Chartwell Retirement Residences T.CSH.UN

RE: New Long-Term Care Legislation in Ontario

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CHARTWELL SENIOR HOUSING REIT (CSH.UN-TSX) KARINE MACINDOE Brief Research Note Rating: Market Perform Price: $14.85 Target: $16.00 Title: Comments on Proposed New Long-Term Care Licensing Legislation in Ontario Impact: Neutral Details & Analysis: Chartwell today commented on the proposed new long-term care licensing legislation being considered in Ontario. The provincial government is considering limiting the term of long-term care home licences based on the age and structural classification of a home (licences are currently granted for 1-year terms with automatic renewals unless a licence is revoked for safety/health reasons, which is rare). Such an initiative is being considered to motivate the upgrade of older “Class C” homes (which meet, but do not exceed, 1972 standards), but the industry is concerned that restricting the term of a licence (to finite periods; say 5-10 years) may also impact the amortization term an owner can get for debt financing (and/or lenders will need to be compensated for increased risk with higher interest rates) and ultimately, negatively impact the value of such homes. We understand that the timing of Chartwell’s press release was motivated to clarify what was written in a recent National Post article (and correct the recent softness in its unit price), but we would also offer the following points: 1) this issue is not new and we believe somewhat of a “red herring”. If the government changes its licensing requirements (and it negatively impacts the valuation of older homes), we believe the government is also likely to come in with a program to help subsidize the upgrade of such homes. 2) the issue impacts Retirement REIT (RRR.UN-TSX, Market Perform); 1/3 of its beds are at risk) much more materially than Chartwell (4% of its beds at risk).