Chartwell Retirement Residences T.CSH.UN

TD Raises Target

[retiredcf]

By a buck to $19.00. GLTA

Q3/24: INCREASING VISIBILITY ON 95% OCCUPANCY TARGET BY Q4/25

THE TD COWEN INSIGHT

Chartwell delivered another strong quarter with improving operating metrics that give us increasing confidence on management reaching its 95% SP occupancy target by Q4/25. Despite achieving a +35% unit price gain YTD, we see room for further growth as Chartwell continues to be relatively undervalued vs. its U.S. peers. Chartwell remains our top pick.

Impact: NEUTRAL Initial views: here

We see potential upside to our estimates should management hit its occupancy targets. Chartwell continues to benefit from strong Canadian retirement fundamentals as evidenced by another quarter of improving operating metrics. SPNOI growth remained elevated at +17.1% y/y on the back of a +610bps SP occupancy improvement to 88.5%. Further occupancy gains have increased visibility on Chartwell meeting its 95% target by Q4/25, with management now expecting to surpass 90% by December. With Chartwell approaching higher occupancy levels, management is able to reduce the number of targeted incentives (and has already done so at higher occupied homes), which should translate into above- average market rent growth over the next several years. Our forecast currently calls for occupancy to reach 92% (~94% on a SP basis) in Q4/25, which is below management's target, with a further increase to 94% in Q4/26.

Acquisitions remain a key priority, although the mix of stabilized/non-stabilized means near-term accretion is limited. With Thursday's announcement to acquire a $75mm retirement home in Victoria, B.C., Chartwell adds a well-located asset to its Vancouver Island portfolio (acquired in August - link). Although the home is only 28% leased, management is willing to take on lease-up risk. Given very limited supply and the economics not penciling out on new development, management reiterated its priority on acquisitions, noting that it is open to acquiring both stabilized/non-stabilized portfolios with a focus on higher quality assets at pricing below replacement cost. Discussions remain active on acquisitions, with management also looking to monetize select non-core assets. We continue to view growing the asset base in front of the very visible near-term fundamentals is a good capital allocation.

AFFO/unit growth remains attractive. Our 2024 AFFO/unit estimate is largely unchanged, while our 2025/2026 estimates decline modestly 1-2%. While slowing to what we view as a sustainable low-mid-teens level, AFFO/unit growth of 19%/15% is attractive, in our view. Our $15.00 NAV estimate is +3%

Operations: Retirement average same-property occupancy was +610bps y/y to 88.5% with Quebec +650bps to 89.0%, Western Canada +730bps to 95.4%, and Ontario +520bps to 84.7%. Overall SP occupancy is forecast to improve further to 90.2% by December (represents 430bps y/y growth). Q3/24 SPNOI was +17.1% y/y. By region, Quebec was 32.4%, followed by Western Canada at +16.8% and Ontario at +14.0%. Looking ahead, management expects continued strong results from Western Canada and Quebec, and sees further room for growth in Ontario as occupancy picks up. SP revenues were +11.0% y/y on rental rate increases and higher occupancy. Operating margins were +200bps y/y to 38.4%.