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Chartwell Retirement Residences holds firm in crisis

Chartwell Retirement Residences (CSH-UN-T) had built plenty of business momentum through the last...

IMAGE: The Sumach residences, being built in Toronto by Chartwell Retirement Residences. (Rendering courtesy Chartwell)

The Sumach residences in Toronto by Chartwell Retirement Residences. (Rendering courtesy Chartwell)

Chartwell Retirement Residences (CSH-UN-T) had built plenty of business momentum through the last quarter of 2019 and the first two months of this year before the COVID-19 pandemic brought things to a screeching halt.

The effects of the pandemic are by no means limited to Chartwell or the seniors housing sector, but Canada’s largest owner and operator of retirement and long-term care residences had seen its stock price drop by approximately 50 per cent over the past month. It had rebounded somewhat to a market cap of $1.86 billion on March 27.

“Clearly there’s panic out there and the entire market is down as prices are being depressed,” Chartwell chief executive officer Vlad Volodarski told RENX. “Ours is no exception.

“Our peers are trading in the same kind of ballpark as we are. Everybody knows the issue is this pandemic and the economic slowdown because of it and the oil price wars.”

New COVID-19 protocols for Chartwell residences

It’s not just Chartwell’s stock price that’s been affected by COVID-19, however.

While the Mississauga-headquartered company has always maintained strong infection control and management practices at its more than 200 seniors communities in Ontario, Quebec, Alberta and British Columbia, it has now enhanced them.

Chartwell has adopted or exceeded new guidelines issued by provincial health authorities to minimize the COVID-19 impact within its residences.

This includes increased cleaning and disinfection practices, ongoing health monitoring of residents, and applying quarantine protocols and supports where necessary.

Access to residences is restricted to essential visitors only and active screening is required for anyone who enters, including staff.

“We’re doing everything we can to keep our residents, their families and our staff safe,” said Volodarski.

Leasing is taking a hit

While Chartwell residences aren’t accepting visits by prospective new residents, people who had already committed and have defined move-in dates are being accepted.

However, Volodarski said move-ins are being discouraged unless there are no alternatives because they’ve sold their homes or terminated apartment leases and he emphasized extra precautions are being taken in these cases.

People generally enter seniors residences due to immediate needs, including assistance with daily living, or they foresee a need for such services arriving shortly.

“This business is demand-driven and as much as we’d like to promote ourselves as more of a lifestyle choice for people who come here . . . the vast majority still come here because of their needs,” said Volodarski.

“That need doesn’t go away with a pandemic or stock market gyrations.

“People who cannot move at the present time, because we’re not taking any new residents, will still need us when this is over. My expectation is that the recovery is going to be a bit more robust because of that.

“But first, obviously, we need to get through this.”

Chartwell’s financial position

Chartwell is in a solid position to weather this storm, according to Volodarski.

It has a geographically diverse portfolio and more than $338 million of liquidity, including more than $131 million in cash.

Chartwell has more than $950 million of unencumbered assets and a conservative capital structure that allows it to access further debt if needed.

IMAGE: Vlad Volodarski is the CEO of Chartwell. (Courtesy Chartwell)

Vlad Volodarski is the CEO of Chartwell. (Courtesy Chartwell)

Chartwell has $65 million of 2020 mortgage maturities remaining, the majority of which are Canada Mortgage and Housing Corporation-insured. Volodarski believes it will be able to renew all 2020 maturities as they come due.

“We’ve been building the strength of our balance sheet for the last 12 years or so exactly for periods like this — not that we could predict something like this happening,” he said. “We always try to be prudent in how we manage our capital structure.

“Our mortgage maturities are well-staggered over time so we don’t have any big chunks of maturities coming in any given year.

“The lenders so far seem very supportive. We’ve been receiving daily messages of support and about the availability of capital for us should we decide to access it.”

Revenue flow stable so far

Unlike some businesses forced to close or cut back considerably due to COVID-19, Chartwell residences continue to deliver services and collect rents to maintain a revenue flow. Its long-term care residences continue to receive government funding.

The Ontario government recently announced it will contribute $50 million to long-term care homes in the province that collectively have approximately 77,000 beds and $5 million to retirement residences, to cover additional screening and staff training related to the pandemic.

“It’s not clear how the retirement home funding is going to be dispersed,” said Volodarski. “The $50 million for long-term care homes looks like it’s going to be dispersed over the course of March and April. Every long-term care home will receive this additional funding.”

When asked if Chartwell would use its liquidity to capitalize on the low price of its shares and purchase some, Volodarski said: “At the present time, given all of the uncertainty out there, we didn’t think this would be a prudent course of action. But should the situation become a bit clearer, but the stock price remains depressed as it is right now, we’ll certainly consider that.”

Chartwell announced on March 16 it had temporarily suspended its distribution reinvestment plan (DRIP) until further notice. Starting after the distribution payable to unitholders of record on March 31, those enrolled in the DRIP will receive distribution payments in cash.

When Chartwell elects to reinstate the DRIP, unitholders can automatically resume participation.

Impact on construction, deals and renovations

Chartwell has three properties under construction in Ontario:

While construction of these projects will continue, those in the development pipeline that haven’t yet started construction won’t until Chartwell has “clarity with the situation,” according to Volodarski.

Chartwell completed the acquisition of a 42.5 per cent interest in Chartwell Le St-Gabriel résidence pour retraités from its development partner, Batimo Inc., for $37.9 million on March 3.

It’s an eight-storey residence offering 313 independent-living and 21 assisted-living suites in Saint-Hubert, Que. It was developed by Batimo and is managed by Chartwell.

The residence opened in May 2018 and is 97 per cent occupied.

That could be the last purchase for a while, however.

“We look at acquisitions as opportunities arise and right now the focus is on operations and making sure we keep our residents and staff safe,” said Volodarski. “Nobody’s really working on acquisitions at the present time.”

While Chartwell properties will be maintained, Volodarski said contractors aren’t permitted into residences unless it’s for “emergency-type” renovations.

“We will be looking at discretionary capital investments in the properties and we’ll assess whether they need to be completed or not,” he added.

The future still looks bright

Despite the current downturn in Chartwell’s real estate sector, Volodarski believes it remains an excellent housing option that provides needed services and care as well as good value for seniors.

“I think the long-term prospects of our industry are still vey good and we will continue to deliver those services and care to our people for many years to come after we beat this COVID-19.”

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