Chartwell Seniors Housing REIT

Chartwell Seniors Housing REIT

March 29, 2007 16:11 ET

Chartwell Seniors Housing Real Estate Investment Trust Treasury Offering of Trust Units and Convertible Debentures


MISSISSAUGA, ONTARIO--(CCNMatthews - March 29, 2007) -


Chartwell Seniors Housing Real Estate Investment Trust ("Chartwell") (TSX:CSH.UN) of Mississauga, Ontario today announced that it has agreed to sell, subject to regulatory approval, 14,100,000 Units for $14.25 per Unit for aggregate gross proceeds of $200,925,000 and $75,000,000 of 5.9% subordinated unsecured convertible debentures due May 1, 2012 (the "Debentures") to a syndicate of underwriters led by RBC Capital Markets on a bought-deal basis. Chartwell has granted to the Underwriters an option (the "Underwriters Over-allotment Option"), exercisable in whole or in part up to 30 days after closing, to purchase up to an additional 15% of the Units issued on the same terms as set forth above. This offering is expected to increase Chartwell's market capitalization to approximately $1.4 billion, based on the offering price for the Units.

Chartwell will, within the next few days, file with the securities commissions and other similar regulatory authorities in each of the provinces of Canada, a preliminary short form prospectus relating to the issuance of the Units and the Debentures. Closing of the offering is expected to take place on or about April 20, 2007.

The estimated net proceeds from the Unit and concurrent Debenture offerings will be used to fund certain acquisitions, mezzanine loans and internal growth initiatives and the excess will be used for general business purposes and future acquisitions. Chartwell will use the net proceeds from the Debenture offering for Canadian purposes only.

Use of Offering Proceeds (Chartwell's Proportionate Share)
(C$ '000's)
Cost (1) Mortgages/ Use of
Other (2) Proceeds
1) Acquisitions
From third parties:
Merrill Gardens Southern Portfolio (U.S.) $429,577 $286,253 $143,324
RegencyCare Portfolio $134,088 $76,849 $57,239
Jardins de la Gare $23,026 $15,500 $7,526
Chateau Gardens Elmira AL $6,750 $4,748 $2,002
Subtotal $593,441 $383,350 $210,091
From Spectrum/Melior:
Le Domaine des Forges I $46,464 $37,712 $8,752
Cite-Jardin Phase III A $30,765 $25,489 $5,276
Rouge Valley Retirement Residence $20,300 $14,600 $5,700
The Gardens at Qualicum Beach $19,088 $15,450 $3,638
Total Acquisitions $710,058 $476,601 $233,457
2) Mezzanine Loan Advances $8,992 $0 $8,992
3) Internal Growth Initiatives $5,959 $950 $5,009
4) Remaining Cash From Offering $16,118
Grand Total (net of offering costs) $725,009 $477,551 $263,576

(1) Includes closing and mortgage defeasance costs and foreign currency
exchange rate of $1.1608 for U.S. acquisitions
(2) Includes deferred consideration, deposits and the repayment of
mezzanine loans

Merrill Gardens Southern Portfolio

Chartwell intends to use approximately $143.3 million of the net proceeds to acquire from Merrill Gardens L.L.C. ("Merrill Gardens") a 100% interest in a high quality seniors housing portfolio comprised of 24 freehold and 2 leasehold interests in retirement home facilities aggregating 2,374 suites located in strong markets throughout the southern United States (collectively the "Merrill Gardens Southern Portfolio" or "Merrill Gardens Properties"). Merrill Gardens is an experienced seniors housing owner/operator which, prior to the acquisition of 26 facilities by Chartwell, owned 68 communities containing over 6,000 suites/units, located in 11 states (Alabama, Arizona, California, Florida, Georgia, Louisiana, Nevada, Oklahoma, Tennessee, Texas and Washington).

The majority of the Merrill Gardens Properties were built within the last ten years, are modern, attractive and incorporate the latest services and innovations in seniors care. With the exception of one facility, all of the Merrill Gardens Properties are licensed as Assisted Living residences and are almost exclusively private pay. Approximately 70% of the resident profile is Independent Living, allowing for residents to age in place through the provision of additional services as required. The Merrill Gardens Properties are well-situated in high demand markets, with a current occupancy of 95%, which is consistent with very strong and stable occupancies in excess of 95% over the last five years. Existing staff at the residences will remain in place, while the Merrill Gardens Southern Portfolio, except those properties located in Alabama, will be managed by Horizon Bay Chartwell ("HBC"), Chartwell's joint venture property management entity in the US market. Closing of this acquisition is expected by the end of April 2007 and is subject only to normal closing conditions.

This acquisition, in connection with the other acquisitions announced year-to-date, are expected to add approximately $0.03 per unit in FFO in 2007, increasing in 2008 after the integration of the Merrill Gardens Properties is complete.

RegencyCare Portfolio

Chartwell intends to use approximately $57.2 million of the proceeds from the concurrent offerings to acquire an economic interest in the RegencyCare portfolio, which comprises eight new, Class A Long Term Care ("LTC") facilities containing 1,384 suites and a management company with long term management contracts for six other LTC facilities containing 814 beds. All of these facilities are well-located in high-growth communities situated in and around the Greater Toronto Area, and all are 100% occupied with waiting lists. Four of the eight sites have excess land zoned for the addition of approximately 400 assisted or independent living units in total. Chartwell, in connection with a joint venture partner, intends to complete the acquisition of a 50% interest in the eight Class A LTC facilities and a 100% interest in the management company in May 2007.

Approximately $50.0 million from the proceeds of Chartwell's November 2006 Unit and Debenture Offerings were expected to be used to complete the acquisition of an economic interest in the RegencyCare portfolio, as described in the prospectus related to that offering. The closing of the RegencyCare portfolio acquisition has, however, been delayed due to regulatory approvals, and is now expected to close in May 2007. In the meantime, additional acquisition opportunities have arisen and were completed by Chartwell through the use of funds expected to have been used for the RegencyCare portfolio acquisition.

Other Use of Net Proceeds

Chartwell intends to use approximately $9.5 million of the net proceeds to acquire 2 additional seniors housing facilities from third party vendors located in Ontario and Quebec, respectively.

Chartwell intends to use approximately $23.4 million of the net proceeds to acquire 4 new seniors housing facilities from Spectrum Seniors Housing Development LP ("Spectrum") and Melior Developments Inc. ("Melior") located in Ontario, Quebec and B.C., respectively.

In addition, approximately $9.0 million of the net proceeds is intended to be used to fund various mezzanine loans to be made by Chartwell Master Care LP during the quarter ending June 30, 2007 in relation to facilities under development and approximately $5.0 million of the net proceeds is intended to be used for internal growth initiatives at 6 of Chartwell's existing properties.

While Chartwell expects to complete the above investment activity, the completion of certain of these acquisitions remains subject to the fulfillment of certain customary conditions, including the completion of due diligence in some cases. Until such time as all conditions have been satisfied or waived, there can be no assurance that these acquisitions will be completed. Any cash remaining from the offering (after Underwriters' fees and offering expenses) will be used to finance potential future acquisitions and mezzanine loans consistent with Chartwell's growth strategy, capital expenditures and for general business purposes.

Chartwell intends to make monthly cash distributions to Unitholders of record on each record date, on or about the 15th day of the month following the record date. Chartwell's current monthly cash distribution is $0.08875 per Unit, representing an approximate yield of 7.5% to an investor. The first cash distribution to which purchasers of the Units under this offering will be entitled to participate will be for the month of April, with a record date of April 30, 2007 and a payment date of May 15, 2007.

The Debentures will bear interest at a rate of 5.9% per annum payable semi-annually in arrears on May 1st and November 1st in each year commencing May 1, 2007. The May 1, 2007 interest payment will represent accrued interest for the period from closing to May 1, 2007. Each Debenture will be convertible into freely tradeable Chartwell trust units at the option of the holder at any time prior to maturity at a conversion price of $16.25 per Unit (the "Conversion Price"), being a ratio of approximately 61.5385 Units per $1,000 principal amount of Debentures, and representing a premium of approximately 14.04% to the Unit offer price. The Debentures will mature on May 1, 2012.

Following the original Tax Fairness Plan announcement on October 31, 2006, the Minister of Finance (Canada) released on December 21, 2006 draft legislation relating to proposed changes to the taxation of income trusts for Canadian federal income tax purposes, which was followed by a Notice of Ways and Means Motion that was released on March 27, 2007 (collectively the "Proposals"). Based on the REIT qualification rules as proposed, Chartwell is of the view that, as it is currently structured and based on its present location of assets and sources of income, it would not qualify as a REIT and would be subject to the proposed income trust tax. The final form of the legislation, however, may change or the legislation may not be passed, thus Chartwell's Special Committee and Chartwell will continue to monitor announcements relating to the proposed taxation of income trusts and market events as they unfold.

Including the aggregate gross proceeds from this Unit and concurrent Debenture offering, Chartwell will exceed the safe harbour limits as set out in the growth guidelines published by the Minister of Finance (Canada) on December 15, 2006. If the Proposals and growth guidelines are enacted, this will result in Chartwell becoming taxable as a specified investment flow-through trust in 2007. In such case, based on Chartwell's structure and operations and its understanding of the Proposals, the aggregate amount of tax payable by Chartwell for each of 2007 and 2008, estimated as of the date hereof, will fall within a range of $0.00 to $0.05 per Unit (including all of the Units issued under the Unit offering), which may, in certain circumstances affect cash available for distribution to unitholders. The estimated tax per unit will not have a material after-tax impact on the cash position of Canadian resident taxable investors owing to the integration of the Canadian tax system (i.e. dividend gross-up and tax credit mechanism). Chartwell considers that this likely tax impact would be less material than failing to take advantage of the many growth opportunities currently available in the marketplace that would maximize Unitholder value.

In the March 19, 2007 Federal Budget, the Minister announced proposed changes to the Tax Act regarding the deductibility of interest (and other borrowing costs) on money borrowed to invest in foreign affiliates. Among other things, these rules will restrict the deductibility of interest (and other borrowing costs) in respect of borrowed money that may reasonably be considered to have been used to assist, directly or indirectly, a particular person with whom the borrower does not deal at arm's length, to acquire a share or indebtedness of a corporation that is a foreign affiliate of the borrower, of a person or partnership that is related to the particular person or partnership or of a person or partnership that does not deal at arm's length with the borrower. For non-arm's length debt incurred prior to March 19, 2007 the restrictions will apply to interest (and other borrowing costs) payable after 2008, for arm's length debt incurred prior to March 19, 2007 the restrictions will generally apply to interest (and other borrowing costs) payable after 2009, and for debt incurred on or after March 19, 2007 the restrictions will apply to interest (and other borrowing costs) payable after 2007. Based on Chartwell's current understanding of these proposed rules, certain assumptions that are reasonable in Chartwell's view, and assuming the aforementioned rules will be enacted as proposed, the estimated increase in tax payable by Chartwell in 2009 as a result of these proposed rules should not exceed approximately $0.01 per Unit (including all Units to be issued under the Unit offering). Chartwell will endeavour to restructure the financing of its investments in foreign affiliates prior to 2009 to minimize the impact of these proposed rules. Chartwell expects that these proposed rules will not materially impact the deductibility of interest (or other borrowing costs) on the Debentures issued under the Debenture offering and debt incurred in the future.

The Units and Debentures being offered have not been and will not be registered under the United States Securities Act of 1933 and state securities laws. Accordingly, the Units and Debentures may not be offered or sold to U.S. persons except pursuant to applicable exemptions from registration.

Chartwell is currently the largest participant in the Canadian seniors housing business with a substantial and growing presence in the United States. Chartwell is an unincorporated, open-end real estate investment trust governed by the laws of the Province of Ontario. Chartwell is a growth-oriented investment trust owning and managing a complete spectrum of seniors housing communities. Chartwell will capitalize on the strong demographic trends present in its markets to grow internally and through accretive acquisitions. Chartwell also has an exclusive option to purchase stabilized communities from Spectrum Seniors Housing Development LP, Canada's largest and fastest growing seniors housing development company.

Additional information on Chartwell Seniors Housing REIT is available on Chartwell's web site at:

This press release contains forward-looking statements that reflect the current expectations of management of Chartwell and Chartwell Master Care LP ("Master LP") (Master LP together with its general partner and subsidiaries, the "Operator") about the future results, performance, achievements, prospects or opportunities for Chartwell, the Operator and the seniors housing industry. Chartwell has tried to identify these forward-looking statements relating to its general affairs as well as for statements concerning the completion of any proposed transaction, intended financing arrangement and the effects on Chartwell of such acquisitions and financings as a result thereof by using words such as "may", "will", "expect", "anticipate", "believe", "intend", "plan", "estimate", "potentially" and similar expressions. Such forward-looking statements necessarily involve known and unknown risks and uncertainties that may cause Chartwell or the Operator or the industry's actual results, performance, achievements, prospects and opportunities in future periods to differ materially from those expressed or implied by such forward-looking statements. These risks and uncertainties include, among other things, risks related to: business risks; real property ownership and lack of diversity; geographic concentration; continued growth; acquisition and development; competition; debt financing; mezzanine financing; environmental liabilities; US/Canadian exchange rate fluctuations; government regulations; operations in the United States; joint venture interests; liability and insurance; personnel costs; labour relations; conflicts of interest; management contracts; availability of cash flows; the redemption right of Unitholders; accounting guidelines; dilution; nature of Units; Unitholder liability; market for Units and Unit price; matters affecting trading prices of convertible debentures; credit risk and prior ranking indebtedness; absence of covenant protection; and tax, including changes to tax laws. There can be no assurance that the expectations of management of Chartwell will prove to be correct.

Contact Information

  • Chartwell Seniors Housing REIT
    Mr. Stephen Suske
    Vice-Chair and Co-CEO
    (905) 501-4701
    (905) 501-9107 (FAX)