Chartwell Seniors Housing REIT
TSX : CSH.UN

Chartwell Seniors Housing REIT

November 12, 2009 19:23 ET

Chartwell Announces Third Quarter 2009 Results

MISSISSAUGA, ONTARIO--(Marketwire - Nov. 12, 2009) - Chartwell Seniors Housing Real Estate Investment Trust (TSX:CSH.UN) announced today results for the three and nine months ended September 30, 2009.

THIRD QUARTER HIGHLIGHTS:

- Same property occupancies are stable with Quebec continuing positive trends

- Anticipated rental rate increases in 2010 of 2.0% to 3.5% in Canada and 3.5% to 4.0% in the U.S.

- Continued successful implementation of cost control initiatives

- CMHC-insured mortgage debt renewal programs on track, generating ongoing interest savings

SUBSEQUENT EVENTS:

- $86.25 million offering of trust units improves liquidity and flexibility to restructure mezzanine loans

- Restructured relationship with U.S. property manager reduces risk and enhances U.S. cash flow

- Acquisition of the new property in Thunder Bay, Ontario from Spectrum

Operating Performance

Same property net operating income ("NOI"), excluding the impact of foreign exchange and discontinued operations, decreased by $1.0 million or 2.2% for the quarter ended September 30, 2009 compared to the same period last year. For the first nine months of 2009, same property NOI decreased $0.6 million or 0.5% compared to the same period last year. The implementation of rent increases on renewals and turnovers, combined with targeted cost reduction initiatives and tight management of controllable expenses, partially offset the negative impact of reduced occupancies, increased utility, property tax, commodity tax costs, and the timing of specific marketing initiatives compared to last year. Same property occupancy was 91.3% in the third quarter of 2009, in line with occupancies in the second quarter of the year but down from 93.3% in last year's third quarter. For the first nine months of 2009 same property occupancy was 91.5% compared to 93.2% for the same period in the prior year.

Same property occupancies in Ontario were healthy at 92.1%, declining slightly from 92.5% in the second quarter of 2009 and lower than 94.0% in the third quarter of last year. Customer traffic and expected future arrivals maintained positive trends and management is optimistic that this improvement will translate into higher occupancies through the remainder of the year and in 2010. In addition, the spillover effect from significant waiting lists for long-term care beds in the province should continue supporting the increased demand for retirement suites. Management anticipates rental rates in Ontario will increase by 3.25% to 3.5% in 2010. Alberta continued to perform well with virtually full occupancies. Temporary oversupply conditions in two British Columbia markets, combined with reduced occupancies at one long term care facility, resulted in lower occupancies in the region. Same property occupancies in the Western Canada portfolio were at 91.0% in the third quarter of 2009. Rental rate increases of between 3.25% and 3.5% are anticipated in the Western Canada portfolio next year. Performance in the Quebec portfolio continues to show steady growth with same property average occupancy improving to 87.8% in the third quarter of 2009 from 86.7% in the second quarter of 2009 and from 86.0% in the third quarter of last year. Management anticipates continued occupancy improvements in Quebec through the remainder of 2009. Rental rate increases of approximately 2.0% are expected in Quebec in 2010. The U.S. same property occupancies in the third quarter of 2009, were at 89.4% consistent with the occupancies in the second quarter of 2009, but down from 93.9% in the last year's third quarter. Management is optimistic that recent increases in inquiries and tours across the U.S. portfolio, combined with improvements in the U.S. housing market, are positive signs that occupancies may improve over the longer term. Rental rates in the U.S. portfolio are anticipated to increase by 3.5% to 4.5% in 2010.

For the third quarter of 2009, general, administrative and trust ("G&A") expenses, excluding severance and other costs, increased to 2.3% of revenue compared to 1.8% of revenue in the same period of 2008. The increase was primarily due to re-branding costs for certain U.S. assets as required by their acquisition agreements. For the first nine months of 2009, G&A expenses as a percentage of revenues, excluding severance and other costs, decreased slightly to 2.5% compared to 2.7% of revenue for the same period last year.

Income from Chartwell's Canadian management operations was $0.9 million and $2.5 million for the third quarter and first nine months of 2009, respectively, compared to $1.3 million and $3.8 million respectively for the comparable prior year periods. The decline is primarily due to lower development management fees as Chartwell continues to reduce its development management activities.

"We continue to see positive trends in a number of our operating platforms, and anticipate this progress will continue as our innovative sales and marketing programs drive increased traffic to our communities and enhance occupancies over time. In addition, our planned rental rate increases in 2010, combined with our focus on cost reductions and operating efficiencies, should result in improved performance going forward," commented Brent Binions, President and CEO.

Adjusted Funds from Operations ("AFFO") and Funds from Operations ("FFO"):

For the three months ended September 30, 2009, AFFO was $18.7 million ($0.18 per unit diluted) compared to $20.9 million ($0.21 per unit diluted) for the same period in 2008. The decline was primarily due to lower mezzanine loan interest, management fees and other income and lower contributions from property portfolio. For the first nine months of 2009, AFFO, excluding the impairment provision, was $58.6 million ($0.57 per unit diluted) compared to $54.0 million ($0.53 per unit diluted) for the same nine month period last year. The increase was primarily due to realized foreign exchange gain of $5.0 million ($0.05 per unit diluted) recorded in the first quarter of 2009.

For the three months ended September 30, 2009, FFO decreased to $14.6 million ($0.14 per unit diluted) from $24.5 million ($0.24 per unit diluted) in the third quarter of 2008 primarily due to an increase of unrealized foreign exchange losses. For the first nine months of 2009, FFO, excluding the impairment provision, decreased to $47.9 million ($0.47 per unit diluted) compared to $59.9 million ($0.59 per unit diluted) for the same period last year primarily due to an increase in unrealized foreign exchange losses.

Normalized Funds from Operations ("NFFO"), which excludes the effects of straight-line operating lease expense and unrealized foreign exchange gains and losses, was $20.2 million ($0.20 per unit diluted) in the third quarter of 2009 compared to $23.3 million ($0.23 per unit diluted) in the same period last year. For the nine months ended September 30, 2009, NFFO, excluding the impairment provision charged in the second quarter of the current year, was $63.9 million ($0.62 per unit diluted) compared to $60.4 million ($0.60 per unit diluted) for the same period last year. The increase was primarily due to the positive impact of realized foreign exchange gains and the improved contribution from property operations.

Financial Position

As at September 30, 2009, Chartwell's debt to gross book value ratio was 54.7% (61.4% including convertible debentures). The average term to maturity of the mortgage portfolio was 8.2 years with a contractual weighted average interest rate of 5.44%.

During the third quarter of 2009, Chartwell refinanced $70.7 million of debt, including $12.6 million of 2010 maturing mortgage debt with a weighted average interest rate of 4.04%, down from 4.91% on the maturing debt. Through the first nine months of 2009, $121.9 million of maturing mortgage debt was refinanced at a weighted average interest rate of 3.83%, down from 5.15% on the maturing debt. At September 30, 2009 Chartwell had $16.5 million of remaining mortgage debt maturing in 2009, all of which is CMHC-insured. Subsequent to the quarter-end, Chartwell refinanced $2.9 million of this maturing mortgage debt, arranged new financing of $4.8 million and top-up financing of $3.4 million. Maturing debt through to 2012 relates exclusively to Chartwell's Canadian property portfolio; there are no maturities of U.S. debt until 2013. Management expects to renew or replace maturing mortgages in the normal course.

Subsequent Events

On October 8, 2009 Chartwell raised gross proceeds of approximately $86.3 million with the public issuance of 14.4 million trust units. The net proceeds were used to reduce amounts outstanding under the operating credit facility and to provide funding to take advantage of certain restructuring opportunities related to mezzanine loans outstanding with Spectrum, Melior and others.

Subsequent to September 30, 2009, Chartwell acquired one new seniors housing property in Ontario from Spectrum for consideration, before closing costs, of approximately $23.1 million. The purchase price after working capital adjustments of $0.2 million was settled through the assumption of existing mortgage debt of $17.1 million and the settlement of outstanding accounts receivable of $2.8 million and mezzanine loans of $3.0 million. In addition, Spectrum sold one property to a third party and repaid one of its mezzanine loans to Chartwell in the amount of $2.8 million plus accrued interest.

Subsequent to September 30, 2009, Chartwell reorganized its relationship in the U.S. market and as a result no longer has an ownership interest in 25 leased properties and eight third party management contracts. This reorganization eliminates exposure to negative cash flows and future obligations under the lease agreements and Chartwell expects annualized AFFO from its operations to increase by approximately $2 million or $0.02 per unit as a result of this reorganization.

"We continue to take steps in line with our strategy to increase the percentage of AFFO derived from our property portfolio. The restructuring of our relationships in the U.S. market and the funds raised by our successful equity issue, enhance the REIT's stability and financial flexibility, while the recent acquisition from Spectrum will make positive and growing contributions to our AFFO over time," Mr. Binions concluded.



Financial Highlights

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Three Months Nine Months
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($000s except per unit amounts) 2009 2008 2009 2008
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Net Loss $ (8,950) $ (5,951) $ (64,009) $ (30,344)
Net Loss per unit (diluted) $(0.09) $(0.06) $(0.65) $(0.33)
Funds from Operations (Excluding
Provision) 14,552 24,451 47,855 59,875
Funds from Operations per unit
(diluted) 0.14 0.24 0.47 0.59
Normalized Funds from Operations
(Excluding Provision) 20,194 23,315 63,927 60,411
Normalized Funds from Operations
per unit (diluted) $0.20 0.23 0.62 0.60
Adjusted Funds from Operations
(Excluding Provision) 18,699 20,875 58,636 53,959
Adjusted Funds from Operations
per unit (diluted) $0.18 0.21 0.57 0.53
Distributions declared 15,424 18,491 52,738 60,711
Distributions declared per unit 0.15 0.19 0.52 0.61
Weighted average units
outstanding (diluted) 102,876 101,478 102,531 101,021
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Chartwell's financial statements, including its Management's Discussion and Analysis, are available at www.chartwellreit.ca. A detailed list of Chartwell's property portfolio can also be obtained under "Property List" in the "Investor Relations" section of the web site.

Investor Conference Call

A conference call hosted by Chartwell's senior management team will be held Friday, November 13, 2009 at 10:00 AM ET. The telephone numbers for the conference call are: Local (416) 849-5562 or Toll Free: (866) 269-7096. The conference call can also be heard over the Internet by accessing the Chartwell web site at www.chartwellreit.ca, clicking on "Investor Relations" and following the link at the top of the page. A slide presentation to accompany management's comments during the conference call will be available on the Website. Please log on at least 15 minutes before the call commences.

The telephone numbers to listen to the call after it is completed (Instant Replay) are local (416) 915-1035 or toll-free (866) 245-6755. The Passcode for the Instant Replay is 929597#. The Instant Replay will be available until midnight, November 20, 2009. The call, along with the companying slides, will also be archived on the Chartwell web site at www.chartwellreit.ca.

Chartwell is a real estate investment trust focused on generating sustainable, stable and growing cash distributions from owning and managing a complete range of seniors housing communities. It is one of the largest participants in the North American seniors housing business. Chartwell's aim is to capitalize on the strong demographic trends present in its markets to maximize the value of its existing portfolio of seniors housing facilities, and prudently avail itself of opportunities to grow internally and through accretive acquisitions.

Chartwell's Distribution Reinvestment Plan (DRIP) allows Unitholders to have their monthly cash distributions used to purchase units without incurring commission or brokerage fees, and receive bonus units equal to 3% of their monthly cash distributions. More information can be obtained at www.chartwellreit.ca.

This press release contains forward-looking information that reflect the current expectations of management about the future results, performance, achievements, prospects or opportunities for Chartwell and the seniors housing industry. These statements generally can be identified by use of forward-looking words such as "may", "will", "expect", "estimate", "anticipate", "believe", "project", "should" or "continue" or the negative thereof or similar variations. Forward-looking statements are based upon a number of assumptions and are subject to a number of known and unknown risks and uncertainties, many of which are beyond Chartwell's control that could cause actual results to differ materially from those that are disclosed in or implied by such forward-looking statements.

While we anticipate that subsequent events and developments may cause our views to change, we do not have an intention to update this forward-looking information, except as required by applicable securities laws. This forward-looking information represents our views as of the date of this press release and such information should not be relied upon as representing our views as of any date subsequent to the date of this document. We have attempted to identify important factors that could cause actual results, performance or achievements to vary from those current expectations or estimated expressed or implied by the forward-looking information. However, there may be other factors that cause results, performance or achievements not to be as expected or estimated and that could cause actual results, performance or achievements to differ materially from current expectations. There can be no assurance that forward-looking information will prove to be accurate, as actual results and future events could differ materially from those expected or estimated in such statements. Accordingly, readers should not place undue reliance on forward-looking information. These factors are not intended to represent a complete list of the factors that could affect us. See "Risks and Uncertainties" in our MD&A and risk factors highlighted in materials filed with the securities regulatory authorities in Canada from time to time, including but not limited to our most recent annual information form.

Funds from Operation, Normalized Funds from Operations, Adjusted Funds from Operations and Net Operating Income are not measures recognized under GAAP and do not have a standardized meaning prescribed by GAAP. They are presented because management believes these non-GAAP measures are relevant measures of Chartwell's performance. Funds from Operations, Normalized Funds from Operations, Adjusted Funds from Operations and Net Operating Income as computed by Chartwell may differ from similar computations as reported by other organizations and, accordingly, may not be comparable to those reported by such organizations. Detailed descriptions of these terms are contained in Chartwell's Management Discussion and Analysis, available at www.sedar.com.

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