Chartwell Retirement Residences Risky With No Earnings

CSH.UN - Chartwell Retirement Residence

Chartwell Retirement Residences owns and operates a complete range of seniors housing communities. It is an unincorporated, open-ended trust. Chartwell is the largest operator in the Canadian seniors living sector with over 200 quality retirement communities, in four provinces, ranging from independent retirement residences to assisted living services and long term care. Chartwell owns and manages a portfolio of seniors housing communities in Canada across the complete continuum of care.

Chartwell continues to focus strongly on the four most populous provinces of Canada. Ontario is its largest market accounting for 54% of the total portfolio, followed by Quebec (29%), British Columbia (9%) and Alberta (8%). Chartwell’s segments are Retirement Operations segment (164 owned communities in Canada and accounting for 90% of adjusted NOI) and Long Term Care Operations segment (24 communities in Ontario). A majority of Chartwell’s portfolio (~75%) comprise of independent supportive living. It provides long term care, assisted living, independent living, and memory care.

Investment Data

Revenue Growth & Market Exposure

Chartwell Retirement’s portfolio comprises 142 owned (61% of total portfolio), 46 partially owned (29%) and 13 managed communities (10%) across retirement and long term care operations. The REIT serves age-qualified residents at rates that are set by Chartwell in most cases. It continues to develop modern, market specific and efficient seniors communities that remain competitive over the long term. Given its long-standing experience in the healthcare REIT sector, Chartwell has developed strong ties with reputable developers which helps it to easily gain access to attractive sites in strong markets.

The REIT established a Resident Satisfaction score of 58% in 2018. The occupancy in Chartwell Retirement’s same property portfolio is 88% currently and it also stands a chance to benefit from increased management and other fees due to higher property revenue and development fees. It commenced operations at Chartwell Carlton Retirement Residence in Burnaby and Chartwell Wescott Retirement Residence in Edmonton, in the first quarter of 2019. Operations also began at The Sumach by Chartwell in Toronto and Kingsbridge Retirement Community in Kingston in the following quarters.

Chartwell is targeting to provide exceptional resident experiences through personalized services in its upscale and mid-market residences in urban and suburban locations. It does not operate in markets with populations less than 25,000 within a 10 km radius of its residences. The REIT is in a good position to benefit from the long term demand growth for senior living and assisted care. Chartwell aims to attain Resident Satisfaction of 67% and Same Property Occupancy of 95% by 2023. Its strong focus on client servicing and satisfaction plays a major role in customer recommendations.

Chartwell’s promising pipeline of own development projects, as well as future acquisition opportunities in other developers’ projects, act as huge growth drivers.

Dividends

Chartwell has successfully grown its dividend payouts at the rate of 2.2% CAGR in the last three years. Its FFO payout ratio stands near ~55% and it sports an attractive average annual dividend yield of 4.25%. Its funds from operations have grown by 10.5% CAGR in the past three years. It has a history of distributing cash in excess of net income to its unitholders. The management believes its current distributions will be sustainable in the future.

The REIT continues to regularly reinvest capital in its owned property portfolio by assessing the long-term capital needs of the acquired properties. Chartwell generally prepares a five-year capital plan for acquired properties and considers these capital requirements in the purchase price determination. Moreover, its long term care operations generate stable cash flows with meaningful economies of scale and significant operating expertise.

Chartwell has made significant progress in improving its financial position and liquidity over the years. The long term prospects of Chartwell’s Retirement Residences are promising. This sector alone is expected to witness a 150% growth by 2036. Health care costs in Canada are also expected to go up due to the growth in the older adult population. Healthcare tenants have specialized real estate needs and Chartwell Retirement Residences is well-positioned to provide customized real estate solutions to the healthcare industry.

Competition

Healthcare is a recession-proof industry with high demand despite the economic conditions. However, the development of new retirement residences remains active in certain markets, particularly in Ontario, Alberta, Quebec. Chartwell Retirement suffers from extensive competition from a significant number of new competing residence openings in a few of its markets. It competes directly with Northwest Healthcare Properties REIT in healthcare REIT segment, which is a leading owner and operator of healthcare real estate properties located throughout major markets in Canada, Brazil, Germany, Australia, and New Zealand.

Bottom Line

Chartwell Retirement Residences is an owner and operator of a complete range of seniors housing communities, providing long term care, assisted living, independent living, and memory care in Canada. A robust pipeline and opportunities to acquire interests in projects by other developers should support future growth. Chartwell’s strong brand name, exceptional resident care, and extensive experience, and a growing seniors population should act as strong growth enablers for Chartwell Retirement Residences.

As a Canadian investment, Chartwell Retirement Residences has done well and probably will continue to do well as a Canadian investment but the stock has gone sideways recently and is facing competition. While the dividend is probably safe, long term dividend growth is probably limited just like the stock appreciation unless it continues to acquire more residences and streamline the operations for higher operating margins.

This REIT is a pass for my portfolio.

CSH-UN vs Indexes

DISCLOSURE: Please note that I may have a position in one or many of the holdings listed. For a complete list of my holdings, please see my Dividend Portfolio.

DISCLAIMER: Please note that this blog post represents my opinion and not an advice/recommendation. I am not a financial adviser, I am not qualified to give financial advice. Before you buy any stocks/funds consult with a qualified financial planner. Make your investment decisions at your own risk – see my full disclaimer for more details.
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