Chartwell Retirement Residences (CSHUN) Earnings Call Transcript & Summary

Hello, everyone. Thank you for joining us, and welcome to the Chartwell Second Quarter 2026 Results Conference Call. [Operator Instructions] I will now hand the conference over to Vlad Volodarski, CEO. Please go ahead.

Thank you, Christine. 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; Jeffrey Brown, Chief Financial Officer; Jonathan Boulakia, Chief Investment Officer and Chief Legal Officer; and Gordon Chiu, Chief Technology Officer. Before we begin, I direct you to the cautionary statements on Slide 2 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 Q2 2026 MD&A under the heading Risks and Uncertainties and Forward-Looking Information for a discussion of risks and uncertainties. These documents can be found on our website or on SEDAR+ website. Turning to Slide 3. In Q2 2026, our teams delivered another strong quarter of operating and financial results with FFO per unit increasing 17% compared to Q2 2025. This marks our 12th consecutive quarter of double-digit FFO per unit growth. We've been making great progress advancing our portfolio growth and optimization strategy. Year-to-date, we have completed and announced over $1 billion of acquisitions, including our new partnership with Fengate Asset Management, spanning 23 properties and nearly 3,000 suites. In the last 2 years, we have invested over $3.2 billion in acquisitions of high-quality newer residences across the country at a significant discount to replacement costs. Our investment team continues to pursue other opportunities in the market. And at the same time, we're building our own pipeline for future growth through partnerships with reputable developers. In July, we announced 4 development projects, representing 828 suites across Quebec, Alberta and British Columbia. These projects will bring modern purpose-built residences to attractive markets where demand continues to grow. We also continued our noncore asset disposition program, repositioning our portfolio towards high-growth, newer, more efficient assets in our core markets. So far in 2026, we completed $167 million of noncore asset sales and announced agreement to sell 2 other properties for $132.8 million. Our operations teams are busy developing exciting programs for our residents. In wellness, dining experience, activities, care, marketing and sales, the teams are constantly enhancing our service delivery to cater to the evolving needs and wants of the new generation of seniors who are coming to our residences. Our strong financial results reflect the outstanding work of our residences teams and support teams across the country. Every day, they deliver exceptional experiences to residents and families, and I'm deeply grateful for their dedication, professionalism and commitment to continuous improvement. With that, I'll pass the mic to my partners. Karen will discuss our operating initiatives, Jeff will review financial results, and Jonathan will provide an update on our growth and portfolio optimization activities. Karen?

Thanks, Vlad. Moving on to Slide 4. We had another strong quarter of leasing activity with a positive net per move-in to permanent move-out of plus 80 units with contributions from all operating platforms. Our marketing strategies continue to be very effective with an 11% increase in personalized tours for marketing sources quarter-over-quarter. Our conversion ratio of marketing initial contacts to personalized tours was 50% in Q2 of this year compared to 44% in Q2 2025. We recently developed a new brand promise, Joy is Ageless, and launched a marketing campaign to share this message across TV, radio, out-of-home channels, Facebook and YouTube. The campaign expanded Chartwell's reach through millions of video views, including over 5 million just combining YouTube and Facebook. In a La Presse study, a prominent Quebec online media platform, 81% of respondents agreed that the campaign projected a positive image of Chartwell. I encourage you to go to the home page of our website and see this fresh and dynamic approach that focuses on today's generation of seniors and what brings them joy. In April, we hosted a very successful open house event that generated the highest number of personalized tours in the past 12 months. We are preparing for another open house event in September. Turning to Slide 5. In terms of expense control, we reduced our staffing agency costs by 43% year-to-date 2026 compared to 2025 through our continued focus on recruitment and retention activities. In order to continue to strengthen our sales and operating standards and initiatives across our residences, we have held several continuing education sessions this past quarter, including sales training for our retirement living consultants and general managers and communities of practice for our management teams. We also hosted a strategic planning and education event for the senior operations team focused on continuously improving and positioning our offerings to meet the expectations of the baby boomer generation of residents beginning to choose retirement living. In Q2, we have been very busy with integrating our new acquisitions, including the 6 homes in Ontario previously owned by Sifton, located in Southwestern Ontario, Waterloo and Mississauga as well as Palermo Village in Oakville. By all accounts, these have gone very smoothly as we use our newly defined cross-functional approach that includes day 1 nonnegotiables and then milestones at 30, 60, 90 and 120 days post closing. We're also well into the operational integration of the Chartwell properties in B.C., Alberta and Ontario, which we have been completing in tranches that will be finished by mid-August. Finally, I want to take a moment to talk about the progress that has been made at Chartwell Churchill House, a 98-unit residence in North Vancouver. In 2025, we made the decision to reposition this property by concluding our assisted living arrangement with the Fraser Health Authority and returning 31 government-funded suites to private pay and investing $3 million in common area upgrades. I'm pleased to report that based on this strategy, occupancy has increased to 78% in January to 92% and in July, and the operating margin increased from approximately 48% prior to the change to 53%. I'll now turn it over to Jeff to take you through our financial results.

Thank you, Karen. As shown on Slide 6, in Q2 2026, net loss was $1.3 million compared to $5.7 million in Q2 2025. FFO grew to $90.5 million in Q2 2026, an increase of 34% compared to Q2 2025, and our FFO per unit grew $0.04 or 16.7% to $0.28 in Q2 2026 compared to Q2 2025. Our reported FFO does not include $2.8 million or $0.01 per unit of income guarantees related to recently acquired properties. Q2 2026 FFO growth benefited from higher adjusted NOI of $27.6 million, partially offset by higher finance costs of $4 million and higher G&A expenses of $1.7 million. In Q2 2026, our same-property occupancy increased 320 basis points to 94.3% and our same-property adjusted NOI increased $9.2 million or 11.9%. We also had an 8.1% increase in our NOI per occupied suite. Slide 7 summarizes our same-property operating results for each platform. All of our platforms posted occupancy gains in Q2 2026 compared to Q2 2025 and all are operating above 90% occupancy, which positively impacted our results. Our Western Canada platform same-property adjusted NOI increased $4.4 million or 19.5%. Our Ontario platform same property adjusted NOI increased $3 million or 7.4% and our Quebec platform same-property adjusted NOI increased $1.8 million or 12.3%. Turning to Slide 8. At August 7, 2026, liquidity amounted to approximately $614 million, which included $219 million of cash and cash equivalents and $395 million of borrowing capacity on our credit facility. On May 7, 2026, we filed a new final base shelf prospectus and a new prospectus supplement for our ATM program to allow us to issue up to an additional $500 million of trust units, which will further support our transaction activity. During the 3 months ended June 30, 2026, we raised total gross proceeds of $72.7 million through the program at an average price of $21.74. Our balance sheet remains in a very strong position with interest coverage ratio of 3.5x and net debt to adjusted EBITDA ratio of 7.0x. And we continue to improve our financing flexibility, having grown our unencumbered asset pool to $2.2 billion. For the remainder of 2026, our debt maturities include $227.1 million of mortgages with a weighted average interest rate of 2.8% and a $250 million senior unsecured debenture with an interest rate of 6%. As of August 6, 2026, we estimate the 10-year CMHC insured mortgage rate to be approximately 4.17% and the 5-year unsecured debenture rate to be approximately 4.38%. I will now turn the call to Jonathan to discuss our recent acquisitions and portfolio optimization activities.

Thank you, Jeff. Turning to Slide 9. We continue to execute on our portfolio strategy of enhancing our asset base to generate increased quality NOI. I'll highlight some of the deals that we've completed in and subsequent to Q2 2026. On June 2, 2026, we completed the acquisition of a 30% ownership interest in the Seasons Retirement Communities portfolio through a joint arrangement with Fengate Asset Management, a leading alternative investment manager and real estate developer. The portfolio includes 23 seniors housing communities comprising 2,943 suites in Ontario, British Columbia and Alberta. The integration of these residences into Chartwell's management platform is well underway. The purchase price for our interest was $382.5 million and was partially satisfied by the proportionate assumption of approximately $208.8 million of mortgages with a weighted average interest rate of 4.46% and a weighted average term to maturity of 5 years, wit the remainder paid in cash. Under our agreement with Fengate, both parties have contractual rights that may result in our acquiring an additional 20% ownership in the portfolio upon the achievement of specified milestones. As part of the ongoing strategic partnership, Chartwell will have the option to participate in Fengate's future development of retirement residences in Ontario. Should Chartwell elect to participate in any such development, Chartwell will provide operations management services. And the parties will have certain put and call rights once the residence is stabilized. The partnership brings together 2 experienced organizations with a shared commitment to high-quality seniors housing and long-term stewardship of retirement residences. On June 3, 2026, we completed the acquisition of Palermo Village Retirement Residence, comprising 116 suites in Oakville, Ontario for $43 million, which was settled in cash. On July 2, 2026, we completed the sale of 9 noncore properties in Ontario for $117.9 million. Net proceeds were $82.3 million after $2 million of transaction costs and repayment of $33.6 million of mortgages with a weighted average interest rate of 3.3% and weighted average term to maturity of 4.3 years. On July 16, 2026, we completed the acquisition of a 50% ownership interest in Chartwell Le Montcalm, a 283-suite retirement residence in Candiac, Quebec for a purchase price of $43.3 million before closing costs and working capital adjustments. The purchase price included the proportionate assumption of the $22.3 million mortgage bearing interest at 6%, maturing on October 1, 2026, with the balance settled in cash. On July 24, 2026, we announced 4 new development projects in Alberta, British Columbia and Quebec, representing 828 suites, offering a mix of seniors apartments, independent living and memory living. The projects are in partnership with experienced vertically integrated developers in each jurisdiction and through forward purchase agreements, enhance Chartwell's future acquisition pipeline. On August 4, 2026, we entered into a definitive agreement to acquire 100% ownership interest in retirement residence in the Greater Toronto area for a purchase price of $136 million. This transaction is expected to close in Q3 2026. On August 4, 2026, we also entered into a definitive agreement to sell a property in Ontario for $41.8 million. This transaction is subject to customary adjustments in accordance with the terms of the purchase and sale agreement and is expected to close in Q3 2026. And finally, on October 4, 2026, we entered into a definitive agreement to sell a second property in Ontario for $91 million. This transaction is subject to customary adjustments in accordance with the terms of the purchase and sale agreement and is expected to close in Q3 2026. This property has an in-place CMHC insured mortgage with an outstanding balance of $21.3 million, bearing interest at 3.13% maturing in 2028. In 2026, we continue to grow our portfolio under management by over $2 billion and invested $1 billion at our ownership share, not including our development pipeline commitments. We are doing so prudently, shifting capital from noncore assets to strategic core residences, while taking advantage of our strong access to capital, including through our ATM program. We continue to evaluate several interesting opportunities to grow and enhance the quality of our real estate portfolio. We remain disciplined in how we approach underwriting, diligence and integration of our [indiscernible] to deliver enhanced services to the residents, mitigate disruption to operations and achieve our required investment returns. As disclosed with some examples above, we are engaged in discussions with local and national developers across the country and have created a meaningful pipeline of state-of-the-art assets to bring into our portfolio. We pursue such developments in a prudent manner with a preference for off-balance sheet development, similar to our arrangement in Quebec, while ensuring that our balance sheet will be able to support our forward purchase commitments. We intend to continue on this path of optimizing our portfolio through strategic acquisitions, prudent off-balance sheet development with sophisticated partners, the diversification of our sources of capital and the divestiture of noncore assets. I'll turn the call back to Vlad to wrap up.

Thank you, Jonathan. Turning to Slide 10. I remain confident in the momentum of our business and our long-term growth prospects. The fundamentals supporting retirement living in Canada remain very strong. Demand continues to grow, while new supply is expected to remain limited for the foreseeable future. This creates a favorable backdrop for occupancy, NOI and earnings growth. With 30,000 residents across the country and 12,000 dedicated team members, a sophisticated management platform and strong culture, Chartwell is well positioned to benefit from these trends. We continue to grow and renew our portfolio through acquisitions, development partnerships and strategic capital recycling, adding newer and more efficient residences in attractive markets. At the same time, we are becoming a more sophisticated and efficient organization. Our teams continue to streamline processes and adopt technology, automation and AI-enabled tools responsibly, helping us serve residents better while improving productivity and execution across the business. Our culture remains one of our greatest strength. It enables us to integrate newly acquired properties successfully and consistently deliver results that meet or exceed underwriting expectations. It also supports the strong pipeline of future growth opportunities we're building through acquisitions and development partnerships. Most importantly, our focus remains on our residents. We are committed to delivering exceptional experiences, enhancing wellness programs, expanding care and support services and helping residents remain in the communities they know and love as their needs evolve. Initiatives such as our partnership with Dr. Greg Wells in developing Chartwell's proprietary resident and employee wellness programs reinforce that commitment. What gives me the greatest confidence is our people. Their dedication, compassion and relentless focus on improving the lives of the residents is the foundation of our success. I'm incredibly grateful for everything they do. I will now close our prepared remarks with a story from one of our residences as pictured on Slide 11. Dining remains one of the defining elements of the Chartwell experience and an important part of our hospitality strategy. This quarter, that commitment was recognized in Quebec, where our team at Chartwell Cité-Jardin received the People's Choice Award at the [indiscernible] Challenge and Chartwell Shawinigan earned the 2026 Bonjour Residences Signature Award for Excellence in Nutrition and Gourmet dining. These recognitions reflect the dedication of our food services teams and our continued focus on delivering an exceptional resident experience. Thank you for your attention this morning. We would now be pleased to answer your questions.

[Operator Instructions] Your first question comes from the line of Lorne Kalmar with Desjardins.

Just wanted to get an idea on the same-property NOI growth outlook now that occupancies have largely reached stabilized levels. And how much longer do you think you guys can do double-digit same-property NOI growth? And what are the levers that should continue to drive that?

Sure. So we have outlined in our 3-year strategy that we think we can continue to deliver rate growth above 4% and DOE growth below 4%. And that combined, I think you can model out what that can drive in NOI growth. And that -- we also have a substantial occupancy growth opportunity still in our growth portfolio. That portfolio sits around 90% occupancy. And so as we continue to sort of pursue our acquisition and portfolio optimization strategy that will also drive significant NOI growth in the business.

Okay. And then on the development agreements, the Batimo one, I think, was pretty explicit for the other 3. Just wanted to get an idea if there were different mechanisms like puts and calls like you have with Batimo or if there's a -- if the acquisition is more fixed in terms of timing, who's in the driver's seat? And if for some reason, like if you were in a position from a balance sheet perspective to acquire one of these assets on stabilization or completion, would you still be forced to do so? Or is there some wiggle room there?

Yes, I'll take that one. So each one has its variation, but they are largely based on the Batimo model. So that model is that we align with a vertically integrated developer. We apply on and sign off on the plans and specs and the location. We provide operations management services and lease it up. And the variation in these models is on some of them, we will commit to acquire 50% interest at construction completion and the balance on stabilization. And on others, that acquisition is done at stabilization entirely.

Okay. But I just want to get a sense of like is -- so when you get to completion, it's a -- like you have to buy it or do they put it to you? I'm just trying to get an understanding of how that part of the process works.

Again, there are slight variations in the agreements, but generally, there will be a put-call mechanism.

And similarly to the Batimo structure, we view these developments as our own, like the buildings will bear Chartwell name from the day of opening. So we are basically getting access to future acquisition opportunities without taking on the development risk and construction risk.

Okay. Understood. And then maybe just one last one. I was wondering, do you guys see any more meaningful opportunities to leverage the Chartwell platform and grow the management business? Obviously, the Seasons deal was one such opportunity. Just wondering if there's anything else out there, whether you actually acquire any interest in the portfolio or not.

Well, that is the principal difference, Lorne. We are not going to be in the third-party management business where we do not have significant ownership interest in the real estate portfolio. The way the market prices, I guess, this business is all the value that is created by management accretes to real estate. So for us, the strategy is -- part of our strategy is to diversify our capital sources and potentially, there'd be more partnerships with other capital providers, but we will always aim to retain a significant ownership interest in the properties.

Your next question comes from the line of Jonathan Kelcher with TD Cowen.

Just going back to the same-property results. First, maybe on the occupancy. If I look, I see Western Canada and Quebec occupancy kind of held flat versus Q1, but Ontario was down a little bit. Can you maybe give us some color as to why?

Yes. Jonathan, that is more seasonal, and we are seeing growth in all of the platforms and are forecasting that same-property portfolio now to get up to that 95% level in September.

Okay. So just a function of kind of a tougher winter/spring and it's not really...

Nothing indicative in that portfolio other than the seasonality of that winter season.

Okay. And then secondly, on the expense side, the same-property expense side, I get on the occupied suite, it's fine, like up 3.5%, I think. But the overall same-property expenses were up 7%. Could you maybe give a little bit of color as to why? Was that just sort of elevated marketing spend or some timing on spend? What kind of drove that?

I think it was primarily timing. So Q1 expenses were probably a little lighter in Q2 a little heavier because of that. And if you look at year-to-date expense level, it's probably a more balanced and more indicative of that run rate spend growth or expense growth.

Okay. So if I look at the first half this year in terms of overall expense growth for the same property, kind of think of that for the second half?

Yes. And some of it is a function of the continued occupancy growth. So if you look at the DOE per occupied suite, it was up 1.9% in the first half.

Your next question comes from the line of Himanshu Gupta with Scotiabank.

So just going back on this Ontario occupancy dip in Q2. I think you mentioned mostly seasonality, and that has come back in Q3. So just wondering, is there -- was there any pricing adjustments made to bring back the occupancy in Q3?

Yes. It's coming back in Q3, as Jeff pointed out, Himanshu. No, there wasn't any specific pricing adjustments. The way the seasonality works, particularly in Ontario, it's always a bit more pronounced than the rest of the country. And if you think about what causes the seasonality decline, it's not the departures as much. It is less leasing being done in the winter months. So usually, you see the pronounced impact of very strong move-ins in December manifesting themselves in Q1 occupancy and then you have a bit slower lease-up during the winter months that actually show up more in Q2 than in Q1. So this is nothing unusual and generally to be expected. I mean, for the last couple of years, you couldn't see it because the occupancy was growing very quickly everywhere. But this is a more usual seasonality pattern that we're seeing this year.

Got it. That's helpful. And then maybe any markets in Ontario or in general on your watch list, beginning to see more new supply or more construction activity going on or maybe impact from new LTC suppliers?

Not really. I mean, there's no new construction to speak of that has started at this point that we know of. Obviously, we announced a few projects. They will start in Q3. There'll probably be some others. But at this point in time, nothing is on the watch list. Remember, it takes now -- anything that's being built is large buildings. So it takes at least 2 years to build them. So they're not going to become competition for at least 2 years, if not longer. And so from our perspective, we haven't seen much construction going on anywhere in our markets. As we spoke before, there were some markets that got impacted more than others because of the pre-COVID oversupply like Durham and Ottawa. And so they are coming back and maybe it's just going to take a little longer for those to come back. And again, it just depends on the properties. Many of our properties in those markets are full today.

Just turning attention to the growth portfolio. NOI margin is obviously pretty nice there, almost mid-40s. Occupancy, obviously, you mentioned 90%, and there is more room for occupancy. Do you see more operating leverage as well as that occupancy goes up, margins can stabilize at what levels?