Chartwell Seniors Housing REIT
TSX : CSH.UN

Chartwell Seniors Housing REIT

November 13, 2008 18:57 ET

Chartwell Announces Strong Third Quarter 2008 Results

MISSISSAUGA, ONTARIO--(Marketwire - Nov. 13, 2008) - Chartwell Seniors Housing Real Estate Investment Trust (TSX:CSH.UN) announced today strong results for the three and nine months ended September 30, 2008.

STRONG THIRD QUARTER OPERATING & FINANCIAL PERFORMANCE:

- Property revenues up 4.8% over last year's third quarter

- Same property revenues rise 2.4% on increased rents, new services and internal growth projects

- Total same property Net Operating Income ("NOI") rises 2.7%

- Canadian retirement portfolio same property NOI up 3.5%

- Canadian long-term care portfolio same property NOI up 3.1%

- U.S. portfolio same property NOI up 1.4%

- Weighted average occupancy, excluding internal growth suites, strong at 92.3%

- Same property operating margins improve to 33.4%

- General, administrative and trust expenses, excluding Special Committee and related costs, decline to 2.1% of revenues

SOLID FINANCIAL POSITION AND LIQUIDITY:

- Average term to maturity on mortgage portfolio 9.0 years

- Weighted average contractual interest rate reduced to 5.7%

- Remainder of 2008 and 2009 mortgage maturities limited to Canada only

- 82% of 2009 mortgage maturities CMHC-insured

- No U.S. debt maturity until 2013

- Stable leverage ratio of 61.1% including convertible debentures

- No balance outstanding on $90 million operating credit facility

- $35.6 million cash on hand at September 30, 2008

- Cash distributions covered by adjusted Funds from Operations

"We were pleased to have generated another quarter of solid operating and financial performance," commented Stephen Suske, CEO and Vice Chair. "Our properties are performing very well, demand for our high quality communities remains strong in the majority of our markets, our financial position is solid, and our current level of cash distributions remains stable and sustainable. The seniors housing market, with a record of resistance to recessions and economic downturns, is an enviable industry in today's uncertain economic environment. Looking ahead, we are confident we will generate further increases in AFFO as we build on our premier market position and strong competitive advantages."

Solid Property Revenue Growth

For the three months ended September 30, 2008, total revenues increased 1.7% to $180.3 million compared to $177.2 million for the same period in 2007. Property revenues were up 4.8% due primarily to contributions from acquisitions completed over the last twelve months, and a 2.4% increase in same property revenues resulting from increased rents, new resident services, increased occupancies and internal growth initiatives as compared to the same period last year.

For the nine months ended September 30, 2008, total revenues increased 12.2% to $529.4 million compared to $471.9 million for the same period in 2007. Property revenues were up 15.1% due primarily to contributions from acquisitions completed over the last twelve months, and a 3.6% increase in same property revenues resulting from increased rents, new resident services, increased occupancies and internal growth initiatives as compared to the same period last year.

Chartwell's total portfolio, including suites owned, managed, in lease-up, or in various stages of development, consisted of interests in 37,923 suites in 273 seniors housing communities as at September 30, 2008. Its owned and leased portfolio consisted of interests in 28,362 suites in 203 communities at September 30, 2008. Occupancies for the existing stabilized portfolio, excluding internal growth suites, remained strong at 92.3% in the third quarter and 92.9% for the first nine months of 2008 compared to 93.7% and 93.1% for the same respective periods last year.

Mezzanine loan interest in the third quarter of 2008 was $2.8 million compared to $3.4 million for the same period last year. The decline is due to adjustments to placement fee amortization resulting from delays in expected stabilization dates for certain properties. For the first nine months of 2008, mezzanine loan interest was $8.2 million compared to $10.8 million for the same period last year.

For Chartwell's Canadian management operations, revenue was $2.3 million in the third quarter of 2008 compared to $5.2 million for the same period in 2007. The decline is due primarily to lower development/management fees from Spectrum, due diligence project management fees from ING and lower fees from other third-parties. For the first nine months of 2008, revenue from Chartwell's Canadian management operations decreased by $3.6 million compared to the same period last year.

Strong Operating Performance

For Chartwell's Canadian retirement operations, same property net operating income for the three months ended September 30, 2008 rose 3.5% to $25.0 million, due primarily to revenue growth, contributions from internal growth projects, and benefits generated by new cost management programs implemented in mid-2007. For the first nine months of 2008, same property NOI for the Canadian retirement operations increased 3.1% to $71.8 million. Acquisitions contributed $3.0 million and $8.8 million respectively, in NOI for the three and nine month periods ended September 30, 2008. Excluding internal growth suites which are in lease-up, same property weighted average occupancies for the three and nine months ended September 30, 2008 were 91.4% and 92.0%, respectively, compared to 93.0% and 92.7% for the same respective periods last year.

"Same property NOI growth in our Ontario retirement operations increased 8.5% in the third quarter compared to the prior year period, while same property NOI in our Western Canadian platform rose 2.9%," Mr. Suske added. "With the recent acquisition of the remaining 50% interest in our Quebec properties and management company, we expect to deliver solid performance improvements in the Quebec platform going forward with a full recovery by the end of 2009."

For Chartwell's Canadian long-term care operations, same property net operating income increased 3.1% to $2.6 million for the third quarter of 2008 compared to the same prior year period. For the first nine months of 2008, same property NOI for the Canadian long-term care operations increased 8.0% to $7.1 million compared to the same nine month period in 2007. Acquisitions completed subsequent to January 1, 2007 contributed $2.2 million to NOI for the third quarter of 2008 and $6.3 million for the nine months ended September 30, 2008. The same property weighted average occupancy for the three and nine months ended September 30, 2008 was 99.0% and 98.8% compared to 98.5% and 97.8% respectively, for the same periods in 2007.

Chartwell's U.S. operations contributed approximately USD$23.5 million to net operating income for the quarter ended September 30, 2008. For the nine months ended September 30, 2008, Chartwell's U.S. operations contributed approximately USD$69.8 million to net operating income. Same property net operating income in the U.S. portfolio increased 1.4% and 8.4%, respectively, to USD$14.7 million and USD$45.4 million for the three and nine months ended September 30, 2008, primarily due to regular annual rent increases. In the third quarter, same property weighted average occupancies in the U.S. portfolio declined to 92.0% from 92.8% in the second quarter.

"Our US platform delivered solid results in the third quarter despite the economic slowdown being experienced in a number of regions and our occupancy levels remain higher than industry averages," Mr. Suske stated. "Looking ahead, we are leveraging our significant experience and expertise to source new operations and development management contracts in the US, and expect this new business will augment future earnings in our US platform going forward."

General and Administrative ("G&A") expenses, as a percentage of revenue, declined to 2.1% for the three months ended September 30, 2008 compared to 2.6% for the same period last year, after excluding advisory services and other costs related to the Board of Trustees' Special Committee. For the nine months ended September 30, 2008, G&A expenses, excluding the above items, as a percentage of revenues improved to 2.6% compared to 2.9% for the same period last year.

Funds from Operations ("FFO") increased 51.3% to $24.5 million ($0.24 per unit diluted) in the third quarter of 2008 and 46.5% to $59.9 million ($0.59 per unit diluted) for the nine months ended September 30, 2008 compared to $16.2 million ($0.16 per unit diluted) and $40.9 million ($0.44 per unit diluted), respectively, for the same periods last year. FFO and FFO per unit in the third quarter and first nine months of 2008 was positively affected by increased unrealized foreign exchange gains of $8.3 million ($0.08 per unit diluted) resulted in increased FFO for the third quarter of 2008 compared to the third quarter of 2007. For the first nine months of 2008 changes in unrealized foreign exchange gains and losses increased FFO by $16.5 million ($0.16 per unit diluted), compared to the same period of last year. These unrealized gains and losses are predominantly related to cross-border U.S. dollar denominated loans used to finance Chartwell's U.S. operations. FFO in the third quarter and first nine months of 2008 reflected strong, positive contributions from Chartwell's property portfolio due primarily to rate increases, and cost management programs.

Normalized funds from operations, which excludes the effect of foreign exchange losses on intercompany debt, straight line lease expense adjustments and SIFT tax expenses, was $23.3 million ($0.23 per unit diluted) for the three months ended September 30, 2008 compared to $22.9 million ($0.23 per unit diluted) for the same period last year. For the nine months ended September 30, 2008, normalized funds from operations was $60.4 million ($0.60 per unit diluted) compared to $57.9 million ($0.62 per unit diluted) for the same period last year.

Adjusted Funds from Operations ("AFFO") is FFO adjusted for straight line lease expense adjustments, the amortization of below-market leases, the principal portion of capital subsidies receivable, amounts received under net operating income guarantees, the amortization of debt mark-to-market adjustments and deferred financing costs, financing fees and capital maintenance reserves. For the three months ended September 30, 2008, AFFO was $20.9 million ($0.21 per unit diluted) compared to $21.4 million ($0.21 per unit diluted) for the same period last year. For the nine months ended September 30, 2008, AFFO was $54.0 million ($0.53 per unit diluted) compared to $53.1 million ($0.57 per unit diluted) for the same period last year.

"We were pleased to have met our target in the third quarter of AFFO exceeding cash distributions, and remain confident the current level of cash distributions is stable and sustainable for the foreseeable future," Mr. Suske commented.

Solid Financial Position

Chartwell's balance sheet remained solid at quarter-end. As at September 30, 2008, Chartwell's leverage of debt to the gross book value of its assets was 54.3% (61.1% including convertible debentures). The average term to maturity for its mortgage portfolio was 9.0 years, stable in comparison to the end of 2007, with a contractual weighted average interest rate of 5.70%. Chartwell has 4.2% ($48.8 million) and 9.8% ($112.6 million) of its debt maturing in 2008 and 2009 respectively. Of the mortgages maturing in the remainder of 2008 and 2009, 51% and 82%, respectively, are CMHC insured. Further, the majority of the remaining 2008 maturities have now been approved by CMHC and will be converted to CMHC insured debt at maturity. Maturing debt in the remainder of 2008 and 2009 relates only to Chartwell's Canadian property portfolio. There are no maturities of U.S. debt until 2013. Management expects to renew or replace all expiring mortgages in the normal course. As of September 30, 2008 Chartwell had no balances outstanding on its $90.0 million operating credit facility, and $35.6 million in cash.

"With no US debt maturing until 2013, and only 9.8% of our Canadian mortgage portfolio maturing next year, we are confident that we have the cash flow and financial resources to meet our obligations going forward. In addition, with the majority of our maturing Canadian debt being CMHC-insured, we have access to more plentiful sources of credit at lower costs," Mr. Suske added.

Outlook

Chartwell reiterates that it expects pre-tax AFFO per unit diluted for the full 2008 year will be in the range of $0.69 to $0.71. We expect our strong performance from our operating platforms to continue in the fourth quarter of 2008. However, normal seasonality, including higher utilities and staff benefit costs, will affect results relative to Q3 2008.

Mr. Suske concluded: "Looking ahead, we believe Chartwell is well positioned to meet the current economic challenges being experienced across North America. Despite the difficult economic conditions, demographics continue to generate demand for our facilities and services. Our modern, state-of-the-art portfolio, with the majority being less than ten years old, has been designed to meet the needs of the most discriminating resident. We are well-located in markets where demand for seniors' housing remains strong, driven by a fast-growing seniors population. Most importantly, our commitment to the care and service of our residents, and our reputation as the most trusted name in seniors housing, provides us with a distinct competitive advantage that we believe will result in solid and sustainable organic growth in the years ahead."

Financial Highlights:



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Period Ended September 30, Three Months Nine Months
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($,000 except per unit amounts) 2008 2007 2008 2007
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Revenues:
Property Revenue $ 172,690 $ 164,821 $ 506,997 $ 440,381
Mezzanine Loan Interest 2,773 3,366 8,219 10,774
Management and Other Fees 2,318 5,176 6,914 10,527
Other Income 2,538 3,868 7,236 10,190
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Total Revenues $ 180,319 $ 177,231 $ 529,366 $ 471,872
Net Loss (5,951) (16,940) (30,344) (57,223)
Net Loss per Unit (diluted) $ (0.06) $ (0.19) $ (0.33) $ (0.68)
Funds from Operations 24,451 16,160 59,875 40,859
Funds from Operations
per Unit (diluted) $ 0.24 $ 0.16 $ 0.59 $ 0.44
Normalized Funds
from Operations 23,315 22,911 60,411 57,915
Normalized Funds from
Operations per
Unit (diluted) $ 0.23 $ 0.23 $ 0.60 $ 0.62
Adjusted Funds
from Operations 20,875 21,449 53,959 53,060
Adjusted Funds
from Operations
per Unit (diluted) $ 0.21 $ 0.21 $ 0.53 $ 0.57
Distributions declared 18,491 26,386 60,711 74,567
Distributions declared
per Unit $ 0.19 $ 0.27 $ 0.61 $ 0.80
Weighted Avg Units
Outstanding (diluted) 101,478,126 100,119,842 101,020,882 93,187,140
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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.

Chartwell is an investment trust focused on generating sustainable, stable and growing cash distributions from owning and managing a complete spectrum of seniors housing communities. It is the largest participant in the Canadian seniors housing business and the third largest in North America. Chartwell will 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 also has an exclusive option to purchase stabilized communities from Spectrum, Canada's largest and fastest growing seniors housing development company.

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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