Chartwell Retirement Residences (CSHUN) Earnings Call Transcript & Summary

Good afternoon, and welcome to the Annual Meeting of the unitholders of Chartwell Retirement Residences. My name is Mike Harris, and I am the Chair of the Board. As I am not standing for reelection, I would like to take this opportunity to note how proud I am to have led this organization since our IPO. We have served Canada's seniors and have lived up to our vision of making people's lives better by delivering an exceptional resident experience that is personalized, memorable, and feels like home, where family and friends feel welcome and respected. I also want to particularly commend all of our Chartwell staff for their extraordinary efforts over the past 2 years. They have dealt with the most difficult of times, meeting the unprecedented challenges of the pandemic and doing everything in their power to keep our residents as safe as possible. You all made me proud to be a part of Chartwell. I also want to thank our unitholders for understanding that our residents safety comes first and for their support of my election to the Board over these past 18 years. I wish all of the Chartwell family, residents, trustees, management and employees the very best in the coming years. My fellow Director, Lise Bastarache, is also not standing for reelection. I would like to thank Lise for her strong contributions to the Board. And Lise provided a unique perspective to many of our discussions, which made the Board a lot stronger. We are holding a virtual meeting again this year, hopefully for the last time, due to the public health impact of COVID 19 and in order to mitigate the risk to the health and safety of our communities, unitholders, employees and other stakeholders. This format allows all unitholders and proxyholders from any location to attend, participate and vote at the meeting. Guests are also welcome to attend, listen to our meeting and ask questions. We're joining you from Chartwell's head office in Mississauga. As this meeting is held virtually via live webcast, I'll set out a few rules for the orderly conduct of the meeting. Questions in respect of a motion can be submitted by any registered unitholder or duly appointed proxyholder using the instant messaging service of the virtual interface. When sending a question, please indicate your name, which entity you represent, if any, and confirm that you are a registered unitholder or a duly appointed proxyholder. General questions will be addressed during the question period at the end of the meeting, and questions regarding procedural matters or directly related to the motions before the meeting will be addressed at the appropriate time. For the purposes of the meeting today, voting on all matters will be conducted by electronic ballot. Voting on all matters is now open and will remain open until I close voting shortly before the end of the formal part of the meeting. All registered holders and proxyholders who have properly logged in with their control numbers or username and wish to vote will be able to see on the screen all motions being brought forth at this meeting, and you can vote at any time during the meeting. We'll now proceed with the formal portion of today's meeting, and I will call the meeting to order. I will act as Chair of this meeting. Jonathan Boulakia, Chartwell's Chief Investment Officer and Chief Legal Officer, will act as Secretary of the meeting. And Computershare Trust Company of Canada through its representative, Louise Waltenbury, will act as scrutineer to compute the votes of any polls taken at this meeting and to report the results to me. The purposes of today's meeting are set out in the management information circular of Chartwell dated March 31, 2022. The notice, information circular and proxy form were provided on or around April 12, 2022 to each unitholder of record as of March 29, 2022. Our transfer agent, Computershare Trust Company of Canada, has attested to the proper mailing of the notice calling this meeting, proof of which will be annexed to the minutes of this meeting as a schedule. With the consent of the meeting, we'll dispense with the reading of the minutes of the last Annual Meeting of unitholders. The agenda for today's meeting will be as follows: the presentation of the financial statements of Chartwell for the period ended December 31, 2021; the election of the Trustees of Chartwell, the nomination of Trustees for CSH Trust; and the nomination of Directors for Chartwell Master Care Corporation; the reappointment of auditors for Chartwell; an advisory resolution on Chartwell's approach to executive compensation; and management's presentation to unitholders; followed by a question period. I would like to take this opportunity to address the other Trustees and Directors and senior officers of Chartwell and its subsidiaries who are in attendance today in the room or on the phone: Lise Bastarache, Director; Brent Binions, Director; Ann Davis, Director; André Kuzmicki, Director; Sharon Sallows, Director; James Scarlett, Director; Huw Thomas, Director; Vlad Volodarski, Director and Chief Executive Officer; Karen Sullivan, President and Chief Operating Officer; Sheri Harris, Chief Financial Officer; Jonathan Boulakia, Chief Investment Officer and Chief Legal Officer. As well, we welcome Valerie Pisano and Gary Whitelaw, proposed Nominee Directors, who are in attendance in the room or on the phone. Notice of this meeting, and for those who requested it, the management information circular were mailed to unitholders, and the transfer agent has provided us with proof of mailing. The scrutineer has reported on the number of units represented at this meeting and has computed and recorded the votes received to date on the matters submitted for consideration of this meeting. I'm advised there is a quorum of unitholders present. So I therefore declare the meeting to be duly called and properly constituted for the transaction of business. I wish to present to the meeting the financial statements of Chartwell for the year ended December 31, 2021 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 they're available on our website at www.chartwell.com. I do not propose to read the financial statements to the meeting, nor is the approval by the unitholders required. Next group of related items of business is the election of Trustees for Chartwell. The approval of directions regarding the election of Trustees of 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. And I will ask Sheri Harris to nominate the 3 trustees.

I nominate Ann Davis, James Scarlett and Huw Thomas to serve as Trustees of Chartwell Retirement Residences.

As no other nominations were submitted within the required timeframe 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. And I would ask Sheri Harris 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 André Kuzmicki, Sharon Sallows and Gary Whitelaw as Trustees of CSH Trust.

And I will ask someone to second the motion.

I second the motion.

As no other nominations were submitted within the required timeframe, 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 would ask Karen Sullivan 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 Master Care Corporation held by Chartwell in favor of the election of Brent Binions, Ann Davis, André Kuzmicki, Valerie Pisano, Sharon Sallows, James Scarlett, Huw Thomas, Vlad Volodarski and Gary Whitelaw as Directors of Chartwell Master Care Corporation.

You second her?

I second the motion.

As no other nominations were submitted within the required timeframe set out in Chartwell's declaration of trust, I declare the nominations closed. Next item of business is the reappointment of auditors for Chartwell. Sheri, please move 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.

I second the motion.

Thank you. Next item of business is to consider, and if thought advisable, to approve the advisory resolution on approach to executive compensation set out on page 22 of the management information circular. I would now ask Huw Thomas, Chair of the Compensation, Governance and Nominating Committee, to move a motion in favor of the resolution.

I move that the resolution set out on page 22 of the management information circular be approved.

I second the motion.

Any questions on the motion? I see none. As we mentioned, voting today will be conducted by electronic ballot, which has been open since the start of the meeting for registered holders and appointed proxyholders. The polls are still open. Please register your votes by accessing the voting page and selecting the for or withhold buttons next to name of each proposed Trustee and Director. Please register your votes by selecting for or against to the resolution with respect to the appointment of KPMG as Chartwell's auditor and next to the resolution with respect to the advisory resolution on executive compensation. We will provide registered shareholders and duly appointed proxyholders approximately 1 more minute to complete the electronic ballots. [Voting]

I now direct that voting be closed. I would ask that the scrutineer tabulate the results of voting on all business matters. We will disclose the official voting results shortly after this meeting. However, based on the proxies we have received to date, I have a preliminary report from the scrutineer with respect to each of the motions voted upon at the meeting. And I can now confirm results of your votes today. On the first motion, the election of Trustees of Chartwell, the scrutineer reports that each of the 3 nominations has been elected. Therefore, I declare Ann Davis, James Scarlett and Huw Thomas to be duly elected as trustees of Chartwell Retirement Residences. 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 André Kuzmicki, Sharon Sallows, Gary Whitelaw 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 has received a majority of the votes cast. Therefore, I declare the Trustees of Chartwell are directed to vote the common shares of Master Care Corporation held by Chartwell in favor of the election of Brent Binions, Ann Davis, André Kuzmicki, Valerie Pisano, Sharon Sallows, James Scarlett, Huw Thomas, Vlad Volodarski and Gary Whitelaw 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 the remuneration. On the advisory resolution on executive compensation, the scrutineer reports that the resolution has been approved by a majority of the 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. And as there is no further business with the consent of the meeting, I now terminate the meeting and hand it over to Vlad for management's presentation to unitholders. On behalf of Chartwell, I want to thank you for attending today's meeting.

Thank you. Thank you, Mike. I will allow make some remarks about Chartwell, which will be followed by a general question period. [Operator Instructions] Thank you for joining us today at our virtual Annual General Meeting. Let me remind everyone that during this call, we may make statements containing forward-looking information and non-GAAP measures and ratios. 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 and ratios. More specifically, I direct you to the added disclosures in our 2021 MD&A under the heading COVID-19 Business Impacts and Related Risks for a discussion of risks and uncertainties related to the COVID-19 pandemic. These documents can be found on our website or at sedar.com. Our business in 2021 continued to be significantly impacted by the ongoing pandemic and the related government mandated restrictions in public communities and in our retirement and long-term care residences. As a result, our occupancy declined and our investment and additional staffing and equipment increased to ensure resident safety. This in turn, negatively affected our net income and funds from operation. I'm confident that Chartwell will weather this storm and come out stronger than ever on the other side of it. My confidence is driven by the fundamental belief in the resiliency, dedication, expertise and ingenuity of our people, all 16,000, of them across our retirement and long-term care residences, people who stepped up every day over the last 2 years putting those they serve and care for first. They continue to demonstrate courage and resolve to do everything possible to keep our residents, their families safe and to support each other. Their dedication to our vision of making people's lives better continues to be deep and inspiring. We're fortunate to have them and owe them our gratitude. Despite the sixth wave of the pandemic, our seasonal occupancy decline in the winter and early spring have been in line with our historical experience. Our leading sales indicators, initial contacts, personalized tours and new lease signings have been trending positive and we forecast the beginning of occupancy recovery in May and June of this year. We believe the pent up demand will drive stronger recovery in the second half of 2022 and in 2023. We continued to maintain strong liquidity with $264.1 million available capacity as of May 5, 2022 and over $1 billion of unencumbered asset value. In addition to the pandemic-related pent up demand, the rapid demographic growth of the seniors population in Canada will support the need for our services for the next 20-plus years. In 2022 alone, the population of people over the age of 75 is forecasted to grow by 5.2% with a growth rate of 4% or higher per year continuing well into the next decade. Despite the announced increases in investments in long-term care beds across the country, it is unlikely that the growing demand for long-term care will be met. A growing portion of this long-term care demand is likely to be served by retirement residences, further increasing the demand for our services. The pace of construction of new retirement residences has declined in the last 2 years due to the pandemic and rapid growth in construction costs. This means fewer new residences openings in 2023, 2024, further supporting occupancy recovery and growth for the existing operators. With the construction costs remaining elevated and overall low industry occupancy, which puts pressure on market rates, it is difficult to see the increases in construction activities in our sector in the short term. Having said that, some of our important markets continue to see competition. Ottawa, Durham Region, York Region and Ontario, Quebec City and Calgary may possibly have slower occupancy recovery and growth than the rest of our portfolio. I expect our sector will continue to experience staffing challenges. Some demographics -- the same demographics that support our expectations of occupancy recovery, also suggests staffing shortages. Every year there will be fewer working aged adults for each retired person. This structural challenge is in place in every developed country, and changes to government immigration policies can change that structural demand. We, at Chartwell, are trying to do the best we can in the environment that we're in. We continue to dedicate significant resources to recruitment, including the planned implementation of video interviewing software and recruitment and onboarding module of our human capital management system. We focus on employee engagement initiatives, storytelling recognition, diversity inclusion initiatives, learning and development and competitive, and where appropriate, performance-based compensation practices. In 2021, our efforts resulted in over 6,000 new hires. I believe we have a winning strategy that is well understood throughout the organization. Our strategy has clear targets, defined service offering, markets in which we operate and ways in which we differentiate ourselves from our competition. In 2025, we will achieve employee engagement score of 55% highly engaged, resident satisfaction score of 67% very satisfied, and same-property occupancy of 95% to drive strong cash flow per unit growth by providing exceptional resident experiences through personalized services in our upscale and mid-market residences in urban and suburban locations. The pandemic certainly impacted our progress toward this long-term targets. Our employee engagement resident satisfaction and occupancies have declined from pre-pandemic levels. I'm confident that with our dedicated teams driving forward our key initiatives, we will be able to recover and grow to achieve our 2025 targets. There is significant earnings and value generation potential in our high-quality property portfolio, where each one percentage point increase in occupancy is estimated to generate approximately $0.04 per unit of incremental revenue, most of which would translate to incremental NOI. The potential embedded growth in our portfolio is significant and we're committed to realizing it. Getting back to the pre-pandemic occupancy of 88.6% in our same-property retirement portfolio is estimated to generate approximately $84 million of incremental NOI, with additional $76 million estimated to be generated over time from achieving our targeted 95% occupancy in our retirement portfolio. While we expect that we will be able to complement this embedded potential growth with new investments and acquisitions and development opportunities, our primary focus has been and will continue to be operating our existing portfolio to its full potential. Any successful strategy requires management to make choices, sometimes difficult ones. We chose to fully focus our future growth on our retirement segment and transition our Ontario long-term care operations. It was a difficult decision because of long and successful history of Chartwell Ontario long-term care team, and it was made even more difficult by the tremendous resilience, courage and dedication this team demonstrated during the pandemic. Once the decision was made, it was important for us to carefully select partners to ensure smooth transition for our residents and staff in residences and our corporate Ontario long-term care support teams and to see the legacy of Ontario long-term care continue. I know that we selected exactly the right partners in Axium Infrastructure and AgeCare Health Services, companies fully dedicated to the delivery of complex acute care to Canadian seniors. My deep gratitude goes to our Ontario long-term care teams, many people at Chartwell who have been and continue to work hard to accomplish this transition and to our partners at Axium and AgeCare. We are privileged to work in a sector that generates tremendous positive societal impact by serving and caring for the most respected segment of our population, our seniors. As a leader in the retirement living sector in Canada, at Chartwell we see it as our duty to continue to evolve, improve and grow our contribution to society. Our culture manifests itself in our results and lives in our stories. Stories about our residents, employees and the communities in which we operate are heartwarming and inspirational. They deserve to be told. I invite you to read our 2022 environmental, social and governance report, where you will find in addition to statistics and key performance indicators many of these great stories. In 2021, Chartwell was ranked #18 in the top real estate and health care company in Canada in the Globe and Mail Board Games publication. Chartwell has been ranked in the top 10th percentile since its inclusion in the publication. We also continue to lead in gender diversity, where women are strongly represented on our Board and senior leadership team. Our Board has renewed significantly over our 18-year history, and we continue to implement our plan for ongoing renewal. In 2022, Mike Harris, the Chair of our Board, and Lise Bastarache are not standing for election. Their contributions to our company over the years have been invaluable. Their commitment to our purpose of making people's lives better has been unwavering and their presence in our boardroom will be missed. I want to thank Mike and Lise for their contribution to Chartwell, and on a personal level, for being great teachers and mentors of mine. I'm excited that Gary Whitelaw, the recently retired CEO of BentallGreenOak, one of the largest real estate and asset management companies in Canada, and Valerie Pisano, President and CEO of Mila, Quebec Artificial Intelligence Institute, have agreed to join our Board. I have no doubt they will enrich our Board discussions and decisions with their exceptional and diverse experiences and passion for serving seniors. In closing, to our residents and their loved ones, thank you for trusting us to serve you. We are honored to have your trust. We are committed to delivering personalized exceptional experiences to you in our residences. To my partners on Senior Executive Committee, every day I feel privileged to be working alongside such dedicated and talented leaders. Thank you for our debates, for your support and inspiration. To my fellow Directors, thank you for your wise counsel, challenge and support, thank you for caring and for your deep commitment to our vision of making people's lives better. To our lenders and unitholders, in over 100 meetings I had with you over the course of last year, not one went by without you acknowledging the tremendous work of our people and asking me to pass your appreciation to them. I did it every time. We know that we can only deliver on our promise of making people's lives better if we have access to capital in good times and especially in challenging times. You have been there for us through this crisis, and we're grateful to you for that. We will continue to treat your investments with utmost care they respect and deserve. Most importantly, to Chartwell people, from our residences teams to our regional and corporate office staff, words cannot describe my gratitude to you for what you have done and continue doing for your residents, their families, for each other and for your communities. Thank you for everything. Now we will be pleased to answer any questions you might have. We have no questions so far. Maybe we'll give a minute if there's anyone that wants to ask questions. Okay. Okay. Seeing that we have no questions, we will close the meeting on this note. Thank you, everybody, for joining us today. Have a great evening. Goodbye.

Thank you. This concludes the meeting. You may now disconnect.