Opinions
Colin Stewart
Capital Senior Living
CSU-N
TOP PICK
Aug 17, 2016
Stock price when the opinion was issued
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Has excellent demographics being a seniors’ home. Occupancy is close to 90%. Have been able to increase rates every year. They own 60% of the underlying real estate, and don’t have a lot of government pay business. 98% is private pay. Doesn’t pay out a dividend. Instead they reinvest their cash flow into the business, which has led to an above average growth rate. Have grown their cash flow per share at 20% per year for the last 5 years. Trades at a discount to some of their Canadian counterparts.
(A Top Pick Aug 17/16. Down 26.2%.) This did not work out, so he exited his position. They operate and own nursing homes which is a pretty good business. There were 2 things that impacted them. They have a fair bit of debt, and as well, there has been an overbuild of seniors’ homes in the last number of years.
Seniors sucked a lot of people into the sector for a long time because it was a low wage sector. It seemed to all line up well but in actual fact you don’t actually want to move in there. For the last 8 years the interest rates supported them but now you have the theme not having played out and this one is small and has no yield. It will trade with the space, yield or not. Get into materials or energy. He does not think it will come back.
A demographics play. Operates seniors’ homes and assisted living independent homes in the US. He likes this better than something like a Chartwell (CSH.UN-T), because 1) it trades at a big valuation discount and 2) they don’t have any exposure to Medicare, Medicaid or government reimbursement. 98% of their facilities are private pay. This is an industry where occupancy is growing. Trading at a discounted valuation, relative to what some of the larger players in the US and a Chartwell trade at. Doesn’t pay out a dividend, but instead are reinvesting the cash flow into the business so that they can grow more quickly.