Chartwell Retirement Residences (CSHUN) Earnings Call Transcript & Summary

As no other nominations were submitted within the required time frame set out in Chartwell's Declaration of Trust, I declare the nominations closed. Next item, the appointment of auditors for Chartwell. Is -- excuse me, the next item of business is the reappointment of auditors for Chartwell. Jonathan, 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 the remuneration as such be fixed by the directors of Chartwell Master Care Corporation.

I second the motion.

The 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 will now ask Karen Sullivan to move a motion in favor of the resolution.

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

I second the motion.

Are there any questions on the motion? Seeing none, we will move to voting. As I mentioned, voting today will be conducted by electronic ballot, which has been opened since the start of the meeting for registered holders and appointed proxy holders. So the polls are still open. Please register your votes by accessing the voting page and selecting the For or Withhold buttons next to the name of each proposed trustee and director and next to the resolution with respect to the appointment of KPMG as Chartwell's auditor. Please register your votes by selecting for or against next to the resolution with respect to the advisory resolution on executive compensation. I will now provide registered unitholders and duly appointed proxy holders approximately 1 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 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 has been elected. Therefore, I declare Ann Davis; James Scarlett; and myself, 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 Valérie Pisano, Sharon Sallows and Gary Whitelaw and 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 8 nominees has received a majority of the votes cast. Therefore, I declare the trustees of Chartwell are directed to vote the common shares of Chartwell Master Care Corporation held by Chartwell in favor of the election of Brent Binions; Ann Davis; Valérie Pisano; Sharon Sallows; James Scarlett; myself, 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 directors of Chartwell Master Care Corporation are authorized to fix their remuneration. And on 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. As I noted prior, 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 and hand it over to Vlad for management's presentation to unitholders. And on behalf of everyone at Chartwell, I would like to thank you all for attending today's meeting.

Thank you, Huw. Good afternoon, everybody. I will now make some remarks about Chartwell, which will be followed by a general question period. [Operator Instructions] I would like to remind you that questions which were already answered or that are redundant repetitive or inappropriate will not be published nor answered. Let me remind everyone that during this call, we may make statements containing forward-looking information on 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 2022 MD&A under the headings 2023 Outlook and Risks and Uncertainties and Forward-Looking Information. These documents can be found on our website or at sedar.com. We believe that only highly engaged employees can deliver exceptional personalized experiences to our residents, making their lives better and improving their satisfaction with their Chartwell residence as a place to live. We believe that very satisfied residents are our best ambassadors in the community who will recommend Chartwell to their friends and families. These earned referrals will translate to high occupancies across our portfolio. That is why we set for ourselves aspirational targets for employee engagement, resident satisfaction and occupancy for 2025. Yes, the prolonged pandemic has set us back, and we have a lot more ground to cover to achieve these ambitious targets. Nevertheless, we can do it, and our progress is the evidence. Note that in keeping our scores, we only count strongly agreed responses to our employee engagement resident satisfaction survey statements, only top-box scores from a 5-point scale. In 2022, we achieved employee engagement score of 49% of highly engaged employees, a strong improvement from 44% in 2021. Achieving this improvement in the environment of pandemic pressures and ongoing staffing challenges is notable. Our resident satisfaction score was 54% in 2022 compared to 55% in 2021. We know where we need to improve, and our residences teams are focused on turning this trend around. Our occupancies began to recover in 2022. It is now difficult to imagine but in 2022, we had 3 to 4x more outbreaks than we had in 2020 and 2021 peak pandemic years. While the health outcomes of these outbreaks were much better, outbreak-related restrictions significantly impacted the experience of our residents and our ability to conduct sales activities in our homes. So our occupancy recovery has not been as robust as I hoped for. Still from the low point of April 2022 to December 2022, we grew occupancy by 210 basis points. Importantly, the first 4 months of 2023 give me a lot of optimism. Our occupancy from December to April declined by only 40 basis points. This is a significant improvement from our historical pre-pandemic average decline of 180 basis points in the same 4-month period. This is important because combined with higher initial contacts and significantly stronger personalized tours and leasing activity, especially in March, April and May, we are setting up for the acceleration of our occupancy recovery in the remainder of 2023. We always strive to balance the needs of our residents with the need to run a sustainable and profitable business. To offset the impact of rapidly rising costs, we are implementing higher-than-historical rent and services increases in 2023 of between 4% and 7% with the rates for optional services increasing by up to 10%. We're now seeing lower utilization of agency staffing in our properties as well as a significant reduction in residence managers' vacancies, very positive results for our recruitment and retention efforts. We expect these trends to continue in the remainder of 2023. We're also focused on optimizing our property portfolio. For us, that means fully focusing on predominantly private pay retirement business, adding to our portfolio newer assets, investing in core properties to ensure their ongoing competitiveness, repositioning certain properties for our alternative service delivery models and divesting noncore properties. We're now moving much faster from analysis to execution of these various strategies. We acquired 3 newly developed residences in April 2022, sold 2 BC long-term care homes in December 2022 and sold 1 noncore residence in April of 2023. We closed operations in -- at 2 other noncore residences in Q1 2023 with another noncore residence closing in Q2 2023. I'm proud of our team's charge for these projects for adopting a people-first approach to the execution of these difficult business decisions. They demonstrated tremendous empathy and compassion, ensuring ongoing comfort and well-being of our residents through clear communication and various supports and accommodations. As a result, most of the residents from the 2 homes we closed in Q1 2023 moved to other nearby Chartwell residences, demonstrating their continuing trust in us. The previously announced sale of Ontario Long-Term Care platform is expected to close in Q3 2023. There is significant embedded potential value in our portfolio. Not counting potential margin improvements from growing rents and service rates, we are just recovering occupancy back to pre-pandemic levels. We'll generate $80 million of incremental NOI in our same-property portfolio. Stabilizing the overall portfolio at 95% occupancy would generate a total of $135 million of incremental NOI. This significant growth does not require additional capital investments beyond those covered in our regular capital budgets. It requires commitment, drive and a sense of urgency. Our teams have all 3. Our ability to realize this embedded potential value in our portfolio is supported by positive macro factors. Senior population growth is expected to grow by 4.3% in the next 10 years and at 2.9% thereafter, resulting in a significant demand growth for retirement accommodation and services. To meet this demand, 233,000 new retirement suites would need to be added in the next 20 years, nearly doubling the existing inventory. The long-lasting pandemic did have a negative impact on consumer sentiment towards retirement living with steep decline in 2020 and only a slight recovery in 2021. However, in 2022, our consumer sentiment survey showed marked improvements in the sentiment, virtually back to the pre-pandemic levels. This surely is a positive for occupancy recovery in 2023 and beyond. The new retirement residence construction starts in 2022 were at all-time low of 2.2% of inventory. This will result in fewer new home openings over the next 2 to 4 years, supporting occupancy recovery and rent and services rate growth for existing operators like Chartwell. In addition, due to the rapid acceleration of construction costs over the last 4 years, most of the new developments are being built to the high end of the market trend of 20%, 40% higher than the existing residences. The 20-year retirement suite demand projections I discussed above assume the demand for new government-funded long-term care beds, which will be growing in line with the senior population growth, will be satisfied. They also assume that the existing inventory of retirement suites will be unchanged over the next 20-year period. Both of these assumptions are very conservative. It is unlikely that the governments will be able to fully meet this growing demand for long-term care beds. New forms of service delivery and care delivery will be required across the country, and retirement residence operators are likely to play an important part in that. That would further increase the demand for new retirement residence construction. Further, some of the existing inventory of retirement residences older vintage homes are likely -- are unlikely to be competitive even in the environment of fewer options for care and service delivery. New retirement suites will be required to offset that obsolescence. These positive fundamentals underpin my confidence that Canadian retirement living sector and Chartwell as its leader are on a path of generating significant, sustainable value for all of its stakeholders for many years to come. Chartwell continues to maintain strong liquidity position. As we recover our occupancies and earnings, our credit metrics will improve. We expect to use the proceeds from the sale of our Ontario Long-Term Care platform and other noncore asset sales to pay down debt, further strengthening our balance sheet. In April of this year, DBRS confirmed our investment-grade rating with negative trend and outlined a clear path for the removal of this negative trend this year, and we're focused on achieving that. We are in the business of service and caring for Canada seniors. We exist to make people's lives better. It is a privilege to be a leader within a sector that generates such tremendous societal impact. We understand this privilege comes with responsibility: responsibility to evolve, improve and grow our contributions to society. In March, we published our third and our annual ESG report, where we discuss our progress in this journey. I encourage you to read this report where, along with statistics, targets and key performance indicators, you will find many real stories of our residents and staff across the country. These stories deserve to be told and celebrated. 2022 marked the year where we fully launched The Chartwell Foundation. At The Chartwell Foundation, we believe dreams last a lifetime and hope has no expiry date. We believe we are never too old to pursue our passions to reach for our goals and to be an example of a life well lived. To date in 2023, we have raised nearly $600,000 for the foundation and fulfilled 13 wishes. Thank you to all of Chartwell's people, particularly to Brent Binions, the Chairperson of The Chartwell Foundation's Board, for their tireless work in getting the organization started for fundraising and fulfilling wishes of the most deserving people. Earlier this week, we announced that Sheri Harris, Chief Financial Officer, decided to pursue other leadership opportunities and stepped down. And Jonathan Boulakia, our Chief Investment Officer and Legal Officer, has been appointed Chief Financial Officer of Chartwell on an interim basis. Sheri has agreed to stay with Chartwell to assist Jonathan with his transition while we're searching for her successor. Over the last 15 years through her leadership in financial planning and analysis, reporting and compliance, information technology strategy and many other areas of the business, Sheri played an important role in helping Chartwell to become a mature and sophisticated organization. She has built a strong team of experienced and dedicated finance and IT professionals, led by 4 senior Vice Presidents, who will continue to move Chartwell forward in each of these functions during the transition period and beyond. I'm grateful to Sheri for her significant contributions to Chartwell. And on behalf of our Board and management team, wish her very best as she embarks on the next chapter of her career. Jonathan has been a trusted leader in the organization for 15 years, and I thank him for taking on this mandate until a permanent replacement -- successor for Sheri is appointed. In closing, to our residents and their loved ones, thank you for trusting us to serve you. We are honored to have your trust and commitment to delivering exceptional -- and committed to delivering exceptional personalized experiences to you in our residences. To my partners on the 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 commitment to our purpose. To our lenders and unitholders, we can only deliver on our mission -- on our vision 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 for our almost 20 years as a public company and especially in the last 3 years, the most challenging we had in that history. Thank you for that. We will continue to treat your investment with the utmost care and respect they deserve. Most importantly to the Chartwell people, from our residences teams to our regional and corporate office staff, words cannot describe my gratitude to you for what you do every day for your residents, their families for each other and for your communities. Thank you for everything. We would now be pleased to answer your questions. We do not have any questions at this time, so this wraps up our today's meetings. Thank you, everybody, for joining us. As always, if you have any further questions, please do not hesitate to give us a call. Goodbye.

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