1. Canada has more than 6.8 Million senior citizens

As per report dated 31st March 2021 produced by Statistics Canada, Canada has 6.8 Million senior citizens aged 65 years and older, with provision of only 198,220 long term care beds for them. In effect, there are only 29 beds per 1000 population age 65 and older. There is clearly a pent-up demand to be tapped into.

2. The number of Canadians over 65 is set to double by 2036

According to Statistics Canada, the number of Canadians over 65 is set to double by 2036 from approximately 6 million in 2016 to 12 million in 2036, thereby making the seniors the fastest growing segment of the Canadian population. Another interesting statistic from Statistic Canada is that the population of seniors over 75 is expected to grow by 112% between 2019 and 2039. On July 1, 2019, seniors accounted for 17.5% of the Canadian population, while children aged 0 to 14 made up 16% of the population.

3. Life expectancies continue to increase

With advances in medicine, technology and health care, life expectancies have increased by 4 years since 1991. On July 1, 2019, Canada had 10,795 centenarians, 10.000 for the first time.

4. The baby boom generation

The baby boom generation (born between 1946 and 1965) is a demographic advantage with millions in disposable income. 60% of the seniors own a home mortgage free. Also, families have increased ability to provide financial assistance to parents for retirement accommodation.

5. Inflation will bring up demand

With inflation touching 31-year high of 6.7%, borrowing costs soaring to 5.50% and severe supply chain issues caused by the situation in Ukraine, new construction projects are being put at bay. So new senior housing projects have been pushed back for at least another five years. And even when the situation normalizes, the new supply will not be able to keep up with the pent-up demand.

6. High barriers to entry exist for Long Term Care

High barriers to entry exist for Long Term Care as the provinces often control the supply licensed beds in the form of license approvals and heavy regulation in areas of design of the building and day to day operations.

7. Performance of Senior housing versus other property types

Upon comparing the returns over a five and ten-year horizon for different property types like apartment, hotel, industrial, office and retail, we found that senior housing outshines every other asset class with annual returns of approximately 12%. The annual returns over a ten-year period for various types from out studies are below: -

• Apartment: 8%
• Hotel: 6%
• Industrial: 10%
• Office: 7%
• Retail: 9%
• Senior Housing: 12%

The returns from senior housing are exceptional given the low risk of investment.

8. Government funded Long Term Care

Seniors are entitled to full government subsidies. Funding from the government increases the stability of cash flow.

9. Turnover of senior residents

Given the frailty of senior residents in Long Term Care, they are less likely to relocate to a competitor resulting in low vacancies. However, vacancies do occur due to deaths of residents. All homes maintain a list of seniors waiting to be admitted, resulting in minimal turnaround time.

10. Staffing model & Government oversight

• Staffing model includes significant professional nursing staff as well dieticians, therapists and visiting physicians.Apartment: 8%
• Since licenses are required to run these publicly funded homes, they are subject to significant government oversight.

Hence, specialized management expertise is required to run these homes.

Fundy Capital Management has a proven track record of managing retirement homes.

A safe guard against inflation with tax advantages

11. Real estate is a good hedge against inflation

Inflation has been averaging approximately 3% over the past few years. Real estate is a good hedge against inflation as higher rents absorb the inflationary pressures.

In addition, the profits are returned after the deduction of capital cost allowance (CAA) which is non-cash item.

12. Interest rates at 30-year lows

We are leveraging the properties with inexpensive debt. Even though the interest rates have soared in the last two months, they are still relatively low at 5.25% today compared to 7.25% in 2008.

13. Limited availability of comparable properties available for sale

There are very few properties for sale and a large number of people/companies wanting to buy real estate. Also, to be noted that it is very difficult to obtain senior care licenses in New Brunswick.

14. Vested management

Experienced management is investing (skin in the game) and providing a guarantee for the mortgage which assures alignment with shareholders.