Canadians are living longer. The average life expectancy for Canadians has significantly extended from 79 years in 2000 to over 83 years in 2024. An average Canadian can expect to live longer than generations past, and the number of residents aged 65 and older is reportedly the fastest-growing age group. An aging population expands business opportunities for Chartwell Retirement Residences (TSX:CSH.UN) as Canada’s largest private owner and operator of senior living facilities undergoes a portfolio makeover.
Chartwell Retirement Residences stock’s monthly distributions could be a good passive-income source for investors, while an increasing availability of senior tenants could grow the business and unlock long-term capital gains.
Invest in Canada’s largest retirement residence provider
If you wish to invest in the ever-expanding old-age economy, Chartwell Retirement Residences could be one of the best options to evaluate today. The real estate trust boasts a leading position as one of Canada’s largest senior living residence providers. It owns, co-owns, and manages a growing portfolio of 168 senior residences comprising 26,394 suites spread across Ontario, Quebec, British Columbia, and Alberta.
The trust’s portfolio is focused on the sweet spot of the old-age economy. More than half (52%) of its facilities are independent supportive living units, and 32% are independent supportive living apartments. It offers a variety of housing options to cater to a wider range of seniors’ needs, and an aging population presents an expanding total addressable market. The portfolio is doing well in 2024.
Chartwell Retirement Residences stock has generated a market-beating total return of 49.7% over the past twelve months. Investors are increasingly optimistic about the business’s prospects of generating growing and profitable revenue after transforming its portfolio in 2023.
Following COVID-19 pandemic-related strains and rising operating costs, Chartwell took a new course and disposed of some long-term-care (LTC) facilities in September 2023. Since then, the trust has morphed into a strong growth retirement residences stock after streamlining its portfolio, and the restructuring is bearing fruit in 2024.
A successful turnaround story to buy for passive income
Chartwell Retirement Residences has reported growing occupancy rates for several successive quarters now; its losses narrowed significantly earlier this year, and its distributable cash flow has grown at double-digit rates.
The trust’s same-property occupancy rates surged 590 basis points between March 2023 and December 2023 to 85.6%, and management expects to report an 87.3% same-property occupancy rate for June, representing a 640-basis-point occupancy growth year-over-year. Improving occupancy rates and rent increases combined to grow the trust’s revenue and cash flow.
Revenue growth, on a same-property basis, was 12.1% year-over-year during the first quarter of 2024, while net operating income (NOI) increased by 30.2% year over year as quarterly resident revenue, at $183,9 million, grew 10.9% year over year.
The trust’s quarterly net losses narrowed to under $2 million, down from $9.3 million a year ago. The turnaround is progressing well, and the trust’s funds from operations per unit surged 60% year over year to $0.16 to provide significant coverage to Chartwell Retirement Residences’ monthly distribution of $0.051 per unit.
The distribution, which yields 4.7% annually, is well covered now and looks sustainable.
Investor takeaway
Chartwell Retirement Residences could be a compelling turnaround story for 2024. Further gains in portfolio occupancy rates could enhance the trust’s profitability and significantly widen its cash flow wiggle room to finance new developments. Although there’s still some litigation risk from COVID-19 lawsuits, the trust is well positioned to profitably serve Canada’s aging population for decades to come. Investors could enjoy more capital gains and earn juicy distribution yields well into their golden years.
