in business and would not be able to make people's lives better. We will never take that for granted, and we'll continue to treat your investment with the utmost care and respect that it deserves. The people of Chartwell came together as one in this fight against COVID-19, and I have no doubt that we will prevail and emerge on the other side of this pandemic as a strong industry leader. Thank you. I will now be pleased to answer any questions you may have. Sean, please open the line.

[Operator Instructions] The first question is from a participant. [Operator Instructions]

Matthew Cathmoir, SEIU Healthcare. So during this pandemic, we've learned for-profit operators like Chartwell have dramatically worse COVID-19 infection figures and deaths than not-for-profit homes. I'm wondering why is this? Has there been any improvement to staff-to-resident ratios, redirecting investments or distributions to shareholders to PPE or a move to increasing full-time positions across Chartwell homes?

Thank you, Matthew, for your question. The correlation does not equal causality. The reports quoted in the press that you are referring to draw unsupported conclusions based on reported correlation. Remember, while Chartwell is predominantly a retirement company with LTC representing 10% of our business, our leadership team has extensive experience in long-term care dating back 30-plus years. So let me give you some facts about long-term care in Ontario. Revenues are 100% controlled by the provincial government. No operator is allowed to make a profit from government funding that is targeted for resident care or services. If these funds are not spent on these resident care and services, then they are returned to the government. In that, there is no difference between private, municipal or not-for-profit homes. No operator is allowed to charge residents more to improve or increase services. Not-for-profit homes may supplement the provincial funding through fundraising activities. Municipal homes receive additional funding from municipalities. According to some research, that additional funding in 2018 amounted to $300 million. That is approximately $1,500 per resident per month, an increase over 25% over the regular funding. If the same funding was applied to private long-term care, it would have costed provincial government over $1.1 billion. So despite the significantly higher revenues generated by not-for-profit and municipal homes, clinical outcomes, as measured by established health quality Ontario quality indicators, are similar for all 3 categories of home ownership. In fact, private homes have slightly better results in 5 out of 6 quality indicators. So the ownership does not really matter when you look at the clinical outcomes. And as we mentioned in our previously issued press release, with the overview of our long-term care operations, Chartwell has consistently ranked above provincial averages on the majority of these quality indicators with all 6 of them being higher than provincial average since Q3 2018. About half of the total home inventory in Ontario is older stock homes that are classified as Class C that are built before 1972. These homes have larger proportion of 4-bed wards and 2-bed wards than newer homes. It is much more difficult to affect infection control, cohorting and isolation protocol in these older homes. Of the 630 long-term care homes in Ontario, 239 are these older homes. And of these, 83% are owned by private operators. Our view is that it is because of this physical plant limitation that the death rates and infection rates in these homes are much higher than in other homes. It's not the type of ownership that makes a difference, it's the type of the physical plant that makes the difference. Sean, I can answer other questions.

[Operator Instructions] There are no further questions registered at this time. I will turn the meeting back over to you.

Thank you, everybody, for attending the meeting. Bye now.

Thank you. The conference is now ended. Please disconnect your lines at this time, and we thank you for your participation.