By Allen Kenney
We’re in the business of taking care of people’s moms and dads” doesn’t sound like the motto of a real estate company’s CEO.
But that’s the credo of Ontario-based Chartwell Seniors Housing REIT (TSX: CSH.UN) CEO and Vice Chair Stephen Suske. Suske heads the largest senior housing REIT in Canada, which also happens to be North America’s third largest. His outlook on Chartwell’s mission comes from his own mother’s experience.
“My commitment since entering this business has been to ensure that all of our communities would be good enough for my mother. My mother lived in one of our communities until she passed away, and for many years offered the kind of constructive criticism that only a parent can,” he writes in a note to all visitors on the company’s Web site. “This quality test endures, and is the tangible proof of our passion for the business and our belief that we are providing a service that is necessary and appreciated in each of our communities.”
Chartwell is the product of three separate retirement home and long-term care firms—Alert Care Corporation, the Binions Companies and Chartwell Care Corporation—merging in 2003. At the time of the company’s initial public offering, its portfolio contained just 50 properties. Today, Chartwell owns, leases and manages a portfolio of 271 senior housing communities in both Canada and the United States, including properties under construction and in development. A third of the Chartwell properties are scattered across the U.S., while the remainder are located in Canada. In total, the company’s portfolio comprises more than 37,000 suites and housing units for senior residents.
Rouge Valley Retirement Residence, Markham, Ontario |
Not Too Different Up North
Suske says Chartwell hopes to capitalize on the same trends that have made retirement communities such popular investments in the U.S. Age demographics in Canada are moving in lockstep with those stateside. In 2006, for instance, the number of Canadians celebrating their 85th birthday grew 27 percent, with that number projected to increase another 23 percent by 2011.
“There’s a movement in senior housing in Canada. The growth in our sector is absolutely astounding,” Suske says. He notes that Canada has seen demand for 11,000 new senior housing units each year, which translates into approximately 100 new communities annually.
Suske recognizes that Chartwell has seen some slight “softness” in the U.S. market recently, as occupancy rates have fallen approximately 1.5 percentage points from their recent high of 94 percent. Yet, based on Chartwell’s recent operating and financial performance, it appears that betting on retirees is paying off.
“The business is very forgiving because there’s such a powerful demographic play in senior housing,” Suske says.
In the company’s second quarter of 2008, ended June 30, Chartwell saw its total revenues climb 12 percent from the year-earlier period from $156.3 million in the 2007 second quarter to $174.7 million. Likewise, property revenues grew more than 14 percent, which Chartwell attributed to properties integrated into the company’s portfolio during the previous 12-month stretch.
“Our programs aimed at generating strong organic growth are proving effective, and we look for further increases in revenues going forward,” Suske said at the time of the release. “We are confident that our commitment to providing the highest levels of care and service will result in continued strong occupancies and increasing average rents over the long term, while the introduction of innovative new services in our communities will also contribute to our growth.”
Bankside Terrace, Kitchener, Ontario |
Out With the Old
The synthesis of the three different founding companies’ portfolios and skill sets now enables Chartwell to offer a variety of options when it comes to services and communities, a significant competitive advantage, according to Suske. He says potential residents can choose from a “continuum of care,” with offerings ranging from independent living residences to long-term care homes.
Currently, Chartwell focuses almost exclusively on newer assets. The majority of the company’s sites are less than 10 years old, which Suske says enhances the appeal of Chartwell’s communities to prospective residents. Going forward, Suske says the Canadian REIT plans to stick to its philosophy that growth should come from its development pipeline, rather than acquiring existing assets from outside parties.
To make this strategy work, Chartwell relies on Spectrum Company, a subsidiary, to maintain a development pipeline of new properties in Canada. That helps keep some development costs off of Chartwell’s balance sheet and enables the company to operate without being forced to buy assets from outside firms. As of mid-2008, Chartwell had 6,000 housing units in its development pipeline that were expected to be transferred over to the REIT within four years.
Suske also maintains that Chartwell benefits from its geographic diversification. He points out that the company has properties in all of Canada’s major metropolitan areas, such as Calgary, Vancouver, Montreal and Toronto, as well as many non-metropolitan areas. “We’re in everything from urban to suburban to rural settings,” Suske says.
In the U.S., Chartwell owns 50 percent of the equity interest in Horizon Bay Management LLC, based in Tampa, Florida. Horizon Bay manages 70 assisted-living communities across 15 states, including California, Florida and Texas. In general, Horizon Bay focuses on high-end residences with a variety of care options available.
Just like its relationship with Spectrum, Suske says Chartwell’s involvement with Horizon Bay is paramount to its ability to operate in the U.S. “That local knowledge is particularly important,” he says.
Keeping It Real
How does Chartwell plan on maintaining its growth and strong performance? The answer is pretty simple, according to Suske, and it all goes back to the REIT’s core business: “warmth and care.”
Noting that the average age of a Chartwell community resident is 83, Suske says the special attention paid to customers helps attract the assisted-living industry’s most talented employees. He contends that the company has become the “employer of choice in the senior housing industry,” and Suske says he doesn’t foresee that changing any time soon.
Chartwell’s reputation enables the company to pick from among the most talented members of the assisted care workforce. Suske says that makes it easier to identify who has the special skills needed to make Chartwell’s communities an enticing option for retirees.
“You can’t fake sincerity,” he says.
Allen Kenney is Portfolio’s staff writer.