The Wall Street Journal: Landlord's Senior Moment.
With investors bidding up the price of senior housing, one of Canada's biggest landlords is looking to put as much as 40% of its U.S. property, or as many as 2,900 units, on the block.
Chartwell Seniors Housing Real Estate Investment Trust, which owns or partially owns 23,826 units in Canada and the U.S., estimates that the U.S. property sales could fetch as much as US$500 million. The company wants to become more efficient in the U.S. by selling properties in about 10 states and consolidating most of its ownership in Florida, Texas, Colorado, New York and Virginia, where it sees more growth potential.
"We spread ourselves too thin," says Vlad Volodarski, chief financial officer of Chartwell, which is based in Mississauga, Ontario.
Senior housing has become more popular with investors lately, after suffering for most of the downturn. Vacancies rose throughout the U.S. because of the multitudes of seniors who put off moves to retirement communities because they were unable to sell their houses.
Occupancies for U.S. senior-housing units in the U.S. stood at 87.9% in the first quarter of 2011, compared with the 92% peak in the second quarter of 2006, according to the National Investment Center for the Seniors Housing & Care Industry.
But many investors feel occupancies have nowhere to go but up, given the strong growth expected in the population of seniors as the U.S. ages. While the U.S. senior population ages 75 and higher is currently growing at an annual pace of 1%, that annual growth rate is expected to pick up and rise to as much as 5% in 2022.
Sales volume of senior housing and nursing homes hit $16.7 billion in the first half of 2011, a roughly sevenfold increase from the first half of 2010, according to Real Capital Analytics, a New York real-estate research firm. "The volume has just exploded," says Bob White, founder and president of Real Capital.
Among the biggest deals in the first half: health-care REIT Ventas Inc.'s US$3.1 billion deal to buy substantially all of the real-estate assets of assisted-living company Atria Senior Living Group Inc.
This strong demand has triggered a rise in prices. At the depths of the downturn, buyers of senior housing were getting an average initial return of a whopping 11%, according to Real Capital. More recently, yields, which move inversely to prices, have fallen to 7% as investors have bid up prices.
Chartwell's share price has reflected the higher values, rising from the low 3-Canadian-dollar (US$3.17) range in November 2008 to the C$8 range. But they are still well off their 2007 peak in the C$17 range.
Chartwell also is simplifying its portfolio as it moves to reduce its U.S. footprint. For example, it is buying the 50% stake it didn't already own in 15 U.S. senior-housing properties with a total of 2,947 suites. The seller is ING Real Estate Community Living Group, an Australian real-estate investment trust managed by a unit of Dutch financial group ING Groep NV.
The deal, announced earlier this month, values the properties at about US$169 million, comprising about $33 million in cash and $135.8 million in assumed debt. That translates into a yield in the mid-7% range.
Mr. Volodarski says Chartwell's 15-property portfolio underperformed partly because many were so-called independent living units designed for seniors who can take care of themselves. These types of property were particularly hard-hit by flagging demand during the housing crisis.
Seniors have had less discretion about moving to other types of senior housing-assisted living and nursing homes-that offer more levels of care. Chartwell is remodeling its properties to increase the percentage of so-called assisted-living suites to about 40% from about 25%.
"People moving into assisted living may be willing to sell their homes at whatever the market tells them it will take," says Mr. Volodarski.
The challenge now is for Chartwell to boost the cash flow on the 15-property portfolio, which currently has an 86% occupancy rate. Boosting that rate to a range of 91% to 93% would increase the yield on the properties to as high as 9%, according to Neil Downey, an analyst with RBC Capital Markets.
Rents also could rise. Overall, the senior-housing sector, which doesn't include nursing homes, saw year-over-year rent growth of 0.5% in the first quarter, above the previous quarter's no growth. But rent growth used to be much healthier. It reached a rate of 3.9% in the second quarter of 2007, according to National Investment Center for the Seniors Housing & Care Industry.
Please visit The Wall Street Journal website for the full article.
Please visit NEWS & EVENTS to view a listing of all articles.