Interest in Retirement REIT & ExtendicareChartwell Seniors REIT shows interest in Retirement REIT, Extendicare
TARA PERKINS
TORONTO (CP) - Chartwell Seniors Housing REIT (TSX:CSH.UN) intends to buy $625 million worth of properties this year, and will take a look at two competitors that are up for sale.
Asked Tuesday about rumours Chartwell might bid for Retirement Residences Real Estate Investment Trust (TSX:RRR.UN) or Extendicare Inc. (TSX:EXE.MV), Chartwell president Stephen Suske said "we would be interested in looking at these particular opportunities."
"There are a number of other opportunities in long-term care in Ontario that are also available, and we think as a buyer we're in a very good position to pick and choose," he added during a conference call.
Mississauga, Ont.-based Chartwell released its 2005 results Tuesday, saying it spent $435.2 million last year to buy interests in 28 seniors housing sites. That exceeded its acquisition target of $400 million.
The trust's portfolio grew 46 per cent to 19,679 suites at 165 facilities and Chartwell said it plans to buy $625 million worth of properties this year.
The Canadian seniors housing industry remains highly fragmented, Chartwell said, with the 10 biggest companies accounting for only 23 per cent of the available suites.
"As the country's second-largest industry participant, Chartwell believes it has the resources and the experience to structure and offer smaller operators an exit strategy that meets their needs," the trust said.
However, it added that capitalization rates - a measure of the return on a property investment - were compressed in 2005, making acquisitions less profitable than expected. As a result, it plan to focus increasingly on new developments.
Chartwell noted that demand for seniors housing is still growing, driven by an aging population with a longer life expectancy and more money.
Earlier this month, Retirement Residences REIT, the largest owner of Canadian retirement homes with 215, disclosed that it has received numerous expressions of interest.
Last week, Extendicare put itself up for sale. Extendicare, which owns 439 nursing homes and assisted living centres, said it is also considering other strategic options like a reorganization.
Chartwell's results for 2005 showed a net loss of $11.7 million, compared with a 2004 loss of $5.5 million. But funds from operations, a key measure for real estate companies, rose to $42 million, or 89 cents per unit, from $28.8 million or 90 cents a year earlier.
Fourth-quarter funds from operations rose 34 per cent to $13 million and distributable income increased 37 per cent to $15.3 million.
"Clearly our growth initiatives, and the resulting increase in the size and scale of our portfolio, are generating significant benefits for our unitholders," stated CEO Robert Ezer.
In a note Monday, Merrill Lynch analyst Ihor Danyliuk said Extendicare would obtain the best price by breaking up into three pieces - U.S. nursing homes, U.S. assisted living centres, and Canadian operations.
There is strong interest from financial players, he said, but Genesis Healthcare (NYSE:GHCI - news) would be the most likely industry acquirer of Extendicare's U.S. nursing homes.
For the Canadian operations, he said an income trust spinoff could value those operations at $170 million, or $2.50 per share.
However, since Extendicare has hired Lehman Brothers, Danyliuk expects the company to focus on selling its U.S. assets.
Chartwell units declined four cents to $15.57 Tuesday afternoon on the Toronto Stock Exchange.