CHARTWELL ANNOUNCES FOURTH QUARTER & YEAR END 2021 RESULTS

In Q4 2021, resident revenue decreased $3.3 million or 1.5% primarily due to the disposition of properties and occupancy decline in our existing property portfolio.

In Q4 2021, direct property operating expense increased $6.2 million or 4.0%, primarily due to higher expenses, principally due to the Omicron wave of the pandemic, in our existing property portfolio, partially offset by the disposition of properties.

In Q4 2021, net income was $18.7 million compared to $12.2 million in Q4 2020. The change in net income in Q4 2021 was primarily due to higher gain on disposal of assets in Q4 2021, higher management and other fee revenue, lower deferred tax expense, lower finance cost and positive changes in fair values of financial instruments, partially offset by lower resident revenue, higher direct property operating expenses, higher amortization of intangibles, higher net loss, and lower lease revenue from joint ventures, higher general and administrative (“G&A”) expenses and higher impairment charges.

In Q4 2021, FFO decreased $15.1 million primarily due to lower occupancy, continued investments in resident care and infection prevention and control measures, including agency staffing costs, lower adjusted NOI from the disposition of properties, higher amortization of internally developed software related intangible assets, and higher G&A expenses partially offset by higher revenue both from inflationary and market-based rental and service rate increases and from the provision of additional care and services, higher adjusted NOI⁽¹⁾ from acquisitions and development properties that are currently in lease up, lower finance costs and higher management fee revenue.

For 2021, resident revenue decreased $18.7 million or 2.1%, primarily due to the disposition of properties and occupancy decline in our existing property portfolio.

For 2021, direct property operating expense increased $7.2 million or 1.2%, primarily due to higher expenses in our existing property portfolio, partially offset by the disposition of properties.

For 2021, net income was $10.1 million compared to $14.9 million in 2020. Net income decreased in 2021  primarily due to lower resident revenue, higher direct property operating expenses , higher amortization of intangibles, lower lease revenue from joint ventures, lower interest income, negative changes in fair values of financial instruments, higher net loss from joint ventures and deferred tax expense in 2021 as compared to deferred tax recovery in 2020, partially offset by higher gain on disposal of assets, higher management and other fees, lower depreciation of property, plant and equipment (“PP&E”), lower finance costs and lower impairment charges.

For 2021, FFO  decreased $33.6 million primarily due to lower occupancy, continued investments in resident care and infection prevention and control measures, including agency staffing costs, lower adjusted NOI from the disposition of properties, higher amortization of internally developed software related intangible assets, higher G&A expenses and lower interest income partially offset by higher revenue from both inflationary and market-based rental and service rate increases and from the provision of additional care and services, higher adjusted NOI ⁽²⁾ from acquisitions and development properties that are currently in lease up, lower finance costs and higher management fee revenue.

Operating Performance

In Q4 2021, same property adjusted NOI ⁽¹⁾ decreased $12.1 million or 17.9% primarily due to lower occupancy and the disposition of properties, higher net pandemic expense, higher agency staffing costs, and insurance expenses, partially offset by inflationary and market-based rental and service rate increases and additional care and services revenue and lower food costs as a result of lower occupancy.

In Q4 2021, G&A expenses increased $1.0 million primarily due to lower government subsidies of $1.0 million and higher compliance related legal and professional fees of $0.8 million, partially offset by lower education costs, as a result of moving various educational programs to virtual formats and lower severance costs.

For 2021, weighted average occupancy in our retirement same property portfolio was 77.1%, a 6.9 percentage point decrease from 2020, primarily due the continued impact of the pandemic.  Positive trends through 2021, including increasing monthly move in activity through the year, higher move ins in aggregate for 2021 compared to 2020 and lower move out activity in aggregate for 2021 compared to 2020 did not offset declining occupancy from the onset of the pandemic until July 2021, when occupancies stabilized and then began increasing gradually to December 2021.

For 2021, same property adjusted NOI ⁽¹⁾ decreased $33.2 million or 12.3%, primarily due to lower occupancy, higher agency staffing costs and insurance expenses, partially offset by inflationary and market-based rental and service rate increases and additional care and service revenue, lower net pandemic expense and lower food costs as a result of lower occupancy.

For 2021, G&A expenses increased $0.5 million primarily due to lower government subsidies of $0.5 million and higher compliance related legal and professional fees of $0.8 million, partially offset by lower education costs.

Financial Position

At December 31, 2021, liquidity ⁽¹⁾ amounted to $438.9 million, which included $95.5 million of cash and cash equivalents and $343.4 million of available borrowing capacity on our credit facilities. In addition, Chartwell’s share of cash and cash equivalents held in its equity-accounted joint ventures was $5.1 million.

The interest coverage ratio ⁽¹⁾ for the year ended December 31, 2021, remained strong at 2.8 at December 31, 2021 compared to 2.9 at December 31, 2020.  The net debt to adjusted EBITDA ratio ⁽¹⁾ at December 31, 2021, was 10.1 compared to 9.4 at December 31, 2020.

Additionally, our unencumbered asset pool value was $997.8 million at December 31, 2021, and our unencumbered property asset value to unsecured indebtedness ratio increased to 2.0 at December 31, 2021.

Recent Developments

The most recent wave of the pandemic, driven by the Omicron variant of concern, has been impacting our operations. Omicron has proven to be a highly transmissible variant causing significant volumes of infections among the general population as well as among our employees and residents.  The pace of the spread of Omicron in late December 2021 and into mid to late January 2022 was significant both in the community and in our residences.  Commencing in early February 2022, outbreaks and infections in our residences began to decline.

During the Omicron wave, governments and public health authorities reintroduced restrictions which are expected to result in a delay of our occupancy recovery. In addition, to maintain services for our residents, as many of our employees were and are required to isolate because of virus exposure, we are incurring higher agency, overtime, and recruitment costs. Due to our high resident and staff vaccination rates, most of those affected experience mild to moderate symptoms and recover relatively quickly. Our thoughts are with those who have been affected by this disease.  We continue to work collaboratively with public health authorities on infection prevention and control measures and to improve accessibility of our residents and staff to vaccine boosters which will further improve their protection. As of February 24, 2022, 89% of our residents and 54% of our staff had received their third dose vaccine booster shots.

As of February 24, 2022, there are currently COVID-19 outbreaks in 24 of our residences. The severity and duration of outbreaks have significantly lessened as compared to the first year of the pandemic.  As a result, our extensive investments in additional personal protective equipment and staffing are returning to normalized levels. Our response to the pandemic has been and continues to be guided by public health authorities and the Federal, Provincial and Municipal governments.  We continue to meet or exceed the direction provided by these authorities to control the spread of COVID-19.

Same property occupancy decreased to 76.6% or 0.4 percentage points in January 2022, and is forecasted to decline by 0.5 and 0.4 percentage points for February and March 2022, respectively, based on known leases and notices as at February 10, 2022.  These expected occupancy trends are consistent with our historical experience. Sales and leasing activities slowed down in late December and early January 2022 as a result of the new Omicron-driven wave of the pandemic. These activities began rebounding in the second half of January and for the full month of January 2022, all of our leading sales indicators were higher compared to January 2021.  Sales and leasing activities have continued to improve in February 2022 compared to both January 2022 and February 2021.  Our acquisition and development portfolio has shown lease up progress, growing weighted average occupied suites by 143 suites since September 2021.

We expect a temporary elevation in direct operating expenses in our retirement residences through this wave of the pandemic due to higher-than-normal staffing costs as a result of higher agency staffing and overtime used to augment vacancies resulting from an increased number of staff being required to self-isolate due to the high transmissibility of the Omicron variant.  In addition, in 2021 compared to 2020, excluding pandemic related agency staffing utilization, we experienced an increase in recurring agency staffing costs.  As the pandemic wanes, labour markets normalize and our staffing levels are optimized, we expect to bring these costs down gradually through 2021.