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

Jimmy Shan - GMP Securities Neil Downey - RBC Capital Markets Heather Kirk - BMO Capital Markets

Good morning, ladies and gentlemen. Welcome to the Chartwell Retirement Residences Q1 2015 Financial Result Conference Call. Following the formal comment, 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 at 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 website at chartwell.com under the Investor Relations tab. Joining me are Vlad Volodarski, Chief Financial Officer and Chief Investment 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 and 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 website or at sedar.com. With our objective of building lasting value for investors I'm pleased we made me Q1 2015 on our strategic priorities, as shown on Slide 3. Same-property portfolio occupancy improved to 19.4% in Q1 compared to 89.1% in Q1 in 2014 driven by a strong 1.6 percentage point growth in our Canadian retirement portfolio. Despite some headwinds created by higher non-controllable expenses such as insurance, utilities and property taxes same-property NOI increased $0.8 million or 1.7% in Q1 of 2015. Improved brand awareness and online and social media strategies have generated a 5.5% increase in initial contacts and a 4% increase of personal visits in Q1 in 2015. Ongoing updates to our website resulted in our web traffic increasing by 36% in Q1 2015 compared to Q4 2014. We continue our reviews of corporate support process to generate improving and more efficient services to our operating teams. Our focus on gradual improvements in our financial position through earnings growth, debt refinancing to non-core asset sales continue to strengthen as shown on Slide 4. Our interest coverage ratio improved to 2.47x in Q1 ’15 compared to 2.23x in Q1 ’14. Our net debt to adjusted EBITDA ratio improved to 8.4 at March 31, 2015 compared to 8.9 at March 31, 2014. At March 31, 2015, we had cash on hand of $5.2 million and $34 million of available borrowing capacity under our credit facility. While our main focus remains on building and improving our management platform and our own property portfolio, we continue to actively manage our portfolio of properties and to seek opportunities for career growth as shown in Slide 5. In Q1 2015, we announced the sale of our U.S. portfolio forUS$849 million, which is expected to close on June 30, 2015. And in May, 2015, we completed an acquisition of one property in Ontario for $22.1 million. Our development program continues to generate exceptional long-term value. In 2014, we completed to develop projects, which came in under budget and with lease up progressing faster than expected. Already in 2015, two additional projects have been completed and are off to a great start, exceeding our lease up expectations, with two other projects in construction scheduled to be completed in 2015 and 2016. Two of these projects are by our development partner in Quebec, Batimo, Inc. We, with all our partners, have built a strong pipeline of development and acquisition opportunities. We are confident that we will be able to accretively reinvest the expected proceeds from the U.S. portfolio sale over time. 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 Q1, we launched the second phase of our national multimedia advertising campaign, "Make Us Part of Your Story," which included a series of 60 seconds and 30 seconds ads on a variety of television network in all of our markets across Canada. The advertisements in March encouraged prospects to visit our homes during Chartwell’s National Open House event in late March. We saw a 27% increase in registered visitors for these events compared to 2014. We also focused on home visits in Q1 when it was more difficult for prospects to come to our properties due to the weather. In total, our sales consultant visited 570 prospects in their home all across the country. Our Contact Center agents responded to over 4,700 sales inquiries in Q1 and booked 1,200 personal visits in our homes. This represents an increase of 43% in sales inquiries and an increase of 35% in personal visits books compared to Q4 2014. We believe that our unique call center is a true differentiator for Chartwell. We were also busy on the operations side in Q1, as noted on Slide 7. We finalized our Memory Living Program and rolled it out in two properties, including our newly opened Memory Living Neighbourhood at Chartwell Georgian Traditions' Retirement Residence in Collingwood. We also continue to work on a variety of operational efficiency initiatives including a new project focused on improving quality and efficiency in our housekeeping services. In February, we introduced a new Food and Beverage Program at our annual conference and our national team is now in the process of assessing all of our homes based on the nine cornerstones of this program. We also continue to focus on our national purchasing contracts and are currently in the process of reviewing waste management, chemical supply, pest control and nurse call system contract. I'll now turn it over to Vlad to discuss our financial performance for Q1.

Thanks, Karen. As shown on Slide 9, for 2015, AFFO from continuing operations was $23.3 million or $0.13 per unit diluted in line with $23 million or $0.13 per unit diluted in Q1 2014. Our same-property portfolio contributed incremental AFFO of $1.8 million in Q1 2015 compared to Q1 2014 from the improved NOI and lower interest costs. G&A expenses were $1.3 million lower due to lower severance and legal costs. These increases in AFFO were offset by non-recurring items included in Q1 2014 AFFO, which included a $2.2 million siff[ph] tax recovery and $1.2 million reversal of the previously recorded impairment of mezzanine loans. There were no comparable items in the first quarter of this year. Total AFFO in Q1 2015 was $31.3 million or $0.17 per unit diluted, an increase of $1.3 million or 4.4% from Q1 2014 primarily due to the positive effect of foreign exchange from our U.S. operations. In Q1 2015, combined same-property occupancy with 90.4% compared 89.1% in Q1 2014, the same-property NOI increasing $0.8 million or 1.7%. While we normally see lower leasing activity and higher resident turnover in the first quarter of the year, our focus of sales and marketing initiatives described by Karen earlier allow us to mitigate the seasonal impact in Q1 2015, which we believe positions us well for continuing growth in occupancy and NOI in all our operating platforms in the remainder of 2015. Turning to our operating platform results, as shown on Slide 10, our Ontario retirement same-property NOI increased 0.7% in Q1 2015, primarily due to higher occupancies and regular annual rental rate increases in line with competitive market conditions. These were partially offset by higher staffing, food, marketing, insurance and utilities expenses. Our Western Canada same-property NOI increased 4.8% in Q1 2015 as shown on Slide 11. This strong NOI growth was primarily due to higher occupancies, regular annual rental rate increases and lower utilities expenses. These were partially offset by higher staffing, food, repairs and maintenance, insurance and marketing expenses. On Slide 12, you’ll see our Quebec platform same-property NOI increased 2.2% in Q1 2015 compared to Q1 2014. This increase was primarily due to higher occupancies, regular annual rental rate increases, and lower repairs and maintenance expenses. These were partially offset by higher staffing, food, utilities, property tax, insurance and marketing expenses. As shown on Slide 13, our Canadian LTC platform same-property NOI decreased $100,000 or 1.6% in Q1 2015, primarily due to higher utilities and timing of certain other expenses. Weighted average occupancies in the same portfolio decreased to 98% in Q1 2015 from 98.4% in Q1 2014. As outlined on Slide 14, G&A expense has decreased $1.3 million or 12.8% in Q1 2015, primarily due to lower severance, legal and professional cost; partially offset by higher stock compensation expenses and higher education costs primarily related to the cost of our annual leadership conference, which took place in February, 2015. G&A expenses as a percentage of revenue including our shares of revenue from joint ventures were 4.8 % in Q1 2015 compared to 5.5% in Q1 2014. I will now turn the call back to Brent to wrap up.

Thanks, Vlad. As shown on Slide 16, 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 conditions in housing market and a moderate pace of new supply growth will provide continue to 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 name, increase prospect traffic to our residences and increase our occupancies. We expect to continue to grow our revenues from additional care and services offered to our residents. We will also continue to focus on managing controllable operating and capital cost through ongoing operations efficiency reviews and centralized purchasing. We will continue to invest in our people, recruitment, training and development as only through having the right people with the right skills and providing clear direction that we can deliver an excellent customer experience to our residents and their families in each of our communities. We will continue to improve existing service levels and to implement new 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 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 the value of our real estate portfolio and individual assets to maximize long-term value through market analysis and research, prudent capital planning, strategic positioning and divestiture. Our acquisition and development pipelines are strong. We expect to commence a number of development projects in 2015 and 2016. We also believe that we will be able to complete a number of the acquisition opportunities that we are currently working on. This gives us confidence that we will accretively reinvest the expected net proceeds from the U.S. sale portfolio -- from the U.S. portfolio sale over time. Thank you for your time and attention this morning, we’d now be pleased to answer any questions you may have.

Thank you, Mr. Binions. [Operator Instructions]. The first question is from Jimmy Shan from GMP Securities. Please go ahead.

So just in terms of the $410 million that's coming, can you talk about some of the options you are considering to redeploy the cash? And also, you talked about being able to accretively redeploy it over time. And I was wondering if you had an estimated time line when you expect to redeploy that cash?

Jimmy, so the initial use of funds will be to reduce that in our Canadian portfolio, reduce the amount outstanding on the credit facility, and we have some floating rate mortgages that we’ll repay. As we disclosed in our press release announcing the U.S. sale, we have close to $275 million worth of development projects that are going to be starting in 2015 and 2016, and we’re working to building on that pipeline even further. And we’re working -- analyzing a few acquisition opportunities that we expect also to materialize. In terms of the acquisition opportunities, it is difficult to predict the timing of individual closing. So I will not do that.

So if I were to look at the debt to GBV right now it is 55.3%. I think that excludes the U.S. portfolio, just to clarify, that does not include the $410 million of cash coming, right? In other words, once you --

Yes, that’s correct.

Right, okay. And so what would be the long-term target, whether it be on a debt to GBV or net to EBITDA as you work to redeploy that cash?

We think that the long term target will be around 50% of debt to GBV would like to get interest coverage as we said all along to over 2.5x and we’re pretty close to that number now. So 50% debt to GBV is more reasonable long-term target.

So that would imply something like, you’d be able to have about $500 million of asset that you could acquire?

Correct.

And so $275 million would be allocated to development over two years and then the remaining, I would imagine, would be for acquisitions?

Yes. $275 million is the gross value of assets. So these will also be financed with debt. It really just depends on the timing of other transactions.

[Operator Instructions]. The next question is from Neil Downey from RBC Capital Markets. Please go ahead.

Your corporate expenses have been running on a trailing or an annualized basis, call it, $30 million to $32 million per year. Does that number change at all with the exit of the U.S. business?

No, Neil, this number should not change for the exit of the U.S. business. As you know, the U.S. properties were managed externally. We had very small overhead here corporately that was overseeing these properties and some of it will be reduced, most of it will be repurposed.

And so I suppose the consequence of this, at least in the near term, is that we presumably expect to see the percentage of revenue ratio rise in the back half of the year and then come down as the capital is deployed over time?

No. What you’re seeing now in our disclosures is percentage of G&A over revenue is done on a continuing operations basis. So these are the percentages that we expect to stay within.

The next question is from Heather Kirk from BMO Capital Markets. Please go ahead.

You saw an uptick in terms of the occupancy in Ontario. And I was just wondering if you can comment on whether you're seeing firming there and what your outlook is for that market, picking up given that I the is going to be a greater proportion of your portfolio post the sale?

We were really pleased to see Q1 better than even Q4, which doesn't always happen because of the winter dip. So that was a good trend to see. And we did certainly have more move-ins in the first quarter. So that is the trend that we’re expecting in the future.

And in terms of the long-term care there was the reverse happening, a little bit of a decline in occupancy. Can you give us some color on what was driving that?

Karen?

That is because of the bad flu season, so you might have heard on the news that the vaccine didn’t actually work this year too well. So there would have been higher outbreaks. So is that what you’re seeing there.

We don’t admit during outbreak. So with the higher outbreaks, we close it down for short period of time. We’re not allowed to.

We can't, yes.

So you'd expect that to come back up?

Partly, yes.

Yes. Yes.

And in terms of your acquisition pipeline, can you comment on the depth of products that you are seeing in the market and what pricing is kind of looking like?

Heather, we would say that the market is better than it’s been for quite some time. We would say it’s quite deep. In terms of opportunities, we are exploring a number of them at the same. As Vlad said, there is never an ability to predict the timing, which ones will go and the timing on them, but we are very optimistic that we will have some good acquisitions to talk about and these are, from our perspective, high-quality acquisitions -- high-quality properties in excellent market locations.

And so how are you thinking about the geographic split, going forward? Would you be looking to increase your presence in Western Canada and to be more diversified? Or do you [indiscernible] on the market?

Yes, for sure. Our current Ontario platform and Quebec, Ontario, BC, Alberta, we intend to continue in those markets and grow in all of those markets. If we had our preferences, for sure, Alberta would be a target market to grow in. BC as well, but we will take the high quality acquisitions, good properties, good locations in any of our four core markets as we go. But we are -- definitely preference would be to extend more in the west.

Thank you. The next question is from Jimmy Shan from GMP Securities. Please go ahead.

Just a quick follow-up on the acquisition. So in terms of -- other than geography, in terms of the retirement versus nursing, how are you looking at that?

The focus is definitely on the retirement home more independent side, less on the long-term care side. It’s not that we wouldn’t take long-term care as part of a portfolio, but our focus is definitely on the retirement-only independent living, just let me say.

And are there currently any major portfolio on the market that you’re considering, how does that -- it seems to me that to deploy that much cash you would need to be a little bit of a portfolio?

Yes. That’s I'm probably pressing a little too far, Jimmy. We are looking at a number of things and very many. So many small things make big things, but there’s nothing more we can say on that.

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

Thank you. I’d like to remind everyone that our Annual Unitholders Meeting will be held next week on Thursday, May 14th, 4:30PM at the St. Andrew's Club and Convention Center, located at 150 King Street West, 27th Floor in Toronto. We hope you can join us. That wraps up today's conference call. Thanks again for joining us. And as always, if you have any further questions, please do not hesitate to give us a call. Good bye.

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