Recently, Pat McKeough responded to a Member of his Inner Circle who wanted to his advice on Canada’s largest operator of seniors’ residences.
Chartwell Retirement Residences has over 180 facilities, the bulk of them in Ontario and Quebec. The company is in an expanding business as the population ages and it has a good reputation for treating its residents. Still, it faces a number of challenges, notes Pat, including the difficulty of attracting qualified employees and the prospect of changing laws and regulations from provincial governments.
Q: Pat: May I please have your insight on Chartwell Retirement Residences? Thank you very much.
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A: CHARTWELL RETIREMENT RESIDENCES, (symbol CSH.UN; www.chartwell.com) owns and operates a complete range of seniors housing communities. They include both independent, supportive-living homes and long-term care. It is the largest owner and operator of seniors’ residences in Canada.
Chartwell owns all or part of 157 retirement homes and 24 long-term care facilities. It manages another six retirement homes and four long-term care facilities. Chartwell has 55% of its suites/beds in Ontario, 32% in Quebec, 10% in B.C., and 3% in Alberta.
The trust completed and opened five new residences in 2017. It also continues to use acquisitions to expand—it paid $210.5 million that same year for interests in six properties.
In February 2018, Chartwell sold two 100%-owned and one 50%-owned retirement residences in Quebec. It received $32.0 million for those non-core properties. In May 2018, Chartwell received $13.5 million when it completed the sale of another retirement residence in St. Eustache, Quebec.
In April 2018, the trust completed the acquisition of four retirement communities in Edmonton for $297.4 million and agreed to acquire an additional residence for $120.0 million upon its completion in late 2019. As part of the agreement, the seller will provide $7.5 million of income support to Chartwell for two years after opening.
In June 2018, the trust acquired another 104-suite residence in Edmonton, for $20.0 million.
Growth stocks: Revenue and cash flow both rose in the most recent quarter
In the second quarter of 2018, Chartwell’s revenue increased 11.0%, to $201.6 million from $181.7 million a year earlier. Cash flow rose 7.0%, to $48.9 million from $41.8 million. On more units outstanding, cash flow per unit rose 0.02%, to $0.23 from $0.21.
Finding qualified employees remains a problem for the company and the senior-care industry as a whole. This will become even more difficult as the recovering economy gives potential employees more options. As well, provinces regulate nursing-home fees in Canada and provide substantial funding. That support, however, is subject to extensive and frequently changing laws, regulations and standards.
In addition, rising interest rates increase the interest costs on Chartwell’s mortgages.
Still, the trust’s homes have a good reputation for treating their residents well. Retirement housing and care is also an expanding business as the population ages. Today’s seniors are generally wealthier and living longer.
Chartwell pays a monthly dividend of $0.049 for an annualized distribution of $0.588 per unit. Those units yield 3.9%.
Inner Circle recommendation: Chartwell Retirement Residences is okay to hold.
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