Chartwell Retirement Residences : Q4 2023 Financial Statements

CHARTWELL RETIREMENT RESIDENCES

Audited Consolidated Financial Statements (In Canadian dollars)

Years ended December 31, 2023 and 2022

KPMG LLP

Bay Adelaide Centre

333 Bay Street, Suite 4600

Toronto, ON M5H 2S5

Canada

Telephone [phone]

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INDEPENDENT AUDITOR'S REPORT

To the Unitholders of Chartwell Retirement Residences

Opinion

We have audited the consolidated financial statements of Chartwell Retirement Residences (the "Entity"), which comprise:

• the consolidated balance sheets as at December 31, 2023 and December 31, 2022
• the consolidated statements of net income and comprehensive income for the years then ended
• the consolidated statements of unitholders' equity for the years then ended
• the consolidated statements of cash flows for the years then ended
• and notes to the consolidated financial statements, including a summary of significant accounting policies

(Hereinafter referred to as the "financial statements").

In our opinion, the accompanying financial statements present fairly, in all material respects, the consolidated financial position of the Entity as at December 31, 2023 and December 31, 2022, and its consolidated financial performance and its consolidated cash flows for the years then ended in accordance with IFRS Accounting Standards as issued by the International Accounting Standards Board.

Basis for Opinion

We conducted our audit in accordance with Canadian generally accepted auditing standards. Our responsibilities under those standards are further described in the "Auditor's Responsibilities for the Audit of the Financial Statements" section of our auditor's report.

We are independent of the Entity in accordance with the ethical requirements that are relevant to our audit of the financial statements in Canada and we have fulfilled our other ethical responsibilities in accordance with these requirements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

KPMG LLP, an Ontario limited liability partnership and member firm of the KPMG global organization of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. KPMG Canada provides services to KPMG LLP.

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Key Audit Matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements for the year ended December 31, 2023. This matter was addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on this matter.

We have determined the matter described below to be the key audit matter to be communicated in our auditor's report.

Assessment of the recoverable amount of cash generating units

Description of the matter

We draw attention to Notes 2(d), 3(d) and 5 of the financial statements. The property, plant and equipment ("PP&E") carrying amount is $2,841,011 thousand. The carrying amounts of the Entity's PP&E are assessed at each reporting date to determine if any events have occurred that would indicate the PP&E may be impaired. If any such indication exists, the asset's recoverable amount is estimated, and an impairment loss is recognized immediately in profit or loss for the amount by which the asset's carrying amount exceed its recoverable amount. The recoverable amount is determined for the cash generating unit ("CGU") to which the PP&E belongs. The recoverable amount of a CGU is the higher of (a) fair value less costs of disposal and (b) value in use.

The assessment of asset impairment requires significant assumptions, which include:

• the rental rates and occupancy rates used to estimate future stabilized cash flows.
• discount rates, capitalization rates and terminal capitalization rates applied to those cash flows.
  Why the matter is a key audit matter

We identified the assessment of the recoverable amount of CGUs as a key audit matter. This matter represented an area of significant risk of material misstatement given the significant effect minor changes to significant assumptions had on the determination of the recoverable amount of a CGU. In addition, significant auditor judgment and specialized skills and knowledge were required in applying, and evaluating the results of, our audit procedures.

How the matter was addressed in the audit

The primary procedures we performed to address this key audit matter included the following:

• For a selection of CGUs, we assessed the Entity's ability to accurately forecast by comparing the rental rates and occupancy rates used to estimate future stabilized cash flows of the prior year to actual results.
• For a selection of CGUs, we evaluated the Entity's rental rates and occupancy rates used to estimate future stabilized cash flows by comparing to actual historical rates. We took into account the changes in conditions and events affecting the CGUs to assess the adjustments, or lack of adjustments, made by the Entity in arriving at the rental rates and occupancy rates used to estimate future stabilized cash flows.

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• For a selection of CGUs, we involved valuations professionals with specialized skills and knowledge who assisted in evaluating the discount rates, capitalization rates and terminal capitalization rates. These rates were compared to published reports of real estate industry commentators taking into consideration the features of the specific CGU.

Other Information

Management is responsible for the other information. Other information comprises:

• the information included in Management's Discussion and Analysis filed with the relevant Canadian Securities Commissions.
• the information, other than the financial statements and the auditor's report thereon, included in a document likely to be entitled "2023 Annual Report."

Our opinion on the financial statements does not cover the other information and we do not and will not express any form of assurance conclusion thereon.

In connection with our audit of the financial statements, our responsibility is to read the other information identified above and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit and remain alert for indications that the other information appears to be materially misstated.

We obtained the information included in Management's Discussion and Analysis filed with the relevant Canadian Securities Commissions as of the date of the auditor's report. If, based on the work we have performed on this other information, we conclude that there is a material misstatement of this other information, we are required to report that fact in the auditor's report.

We have nothing to report in this regard.

The information, other than the financial statements and the auditor's report thereon, included in a document likely to be entitled "2023 Annual Report" is expected to be made available to us after the date of this auditor's report. If, based on the work we will perform on this other information, we conclude that there is a material misstatement of this other information, we are required to report that fact to those charged with governance.

Responsibilities of Management and Those Charged with Governance for the Financial Statements

Management is responsible for the preparation and fair presentation of the financial statements in accordance with IFRS Accounting Standards as issued by the International Accounting Standards Board and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, management is responsible for assessing the Entity's ability to continue as a going concern, disclosing as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Entity or to cease operations, or has no realistic alternative but to do so.

Those charged with governance are responsible for overseeing the Entity's financial reporting process.

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Auditor's Responsibilities for the Audit of the Financial Statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion.

Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Canadian generally accepted auditing standards will always detect a material misstatement when it exists.

Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the financial statements.

As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise professional judgment and maintain professional skepticism throughout the audit.

We also:

• Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion.
  The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Entity's internal control.
• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.
• Conclude on the appropriateness of management's use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Entity's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor's report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor's report. However, future events or conditions may cause the Entity to cease to continue as a going concern.

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• Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation.
• Communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.
• Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the group Entity to express an opinion on the financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion.
• Determine, from the matters communicated with those charged with governance, those matters that were of most significance in the audit of the financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor's report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our auditor's report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

Chartered Professional Accountants, Licensed Public Accountants

The engagement partner on the audit resulting in this auditor's report is Jason Gaiotto.

Toronto, Canada

March 7, 2024

CHARTWELL RETIREMENT RESIDENCES

Consolidated Balance Sheets

(In thousands of Canadian dollars)

As at December 31,		Note		2023		2022
Assets
Current assets:
Cash and cash equivalents			$	24,619	$	28,469
Trade and other receivables		8		14,178		20,465
Loan receivable		10		8,009		4,183
Assets held for sale		17		269,232		199,470
Other assets		9		27,900		27,829
Total current assets				343,938		280,416
Non-current assets:
Other assets		9		1,832		8,973
Loans receivable		10		7,296		3,826
Investment in joint ventures		11		14,981		12,947
Intangible assets		6		25,018		28,135
Property, plant and equipment ("PP&E")		5		2,841,011		3,176,045
Total non-current assets				2,890,138		3,229,926
Total assets			$	3,234,076	$	3,510,342
Liabilities and Unitholders' Equity
Current liabilities:
Lease obligations		7	$	788	$	843
Accounts payable and other liabilities		16		155,191		199,818
Distributions payable				12,364		12,147
Term loans		14		124,924		-
Liabilities related to assets held for Sale		17		193,979		140,692
Senior unsecured debentures		15		-		199,777
Mortgages payable		12		246,293		191,357
Income Tax Payable		29		27,231		-
Total current liabilities				760,770		744,634
Non-current liabilities:
Lease obligations		7		7,285		7,473
Other liabilities		16		3,302		1,376
Mortgages payable		12		1,179,192		1,466,024
Mortgages Payable related to assets held for sale	17		-		7,939
Credit facilities		13		68,686		181,234
Term loans		14		-		138,235
Senior unsecured debentures		15		398,981		149,677
Class B Units of Chartwell Master Care LP
("Class B Units")		19		17,877		12,916
Deferred tax liabilities		29		6,522		31,032
Total non-current liabilities				1,681,845		1,995,906
Total liabilities				2,442,615		2,740,540
Unitholders' equity		20		791,461		769,802
Total liabilities and unitholders' equity			$	3,234,076	$	3,510,342
See accompanying notes to consolidated financial statements.
Approved by the Trustees:
"Ann Davis"	Trustee	"Jamie Scarlett"			Trustee

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CHARTWELL RETIREMENT RESIDENCES

Consolidated Statements of Net Income and Comprehensive Income (In thousands of Canadian dollars)

Years ended December 31,	Note	2023		2022
Revenue:
Resident	$	687,324	$	661,029
Management and other fees		13,503		10,364
Lease revenue from joint ventures	11(b)	35,408		35,408
Interest income		2,319		1,191
		738,554		707,992
Income (expenses):
Direct property operating	8, 32	(463,361)		(464,704)
Depreciation of PP&E	5	(154,005)		(152,988)
Amortization of intangible assets	6	(2,690)		(3,148)
Share of net loss from joint ventures	11(b)	(1,812)		(3,309)
General, administrative and trust	32	(60,450)		(49,641)
Other income	26	9		70,623
Finance costs	27	(92,501)		(85,091)
Change in fair values of financial instruments	28	(21,964)		21,785
		(796,774)		(666,473)
Income (loss) before taxes		(58,220)		41,519
Current Tax (expense)	29	(27,231)		-
Deferred income tax benefit (expense)	29	24,510		(14,131)
Net income (loss) from continuing operations		(60,941)		27,388
Discontinued operations:
Net income from discontinued
operations	17	189,214		22,143
Net income and comprehensive income(1)	$	128,273	$	49,531

(1)Referred to as "Net income" throughout the consolidated financial statements

See accompanying notes to consolidated financial statements.

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CHARTWELL RETIREMENT RESIDENCES

Consolidated Statements of Unitholders' Equity

(In thousands of Canadian dollars, except per unit amounts)

		Trust Units	Trust Units			Accumulated
		issued in		issued		EUPP		income			Other equity
2023		dollars, net	under EUPP		receivable		(losses)	Distributions	components		Total
Unitholders' equity, December 31, 2022	$	2,583,038	$	22,239	$	(14,845)	$	(47,298)	$	(1,779,833)	$	6,501	$	769,802
Net income		-		-		-		128,273		-		-		128,273
Distributions to unitholders		-		-		-		-		(146,037)		-		(146,037)
Trust Units issued under the Distribution
Reinvestment Program ("DRIP")		36,086		-		-		-		-		-		36,086
Trust units issued on exchange of class B units		58		-		-		-		-		-		58
Trust Units issued under the Executive
Unit Purchase Plan ("EUPP"), net of
cancellations and Trust Units released
on settlement of EUPP receivable		2,461		1,427		(2,337)		-		-		-		1,551
Interest on EUPP receivable		-		-		(244)		-		-		-		(244)
Distributions applied against EUPP receivable		-		-		1,241		-		-		-		1,241
Trust units on conversion of DTU		731		-		-		-		-		-		731
Unitholders' equity, December 31, 2023	$	2,622,374	$	23,666	$	(16,185)	$	80,975	$	(1,925,870)	$	6,501	$	791,461

Distributions were declared and paid at $0.051 per unit per month for the months of January 2023 to December 2023.

See accompanying notes to consolidated financial statements.

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CHARTWELL RETIREMENT RESIDENCES

Consolidated Statements of Unitholders' Equity

(In thousands of Canadian dollars, except per unit amounts)

		Trust Units	Trust Units			Accumulated
		issued in		issued		EUPP		income			Other equity
2022		dollars, net	under EUPP	receivable		(losses)		Distributions	components		Total
Unitholders' equity, December 31, 2021	$	2,545,451	$	21,592	$	(14,313)	$	(96,829)	$	(1,636,285)	$	6,495	$	826,111
Net income		-		-		-		49,531		-		-		49,531
Distributions to unitholders		-		-		-		-		(143,548)		-		(143,548)
Trust Units issued under the Distribution
Reinvestment Program ("DRIP")		34,967		-		-		-		-		-		34,967
Trust Units issued under the Executive
Unit Purchase Plan ("EUPP"), net of
cancellations and Trust Units released
on settlement of EUPP receivable		2,620		647		(1,497)		-		-		6		1,776
Interest on EUPP receivable		-		-		(185)		-		-		-		(185)
Distributions applied against EUPP receivable		-		-		1,150		-		-		-		1,150
Unitholders' equity, December 31, 2022	$	2,583,038	$	22,239	$	(14,845)	$	(47,298)	$	(1,779,833)	$	6,501	$	769,802

Distributions were declared and paid at $0.051 per unit per month for the months of January 2022 to December 2022. In the first two months of 2023, distributions were declared at $0.051 per unit.

See accompanying notes to consolidated financial statements.

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