A Member of Pat McKeough’s Inner Circle recently asked for his advice on a REIT that specializes in retirement home properties.
Pat likes the high dividend payout as well as the demographic trends that point to rising demand for retirement facilities. Among the negatives are current revenue and cash flow levels, which continue to claw their way back from the COVID-19 pandemic.
Chartwell Retirement Residences (Symbol CSH.UN on Toronto; www.chartwell.com), is a real estate investment trust now focused on retirement homes.
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The company is the largest owner and operator of seniors’ residences in Canada. It owns all or part of 166 retirement homes with 25,922 rooms.
Chartwell also owns or manages 24 long-term care facilities with 3,384 beds. However, on March 31, 2022, Chartwell announced that it would sell 16 long-term care (LTC) homes it owns in Ontario. The buyers are AgeCare Health Services Inc. and Axium Infrastructure Inc.
The 16 LTC homes have 2,418 beds. In addition, AgeCare will take over the management of six other LTC homes, with 866 beds, currently managed by Chartwell. This includes two homes with 258 beds that Chartwell will continue to own.
The total sales price is $382 million.
At the same time, the parties entered into a forward purchase agreement for the 224-bed Ballycliffe LTC in Ajax, Ontario, currently under development. The price will be $64.5 million.
Meantime, Chartwell has also announced the acquisition of three retirement residences in Collingwood, Barrie, and Bowmanville, Ontario, for $228.0 million.
Inner Circle: Revenue and cash flow declines are likely to be temporary
Chartwell’s outlook is positive. Occupancy levels are rising, and meantime, several leading indicators (website traffic, tours, and move-ins) are all trending upward and are now back to pre-pandemic levels.
At the same time, the sale of its long-term care homes positions the company to focus on its retirement residences, which bring in 90% of the company’s revenue. Long-term care, which is government-funded, comprises only 10% of Chartwell’s total business.
Before the COVID-19 pandemic, retirement housing offered much higher profit margins than long-term care, largely because retirement housing operates under a private-pay model, while governments fund the lion’s share of long-term care.
Over the past two years, however, retirement housing occupancy dropped, partly because of restrictions that prevented tours of available facilities. Demand for long-term care, meanwhile, remained robust.
Chartwell believes that a coming recovery in retirement residences will position it for stronger growth with its new concentration in that area. That growth will be spurred by pent-up demand for retirement accommodation and services, driven by the ageing population, disruptions of community-based support services for seniors during the pandemic and a continuing shortage of long-term-care beds.
As well, growth in the population of seniors over the age of 75 will accelerate over the next 20 plus years. A slowdown of construction activity in the last two years should also support occupancy recovery in the short term and long term.
The stock yields a high 7.6%.
Recommendation in Pat’s Inner Circle: Chartwell Retirement Residences is a hold.
Comments
Bill
In my area the Chartwell Retirement Residences have an excellent reputation and are a preferred place for the still mobile retirees. I bought my first shares ( sorry, I mean “units” because they pay distributions not dividends ) just before the pandemic hit . I put these units in my TFSA —because they pay distributions not dividends –I have added a few more since then. The Chartwell`s good reputation was paramount in my decision to buy.
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X No, I don’t want to make steady income from dividends.
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In my area the Chartwell Retirement Residences have an excellent reputation and are a preferred place for the still mobile retirees. I bought my first shares ( sorry, I mean “units” because they pay distributions not dividends ) just before the pandemic hit . I put these units in my TFSA —because they pay distributions not dividends –I have added a few more since then. The Chartwell`s good reputation was paramount in my decision to buy.