Health Care REIT, Inc.’s recent RIDEA-structure partnership with a Canadian REIT for a 42-property portfolio makes sense, says the U.S. company, considering extremely favorable market demographics of a large senior population and a growing demand for senior housing.
“We have spent some time over the last year or so looking at different marketplaces and Canada we thought was unique in the sense that their growth of the elderly population as a percent even exceeds the U.S,” said chief acquisitions officer Stephanie Anderson during Health Care REIT’s earnings call. “They’ve had less of a hit to their economy by the housing there. So even though there was some overbuilding, specifically in the seniors housing market, it did not impact their economy and so the stability of that economy was an advantage.”
Bridging the Acuity Gap
In general, while the Canadian marketplace is very similar to the one in the U.S., it has a significantly lower acuity, Anderson said.
“The difference in Canada is that they have specialized health care once you reach a certain age and acuity level,” she said. “That causes there to be less acuity in this portfolio.”
Some recent “changes on the regulatory side” in terms of licensing requirements means the government has moved the acuity levels up to be able to qualify for socialized housing.
However, there’s a gap between a resident who qualifies for a government-supported long-term care home (which Brinker said is roughly equivalent to the U.S.’s assisted living), and the resident that’s able to remain at home.
“The gap in acuity is expanding, and we do believe there’s a lot of opportunity there to provide those services,” said Brinker.
“That creates additional private pay opportunities, which, over the next five to ten years, we think will be an advantage,” Anderson said.
The properties, which are all independent living, private pay facilities, have the ability to provide services, according to the REIT.
“This is all private pay, but certainly activities of daily living is something that can be provided,” said Brinker. “Chartwell, over time, may decide that the best approach in this specific building is to add more healthcare services; they have that kind of ability and capability.” But for now, he added, it’s a very low acuity portfolio.
Portfolio Potential
The properties are currently 88% occupied, and Health Care REIT has stated its intentions to capitalize on possible upside.
“We have not only occupancy upside, but we have some staffing costs and other ways that we can improve everybody’s return,” Anderson said. “We think Chartwell is really a fine operator. They operate very much like our top operators do in the United States.”
The average occupancy rate in the U.S. across seniors housing is 88.2%, according to the National Investment Center for the Seniors Housing & Care Industry (NIC), so the new acquisition is on-par with the U.S. market. However, there are some buildings in particular that Health Care REIT has targeted for significant improvement.
“There are three or four fill-up buildings that are less than two or three years old that still have census in the 70% to 80% range that we think over the next three years will improve to the 90-plus percent range,” said Scott Brinker, executive vice president and chief financial officer, during the call. He also added that some Canadian markets, similar to some the U.S., had a period of overbuilding in the last five years that is now “starting to burn its way through.”
“Industry wide, in Canada, the census is down 300 or 400 basis points from three of four years ago, and we’re finally starting to see that move back in the correct direction,” Brinker continued. “So at least long-term, we think low 90s, 91%, 92% is highly achievable; that’s what Chartwell had done historically. And this portfolio, the 88%, we think there really is some 400 basis points of growth over the next three or four years.”
Health Care REIT is looking at the venture with Chartwell as a long-term partnership.
“We would like to grow in Canada alongside with Chartwell,” she said.
Written by Alyssa Gerace
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