Chartwell Retirement Residences or Extendicare Inc.: Which Is the Better Buy?

Seniors care is huge deal in Canada, and Chartwell Retirement Residences (TSX:CSH.UN) and Extendicare Inc. (TSX:EXE.UN) are two public companies left standing in the wake of recent industry consolidation, but only one of them is worth owning.

| More on:
The Motley Fool

You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

When Amica Mature Lifestyles was acquired by the Ontario Teachers’ Pension Plan for $578 million in late 2015, the acquisition signaled further industry consolidation could be in the cards given the fragmented nature of seniors’ housing.

Chartwell Retirement Residences (TSX:CSH.UN) and Extendicare Inc. (TSX:EXE) are two of the public companies still trading after Amica’s delisting last December. With lots of buyers out there but few sellers, industry consolidation remains a difficult task.

OTPP paid $18.75 per share for Amica, 113% higher than its $8.79 share price the day before it announced its deal in the press. Prices for operators of seniors’ homes in Canada are rising, and that puts both of these companies in a pretty good bargaining position with would-be buyers. However, only one of them is worth owning. Read on and I’ll tell you which one I feel is the better buy.

According to Steve Hiscox, senior director of Seniors’ Housing and Health Care at CBRE Ltd., the top 15 operators in Canada own or manage just 38.2% of the total seniors’ housing units available in this country; Chartwell is at the top of the list and operates more than 21,000 units. With approximately 85,608 units in the hands of the 15 largest operators (latest figures as of Q2 2015), another 138,499 are owned by countless smaller operators from coast to coast.

So, while Chartwell and Extendicare might be able to get a pretty penny for their units given the pent-up demand from institutions, etc., it’s equally attractive to be a buyer and consolidator, not a seller, given low-interest rates. This conflicted state gives rise to even higher prices paid for seniors’ housing because, in effect, they’re competing with themselves for those units.

Assuming both are buyers, investors must ask themselves which of the two is better positioned to execute this plan. Without question, I believe Chartwell is.

As of March 31, 2016, it owned or managed 26,056 retirement units, which is almost a 25% increase from the second quarter in 2015. Its 12-month trailing revenue as of March 31 was $784.3 million with an adjusted EBITDA of $222.4 million. Chartwell’s figures suggest there are 425,000 units available in Canada in 2016 and approximately 600,000 new ones will be required by 2036. So, not only is there going to consolidation, but there’s going to be development as well.

Extendicare, on the other hand, is considered the largest long-term-care operator in the country with 101 properties and 13,562 suites. The largest 15 operators in this part of seniors care account for 26% of the total number of units operated in the country. Chartwell makes this list as well with approximately 28 properties and 3,741 units reserved for long-term care. This too is ripe for consolidation.

My own mother lives in a retirement home; they are not cheap. While there is a long-term-care floor, most of the residents can take care of themselves on a daily basis. Long-term-care facilities, on the other hand, are for people who require 24-hour supervision and, to the best of my knowledge, they’re not nearly as profitable due to the extra costs involved with patient care.

Which brings me to Extendicare’s finances. They’re actually pretty good.

In fiscal 2015, it generated adjusted EBITDA of $86.4 million on $979.6 million in revenue. Both revenues and adjusted EBITDA increased by double digits year over year. Extendicare is in the process of growing its retirement division through both acquisitions and new development. It’s spending $81 million to build retirement homes in Simcoe, Bolton, and Uxbridge, Ontario. The first is expected to open in the fall with the other two next spring.

To complement its growth in the retirement segment, Extendicare acquired Revera’s home healthcare business in 2015 for $83 million. As a result, its home healthcare segment now generates about 31% of Extendicare’s total revenue to go with the 12% it now generates from its retirement segment. It continues to diversify its revenue streams from seniors care.

It’s a wise decision but it’s not enough to sway my opinion.

Extendicare’s adjusted EBITDA margin is around 8.8%. Its move into retirement homes should push that higher in the years ahead, but the simple fact is that Chartwell’s adjusted EBITDA margin is more than three times Extendicare’s. If anyone is going to be consolidating at a significant pace, I believe it will be Chartwell doing much of the large-scale buying.

While I believe both are going to pay off for investors long term, I see Chartwell as the better buy.

Should you invest $1,000 in Chartwell Retirement Residences right now?

Before you buy stock in Chartwell Retirement Residences, consider this:

The Motley Fool Stock Advisor Canada analyst team just identified what they believe are the Top Stocks for 2025 and Beyond for investors to buy now… and Chartwell Retirement Residences wasn’t one of them. The Top Stocks that made the cut could potentially produce monster returns in the coming years.

Consider MercadoLibre, which we first recommended on January 8, 2014 ... if you invested $1,000 in the “eBay of Latin America” at the time of our recommendation, you’d have $21,345.77!*

Stock Advisor Canada provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month – one from Canada and one from the U.S. The Stock Advisor Canada service has outperformed the return of S&P/TSX Composite Index by 24 percentage points since 2013*.

See the Top Stocks * Returns as of 4/21/25

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Will Ashworth has no position in any stocks mentioned. Extendicare is a recommendation of Stock Advisor Canada.

Confidently Navigate Market Volatility: Claim Your Free Report!

Feeling uneasy about the ups and downs of the stock market lately? You’re not alone. At The Motley Fool Canada, we get it — and we’re here to help. We’ve crafted an essential guide designed to help you through these uncertain times: "5-Step Checklist: How to Prepare Your Portfolio for Volatility."

Don't miss out on this opportunity for peace of mind. Just click below to learn how to receive your complimentary report today!

Get Our Free Report Today

More on Investing

tsx today
Stock Market

TSX Today: What to Watch for in Stocks on Tuesday, April 29

With election results in and earnings season heating up, several factors could sway TSX stocks in today’s session.

Read more »

senior relaxes in hammock with e-book
Dividend Stocks

How I’d Invest $8,200 in Canadian Monthly Dividend Stocks to Pay for My Retirement Lifestyle

If you have some cash on hand, then these monthly dividend stocks can provide you with cash for life.

Read more »

protect, safe, trust
Investing

Protecting a $5,000 Investment: Why I’m Considering These 3 Defensive Stocks

These three top Canadian value stocks look well-positioned to provide portfolio stability and long-term upside for those navigating market turmoil.

Read more »

Canada national flag waving in wind on clear day
Investing

Where I’d Find Value in Canadian Stocks for My Long-Term Holdings

For investors seeking meaningful value (and long-term upside) from top Canadian stocks, here are two great examples to dive into…

Read more »

Circuit board with glowing lines
Tech Stocks

Got $1,500? How I’d Allocate it Between 2 Tech Stocks for Decades of Potential Growth

Are you looking to put $1,500 to work? These two Canadian tech stocks are a great place to start.

Read more »

man is enthralled with a movie in a theater
Investing

Is Now a Good Time to Buy Cineplex?

The decision of whether it's a good time to buy Cineplex has confounded investors since the pandemic, but It may…

Read more »

TFSA (Tax free savings account) acronym on wooden cubes on the background of stacks of coins
Investing

Why I’d Consider These 3 TSX Stocks Under $100 for my $7,000 TFSA Contribution

Here are three top TSX stocks I think long-term investors would do well to own in their TFSAs during this…

Read more »

Blocks conceptualizing Canada's Tax Free Savings Account
Dividend Stocks

Here’s Exactly How $20,000 in a TFSA Could Grow to $300,000

Can you grow $20,000 into $300,000 by holding the iShares S&P/TSX Index Fund (TSX:XIC) in a TFSA?

Read more »