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Edited Transcript of CSH.UN.TO earnings conference call or presentation 24-Feb-17 3:00pm GMT

Thomson Reuters StreetEvents

Q4 2016 Chartwell Retirement Residences Earnings Call

Mississauga Feb 24, 2017 (Thomson StreetEvents) -- Edited Transcript of Chartwell Retirement Residences earnings conference call or presentation Friday, February 24, 2017 at 3:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Brent Binions

Chartwell Retirement Residences - President and CEO

* Karen Sullivan

Chartwell Retirement Residences - COO

* Vlad Volodarski

Chartwell Retirement Residences - CFO, CIO

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Conference Call Participants

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* Heather Kirk

BMO Capital Markets - Analyst

* Jonathan Kelcher

TD Securities - Analyst

* Neil Downey

RBC Capital Markets - Analyst

* Himanshu Gupta

GMP Securities - Analyst

* Pammi Bir

Scotiabank - Analyst

* Yashwant Sankpal

CIBC World Markets - Analyst

* Jenny Ma

Canaccord Genuity - Analyst

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Presentation

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Operator [1]

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Good morning ladies and gentlemen, welcome to the Chartwell Retirement Residences fourth-quarter 2016 results call. Following the formal comments we will hold a question and answer session. Please be advised that this call is being recorded. I would now like to turn the call over to Mr. Brent Binions, President and Chief Executive Officer of Chartwell Retirement Residences. Please go ahead, sir.

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Brent Binions, Chartwell Retirement Residences - President and CEO [2]

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Thank you. Good morning. 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 Vlad Volodarski, Chief Financial Officer and Chief Investment Officer; and Karen Sullivan, Chief Operating Officer.

Let me remind everyone that during this call we may 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. These documents can be found on our website or at SEDAR.com.

With our focus on delivering exceptional services and quality care to our residents, we believe we will be able to continue to build sustainable value for our investors based on our four key priorities as shown on Slide 3. 2016 has been an extraordinary year for Chartwell. We achieved great operating improvements across our properties and in our owned management platform, continued investing in high-quality properties in our core Canadian markets, further improved our financial position, continued building our development pipeline, and delivered strong financial results.

In 2016, we delivered 20.3% growth in AFFO, grew our same property NOI by 6.6%, and same property occupancy by 1.1 percentage points. We built a strong balance sheet and liquidity to allow us financial flexibility to execute on our strategic investments in our properties, developments, and acquisitions. This strong and improving financial position is a result of earnings growth and prudent capital management, including debt refinancings and non-core asset sales.

As shown on Slide 4, our interest coverage ratio increased to 3.5 times in 2016 compared to 2.8 times in 2015, and reached 3.6 times in the fourth quarter of 2016. Our net debt to adjusted EBITDA ratio was 7.2 at December 31, 2016, compared to 7.6 at December 31, 2015. And at December 31, 2016, we had cash on hand of CAD38.3 million and CAD73.8 million of available borrowing capacity under our credit facilities.

We continue to build value in our real estate portfolio through asset management programs, development of new properties, and opportunistic acquisitions as shown on Slide 5. These value-add activities are supported by extensive industry and market research and by rigorous risk management practices.

In 2016 we invested CAD211.7 million in high-quality properties in Canada. Work continues on our development pipeline of 2,332 suites with nine projects in construction and four projects in predevelopment. At this time we continue to evaluate a number of development and acquisition opportunities in our markets across the country.

Building on strong 2016 results, on February 23, 2017, our Board approved our third annual increase in monthly distributions. Effective March 31, 2017 for distributions payable on April 17, 2017, our annual distributions will increase by 2.5% to CAD0.576 per unit. I'd like now to turn it over to Karen Sullivan, our Chief Operating Officer, to talk about some operational initiatives that she and her team are working on. Karen?

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Karen Sullivan, Chartwell Retirement Residences - COO [3]

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Thanks, Brent. The operations, sales and marketing teams continued to deliver solid results in Q4 in our same-store properties, while also working on lease-up and pre-opening strategies in our growing number of development projects that are underway in all four provinces where we operate. This includes opening and outfitting six sales centers, hiring sales teams and general managers, developing and delivering targeted marketing initiatives and continuing to enhance our strategies to operate these homes effectively as soon as they open.

We recently had the opportunity to have all of our GMs and administrators together at our annual leadership conference in order to recognize our top-performers who delivered on their customer service, employee engagement, and financial results in 2016. We also used this as an opportunity to share our strategies and initiatives for 2017. This includes an enhanced approach to recognizing our top sales consultants by introducing an annual Presidents Club.

Turning to Slide 7, as part of our marketing strategy in Q4 2016, we introduced a new feature on our website called Ask Edna, which includes five video vignettes posing typical and often difficult questions about seniors housing. This has been very positively received, reaching our targeted goals in terms of both reach and campaign impact.

Finally, with respect to our focus on ensuring that our homes run smoothly, which is a key driver of resident satisfaction, we have introduced brand experience assessments which provide our retirement homes with concrete actionable feedback on their care services, food and beverage services, and lifestyle and activity programs. I will now turn it over to Vlad to discuss our financial performance for the quarter and year ended December 31, 2016.

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Vlad Volodarski, Chartwell Retirement Residences - CFO, CIO [4]

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Thank you, Karen. As shown on Slide 9, in 2016 AFFO from continuing operations was CAD162.2 million or CAD0.85 per unit diluted. This represents a 36.9% increase from CAD118.5 million or CAD0.66 per unit diluted in 2015.

The change in the AFFO from continuing operations was primarily due to higher AFFO contribution from our property portfolio, partially offset by higher G&A costs incurred to support growth in our property portfolio, including development activities. Total AFFO, which for 2015 includes results of our US operations that were sold as of June 30, 2015, increased CAD27.4 million or 20.3% due to significant improvements in our Canadian operations, including a growing contribution from the properties acquired utilizing the net proceeds from the sale of the US portfolio.

For 2016, AFFO from continuing operations was CAD172.6 million or CAD0.91 per unit diluted, compared to CAD128.3 million or CAD0.71 per unit diluted in 2015. As shown on Slide 10, in the fourth quarter of 2016, AFFO from continuing operations was CAD40.7 million or CAD0.21 per unit diluted, a 12.2% increase from CAD36.3 million or CAD0.20 per unit diluted in Q4 2015.

Average occupancy in our same property portfolio was in line with Q4 2015 at 93.7% and the same property NOI increased CAD1.1 million or 2.2%.

Turning to our operating platforms results, as shown on Slide 11, in 2016 our Ontario retirement same property portfolio NOI increased CAD5.2 million or 7.1%, primarily due to higher occupancies and regular annual rental rate increases, in line with competitive market conditions, partially offset by higher staffing, utilities, and administrative expenses.

In the fourth quarter of 2016, Ontario same property NOI increased CAD0.4 million or 1.9%, primarily due to regular annual rental rate increases in line with competitive market conditions, partially offset by higher staffing, utilities, and marketing expenses. Occupancy was 88.9% in Q4 2016, a 0.3 percentage points decrease from Q4 2015 occupancy of 89.2%.

In the second half of 2015 we saw an exceptionally strong leasing activity. While 2016 leasing has been healthy, it has not matched last year's pace. While we see new supply coming in the markets in 2017 and 2018, we believe that negative impact on our properties, if any, will be short-term in nature and we expect to continue to incrementally improve our occupancy in Ontario in 2017 and deliver approximately 3% rental rate growth.

In 2016, our western Canada same property NOI increased CAD3.5 million or 8.2%, primarily due to high occupancy and regular annual rental rate increases in line with competitive market conditions, partially offset by higher staffing, food, and administrative expenses as shown on Slide 12. Fourth quarter of 2016, western Canada same property NOI increased CAD0.4 million or 3.9%, driven by higher occupancies and rental rate increases, partially offset by higher staffing, utilities, and marketing expenses. Occupancy reached an all-time high of 96.9% in Q4 2016, a 2.2 percentage points increase from the Q4 2015 occupancy of 94.7%.

The supply and demand conditions in most of our markets in western Canada remain stable, and we expect consistently high occupancies and average rental rate growth of approximately 3% in 2017.

On slide 13 you'll see our Quebec platform same property NOI increased CAD4.6 million or 8.1% in 2016, in part driven by occupancy growth of 1 percentage points. In the fourth quarter, our Quebec platform same property NOI increased CAD0.9 million or 6%, primarily due to regular annual rental rate increases in line with competitive market conditions, partially offset by higher staffing and administrative expenses. Occupancy remained high at 94.5% compared to Q4 2015 occupancy of 94.7%.

In Quebec, a number of large operators announced significant multi-year development programs. We also continue our development activities in the province in partnership with Batimo. We believe that this anticipated growth in inventory is a reflection of the strong demographic trends and growing demand in the province, as well as all their existing inventory, and we expect to maintain high occupancies in our Quebec platform with average rental rate growth of approximately 2.5% in 2017.

As shown on Slide 14, our Canadian long-term care platform delivered same property NOI -- same property NOI decreased 0.2% in 2016 and by 7.8% in Q4 2016 compared to the same period the prior year.

While our occupancies remained high at 98.4% for the year and 98% in Q4 2016, the decline in NOI was primarily due to lower ancillary revenues as well as higher utility expenses, partially offset by higher preferred accommodation revenues. In Q4 2016, we recorded a reserve for uncollected accounts receivable from one of our providers, which primarily impacted the results of our LTC platform. We continue our efforts to collect the amounts due to us.

In 2017, we expect that our LTC platform will deliver stable performance with high occupancy rates as there are over 25,000 people on the waiting list for LTC accommodation in Ontario. We continue our work with the Industry Association and the Ontario government to develop a viable redevelopment program for the remaining Class B and Class C beds in the province. We have nine properties with 876 beds subject to redevelopment. I'll now turn the call back to Brent to wrap up.

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Brent Binions, Chartwell Retirement Residences - President and CEO [5]

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Thanks Brian. As shown on Slide 16, our key priority remains enhancing customer experience in our homes, which we believe will translate into increasing occupancies and rental rates and growing AFFO. We believe that the seniors housing industry is well-positioned for continued growth primarily driven by increasing growth in the seniors population in 2017 and beyond. We also expect to continue to benefit from the low interest rate environment with interest rate increases in 2017, if any, being gradual. As a result of this low interest rate environment we expect that the housing market will continue to be stable.

We believe that the execution of our programs targeted to enhance customer experience in our residences and with our ongoing investments in branding, marketing, and sales we will be able to maintain and grow our occupancies and rental rates. We will continue to invest in our people through recruitment, training, and development. It is only through having the right people with the right skills and providing clear direction that we can deliver an excellent customer experience to our residents and their families in each of our communities. We will continue to improve existing service levels and implement new information technology solutions to better understand our customers, communicate with our employees, and reduce administrative time commitment in the field.

We have put the infrastructure in place to successfully execute on the significant development program we set for ourselves in 2017 and 2018, and we're confident that these new state-of-the-art properties will generate growing value for our unit holders. We also remain open to and proactively seek additional acquisition and development opportunities in our core markets.

Thank you for your time and attention this morning. We would now be pleased to answer any questions you may have.

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Questions and Answers

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Operator [1]

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(Operator Instructions)

Heather Kirk, BMO Capital Markets.

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Heather Kirk, BMO Capital Markets - Analyst [2]

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Good morning. You provided some guidance with respect to the rent growth outlook for 2017; I'm just wondering what your thoughts are with respect to expenses and whether we should be looking for stability of margins or continued improvement.

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Vlad Volodarski, Chartwell Retirement Residences - CFO, CIO [3]

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The expense, Heather as you know, the largest category of expenses is labor costs and those are pretty fixed based on the collective bargaining agreement that we have in place or are about to enter. So you should expect the stability in our expenses going forward with the potential growth tied to the occupancy growth in the platforms that we operate.

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Heather Kirk, BMO Capital Markets - Analyst [4]

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Okay, and in terms of base of acquisition environment, can you just speak a little bit to what kind of activity you are seeing and what the cap rate dynamics are right now?

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Vlad Volodarski, Chartwell Retirement Residences - CFO, CIO [5]

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We continue to see acquisition opportunities. As we always say, we are opportunistic when it comes to those. We are working on a number of potential opportunities at the present time. I expect that they'll be probably more during the year. With respect to the cap rates, it's really the question of the NOI and people's views of NOI, but I think we will continue seeing the competition from the same players that we've seen in the past. And I do not, have not yet encountered the compression or expansion of the cap rate, so they're probably similar to what we've seen in the years past.

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Heather Kirk, BMO Capital Markets - Analyst [6]

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So do you expect to be active in terms of acquisitions? You've also been doing dispositions, so just wondering whether you expect to be a net buyer.

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Vlad Volodarski, Chartwell Retirement Residences - CFO, CIO [7]

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Again, when it comes to acquisitions is really opportunistic and we are seeing some opportunities. I hope they will materialize, but it's very hard to guide to a specific number because the timing of it is uncertain or whether we will close on those or not is uncertain as well. In terms of dispositions, as we always say we continue to review our portfolio and you may see us disposing of some properties just like we did in the past years.

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Heather Kirk, BMO Capital Markets - Analyst [8]

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And in terms of the fee revenue, you saw a nice spike in that this quarter, can you just give us a sense of what you're looking for next year and whether that -- clearly some of that was incentive based, but how sustainable is the current level?

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Vlad Volodarski, Chartwell Retirement Residences - CFO, CIO [9]

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Yes, the spike is primarily incentive based because we outperformed budgets and were compensated on the incentive basis with our contracts with our partners.

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Heather Kirk, BMO Capital Markets - Analyst [10]

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So from a run rate perspective would Q3 be better gauge?

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Vlad Volodarski, Chartwell Retirement Residences - CFO, CIO [11]

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Yes.

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Heather Kirk, BMO Capital Markets - Analyst [12]

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Okay. Thanks very much.

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Operator [13]

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Jonathan Kelcher, TD Securities.

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Jonathan Kelcher, TD Securities - Analyst [14]

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Thanks good morning. Just on the occupancy, you talked about a gradual increase in Ontario, do you think you can get it north of 90% in 2017?

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Brent Binions, Chartwell Retirement Residences - President and CEO [15]

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That would be our expectation, yes.

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Jonathan Kelcher, TD Securities - Analyst [16]

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Okay. And then for Western Canada, that's a pretty elevated level. Are the supply-demand dynamics there strong enough for you guys to maintain something close to that?

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Brent Binions, Chartwell Retirement Residences - President and CEO [17]

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We think it is sustainable, yes.

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Jonathan Kelcher, TD Securities - Analyst [18]

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Okay, and then just switching over to development; 4 projects in pre-development, do expect to break ground on those this year?

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Brent Binions, Chartwell Retirement Residences - President and CEO [19]

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Yes, the ones that are shown as being in predevelopment we expect to start this year.

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Jonathan Kelcher, TD Securities - Analyst [20]

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Okay. And what is your development budget for this year, how much do you guys expect to spend?

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Vlad Volodarski, Chartwell Retirement Residences - CFO, CIO [21]

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You'll see for the projects that are disclosed there, you'll see the amounts that are expected -- the amounts that we budgeted for these projects and what has been incurred today, so the difference would be invested this year.

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Jonathan Kelcher, TD Securities - Analyst [22]

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Okay. That's a pretty big number. And then what about for your overall CapEx, your CapEx for existing properties?

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Vlad Volodarski, Chartwell Retirement Residences - CFO, CIO [23]

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You should expect it to be consistent with what we invested in the past year. Our intent is to continue to invest in the existing properties. We're seeing very good returns, particularly when we invest in suite upgrades and interior upgrades and our intent is fully to continue investing in our -- back our properties.

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Jonathan Kelcher, TD Securities - Analyst [24]

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Okay, so you had -- if I look back last, if I look back at 2016, it looks like you're moving CAD122 million but I'm assuming part of that was development? Is that the right way to look at that? And you're sort of CAD50 million into your -- was the majority of that CAD50 million spent in 2016?

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Vlad Volodarski, Chartwell Retirement Residences - CFO, CIO [25]

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Yes, Jonathan, you should look at the MD&A under Capital Investments -- category. Those are capital invested back in the existing properties excluding development. That was CAD74 million, so between CAD70 million and CAD80 million you should expect in 2017.

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Jonathan Kelcher, TD Securities - Analyst [26]

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Okay, that's -- just quickly for LTC, what is Ancillary Revenues? What are some examples of those?

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Brent Binions, Chartwell Retirement Residences - President and CEO [27]

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Well, they are revenues that we get by providing extra services to our residents, working with suppliers from the outside to provide services for residents.

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Jonathan Kelcher, TD Securities - Analyst [28]

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And so, would they go up and down with your occupancy? Is that why they are a little softer on a year-over-year basis or?

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Brent Binions, Chartwell Retirement Residences - President and CEO [29]

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No there's an issue with one of our suppliers, and until we resolve it we're not taking anything on to our income statement.

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Jonathan Kelcher, TD Securities - Analyst [30]

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Okay. Thanks I will turn it back.

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Operator [31]

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Neil Downey, RBC Capital Markets.

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Neil Downey, RBC Capital Markets - Analyst [32]

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Hi, good morning, thank you. To follow up on Jonathan's question, I believe I heard there was effectively a bad debt provision in the SEC business in Q4. And since substantially all of your revenues are from government agencies, I gather that was from an outside supplier?

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Brent Binions, Chartwell Retirement Residences - President and CEO [33]

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Yes.

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Neil Downey, RBC Capital Markets - Analyst [34]

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Could you quantify what that provision was in dollar terms so that we might be able to think about the same property NOI growth exclusive of that provision?

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Brent Binions, Chartwell Retirement Residences - President and CEO [35]

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Sure, it was a total of CAD1 million, of which CAD600,000 related to the long-term care segment.

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Neil Downey, RBC Capital Markets - Analyst [36]

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Okay. Thank you. And one other quick question if I may. Brent, over the years you've often talked about property size and scale as it relates to your acquisition program. And typically Chartwell has acquired assets of 100 suites or larger, and I did note that you bought a property in Thunder Bay which is by standards fairly modest in size, I think 66 units. Can you just talk about the opportunity and Hilldale Gardens and why that was an attractive investment for the company?

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Brent Binions, Chartwell Retirement Residences - President and CEO [37]

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Sure. We have three existing properties in Thunder Bay, so this just enhances our scale up there. We're already up there on a regular basis, we have teams up there, and because we have three existing homes we will use the skill-sets of at least one of those homes to manage this property. The existing manager of one of the homes will look after both of them. We will treat it almost like it's an add-on to one of our existing properties because they're very close together, and so we can manage this very efficiently and effectively. If this was a freestanding home and we had no other homes in Thunder Bay, you would not have seen us acquiring it. And we got quite a reasonable price on the home and so it made sense to add it to an existing portfolio and that's why we did it.

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Neil Downey, RBC Capital Markets - Analyst [38]

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Thank you.

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Operator [39]

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Himanshu Gupta, GMP Securities

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Himanshu Gupta, GMP Securities - Analyst [40]

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Thank you, and good morning. In the Outlook section in the MD&A, you mentioned that weakness in Alberta has created some opportunities. Will you please elaborate? Are you seeing some bargains? Are you looking to buy something?

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Vlad Volodarski, Chartwell Retirement Residences - CFO, CIO [41]

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We're looking to buy and develop. For a very long period time we were trying to develop in Alberta and could not make the numbers work because of the high construction costs and high land costs, that situation has changed and we're seeing some opportunities to develop properties in the province. We're going to start construction on one of them this spring and we are looking at a number of other opportunities to add to our Alberta portfolio for development.

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Himanshu Gupta, GMP Securities - Analyst [42]

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So maybe on the development side the other opportunities have come up?

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Vlad Volodarski, Chartwell Retirement Residences - CFO, CIO [43]

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Correct.

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Himanshu Gupta, GMP Securities - Analyst [44]

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Okay thank you. Switching from Alberta to Quebec, it looks like a fair bit of new suppliers coming up. So what are you disposition plans in the province? I know you sold a property both quarters in Quebec, so are you looking to sell more? Probably old and non-core asset there?

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Brent Binions, Chartwell Retirement Residences - President and CEO [45]

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Yes, we always continue to review our portfolio and identify properties for disposition, whether it's in Quebec or in other provinces, and we will continue with that program so you may see us selling some property.

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Himanshu Gupta, GMP Securities - Analyst [46]

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Okay, thank you. I'll turn it back.

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Operator [47]

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Thank you. The next question from Pammi Bir from Scotia Capital, please go ahead.

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Pammi Bir, Scotiabank - Analyst [48]

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Thanks, good morning. Just maybe going back to the disposition side, can you comment on the cap rate on the Quebec sale?

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Brent Binions, Chartwell Retirement Residences - President and CEO [49]

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The sale that we've just completed was done -- there's really no comment on cap rate because that property was operating at very low occupancy rates and has not really been producing any contribution to our AFFO. So, it's very low. Would be the answer. It was not really producing a lot of cash flow.

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Pammi Bir, Scotiabank - Analyst [50]

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Okay. Sorry. What was the occupancy on it roughly?

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Brent Binions, Chartwell Retirement Residences - President and CEO [51]

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When we started the process probably just 55%, 60%.

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Pammi Bir, Scotiabank - Analyst [52]

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Okay. All right. Maybe just going back to your comments on NOI and NOI growth. You know, you have obviously had a pretty strong 2016 and your color on rent growth is helpful, but can you put some context around your commentary for moderate NOI growth this year? And then if you had to rank the expectations by Western Canada, Ontario, and Quebec, how would that shape up?

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Brent Binions, Chartwell Retirement Residences - President and CEO [53]

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Pammi. As we always say, we think that 3% to 4% same property NOI growth is a reasonable estimate over a period of time. There won't be any difference for 2017. That would be our expectations. And I would say it's probably equally weighted between Ontario, Western Canada, and Quebec.

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Pammi Bir, Scotiabank - Analyst [54]

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So an equal level?

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Brent Binions, Chartwell Retirement Residences - President and CEO [55]

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It should be within the same range irrespective of the province.

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Pammi Bir, Scotiabank - Analyst [56]

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Okay. Then just on the new supply side of the equation, you made some comments around that, but would you say that you're seeing any acceleration of the pipeline over the last few months or products that are in planning or has that really changed at all?

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Vlad Volodarski, Chartwell Retirement Residences - CFO, CIO [57]

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It's been more than the last few months. It's been probably over the last year that we've seen an increase in development activities in all provinces but more so in Quebec and Ontario and it really hasn't changed in the last few months at all. It is just what we've been seeing over the course of the year.

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Pammi Bir, Scotiabank - Analyst [58]

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With respect to Ontario or any specific markets that really stand out?

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Vlad Volodarski, Chartwell Retirement Residences - CFO, CIO [59]

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Yes, it's all the same markets Pammi that we always talk about. Ottawa remains to be very competitive markets, there's some developments that are happening there. Some developments that are happening in Oshawa Pickering area. So those markets continue to see new supply coming in.

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Pammi Bir, Scotiabank - Analyst [60]

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Okay. And just lastly, looking at the intensification pipeline that you've provided on some of your sites, some vacant land. How many of these projects could you see advancing in the next -- this year, maybe even including 2018? And then what sort of yields would you expect be able to generate on those?

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Vlad Volodarski, Chartwell Retirement Residences - CFO, CIO [61]

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It's probably going to be 2 to 4 projects a year starting with 2018, and the yields -- you see the yields that we are generating on the ones that have been approved internally. Those are about the yields that we should be seeing from anything that will start going forward unless the economic situation changes significantly and construction costs are going to decline.

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Pammi Bir, Scotiabank - Analyst [62]

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So, sorry -- similar to the other -- like the balance of a, I guess your internal development pipeline, where you provided those yields -- so you're looking at something in the high CAD7 millions in that area?

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Vlad Volodarski, Chartwell Retirement Residences - CFO, CIO [63]

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Yes. CAD7 million to CAD8 million, yes.

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Pammi Bir, Scotiabank - Analyst [64]

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Okay. Thanks very much.

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Operator [65]

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(Operator Instructions)

Yash Sankpal, CIBC World Markets.

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Yashwant Sankpal, CIBC World Markets - Analyst [66]

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Hi, good morning. Just on your LTC occupancy, it was down 40 bips from the last quarter. Just wondering if it is related to the difficult flu season or is it something else?

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Karen Sullivan, Chartwell Retirement Residences - COO [67]

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Some of it may have been related to that, but there's 25,000 people on the waiting list and we get full funding as long as we are over 97%.

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Yashwant Sankpal, CIBC World Markets - Analyst [68]

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How is the flu season?

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Karen Sullivan, Chartwell Retirement Residences - COO [69]

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It's certainly shaping up to be worse than last year, which would've been one of the best flu seasons we've had. But it is not as bad as the previous 2014-2015 season, which was one of the worst we've seen.

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Yashwant Sankpal, CIBC World Markets - Analyst [70]

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Right. Okay. That's it for me. Thank you.

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Operator [71]

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Heather Kirk, BMO Capital Markets.

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Heather Kirk, BMO Capital Markets - Analyst [72]

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Do you know the interest in intensification of a lot of retail sites by retail land margin? Just wondering if you've discussions with respect to that or if there's opportunities to even acquire for redevelopment assets that are just maybe broken assets that would be candidates for intensification

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Vlad Volodarski, Chartwell Retirement Residences - CFO, CIO [73]

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Yes Heather, there are discussions that we are having with the retail landlords. We feel that seniors housing is certainly a complementary use to the existing shopping centers. Our clients like to be near retail amenities and their children like to be visiting their parents who live near retail amenities. So we think that there are opportunities that may materialize in the future. At this time we don't have anything specific to share with you, but the discussions continue.

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Heather Kirk, BMO Capital Markets - Analyst [74]

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Would you say that is something that's an imminence, or is that 2017 scene, or that it's just more preliminary.

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Vlad Volodarski, Chartwell Retirement Residences - CFO, CIO [75]

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Those are more preliminary discussions at this stage.

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Heather Kirk, BMO Capital Markets - Analyst [76]

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Just finally have you -- in terms of the development pipeline, it was very small previously, it was maybe I think 3% of the balance sheet right now. Do you have a target for the overall percentage, and where do you see that trending?

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Vlad Volodarski, Chartwell Retirement Residences - CFO, CIO [77]

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Yes, our constraint is not so much the balance sheet constraint -- we feel at least, that this is the balance sheet is not our main constraint. Our constraint is how much we can handle operationally without really taking the eyes off the managing the existing portfolio. And the size of the pipeline that you are seeing at the present time is about as much as we are prepared to handle at any one given point in time. As the projects complete in their construction and start going into lease-up, then we might start the new ones. But in terms of the number of projects, this is about as much as you should see us doing at one time.

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Heather Kirk, BMO Capital Markets - Analyst [78]

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Great. Thank you.

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Operator [79]

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Jenny Ma, Canaccord Genuity.

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Jenny Ma, Canaccord Genuity - Analyst [80]

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Thanks, good morning. I'm jumping on the call late, but I just had a question about the 9 LTC properties that you mentioned were subject to redevelopment. Can you talk a little bit about what's involved? Spend, time frame, and whether or not there's any funding from the government for these activities?

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Brent Binions, Chartwell Retirement Residences - President and CEO [81]

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There is a government funded program for these activities, for the rebuild. There's 30,000 beds in Ontario that need to rebuild and we've got 9 properties. But the program is not as effective as it needs to be at the present time, so we continue through the Association, Ontario Long-Term Care Association, to work with the government to enhance the program to make it so that it's a more viable program for all players in the sector.

In the interim, there's a limited amount that we would do in the way of redeveloping these properties. There's about 9 years left on the lifecycle of the properties. We're pretty confident that over this period of time we will figure it out between ourselves and the government of Ontario, and these properties will get rebuilt because I don't think anybody wants to put 30,000 residents out on the street. So I'm quite comfortable that plan will be put in play but we are not quite there yet.

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Jenny Ma, Canaccord Genuity - Analyst [82]

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Okay. So it's really a wait and see from you guys and everyone else?

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Brent Binions, Chartwell Retirement Residences - President and CEO [83]

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Speaking for myself the answer is yes.

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Jenny Ma, Canaccord Genuity - Analyst [84]

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Okay. What is that lifecycle that is assumed for these properties?

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Brent Binions, Chartwell Retirement Residences - President and CEO [85]

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You mean when they are rebuilt?

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Jenny Ma, Canaccord Genuity - Analyst [86]

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No, like how long do they expect these properties to be good for? Is it like 40 to 50 years, or how do they determine that number?

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Brent Binions, Chartwell Retirement Residences - President and CEO [87]

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The new properties -- no one actually determines a number how long they'll be out there for. But the existing stock has been around about 50 years. This is a much more enhanced product that we're building these days. You would expect 40 to 50 years out of these properties, yes.

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Jenny Ma, Canaccord Genuity - Analyst [88]

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Okay, great. Thank you very much.

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Operator [89]

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Thank you. There are no further questions registered at this time. I would like to turn the meeting back over to Mr. Binions.

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Brent Binions, Chartwell Retirement Residences - President and CEO [90]

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Thank you. That wraps up today's conference call. Thanks again to everybody for joining us. As always, if you have any further questions please do not hesitate to give us a call. Thank you and goodbye.

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Operator [91]

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