According to Statistics Canada, seniors (those 65 years of age and over) are the fastest-growing age group in Canada. In 2021, there were seven million seniors, who represented about 18.3% of the total population in Canada, and this percentage is expected to increase to 24% by 2036. One main conclusion was that “there is a need to increase the supply of housing for seniors overall, with options that consider the range of health needs and income status of seniors.”
This is why senior housing stocks like Chartwell Retirement Residences (TSX:CSH.UN) and Sienna Senior Living (TSX:SIA) may be poised to benefit. Both dividend stocks have been depressed by headwinds, including higher inflation and higher interest rates. As they’re in the same industry, the stocks largely move in tandem.
Chartwell Retirement Residences
As Chartwell explains on its website, it “indirectly owns and operates a complete range of seniors housing residences, from independent supportive living through assisted living to long-term care. It is the largest operator in the Canadian seniors living sector with nearly 200 properties in four provinces, including properties under development.”
On May 4, Chartwell reported its first-quarter (Q1) results. Resident revenue grew 5.2% year over year to $165.8 million, which was decent, seeing as direct property operating expense climbed 3.6% to $117.8 million.
Its funds from operations (FFO) declined 22%, as it has been exiting its long-term-care (LTC) operations in Ontario. FFO from continuing operations saw an increase of 3.3% to $20.9 million. On a per-unit basis, FFO fell 23% to $0.10. Then there’s its FFO per unit from continuing operations, which was flat at $0.09. Notably, its weighted average number of outstanding units rose 1.7% year over year, which weighed on its per-unit metrics.
That said, the weighted average same-property occupancy rate for the portfolio improved 1.4% to 78.5%. And its July occupancy further improved to 80.1%. In Q1, its same-property adjusted net operating income (NOI) climbed 7.7% to $49.6 million. However, the general and administrative expenses witnessed a big jump of 11.6% to $15.4 million.
At $9.23 per unit, at writing, analysts believe the undervalued stock trades at a discount of close to 20% to the 12-month consensus price target. It currently yields 6.6%, but its Q1 FFO payout ratio appears to be overextended. So, it could cut its cash distribution if occupancy doesn’t improve more quickly or it cannot bring operating costs down. However, it could still work as a total-return investment.
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Sienna Senior Living
As Sienna explains on its website, it “offers a full range of seniors’ living options, including independent living, assisted living, LTC, and specialized programs and services.” Its quality assets in Ontario, Saskatchewan, and British Columbia include 43 LTC communities (with 6,691 beds), 39 retirement residences (with 4,445 suites), and 11 managed residences (with 1,283 beds or suites). Sienna might have better revenue stability for its LTC portfolio, which is supported by government funding.
On May 11, Sienna reported its Q1 results. Adjusted revenue rose 14.5% to $199.6 million. Same-property NOI climbed 9.9%, while total NOI rose 13.0% to $36.3 million. Adjusted FFO per share rose 2.5%, which resulted in a payout ratio of 94% for the quarter.
At $11.20 per share, at writing, analysts believe the stock trades at a discount of 17% to the 12-month consensus price target. It currently yields almost 8.4%, but its payout ratio (although better than Chartwell’s) is still high.
Investor takeaway
It seems that both businesses are still navigating in turbulent waters. However, investors bullish on the future demand and potential for senior housing should keep an eye on them and potentially purchase shares on a breakout. Between the two, Sienna should provide better predictability. Perhaps, currently, it’s better to explore the best Canadian dividend exchange-traded funds for better risk management of your money.
