C’est Tiguidou Our Conclusion
We are resuming coverage of CSH following the recent ~$345MM equity
raise, with proceeds going to partially finance the strategic acquisition of two
seniors housing portfolios in Quebec. In addition to the portfolio acquisitions,
CSH announced it has closed its acquisition of an ownership interest in two
high-quality residences from EMD-Batimo. The total purchase price for all
acquired properties, in aggregate, is $677MM. We view the announcement
as positive as the acquisitions should serve to enhance the quality (and
indeed the age) of Chartwell’s portfolio and are generally consistent with
CSH’s strategy, increasing its presence in key cities within Quebec. We also
believe that the market perception has been similarly positive, with the
shares trading above the issuance price. Our price target and forward NAV
estimate of $15.00 remain unchanged as we roll forward our capitalized NOI
assumptions to account for the increase in total suites. Chartwell remains
Outperformer rated.
Key Points
Transaction Details: The three recently announced acquisitions comprise
the following: 1) ~$297MM for a 100% interest in a portfolio of five retirement
residences with 1,428 suites located in the Greater Montreal area, Gatineau
and Sherbrooke; 2) ~$214MM for a 50% interest in a portfolio of five
retirement residences with 1,805 suites, located in the Quebec City area and
Shawnigan; 3) ~$166MM for an 85% interest in two retirement residences
with 685 suites from EMD-Batimo, located in the Greater Montreal area and
Quebec City. CSH also announced that it is in late stage negotiations to
acquire an 85% ownership in a retirement residence with 368 suites in
Quebec from EMD-Batimo; Chartwell expects the price of the acquisition, if
completed, to be ~$86MM, including the assumption of existing mortgages of
~$58MM.
Acquisition Financing: Partial funding for the three deals will come from the
aforementioned equity raise, proceeds from previously announced
dispositions, the assumption of in-place debt and existing sources of liquidity.
CSH remains well capitalized post-equity issuance; we estimate year-end
debt/GBV ratios of ~48% for 2024E and 2025E. Our forecast does not
include the late stages EMD-Batimo acquisition.
Valuation: CSH shares have outperformed the broader REIT market and are
up ~8% YTD (vs. the XRE down ~11%) and are trading at a ~4% discount to
consensus NAV. Given Chartwell is the only public Canadian pure play in the
higher-growth, higher-margin retirement living sector, we are utilizing a price
target of parity with NAV (commensurate with the pre-pandemic average
valuation levels). We expect continued occupancy gains will drive outsized
earning metrics for the foreseeable future given the operating leverage that
exists in the platform at occupancy levels above the 80% range.