Chartwell Q3 2026 Results Conference Call - DEFI TECHNOLOGIES INC

Financial Performance:

• Adjusted Net Operating Income (NOI) for the same property portfolio increased 14.1% year-over-year, with operating margins expanding 230 basis points to 43.4%.
• Funds From Operations (FFO) per unit grew 25% to $0.30, marking the 13th consecutive quarter of double-digit FFO per unit growth; reported FFO increased 38% to $100.8 million for Q3 2026.
• Revenue per occupied suite grew 5.8% in Q3, while costs per occupied suite rose only 1.8%, resulting in NOI per occupied suite growth of 11.3%.
• Net debt-to-adjusted EBITDA stood at 6.8x, with an interest coverage ratio of 3.5x and a consolidated weighted average interest rate of 4.03%.
• Liquidity was robust at $573.4 million (comprising $178.3 million cash and $395.1 million in borrowing capacity).
• G&A expenses decreased by $1.2 million year-over-year, contributing to improved FFO margins.
• Staffing agency costs were reduced by 37% year-to-date through enhanced recruitment and retention strategies.
• NOI to FFO conversion efficiency improved significantly, with each dollar of NOI generating $0.62 of FFO in Q3 2026, up from $0.48 in 2023.

Guidance and Future Outlook:

• Management reaffirms a three-year strategy target to achieve total acquisitions and developments of $2 billion and dispositions of $1 billion; $1.4 billion in acquisitions/developments and $307.7 million in dispositions have been completed YTD.
• Same property occupancy is on track to reach 96% by year-end, with a strategic target of >95% for the stabilized portfolio.
• Cost guidance remains under 4% on a per-occupied suite basis, with current Q3 performance at 1.8%.
• Revenue per occupied suite is expected to continue growing in the mid-to-high 5% range into 2027, driven by rate growth and declining incentive usage.
• The development pipeline comprises 9,456 suites across 38 projects; 8 projects (1,466 suites) are under construction, with 30 projects (7,990 suites) in pre-development.
• Management anticipates labor compensation increases of 4-5% in 2027, continuing a trend above historical norms of 2-3%.

Business Segments and Product Lines:

• The "Growth Portfolio" (52 newly acquired properties) currently operates at 91.6% occupancy but delivers a 46% adjusted operating margin, offering significant embedded growth as occupancy stabilizes toward 95%.
• Significant value creation observed in the 2024 Montreal acquisitions, where occupancy rose 600 bps, operating margins improved 810 bps, and NOI grew at an 18.1% CAGR, creating over $100 million in value.
• New asset additions include Greenway Retirement Residence (Brampton, 237 suites) acquired for $136 million and the disposition of non-core assets totaling $145.8 million in Q3.
• Marketing strategies drove a 26% increase in personalized tours, with a conversion ratio of 50% (up from 44% in Q3 2025).
• Implementation of International Net Promoter Score (NPS) resulted in a score of 58 (16 points higher than 2025) and an Employee NPS (ENPS) of 42.
• Launch of the "Joy is Ageless" campaign and partnerships with Sprout and La Presse to enhance brand visibility and resident storytelling.
• Introduction of a dedicated Vice President of Care Experience and Innovation to enhance service offerings and attachment rates.

Market and Competitive Landscape:

• Strong demand for retirement living in Canada driven by an aging population and constrained new supply, creating a favorable backdrop for occupancy and rate growth.
• Increased institutional interest in Class A assets and renewed activity from private equity groups in Class B assets, shifting the landscape from solely local operators to more portfolio-focused buyers.
• Construction start delays observed in the broader market due to rising interest rates, though Chartwell's disciplined underwriting allows continued progress on viable projects.
• Condo developers are increasingly seeking alternative uses for land, presenting opportunistic development sites in core urban markets that previously were not feasible.
• Pricing power remains strong, with high-occupancy properties in strong markets seeing market rate increases in the high single digits.

Risks and Challenges:

• Rising interest rates pose a risk of deferring pre-development projects, particularly those with thinner economic cushions, though the core pipeline remains active.
• Labor availability and wage inflation present ongoing challenges, with compensation increases expected to outpace historical averages.
• Weather-dependent seasonality, particularly winter flu seasons, impacts occupancy and tour accessibility, though a warmer winter might mitigate this.
• Regulatory constraints on rent increases for existing residents in certain jurisdictions limit rate growth compared to new market rate resets.
• Integration risks associated with new acquisitions and the conversion of these assets into stabilized, high-margin operations.

Management Commentary and Tone:

• Management expressed high confidence in the "2028 Strategy Scorecard," citing strong progress on all strategic objectives.
• The tone was optimistic regarding the scalability of the management platform and the ability to convert incremental NOI into strong FFO per unit growth.
• Emphasis placed on the "embedded growth" within the growth portfolio and the development pipeline as key drivers for future FFO without additional acquisition capital.
• CEO highlighted the "people-first" culture as the foundation of success, particularly during the integration of newly acquired properties.
• Management maintains a disciplined approach to capital allocation, prioritizing retained cash flow and disposition proceeds over equity or debt financing.

Analyst Questions and Answers:

• Cost Risks: Analysts questioned cost upside risks; management confirmed the <4% target is achievable for the near-to-medium term, with current Q3 at 1.8%.
• Occupancy Timelines: Management indicated the growth portfolio could achieve 95% occupancy within 12 months, though the portfolio composition will change with new acquisitions.
• Incentives: Q3 incentive usage dropped to 4.5% of revenue (from 4.8% in Q3 2025), providing a tailwind for RevPAS growth.
• Development Pipeline: While some pre-development projects may be deferred due to interest rate environments, a significant number of projects are penciling out and will proceed.
• Asset Dispositions/Repurposing: Quebec City may see some non-core dispositions to right-size the smaller market; Southwest Ontario remains a focus for growth.
• Service Attachment: Management expects opportunities to increase service attachment rates as occupancy rises and new care programs are launched over the next 6-9 months.

Other Key Points:

• Completed dispositions in Q3 included assets in Victoriaville ($8M) and Kitchener ($41.8M), alongside the $136M Greenway acquisition.
• The company raised $72.7 million via the ATM program in the first nine months of 2026, issuing 3.3 million units at an average price of $21.74.
• The "Greenway" acquisition and the "Sifton" portfolio integration are key focus areas for operational synergies and margin expansion.
• Management noted that the "yield gap" for spec development remains large, limiting speculative starts but creating opportunities for converted sites.
• The company's ability to leverage technology, automation, and AI-enabled tools is a strategic priority to improve operational agility.