Timely article below from Andrew Willis in the Globe and Mail on the LTC/Retirement sector in Canada and the deal flow accelerating over the past several months.  Valuation on the EXE deal with SIenna and Sabra at pre-pandemic levels, so the Covid discount non-existent.  Wait list for LTC beds is 40,000 in Ontario alone, a situation likely to worsen given the aging population.  If Covid contines to recede, then the focus will be on the stability and underlying growth dynamics associated with the LTC sector.  This sector is recession proof and able to maintain steady margins and stable returns in normal times.  When the likes of Blackstone and Sabra start poking around the Canadian retirement sector,  it bolsters my thesis re: the next several years.  Viewing the total Enterprise Value of EXE today (post RETIREMENT sale) versus both the value of its LTC assets (per bed basis) and the earnings power of both the LTC and Home Health Business, it remains considerably undervalued relative to peers IMO.

As the article states:  "...long-term care facilities are attractive because they are “needs-driven and thus relatively unaffected by economic cycles.”


Deals for seniors’ residences surge as sector shrugs off pandemic downturn

Established retirement home operators are buying properties as demand for suites vastly exceeds supply

Last week, Markham, Ont.-based Sienna Senior Living Inc.partnered with Sabra Health Care REIT Inc.,which is headquartered in Maryland, to buy 11 retirement homes in Ontario and Saskatchewan for $307.5-million from Extendicare Inc.It was the sixth significant acquisition in the sector in as many months, and valued the properties at prepandemic prices.

Other recent buyers of Canadian retirement homes include the real estate arm of New York-based Blackstone Inc.,which bought properties in Quebec from Revera Inc. for $571-million in August, and Chicago-based Ventas REIT,which paid $225-million to buy six residences from Hawthorne Senior Living in October. In a report, Scotiabank analyst Himanshu Gupta said, “The retirement home transaction market is fairly active and it seems there is not much room for pandemic discounts.”

Established retirement home operators and private equity fund managers such as Blackstone are buying properties at a time when demand for suites vastly exceeds supply. Ontario, for example, has approximately 40,000 people waiting for spaces in retirement homes, according to a recent report from RBC Capital Markets analyst Pammi Bir. “Growth in Ontario’s long-term care capacity has been virtually non-existent over the past several years,” he said.

Sienna chief executive Nitin Jain said his company’s focus only recently shifted to acquisition opportunities, as the company spent the first year of the pandemic retooling its operations to ensure guests and staff were safe. In a news release, he said by the middle of last year, occupancy rates began to rise, “putting the company in a position to once again invest in strategic growth.”For companies such as Blackstone, which invest on behalf of pension plans and other institutions with similar long-term horizons, Mr. Bir said long-term care facilities are attractive because they are “needs-driven and thus relatively unaffected by economic cycles.”

Amid soaring prices, retired Canadians are staying in their homes: ‘This is a wake-up call for all of us’Sabra is roughly three times the size of Sienna, which has a $1-billion market capitalization, and Mr. Jain said the new partnership could be the springboard for future acquisitions by the two companies. Prior to the joint venture on the Extendicare properties, Sienna managed eight Canadian retirement residences owned by the U.S. company.

Purchasing four Extendicare facilities in Saskatchewan gives Sienna its first retirement homes in the province, and Mr. Jain said the acquisition provides the scale needed to support expansion there.Extendicare sold its retirement homes to focus on long-term care facilities and its home health business, and made a $115-million gain on the sale after paying down debt. In a news release, chief executive Dr. Michael Guerriere said, “We are pleased with the value we will realize on our retirement living investment.” headtopics.com

Analysts typically value retirement homes on metrics that include at the price a buyer is paying per suite, or room. The Sienna and Ventas acquisitions valued each suite at approximately $300,000, which is more than than buyers paid in deals that took place prior to the start of the pandemic in March, 2020, according to Scotiabank’s research.

However, Mr. Gupta said these transactions value the retirement homes, many of which are less than 10 years old, at 25 per cent to 30 per cent below their replacement cost. He said this discount “attracted investor interest in these portfolios despite the occupancy headwinds due to the pandemic.”

Sienna paid for its portion of the Extendicare purchase by taking on a $150-million acquisition loan, which the company plans to refinance after the transaction closes. The deal requires approval from provincial regulators and is expected to be completed by this summer.

TD Securities and law firm Torys LLP advised Sienna on the acquisition, while Extendicare worked with CBRE Capital Markets and law firm Bennett Jones LLP.