After buying more than 27,000 units of seniors housing in the U.S. over the last five years, Health Care REIT is diving into the Canadian market with a deal valued at nearly $1 billion.

Health Care REIT is joining with Chartwell Seniors Housing REIT of Mississauga, Ontario, in a 50/50 joint venture to purchase 42 seniors housing properties in Canada. The properties, with a total of 8,200 units, are currently owned by the Maestro Funds, a group of 15 Canadian pension funds. Expected to close in early May, the deal will make Chartwell the largest owner of seniors housing in Canada.

“We like Canada,” says Stephanie Anderson, chief acquisitions officer at Health Care REIT, Toledo. Ohio. “This is a solid opportunity.” She quickly adds that Health Care REIT is still seeking good U.S. properties to purchase, even though a lot of big U.S. portfolios have recently been traded.

The Maestro portfolio includes a mix of properties, mostly composed of independent living units and some assisted living units. One building, for example, is Scarlett Heights. It is located in Toronto and has 206 independent living units. Another 28 units for memory care residents are being added.

The average unit price for the portfolio is $113,000. The price is somewhat lower than that being paid for U.S. properties, says Anderson. She attributes the difference to the fact that rents in Canada tend to be lower since residents usually move into seniors housing when they are in good health and require fewer services than their U.S. counterparts.

Brent Binions, president and CEO at Chartwell, says, “The transaction at $1 billion was too big for us alone. We are happy to partner with Health Care REIT.”

Cross-border owners

Chartwell owns and operates 147 properties in Canada, with a mix of independent and assisted living units, as well as nursing care facilities. Chartwell also owns 51 properties in the United States. Brookdale Senior Living operates most of Chartwell’s U.S. properties. Chartwell will operate the buildings in the Canadian portfolio being purchased.

Canada’s seniors housing market is about one-tenth the size as that of the United States. The countries have a similar demographic profile, however, with quickly aging populations. The type of housing available is somewhat similar too. The big difference is that no private pay skilled nursing facilities exist in Canada. The government reimburses payments for residents of these buildings.

During the recent economic downturn, the Canadian seniors housing market did not experience as steep a downturn as it did in the United States, according to Binions. The residential housing market in Canada has remained resilient, so seniors are able to sell their homes and move to seniors housing developments. Also, development of seniors housing has continued in Canada. In 2011, for example, new development represented about 4 percent of the existing inventory of senior housing, Binions says. That compares to a rate in the United States of about 1.0 percent of the existing inventory.

Chartwell has a development department and currently has several projects in the works. Another two new projects recently opened.

The demand for private pay seniors housing could be on the rise, says Anderson at Health Care REIT, another reason why Canadian properties look attractive as an invement right now. She explains that long-term care facilities, paid for by the government, have waiting lists. Recent rule changes also make them harder to get into. “There’s a real opportunity for growth on the private pay side,” says Anderson.

Income gains

First-year net operating income for the portfolio is expected to yield 7.4 percent after management fees. Future net operating income growth is projected at 4 percent to 5 percent over the long term.

The deal is structured under the REIT Investment Diversification and Empowerment Act (RIDEA). These deal structures have become popular recently with REITs buying seniors housing companies that also operate properties. The structure allows some of the profits to go to the operator, which maintains a small ownership share in the property.