Canadian REIT Chartwell Retirement Residences made a couple of moves that both expanded its portfolio and strengthened its liquidity, priming the company for further growth in 2020. Chartwell first announced the closing of its acquisition of a recently completed retirement community in the Alberta town of Sherwood Park (Edmonton MSA). The deal goes back to 2017, when Chartwell acquired a portfolio of four Edmonton-area senior living communities for CAD$298 million and a purchase option for the to-be-built Sherwood Park community for CAD$120 million, or about US$91 million and US$355,500 per unit. RBC Capital Markets advised Chartwell in that deal, while TD Securities and Greystone Real Estate Advisors advised the undisclosed seller.
We are now one month after the community opened, and occupancy is already 45% across the 184 private pay independent living units and the 72 Alberta Heath Services-funded units. Chartwell expects to generate a 6.5% unlevered yield on the investment upon the community achieving stabilized occupancy of 96%, and the acquisition is subject to a $7.5 million net operating income guarantee from the seller for a period of two years to support the initial lease-up.
To repay amounts outstanding on its credit facility, Chartwell also announced that it entered into a firm commitment with a Canadian chartered bank for a $125 million unsecured term loan bearing interest at the bankers’ acceptance rate plus 145 basis points and maturing in May 2024. Chartwell fixed the rate on the loan through an interest rate swap arrangement, resulting in an effective interest rate of approximately 3.52%.
Finally, Chartwell got some cash on hand with the sale of a non-core medical office building in Ste. Eustache, Quebec for an aggregate purchase price of CAD$10.8 million. It previously owned an 85% interest in the building, with Batimo Inc. owning the remainder. The sellers entered into a lease with the buyer for certain spaces in the building starting on December 2, 2020 and terminated on April 30, 2022, with a maximum exposure to Chartwell/Batimo of CAD$500,000.
