Chartwell Retirement Residences (CSH)’s FFO/unit remained in-line with our estimates for second quarter, although with a bit bump from non recurring income and expense items. Second quarter organic growth was poorer than we would expect, but we don’t believe this will be continued. Overall, CSH continues to make progress on its key priorities. We maintain our ‘Outperform’ rating and $11.50 price target.
The second quarter FFO/unit of $0.20 which is $35.8 million remained unaltered year over year and in-line with our $0.20 estimate which is $35.9 million. Second quarter facts remained including a rota of non-operating items – for example – debt defeasance costs, litigation result in United States and income from the clearing commodity tax matters. We believe that non-operating items helped FFO and AFFO by $1.5 million ( $0.007/unit).
The same property net operating income (SP-NOI) was restricted 1.3%. This remained 240 basis points less than firm’s fourth quarter trailing mean of 1.1%. Rise in the Canadian LTC division (up 1.3%) remained higher than offset by reduction in Canadian (down 1.9%) and U.S. (down 1.2%) retirement homes. Same property occupancy of 89.3% remained negative 30 basis points year over year (Canadian RH dropped 40 basis points to 87.7% while US dropped 50 basis points to 88.1%). ON remained the major haul with drop of 5.1% S-P NOI growth while occupancy decreased by 160 basis points.
Firm has spent $87 million to acquire interests in 491 suites in Canada and a stake in a 44,000 sf MOB year to date while it has also sold interests in 19 non-core properties in ON and the U.S. for $227 million. The steps remained go well together with company’s desire to replace older and smaller non-core properties with newer and larger assets in solid markets. In 2015, mortgage maturities sum $266 million at 5% WAIR. We strongly consider the REIT should be able to come together annualized interest savings of $2.7 million to $4 million ($0.015 to $0.02/unit). We maintain $11.50 price target while reiterate ‘Outperform’ rating.