Chartwell Seniors Housing REIT
TSX : CSH.UN

Chartwell Seniors Housing REIT

March 01, 2012 20:39 ET

Chartwell Announces Fourth Quarter & Year End 2011 Results

MISSISSAUGA, ONTARIO--(Marketwire - March 1, 2012) - Chartwell Seniors Housing Real Estate Investment Trust (TSX:CSH.UN) ("Chartwell") announced today results for the three months and year ended December 31, 2011.

2011 Highlights

  • Excluding non-recurring severance costs, adjusted funds from operations ("AFFO") increased 10.8% (21.5% in Q4)
  • Strong same property net operating income ("NOI") growth of 2.3% (2.4% in Q4) with occupancy improving to 90.6% (91.2% in Q4)

Recent Developments

  • Announced a $931 million acquisition of an 8,187-suite Canadian seniors housing portfolio (the "Maestro Acquisition") in 50/50 co-ownership with Health Care REIT, Inc. ("HCN")

"With our continued focus on operational excellence and with the Canadian and U.S. economies improving, we generated steady growth in all our key operating and financial metrics through 2011, finishing with a strong fourth quarter," commented Brent Binions, President and CEO. "Looking ahead, we believe 2012 will be a much better year as demand remains solid in all our markets, while the Maestro Acquisition, intended to be completed in the second quarter of 2012, is expected to make a considerable contribution to our results in the second half of the year and going forward."

"The Maestro Acquisition is fully in line with our previously announced strategic priorities and brings significant benefits to Chartwell and its Unitholders," Mr. Binions added. "The Maestro Acquisition increases our presence in the strong, stable and growing Canadian market, adds quality properties to our core independent and assisted living segments of the business and is expected to be immediately accretive to our AFFO per unit. We are also pleased to enter into a partnership with Health Care REIT, a highly experienced, well-capitalized REIT, committed to the seniors housing business. This partnership not only allows us to leverage our management expertise, but we believe will also bring future accretive growth opportunities."

Financial Highlights

Three Months Ended
December 31
Year Ended
December 31
2011 2010 2011 2010
AFFO (000s) (1) $ 22,036 $ 18,848 $ 86,530 $ 80,139
AFFO per unit diluted (1) $ 0.15 $ 0.13 $ 0.59 $ 0.60
Funds from operations ("FFO") (000s) (1) $ 24,792 $ 21,211 $ 96,447 $ 89,282
FFO per unit diluted (1) $ 0.17 $ 0.15 $ 0.66 $ 0.67
Distributions declared (000s) $ 19,714 $ 19,462 $ 78,446 $ 72,133
Distributions declared per unit $ 0.14 $ 0.14 $ 0.54 $ 0.54
Distributions declared as a percentage of AFFO 89.5 % 103.3 % 90.7 % 90.0 %
Weighted average number of units outstanding, diluted (000s) 146,662 140,315 145,846 132,998
(1) AFFO, AFFO per unit diluted, FFO and FFO per unit diluted are measures used by management in evaluating operating performance. Please refer to the cautionary statements under the heading "Non-IFRS Measures" in this press release.

AFFO in the fourth quarter of 2011 was $22.0 million ($0.15 per unit diluted) compared to $18.8 million ($0.13 per unit diluted) in the fourth quarter of 2010. For the year ended December 31, 2011, AFFO was $86.5 million ($0.59 per unit diluted) compared to $80.1 million ($0.60 per unit diluted) in 2010. Excluding non-recurring severance costs of $0.9 million in the fourth quarter of 2011 and $2.3 million for the year ended December 31, 2011, AFFO increased 21.5% and 10.8% in the fourth quarter and for the year ended December 31, 2011, respectively. Incremental contributions from the property portfolio due primarily to acquisitions and same property NOI growth, lower general, administrative and Trust ("G&A") expenses and lower interest expense due to the redemption of convertible debentures in the fourth quarter of 2010, were partially offset by lower mezzanine loan interest and management fee income. Per unit amounts were impacted by the 4.5% and 9.7% increase in the weighted average number of units outstanding in the fourth quarter and for the year ended December 31, 2011, respectively.

In the fourth quarter of 2011, FFO increased to $24.8 million ($0.17 per unit diluted) from $21.2 million ($0.15 per unit diluted) in the fourth quarter of 2010. For the year ended December 31, 2011, FFO increased to $96.4 million ($0.66 per unit diluted) from $89.3 million ($0.67 per unit diluted) in the prior year. In addition to the items discussed above, FFO in 2011 has also been impacted by changes in the amortization of financing costs and fair value adjustments on mortgages payable.

Operating Performance

Three Months Ended
December 31
Year Ended
December 31
2011 2010 Increase/
(Decrease)
2011 2010 Increase/
(Decrease)
Same property occupancy (1) 91.2 % 91.0 % 0.2pp 90.6 % 90.3 % 0.3pp
Same property NOI (000s) (2) (3) $ 38,888 $ 37,980 $ 908 $ 156,719 $ 153,122 $ 3,597
G&A expenses (000s) (4) $ 5,331 $ 6,970 $ (1,639 ) $ 22,494 $ 24,761 $ (2,267 )
G&A as a % of revenue (1) (4) 2.7 % 3.6 % (0.9pp ) 3.0 % 3.4 % (0.4pp )
Net Loss (000s) $ (25,249 ) $ (24,365 ) $ (884 ) $ (63,331 ) $ (61,948 ) $ (1,383 )
(1) pp = percentage points
(2) NOI is a measure used by management in evaluating operating performance. Please refer to the cautionary statements under the heading "Non-IFRS Measures" in this press release.
(3) Excludes the effects of foreign exchange on U.S. dollar revenue.
(4) Excludes non-recurring severance costs.

Same property weighted average occupancy in the three months and for the year ended December 31, 2011 improved compared to the same periods of 2010, driven by strong occupancy growth in the U.S., Western Canada and Quebec, partially offset by a slight decline in Ontario occupancy.

Same property NOI showed strong growth in the fourth quarter of 2011, improving by $0.9 million or 2.4% compared to the fourth quarter of 2010. For the year ended December 31, 2011, same property NOI grew by $3.6 million or 2.3% compared to 2010.

Chartwell's Canadian retirement portfolio delivered a 4.6% same property NOI growth in the fourth quarter of 2011 and a 2.3% same property NOI growth for the year ended December 31, 2011, compared to the same period of the prior year, driven by strong performance in our Western Canada and Quebec properties as a result of occupancy improvements and successful expense controls.

Chartwell's U.S. portfolio delivered same property NOI growth of 4.8% in the fourth quarter of 2011 and 4.8% for the year ended December 31, 2011, compared to the same periods of the prior year, primarily due to strong occupancy improvements and improved expense controls in the second half of 2011.

Canadian long term care ("LTC") portfolio experienced a decrease in same property NOI due to the positive adjustment of estimates for vacation and sick time costs in 2010 with no comparable amount in 2011. Not including these 2010 adjustments, same property NOI for the Canadian LTC portfolio increased 2.1% in 2011.

G&A expenses, excluding non-recurring severance costs, decreased by $1.6 million and $2.3 million in the three months and for the year ended December 31, 2011, respectively, compared to the same periods of the prior year. The decreases are primarily due to lower professional and consulting fees, lower compensation expenses as a result of process improvement reviews conducted in 2010 and in 2011, and certain temporary staffing vacancies.

In addition to the items discussed above, the net loss for the three months and for the year ended December 31, 2011 was impacted by positive changes in fair values of financial instruments and unrealized foreign exchange gains and losses and changes in deferred income tax expense / recovery, changes in depreciation and amortization and gains and losses on step-acquisitions and on sales of properties.

Recent Developments

On February 15, 2012, Chartwell announced that, in connection with the Maestro Acquisition, a subsidiary of Chartwell had entered into an agreement with a subsidiary of HCN to acquire a portfolio of 42 retirement communities located in Ontario, Quebec, British Columbia and Alberta, for a net purchase price of $931 million. Under the terms of the agreement, each will acquire a 50% interest in 39 of the communities (the "Co-Owned Properties") and HCN will acquire 100% interest in the other three communities. Chartwell will manage all 42 communities. The purchase price for the Co-Owned Properties is approximately $850 million. Chartwell will pay for its 50% interest in the Co-Owned Properties by the assumption of its 50% share of mortgage debt of approximately $471 million, cash derived in part from the net proceeds of the Subscription Receipt Offering (as described below) and by drawing down on the Bridge Facility (as described below). Closing costs for the Maestro Acquisition are estimated at approximately $22 million. Closing of the Maestro Acquisition is subject to regulatory, lender and Canada Mortgage and Housing Corporation approvals, and is expected on or about May 1, 2012. Full details of the Maestro Acquisition can be found in Chartwell's Management's Discussion and Analysis for the three months and year ended December 31, 2011 ("MD&A"), the preliminary prospectus relating to the Offerings (as described below) filed by Chartwell on February 22, 2012 (the "Prospectus") and other regulatory filings, all of which can be obtained on SEDAR at www.sedar.com.

Chartwell also announced that it had entered into an underwriting agreement with a syndicate of underwriters to issue to the public in Canada, subject to regulatory approval, on a bought deal basis, 23,175,000 subscription receipts at $8.20 per subscription receipt, representing approximately $190 million of gross proceeds. Each subscription receipt represents the right to receive one unit of Chartwell at no additional cost and without further action upon closing of the Maestro Transaction (the "Subscription Receipt Offering").

Chartwell also agreed to issue $120 million aggregate principal amount of 5.7% convertible unsecured subordinated debentures (the "Debentures") maturing on March 31, 2018 (the "Debenture Offering", and together with the Subscription Receipt Offering, the "Offerings"). The Debentures will be convertible into units of Chartwell, at the option of the holder in certain circumstances, at a price of $11.00 per unit.

Chartwell has granted to the underwriters, an over-allotment option exercisable at any time up to 30 days after closing of the Offerings, to acquire up to 1,738,125 additional subscription receipts, representing 7.5% of the Subscription Receipt Offering and up to $15 million of Debentures at the same offering price and the same offering terms, respectively.

Chartwell intends to use the proceeds from the Subscription Receipt Offering to finance, in part, the purchase price for the Co-Owned Properties.

Chartwell intends to use the net proceeds from the Debenture Offering (a) to redeem in full its existing 5.9% convertible debentures, including accrued and unpaid interest thereon, totaling approximately $78 million, (b) to repay approximately $37 million outstanding under its outstanding credit facility (the "Credit Facility"), and (c) for general trust purposes.

In addition, Chartwell entered into a term sheet and commitment letter relating to a $210.4 million unsecured floating rate credit facility maturing on December 13, 2012, and which may be drawn by Chartwell at the time of the closing of the Maestro Acquisition and to repay amounts outstanding under the Credit Facility, subject to customary conditions, up to June 29, 2012 (the "Bridge Facility").

Subsequent to December 31, 2011, Chartwell also purchased the 70-suite Chartwell Select Georgian Traditions Retirement Residence in Collingwood, Ontario from Spectrum. The purchase price was $15.5 million and was settled through the assumption of debt of $11.4 million, settlement of an outstanding mezzanine loan of $0.9 million, settlement of outstanding accounts receivable of $0.9 million, with the remaining balance, net of working capital adjustments, paid in cash.

Chartwell also announced today that effective February 29, 2012, Mr. Huw Thomas has been appointed a member of the Board of Directors of Chartwell Master Care Corporation.

Mr. Thomas served in successively senior financial roles, including Chief Financial Officer, at Canadian Tire Corporation for close to 10 years. He also served on the internal Canadian Tire Real Estate Board. He is a current board member of Dollarama Inc. and Calloway REIT, on which he is the Chair of the Audit Committee, and Chairs the Risk Oversight and Governance Committee of the Canadian Institute of Chartered Accountants. He received a Bachelor of Sciences (Economics) degree from the University of London in 1974 and his Chartered Accountant designation in 1982.

"We are very pleased to welcome Huw to Chartwell," stated Michael D. Harris, Chairman. "Huw brings a wealth of corporate finance, accounting and public company experience, including as a Chief Financial Officer of a large Canadian corporation. We look forward to working with him in the years to come."

Chartwell's financial statements, including its MD&A, are available at www.chartwellreit.ca and on SEDAR at www.sedar.com. A detailed list of Chartwell's property portfolio can also be obtained under "Supplementary Information" in the "Investor Relations" section of the Chartwell web site.

About Chartwell

Chartwell is a real estate investment trust which indirectly owns and operates a complete range of seniors housing communities from independent supportive living through assisted living to long term care. It is one of the largest participants in the seniors housing business in North America. 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 communities, 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.

Forward-Looking Information

This press release contains forward-looking information that reflects the current expectations, estimates and projections of management about the future results, performance, achievements, prospects or opportunities for Chartwell and the seniors housing industry. The words "plans", "expects", "does not expect", "is expected", "budget", "scheduled", "estimates", "intends", "anticipates", "does not anticipate", "projects", "believes" or variations of such words and phrases or statements to the effect that certain actions, events or results "may", "will", "could", "would", "might", "occur", "be achieved" or "continue" and similar expressions identify forward-looking statements. 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 our control, and 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 intend 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 the MD&A, "Risk Factors" in the Prospectus 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.

Non-IFRS Measures

FFO, AFFO, and NOI are not measures defined by International Financial Reporting Standards ("IFRS"). They are presented because management believes these non-IFRS measures are relevant and meaningful measures of Chartwell's performance. FFO, AFFO and NOI as computed may differ from similar computations as reported by other issuers and may not be comparable to those reported by such issuers. The MD&A contains a reconciliation of Net Income/Loss to FFO and the calculation of AFFO for the three months and for the year ended December 31, 2011. Detailed descriptions of these terms are contained in the MD&A, available at www.sedar.com.

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