National Bank Financial analyst Tal Woolley raised his financial forecast for Chartwell Retirement Residences following last week’s release of a bullish occupancy report.
“CSH reported August occupancy of 81.1 per cent, a 10 basis points upward revision since CSH’s last update,” he said. “CSH now forecasts September occupancy to rise to 82.0 per cent (up 90 basis points month-over-month), an upward revision to its prior forecast of a 30 basis points increase. CSH introduced its October forecast, now expecting occupancy of 82.7 per cent (up 70 basis points month-over-month, up 410 basis points year-over-year).
“We have raised our occupancy expectations for 2024 based on the momentum seen this year: we anticipate CSH seeing occupancy in the mid-80′s range by the end of 2024. While there is natural leverage in NOI margins from higher occupancy, we also note that we anticipate rents will firm up as occupancy rises too.”
Also incorporating the impact of last week’s completion of the sale of its ownership of 16 Ontario Long Term Care (OLTC) homes for net proceeds of $149-million, Mr. Woolley increased his funds from operations per unit forecast for 2023 by 1 per cent and 2024 by 4 per cent.
“We have also adjusted numbers to include one more asset disposition (an LTC redevelopment under a forward sale contract, as part of the original LTC disposition) and an expected acquisition from its Batimo pipeline agreement in Q4,” he said.
“Our 2024 forecast now sees CSH fully covering its distribution for the first time since COVID (2024 AFFO payout ratio estimated at 97 per cent). Given the strong momentum, we expect we could see further upward estimate revisions ahead, as the high operating and financial leverage that worked against CSH during COVID now works in its favour.”
Maintaining an “outperform” recommendation for Chartwell units, Mr. Woolley bumped his target to $12, matching the average on the Street, from $11.50.
“We believe our $12 target is warranted given CSH’s relative growth prospects, platform value, and operating risks,” he said.