The 105-suite Chartwell Carlton Retirement Residence in Burnaby, B.C. (Courtesy Chartwell)

A “short-term” oversupply of seniors housing units in some markets isn’t slowing the development plans of Chartwell Retirement Residences (CSH-UN-T). The firm has opened three properties this year and has nine more in its development pipeline to meet a coming wave of Canadians who will soon be reaching age 75.

“We expect to continue our development program with three to five project starts per year,” Chartwell chief financial officer and chief investment officer Vlad Volodarski told RENX.

The 105-suite Chartwell Carlton Retirement Residence in Burnaby and the 137-suite Chartwell Wescott Retirement Residence in Edmonton opened in the first quarter of this year. They were respectively 44 per cent and 28 per cent leased at the end of June.

The 332-suite Sumach by Chartwell in Toronto opened in the second quarter and is 43 per cent leased.

“We expect to achieve our underwritten lease-up timelines of between 24 and 36 months for these residences,” said Volodarski.

Canadian market conditions

Chartwell is an unincorporated, open-ended trust that indirectly owns and operates a range of seniors housing communities, from independent supportive living through assisted living to long-term care. It’s the largest operator in the Canadian seniors living sector, with more than 200 retirement communities in Ontario, Quebec, Alberta and B.C.

Chartwell’s residences had a 90.2 per cent occupancy rate in the six months ended June 30. The company wants to increase that significantly.

“At the present time, the growth in new supply in certain markets has exceeded demand growth,” said Volodarski. “This is particularly prevalent in the Ottawa and Durham regions in Ontario and in Calgary.

“This new supply growth has a negative, but short-term, impact on occupancies of the existing residences. We have large concentrations of our residences in these markets and suffered some occupancy declines.

“Numerous operating initiatives — including business development, cluster sale strategies, additional investment in online advertising and a more regional approach to our call-centre support — have been put in place to mitigate the impact of this new supply and early results of these strategies have been positive.”

Chartwell is targeting a 95 per cent occupancy rate for its portfolio by 2023 and expects things to accelerate in 2021 in tandem with demographic growth of people aged 75 and older.

Future Chartwell residences

In line with that strategy, four Ontario residences are under construction:

* the nine-suite Chartwell Thunder Bay Senior Townhomes in Thunder Bay;

* the redevelopment of the 83-suite Chartwell Guildwood Retirement Residence in Scarborough into a 172-suite operation in which Chartwell is half owner;

* the 56-suite Chartwell Meadowbrook Village in Lively;

* and the 122-suite Chartwell Montgomery Village in Orangeville.

Chartwell also owns a 60 per cent interest in Kingsbridge Retirement Community in Kingston with Signature Retirement Living and its affiliates owning the remainder. The 165-suite residence should be ready for occupancy this quarter.

The site includes excess land for the potential development of 84 additional suites. Chartwell expects to acquire the remaining 40 per cent interest upon stabilized occupancy.

Construction is to begin later this year, or early in 2020, at three additional residences:

* the 90-suite Chartwell Ridgepointe Retirement Residence in Kamloops, B.C.;

* the 163-suite Chartwell Royalcliffe Retirement Community in London, Ont., that the company owns half of;

* and the 201-suite Chartwell Wynfield Retirement Community in Oshawa.

Chartwell has filed an application with the Ontario Ministry of Health and Long-Term Care to redevelop the existing 100-bed long-term care and 40-suite Chartwell Ballycliffe retirement residence into a 192-bed long-term care residence.

The retirement operations have been discontinued and that section of the building has been demolished. The existing long-term care operations are expected to continue during the redevelopment, which is scheduled to begin in early 2020.

Chartwell acquired a 90 per cent interest in 1.33 acres of vacant land in Pickering, Ont., last September for the development of a 415-suite retirement residence.

It acquired a 100 per cent interest in 1.39 acres of vacant land in Calgary for the development of a 384-suite retirement residence that same month. Design and approvals for these projects are in progress.

There are additional development opportunities on sites the company owns or leases. These include 100 per cent ownership stakes in eight properties in Quebec, British Columbia and Ontario and 50 per cent stakes in eight properties in Ontario and Quebec.

These sites total 27.7 acres and have an estimated potential for 2,457 suites.

Chartwell acquisitions and dispositions

Chartwell acquired the remaining interest in Chartwell Clair Hills Retirement Residence in Waterloo, Ont., for $9.2 million and the remaining interest in Chartwell Oak Ridges Retirement Residence in Richmond Hill, Ont., for $300,000 in the first quarter of this year.

“We also have built a large acquisition pipeline with our development partner Batimo Inc. in Quebec,” said Volodarski. “This pipeline is valued at over $500 million.”

In that relationship, Batimo carries out development activities and Chartwell provides leasing, marketing and management services. It also provides mezzanine financing in some cases.

Chartwell completed the sale of a 61-suite retirement residence in Ontario for $750,000 on May 31 and a 117-suite retirement residence in Quebec for $10.5 million on July 12.

It is also selling four Ontario long-term care residences with 308 beds for $14.5 million. The agreement is subject to the approval of the Ministry of Health and Long-Term Care and is expected to be completed in early 2020.

“These are non-core properties due to their smaller size and tertiary market locations and as such they do not fit into our business strategy,” said Volodarski.

Future growth demands

“We are certainly doing our part in creating new, attractive places for people to live and receive exceptional services and quality care,” said Volodarski.

“We will continue to grow and build our portfolio in a prudent manner, balancing long-term value creation and the need to continue to generate strong cash flows per unit to support consistent modest growth in our distributions.”

Volodarski said seniors housing providers have to do more to “explain and promote the great value and quality of life that we offer in our communities” since the percentage of people over the age of 75 living in retirement residences hasn’t changed significantly over the last 10 years.

“Today we only serve five per cent of people over the age of 75 in Ontario, eight per cent in B.C and six per cent in Alberta. The only province that has significantly higher penetration rates is Quebec, where it is at 18 per cent.”

However, seniors housing is now receiving more recognition from institutional investors, including those from the United States and offshore.

“This makes it more competitive, but also creates liquidity and supports valuations, which is beneficial for all market participants. Over the next 20 years, we need to build over 600,000 new suites to meet the expected demand growth,” Volodarski said.

“Today there are approximately 425,000 suites in inventory. So, I believe that there will be more new industry participants trying to meet this upcoming demand.”