Stockchase Opinions

Christine Hughes Chartwell Retirement Residences CSH.UN-T BUY Sep 17, 2014

In a rate rising scenario, you are locked in to your contracts. These are longer-term in nature. She feels this one can manage through a higher rate environment. These are retirement residences and because of deaths their portfolio is culled continuously and they can adjust to a higher rate environment. This has 90% occupancy.

$11.000

Stock price when the opinion was issued

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HOLD
EXE vs. CSH

EXE operates long-term care facilities which require a lot of capital, while CSH is more senior homes. CSH has been divesting lower-return investments to become more of a pure-play. You can charge whatever rent in a market if there's no competition. The seniors' population keeps growing. CSH is paying down debt, which was high a few years ago. In CSH, the easy money has been made, though. It could be a keeper, or take profits.

BUY
A buyout possible?

A high-quality company in seniors living, benefiting from aging demographics. Same-location growth is impressive. The stock's momentum can continue. A caveat: the retirement space is vulnerable to disruption, given that no senior looks forward to entering a retirement home. But seniors are healthier now and they have more options. This trend will continue. So competition could enter this space, not now, but in the future. And yes, CSH is attractive to a private buyer. It's possible.

TOP PICK

Tremendous job filling units since pandemic, occupancy back to near 90%. Leading edge of baby boomer population starting to access this type of product. Discount to NAV. Making great accretive acquisitions, so he expects NAV growth. Great product, high-margin business. Yield is 3.9%.

(Analysts’ price target is $16.96)
PAST TOP PICK
(A Top Pick Nov 03/23, Up 51%)

Excellent company performance. Post Covid-19 recovery has been very strong. Business continues to remain strong. Will continue to own. Expecting earnings to continue growing. M&A has also been very strong. 

DON'T BUY
Only now getting back to pre-pandemic highs.

Has done extremely well. This has been an extremely good performance year for long-term-care REITs. Not sure there's much more in terms of capital gains from where we are now. Unless substantial pullback, wouldn't buy now.

DON'T BUY

Of all the long-term care facilities, this would be the one she'd look at the closest. Secular trend of aging demographics isn't going away. Targeting 95% occupancy, which is achievable. Liability risk if another Covid-type outbreak. Healthcare worker shortage. Yield is less than 4%.

See her Top Picks for a name that plays to the same demographic.

BUY
Trevor Rose’s Insights - Trevor’s most-liked answers from 5i Research

We note that it has been one of the best performing REITs over the past two years amidst broad sector weakness. The Trust has managed to navigate the high-rate environment and execute its acquisitive growth strategy with 2024 being a record year. Unit prices have appreciated significant to where it is quite expensive from a valuation standpoint, but there are plenty of positive fundamental trends, with increasing occupancy rates, fund flows, and margins. We like its recent momentum, and its distribution is well-covered by cash flows. It is not exactly cheap, trading at 3.7X book, but its FFO interest coverage ratio and FFO/debt have all been increasing, showing a positive trend in profitability. We would be comfortable buying here for an income name.
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PAST TOP PICK
(A Top Pick Nov 30/23, Up 53%)

Sees more upside from here. Occupancy levels have crept back up to over 90%. Fantastic demand profile, over 4% CAGR. New construction is near-low. 

BUY ON WEAKNESS

There's talk that the stock could break out of its current range, possibly. But he wonders about the direction of interest rates both here and abroad. Either hold if you already own, or buy on dips. Good job if you already own.

PAST TOP PICK
(A Top Pick Mar 27/24, Up 40%)

91% occupancy, aiming for 95% by year's end, which is very high-margin growth. Great position to add to portfolio in an accretive way. Still lots of upside. He expects Q1 report will show positive balance sheet developments.