Reality can bite and as we look in the mirror, the two of us no longer see those teenage faces that we sported when we met almost 50 years ago. At that point in time, sports cards, racetracks, and discos were front and centre in our lives. Yes, we were groovy dudes indeed.
As stages of life are considered, we’re in the one where we must race to fulfill our desires before the checkered flag is waved. How exciting!
One thing that we wish to avoid, if possible, is spending our last days with empty pockets. Our preference would be to finish with some style and comfort at home. But if our health doesn’t keep up, among the alternatives would be a retirement or long-term care home. As a big segment of the population reaches their later golden years, this is a burgeoning sector that may offer some opportunities. One company worth a look is Extendicare Inc. EXE-T.
Given the growth of the senior demographic, it is worth asking if this enterprise is a worthwhile investment. We looked at the stock in 2014 and 2019, when the share price was $7.01 and $8.30, respectively. It is currently a middling $7.25 or so and certainly has not performed as anticipated.
In 2014, the company was looking at strategic alternatives, code words for a sale, which normally happens at a premium. Alas, that did not transpire and a decade later, Benj is sitting with a stock that has done not much except pay out a healthy monthly dividend of 4 cents. That is a lovely return, but nothing like the 100-per-cent-plus capital gain that is looked for when purchasing a position.
A key success marker for this company is occupancy rates. That was a problem during the pandemic when people did not want to be crowded into “holding pens.” Now though, the long-term occupancy rate has returned to prepandemic levels, which bodes well for the bottom line.
Meanwhile, major expansion is on the agenda. Two new long-term care homes have been started in the Ottawa area, in partnership with Axium Infrastructure. There are also four other residences under construction, for a total of 1,536 beds, with most of these set to replace 1,377 beds. Three of these homes are scheduled to be completed this year.
In addition, Extendicare has also added 56 of Revera’s long-term care (LTC) facilities to its portfolio and acquired Rivera’s interest in a portfolio of 24 LTC homes that it owned with Axium. These transactions were evident in strengthening the most recent quarterly results. Extendicare also has the option to purchase all future Revera redevelopment projects. Revera was one of the largest operators of retirement and long-term care homes in Canada. It now appears that it would like to be a passive real estate company, which fits with its pension-plan ownership.
Longer term, annual revenues over the past decade have bloomed from $816-million to $1.3-billion. The debt load has been gradually creeping up also, currently at $334.5 million – not light, but certainly not arduous.
Insiders are well vested in the company, holding about 13.65 per cent. The book value is approximately $1 a share, far lower than the trading value. In 2023, the company purchased for cancellation 1,749,131 shares at an average cost of $6.34.
With cash and cash equivalents of $75-million, Extendicare seems to have its expansion plans reasonably covered. If all goes as planned, the growth will likely lead to a higher share price. But the initial sell target of $13.34 set in 2014 might be a bit optimistic and Benj is considering lowering the goal. It is unusual that the objective is higher than the stock has ever traded over the past decade and one can easily imagine that perhaps another 10 years will pass without it coming close, unless a takeover arrives from left field.
For the time being, the fat dividend currently paying about 6.5 per cent will be collected, and the boost in the return because of the dividend tax credit will be enjoyed. We will keep attempting to live large, but not too large, and avoid spending too much time pondering our certain demise. How is that for a cheery ending?
Benj Gallander and Ben Stadelmann are co-editors of Contra the Heard Investment Letter.