Brent Binions - President and CEO Vlad Volodarski - CFO Karen Sullivan - COO

Jonathan Kelcher - TD Securities Pammi Bir - Scotia Capital Yash Sankpal - Dundee Capital Markets Jimmy Shan - GMP Securities Neil Downey - RBC Capital Markets

All participants please stand by; your conference is ready to begin. Good morning, ladies and gentlemen. Welcome to the Chartwell Retirement Residences' Fourth Quarter and Year End 2014 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 meeting over to Mr. Brent Binions, President and Chief Executive Officer of Chartwell Retirement Residences. Please go ahead, Mr. Binions.

Thank you. Good morning, and thank you for joining us today. There is a slide presentation to accompany this conference call available on our Web site at chartwell.com under the Investor Relations tab. Joining me are Vlad Volodarski, Chief Financial 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 Securities 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 Web site or at sedar.com. With our objective of building lasting value for our investors, I'm pleased with the progress we made in 2014 on our strategic priorities as shown on Slide 3. We had an operationally strong Q4 2014 with our consolidated same property portfolio occupancy reaching 90.7% and same property NOI growing by 1.3%. Rebranding of our Canadian communities is complete, and our brand awareness, online and social media strategies are generating increased prospect enquiries and personal visits, which we expect to translate into growing occupancies and NOI in 2015. In 2014, we completed the implementation of a number of important information management systems that help us to better understand key data to support our decision-making, making us faster and better informed. We continued our reviews of our operating processes and identified a number of efficiencies and quality improvement opportunities that will be implemented in 2015. Our focus on gradual improvements and our financial positions through earnings growth, debt refinancings, and non-core asset sales resulted in a much stronger balance sheet at the end of 2014 than in prior years as shown [ph] on Slide 4. And our interest coverage ratio improved to 2.26 in 2014, compared to 2.16 in 2013. Our net debt to adjusted EBITDA ratio improved to 8.4 at December 31, compared to -- '14, compared to 8.6 at December 31 of '13. And at September 31, '14, we had cash on hand of $14.6 million and 82 million of available borrowing capacity under our credit facilities. While our main focus remains on building and improving our management platform in our own property portfolio, we continue to seek opportunities for accretive growth as shown in Slide 5. In 2014, we completed acquisitions of interests in four retirement residence and one medical office building for $87.4 million. Our development program continues to generate exceptional long-term value. In 2014, we completed two development projects. This project is now well-ahead of our initial expectations. There are three other projects in progress for completion in 2015, including one project by our new development partner in Quebec. This 90 suite project will be completed in Q2, 2015, and at this time is over 50% pre-leased. We expect to acquire an 85% interest in this project on stabilization. As a result of the operational and financial improvements we have made to-date, our Board has approved a 2% increase in distributions to our unitholders. This increase will be effective from March 31, 2015, distributions payable on April 15, 2015. I would now like to turn it over to Karen Sullivan, our Chief Operating Officer to talk about the operational initiatives that she and her team are working on. Karen?

Thanks, Brent. Turning to Slide 6, in Q4, the main focus of our marketing efforts was continuing the national advertising campaign, "Make Us Part of Your Story," that began in September. During the campaign, we found increase in traffic not only through additional web traffic and social media engagements, but most importantly increased personal visits to our homes. We also continue to focus on marketing dollars, and online presence strategies including strategically investing in search engine marketing. Chartwell Contact Center continues to help us never lose the lead by responding to almost 3,400 sales enquiries and booking over 900 personal visits in Q4. In order to mitigate the typical winter dip in occupancy in Q1, our sales force focused on visiting hot prospects in their own home in order to continue the sales process during the cold and snowy months in January and February, when elderly people are less likely to venture outdoors. Also with over 60% of our permanent move-ins coming from referrals, we dedicated a day in February when our sales consultants thanked our community referral partners. Building on the importance of referrals as noted on Slide 7, we continue to focus on truly understanding what is meaningful to very satisfied residents in our homes. This included continuing to work with ProMatura Research Group who provided further detailed analysis of our resident satisfaction survey data for each property, which has helped our managers and staff put strategies in place to truly make our residents feel at home. This topic as well as a series of other sales and operation sessions designed to continue to improve our results were covered at our recent Leadership Conference with general managers and department managers from across Canada. In terms of additional care services, we are in the process of trialing onsite audiology and registered massage therapy services in some of our homes, as well as working with a physicians group in Ontario on chronic disease management. In order to continue to manage our expenses, we are finalizing national contracts for kitchen equipment, uniforms, flooring, carpeting, and paint, and are in the process -- and a tender process for pest control and waste management contracts. We've also recently completed an operational efficiency project with the directors of regional operations, and have begun a housekeeping quality and efficiency project to increase satisfaction, improve our standard operating procedures and reduce cost. I'll now turn it over to Vlad to discuss our financial performance for the quarter and year ended December 31, 2014.

Thanks, Karen. As shown on Slide 9, for 2014, AFFO of $128.5 million or $0.72 per unit diluted. This represents an increase of $9.4 million or 7.9% compared to AFFO of $119.1 million or $0.68 per unit diluted in 2013. The increase in AFFO was primarily due to incremental AFFO from our same property portfolio, proceeds from settled litigation in the U.S., proceeds of the settlement of prior year shift in commodity tax matters, foreign exchange in our U.S. source AFFO, the reversal of a previously recorded provision for impairment of mezzanine loans, partially offset by sales of non-core U.S. and Ontario properties, net of the increased contributions from new acquisitions and development. Our same property portfolio NOI grew by 1.3%, compared to 2013 NOI, and occupancy remained stable at 89.8%. Our distributions declared as a percentage of AFFO was a healthy 74.2% as Brent pointed out in his remarks effective with March 31, 2015 distribution payable on April 15, 2015, our distributions will increase by 2% to 55.08 per unit annualized. As shown on Slide 10, in the fourth quarter of 2014, our operations generated AFFO of 32.7 million or $0.18 per unit diluted compared to AFFO of 26.6 million or $0.15 per unit in Q4 2013. This growth in AFFO was primarily driven by a 1.3% NOI growth in the same property portfolio, the growing contribution from newly acquired and developed properties, interest cost savings, the positive impact of foreign exchange on the U.S. Dollars and lower G&A costs partially offset by the impact of non-core asset sales. Turning to our operating platform results as shown in Slide 11, our Ontario retirement same property NOI decreased $300,000 or 0.3% in 2013, primarily due to lower occupancies and higher staffing, property tax, and utilities expenses. These were partially offset by regular annual rental rate increases in line with competitive market conditions, higher ancillary revenues from enhanced services provided to our residents, and lower short-term moving incentives. In the fourth quarter, Ontario retirement platform same property NOI increased $0.3 million or 2.3% primarily due to higher revenues from ancillary services, lower moving incentives, and lower utility costs. These are partially offset by lower occupancies, higher staffing and marketing expenses. We expect to see an improving contribution from our Ontario retirement platform in 2015 driven by slower pace in new supply in many Ontario markets and stronger leasing activity that we see at this time. Our Western Canada platform same property NOI increased $1.5 million or 4.2% in 2014 as shown on Slide 12. This NOI growth was primarily due to regular annual rental rate increases in line with competitive market conditions, higher ancillary services revenue, higher occupancies partially offset by higher staffing, food, utilities, property tax, and marketing expenses. In the fourth quarter our Western Canada platform same property portfolio posted a strong NOI growth of $600,000 or 7%, primarily due to a 2.1 percentage points occupancy growth, higher rental rates, and higher ancillary revenue, partially offset by higher staffing, utilities, and marketing expenses. Of note, the weighted average occupancy in our same property portfolio reached a multiyear high of 94.4% in Q4 2014. We continue to see positive conditions in most of our Western Canada markets and expect higher contribution in 2015 from the properties we've purchased in 2013 that are still on lease ups. On Slide 13, you will see our Quebec platform same property NOI increased $1.5 million or 3% primarily due to increases in occupancy and rates, higher ancillary services revenue, and lower bad debt expense. These are partially offset by higher food, utilities, staffing, office, and marketing expenses. In the fourth quarter of 2014, our Quebec platform same property NOI decreased $400,000 or 3.2%, primarily due to timing of certain staffing, food marketing office, and utility expenses, partially offset by higher revenues from occupancy and rate growth. Our Quebec platform occupancies in Q4 2014 also reached a multiyear higher rate of 89.7%. As shown on Slide 14, our Canadian long-term care platform delivered same property NOI growth of 2.2% in 2014 primarily due to increased retirement and other revenues, higher preferred accommodation rates and strong expense controls, partially offset by higher staffing and utility expenses. Occupancy remained high at 98.6%, compared to 98.4% in 2013. In the fourth quarter, same property NOI increased 2% primarily due to increased retirement revenue, higher preferred accommodation rates, lower utility expenses and strong expense control. Occupancy increased to 98.7% from 98.6% in Q4 2013. Our U.S. platform results are shown on Slide 15. In 2014, same property NOI decreased 0.5% primarily due to lower occupancies, higher staffing, food, utilities and marketing expenses, partially offset by rental rate increases and lower management costs. Occupancy decreased to 88.3% from 88.5% in 2013. In the fourth quarter, same property NOI increased 0.3% primarily due to revenue growth from occupancy and rate and lower property tax expense, partially offset by higher staffing, food, utilities, marketing and bad debt expenses. Occupancy increased to 89% from 88.6% in Q4 2013. The pace of senior's housing construction activity has increased in 2014. We expect that new competition will enter some of our markets in 2015. In order to successfully compete, we accelerated our capital investments in some of our U.S. properties in 2014, and expect to continue this program in 2015. As outlined on Slide 16, G&A expenses increased $0.6 [ph] million or 1.8% in 2014, as higher compensation cost and information technology expenses were partially offset by lower professional and consulting costs. G&A expenses decreased 1.5 million in Q4 2014, primarily due to a reduction in legal costs as we settled U.S. litigation in Q3 2014 that had been ongoing in 2013, lower professional and consulting cost as well as timing of certain other expenses. G&A expense as a percentage of revenue including our share of revenue from joint ventures were 2.9 % in Q4 2014 compared to 3.6% in Q4 2013. I will now turn the call back to Brent to wrap up.

Thanks, Vlad. As shown on Slide 18, our key priority remains growing the contribution to AFFO from our core property portfolio. We believe that the projected growth in the senior's population, stable economic condition in housing market and a moderate pace of supply growth will provide support for occupancy and NOI growth in our portfolio in 2015. We believe that our recent investments in branding, marketing and sales initiatives will allow us to increase the awareness of Chartwell's name, prospect traffic to our residents and our occupancies. We expect to continue to grow our revenues from additional care and services offered to our residents. We also expect to continue our focus on managing controllable cost through ongoing operations, efficiency reviews, centralized purchasing, and energy management programs. We continue to implement information technology solutions to better understand our customers, communicate with our employees and reduce administrative time commitment in the field. Our focus remains on maintaining a strong balance sheet and a flexible liquidity position. We continue to access low cost, longer term fixed rate debt, and short-term variable rate construction financing on flexible terms, and manage our interest rate risk by spreading our debt maturities over time. Finally we continue the strategic priority of building value of our real estate portfolio and individual assets to maximize long-term value to market analysis and research, prudent capital planning, strategic positioning and divestiture. We will continue to pursue opportunistic acquisitions of newer well-built properties in our core markets. We also expect to commence a number of new development projects in 2015. Thank you for your time and attention this morning, and we would now be pleased to answer any questions you may have.

Thank you. [Operator Instructions] The first question is from Jonathan Kelcher from TD Securities. Please go ahead. Q - Jonathan Kelcher: Thanks, good morning. A - Brent Binions: Good morning. Q - Jonathan Kelcher: First, just on the outlook that guys put in your MD&A, it looks like you're looking for rental rate growth in the retirement operations of, call it, 2% to 3% across all your different segments as well as occupancy gains in each one. A - Brent Binions: Yes. Q - Jonathan Kelcher: Assuming you achieve this, would you expect to see some margin expansion as well? A - Brent Binions: Perhaps modest margin expansion. Q - Jonathan Kelcher: Okay. So if we put that together, and not putting words in your mouth, but that could lead to same property NOI growth probably a little bit north of 2% to 3% for 2015, would that be a fair… A - Brent Binions: We would expect to be in that range, yes. Q - Jonathan Kelcher: Okay, that's good. And then, just on Q1, generally weaker quarter for occupancy and it looks like you guys are doing increased efforts to try and keep that occupancy up, how is it trending so far relative to last year?

In all of the platforms we are ahead on our leases compared to last year. Q - Jonathan Kelcher: So your occupancy is little higher?

Yes, there's still -- we see all across the country a depth at this time of year, but we're ahead in terms of leases from where we were last year, for sure. Q - Jonathan Kelcher: Okay, and then lastly, just on the distribution increase, congratulations on that; could you maybe give us a little bit what it went into the thought process behind the amount you increased it by? Is it a function of the payout ratio you expect to achieve, and if so, what sort of target would you be looking for going forward? A - Brent Binions: It really, Jonathan, this is our first distribution increase in -- since I've been in charge. I said all along we want to get numbers in very good order, and we believe we've done that. And so this is modest first step as we test the waters on this going forward. And I think there -- I wouldn't be able to give you any definitive metrics that we looked at and said, "Hey, we wanted to be this percentage or that percentage." We just felt we're in a strong position and ready to begin the process, and this is the number we picked. Q - Jonathan Kelcher: Okay, I will leave it there. Thanks.

Thank you. The following question is from Pammi Bir from Scotia Capital. Please go ahead.

Thanks. Maybe just going along the same lines on the distribution; do you feel that you're now in a position to perhaps consider annual modest hikes or is this sort of a just a one-time decision for now, and we'll see how it goes from here? A - Brent Binions: No, we've said all along a number occasions our thought process was we wanted to make sure we are in a very strong financial position because once we started doing distributions increase was our goal I think over time to be very consistent in our ability to do modest distribution increases over time, and this is our first step down that path.

Okay, and then just maybe looking at the -- your acquisition commentary in the MD&A, it sounded like deals are under review. Can you comment on what's in the pipeline? And then secondly, what are you seeing from a cap rate standpoint on stabilized assets?

Pammi, I'd say that the pipeline has been rather quiet at the end of last year, and we're seeing some increased activity this year. There are few opportunities we are looking at closely at the present time. All of these are either smaller change or one-off opportunities. And on the cap rates, again this is very hard to comment because a lot of products that we're looking at may be not yet be stabilized. So they're going in cap rate maybe very low, but we're underwriting it on the certain [indiscernible] cap rate or cap rate that we expect to achieve once the projects are stabilized. And really cap rates, from my perspective, very depending on where the assets are and their locations, but from what we've seen from individual asset sales that happened to marketplace, we've not seen a huge cap rate compression at this time on single asset deals. Clearly, it's different on the portfolios.

And on those single asset deals, are they -- are you seeing stuff in the sevens or low sevens or sub seven or -- can you give some color there?

Yes, low sevens for the newer products.

Okay. And then just looking at the occupancy a little bit, again going back to some of your commentary on the expectations for some increases over the year; looking at the Canadian retirement homes, I guess on the same property basis you're just below 90%. Do you expect that you could actually get that into the 91% range or around that by the end of the year, or are there still supply pressure that you need to deal with?

Well, there are certainly supply pressures in some of the markets in Ontario, but if you look at our individual platforms, Western Canada were at 94% occupancy, our Quebec platform seen a significant occupancy improvement in 2014, and we expect it to continue getting to that 90% and certainly certain markets in Ontario continue to be competitive, but we expect them to improve in 2015, so overall, occupancy should continue to rise.

Okay, and then just last one; on the non-core asset sale perspective, is there any update there and what we could see in 2015?

At this time I cannot give you any new updates other than what we talked about before.

Okay, thank you.

Thank you. The following question is from Yash Sankpal from Dundee Capital Markets. Please go ahead.

Good morning, gentlemen. A - Brent Binions: Good morning.

Hello?

Hello. Yes, good morning.

Yes, okay. Your U.S. portfolio NOI margin has been in the 30% range for the last two quarters, and before it was around 32%-33%, so just wondering is it just the function of this asset sale that you did in early 2014 or is there something unusual?

Yes, part of it is certainly -- probably a bigger part of it is certainly the function of these asset sales. The portfolio that we sold to town village's portfolio was independent living portfolio with very few services say it was running at a higher margin. So when you take that out that affects the overall margins of the portfolio, that's certainly a big part of it.

Okay. And just now that you are quite comfortable in terms of your balance sheet, I'm wondering what the next venue to generate FFO per unit growth will be for you guys, or do you guys -- what kind of FFO per share growth do you guys expect over the next year or two?

See, actually we don't give that kind of forward-looking guidance on FFO per share, but I tell you that we have still the same levers that we had in the past to drive that FFO accretion. Clearly the same property portfolio performance is where the most of the growth is going to come from through the improving occupancies, growing rates and continuing attention to expense management as the main part of where it's going to come from we -- as we've talked about continue looking for acquisitions opportunities out there and hopefully will be able to make them accretively may not be immediate accretive if the properties are non-stabilized, but certainly will be accretive over time and then the whole bunch of development projects that we have now in our pipeline that have been internally approved, so generate significant growth over time. On the refinancing side, we still have quite a few mortgages coming due in 2015 and 2016, and we're continually looking proactively to lock into the lower rate that we have now compared to the maturing debt rates and that will also drive FFO accretion. So all of these things will continue contribute to our results.

Okay, that's good color. And just lastly, for your G&A what should we model in 2015 like -- was Q4 figure representative of what you'll see in 2015?

No, Yash I would suggest that the annual figure is more representative of what the steady stage should be.

Got it. Okay. Yes, that's it from me. Thank you.

Thank you. [Operator Instructions] The following question is from Jimmy Shan from GMP Securities. Please go ahead.

Thanks, just going back to the Ontario occupancy, I mean would you say that there is a good element of structural vacancy there and that we should not really expect the occupancy to go back to sort of the 92%-93% range for quite a while, just kind of want to know what your thoughts… A - Brent Binions: No, we wouldn't say that Jimmy we think that the market has stabilized much better than it was in Ontario. It continues to improve and I think our expectation is that we'll begin to move forward in the Ontario marketplace with our occupancies in 2015.

Okay. And so, if we look at the B.C. platform for as an example, and it sort of bounced back pretty quickly is it just that the level of supply in the markets have impacted just that much more severe or will there be any other factors? A - Brent Binions: No, that's the biggest one if the level of supply in B.C. there's quite a big number of beds dumped in at one time, three or four years ago, and then it stopped and its markets recovered. Ontario ran a little longer with the new supply, but that has slowed down dramatically and it is recovering, and I think you will see Ontario start to bounce nicely.

Okay. And then on the operational side, I just want to get a sense of where you are in that program both on the sale, marketing and the cost saving side, would you say the heavy lifting is now done -- if you were to put a percentage would you say like 80% is done now or how do we -- sort of track where we are in that initiative? A - Brent Binions: These initiatives are ongoing every day. We're always looking for better ways to improve it, for ways to save them on different expense modules. This is never ending. Very hard to say its x% is done because even after you finish the process you're starting again at the front end and clearing through it again. So I'd tell you it just an ongoing process that we work on every day.

Okay. But just in terms of getting bank for the buck so to speak, they're initiative you that you could see as almost immediate direct impact to the bottom line versus villas [ph] that may take a while which is the former case is that we've already gone through? A - Brent Binions: No, I'd tell you there's lots of things we can do still in our big company that we're working on every day, that we'll have positive impact.

Okay. Just last question on the debt side; what would you say the indicative terms, rates and turns would be for your Canadian and U.S debt are now?

So in Canada, CMAC insured 10-year money today will be under 2.5% or around 2.5%. I smile every time I say that. And then, the longer term that will be maybe 75 basis points higher in the U.S. the rates are bit higher. So we're probably in closer to 4% for tenure money.

Okay, thanks.

Thank you. The next question is from Neil Downey from RBC Capital Markets. Please go ahead.

Hi, good morning everyone. With respect to your U.S. business you did alluded to some new supply the messaging I'm receiving though is to think over all that manageable because you suggesting the occupancy can be up somewhat through 2015. You're also guiding towards some rental growth. But I'm curious about the labor front given that that's your biggest expense and we're seeing in U.S. unemployment rate come down. We're seeing likes of Wal-Mart and others increasing wages, you anticipate any wage pressure in the U.S. this year or next?

We haven't seen anything too compelling yet. It's something we monitor closely with our partner Brookdale in the U.S. when we sit and go through our budget process; we had quite a discussion over labor trends in the marketplace. And so we're probably up slightly from where we were over the last two or three years but it is not at the present time having a significant impact on us.

Okay, and presumably as the year progresses we'll get some more color and commentary about your intension on the new development front but is it safe to say that new projects commence this year or likely to be in the West or Quebec but not Ontario or how do we think about that?

In fact there are number of projects that we're contemplating that are in Ontario in the market that we believe to be strong and many of those are additions to the existing buildings or buildings adjacent to the -- on the land adjacent to the existing properties that are doing very well. There's a project in R2 [ph] in B.C. that we may be starting this year in 2015. And there are certainly going to be at least one project if not more with our partner in Quebec, so these are all over the place, Neil.

Okay, and so I suppose that's really just a reflection of the fact that Ontario where you see weakness it is very to a local market specific?

Yes, absolutely true. If to give you an example, the building that we opened earlier in 2014 in Hamilton, Ontario that's a 119 unit new retirement home is over 80% to 83% occupied now. So the lease up has exceeded our expectation significantly.

All right, okay. And you do know that the stabilization dates for number of the projects that are sort of currently in the pipeline, I guess what is the delta or the gap currently between the net operating income from those projects versus the lift that we should see once they're stabilized, I mean is it measured in $1 million or $2 million or is it $0.50 million, how should we think about that?

Yes. It's hard to answer that directly, because particularly with this project in Hamilton, we leased it up in 12 months. So we almost started from zero to a big number right away. So this is an 83% occupancy. It has probably 90% of the underwritten income already in place. The project that is smaller in Tamarac has -- I want to say 40%, 50% occupancy at this time, but we just opened it in earlier this -- in Q4. But that is not a big number overall, I think. Overall, income on that project is going to be $500,000. So I think most of it is in place. I guess if you look at this way, but it's not in the numbers that we reported in Q4 because we made some progress after that as well.

Right, right. Okay. That's great, thank you.

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

That wraps up today's conference call. Thanks again for joining us. As always, if you have any further questions, please don't hesitate to give us a call. Thanks, and good-bye.

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