Chartwell Retirement Residences (CSH.UN.TO)

A real turnaround story. Over 2-3 years management has done a great job in improving assets, leverage came down and payout ratio came down. Payout is 80%, safe. As assets improve in terms of occupancy and rents, this could be a takeover candidate. It is trading over net asset value but growth going forward justifies this valuation.

Has done very well over the last couple of years. Seniors housing is a great business to be in. Had some problems on their US side but divested a number of assets there and concentrated more on Canadian properties. Very good job of managing the homes. Nice yield of about 5%. They keep building new properties slowly and steadily.

Likes this one very much, primarily because of the part of the market it serves. Demographics are going the right way and they are operating a very tight ship. You can buy it here, but you should have a 2-3 year outlook.

A multiyear story with seniors aging. Annual growth rate of about 10% versus the REIT sector of about 7%, yet it has a lower valuation. Growing by acquisition. De-risking their balance sheet by selling off non-core assets. When they buy other assets, they achieve economies of scale. US occupancy is really picking up and supply growth in Canada is slowing. Try to buy on a pull back.

The largest seniors housing REIT is Chartwell. Did a great job over the last two years of bringing down their payout ratio and improving their portfolio and bringing their leverage down over the last two years. Fair premium to its NAV. He is holding on and is favorable to this sector but he sees a slowdown in the Canadian housing market. Expects a distribution increase.

Population is aging creating more demand for independent living and long-term care facilities. This company is very well-positioned to benefit from that. Very good market position in Canada and are optimizing their US portfolios. All this should start to show up towards the end of 2013.

(A Top Pick Dec 1/11. Up 38.09%.)

Had a tremendous Q3. 20% FFO (Funds from operations) per unit growth year-over-year. Bought a huge portfolio of assets from a Québec developer in partnership with Healthcare REIT out of the US and looks like it was done very accretively. Occupancy is ticking up in all 3 markets. Finally firing on all cylinders. Will continue to deleverage. Trades at a bit of a premium to NAV, which is about $9.50-$9.75 but he thinks it’s worth about $10.50-$11.

Senior residences/retirement homes. For a long time, they were heavily invested in the US and Canada. Has always shied away from this because of confusion with their US strategy. Now getting most of their assets out of the US and it is becoming a more stable asset. Relatively expensive at this time.

Had a great run. Would hold off buying and wait for it to pull back to around $9.50.

(Market Call Minute) 5.5% yield. Likes it. Better operating platform. Have turned the corner with respect to operating margins.

(Top Pick Dec 1/11, Up 29.74% Total Return) Leading in seniors housing. Selling off non-core assets. Recovery in US housing should help occupancy in US. Might increase distribution later in the year.

Likes it for its growth at around 9.6% versus 7% for the sector. Good valuation at 14X next year’s numbers versus 16.5X for the sector. Likes the dividend of over 5%, which is safe. Payout ratio of about 84%. Recent M&A deals in the US on similar assets have suggested this name should be trading at about 10% higher than where it is.

(A Top Pick Oct 12/11 . Up 52.1%.)

Everything that can be a REIT is being one. We have an obsession with yield over common sense. You have to be careful with REITs. As a class, they look really expensive. CSH has been very well managed. He has nothing against it. Be careful with REITs. Prefers higher quality dividend plays.