LW : TSX : C$12.98
BUY
Target: C$15.00
COMPANY DESCRIPTION:
Leisureworld is an operator of Long-Term Care homes and seniors living facilities. The company owns and operates 26 LTC homes, representing a total of 4,134 beds and primarily located in the Greater Toronto Area. In addition, Leisureworld’s portfolio includes one retirement home, one independent living home, and two luxury retirement living residences. Beyond its core operations, Leisureworld also runs an accredited home healthcare business.
Investment recommendation
Leisureworld has entered into an agreement to acquire a portfolio of 1,235 LTC beds, 326 retirement home suites, and a third-party management business from Speciality Care Inc. (SCI) for a purchase price of $254.2 million. We expect that the acquisition will be immediately accretive – and 8.1% accretive to 2014 AFFO.
Investment highlights
Increasing high quality LTC assets – Class A beds make up 85% of the acquired LTC portfolio. We believe that the improvement in overall Class A mix (from 54.1% to 60.8%) will optimize revenue from this segment and somewhat mitigates capital renewal risk.
Retirement home expertise – We believe that the addition of Speciality Care’s Retirement Home management business brings in expertise to improve occupancy levels at existing homes and grow this higher-margin piece of the business.
Appointment of new CEO –The extensive LTC and retirement home management experience that incoming CEO Lois Cormack (formerly
President of Specialty Care) brings to the table should be valuable in executing Leisureworld’s growth strategy.
Valuation
We value Leisureworld using an average of three methodologies; following inclusion of the Specialty Care acquisition, our models yield an
average valuation of $15.10 per share. Together with a projected yield of 6.0%, our revised C$15.00 target (increased from C$14.00) suggests a
12-month return of 21.6%, which supports our BUY rating.
Related articles
- Leisureworld Q1 2013 Results Release, Conference Call and Webcast (sys-con.com)
- Look for spacious retirement communities Sacramento homes full of latest amenities & facilities (independentlivingforseniors.wordpress.com)
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