Stock Market Smarts: Low Risk Investments

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Finding low-risk places to invest is not easy in these turbulent times. But if you look for companies that have demographics in their favour and offer a reasonable yield, you may find some opportunities.

One area worth considering is businesses that specialize in residences for the growing seniors population. I suggest a good choice is Chartwell Retirement Residences REIT (TSX: CSH.UN) and here is what you need to know about it.

 The business:

Chartwell is the largest owner and operator of seniors’ residences in Canada. The REIT indirectly owns and operates 175 residences across four provinces providing a complete range of seniors housing communities from independent supported living through assisted living to long-term care.

The security:

Chartwell units trade mainly on the Toronto Stock Exchange, under the symbol CSH.UN. The units trade quite actively with daily volume often in excess of 300,000. American residents can buy shares on the over-the-counter Grey Market under the symbol CWSRF, however volume is extremely thin (average of less than 100 units a day).

Next: Why we like it

 Why we like it:

Income investors are basically interested in two things: decent cash flow and no headaches. That translates into sound, stable businesses with no drama attached. Chartwell fills the bill. It provides a wide range of residential accommodations for seniors, making it almost
recession-proof. The cash flow is modest but dependable and secure. I’ve often said in the past that boring businesses are often the best for income purposes. Chartwell qualifies.


Chartwell is having a good year. Third-quarter adjusted funds from continuing operations (AFFO), a key metric inmeasuring the financial health of REITs, came in at just over $33 million ($0.18 per unit, fully diluted). That compared to $27.9 million ($0.16 per unit) in the same period the year before. For the first nine months of the 2015 fiscal year, continuing AFFO was $82.2 million
($0.46 per unit) compared to $72.1 million ($0.41 per unit) in 2014. Management said the improvement was due mainly to a 2 per cent gain in same property net operating income and lower interest expense.Same property occupancy in the third quarter was up by 1.3 percentage points to 92 per cent. Gain for the nine months was 1.4 points.

Recent developments:

Chartwell sold off its U.S. operations on June 30. In November, the REIT acquired five retirement residences in Ontario totaling 616 suites for an aggregate purchase price of $253.9 million before closing costs.

“With the completion of our most recent portfolio acquisition, we have invested $587.3 million in well-located and well-built properties in our core Canadian markets, substantially replacing cash flows from our U.S. portfolio,” said CEO Brent Binions. “We are confident that these acquisitions and our ongoing development program will provide a significant contribution to our earnings for many years to come.”


All REITs are highly interest sensitive for two reasons. First, when rates on bonds and other “safe” securities rise, the spread with higher risk securities like REITs narrows. This tends to drive REIT prices lower, pushing yields up. Second, REITs by nature carry significant mortgage debt. When rates rise, that increases their carrying costs. The good
news here is that there is little likelihood of rate increases in Canada this year due to the fragility of the economy.


The trust pays monthly distributions of $0.0459 (about $0.55 annually) to yield 4.4 per cent. The payment was increased by the equivalent of about a penny a year last April after being at the same level since 2010, so don’t expect regular hikes.

Chartwell offers a distribution reinvestment plan (DRIP) that allows investors to purchase additional units at zero commission and also offers bonus units equal to 3 per cent of the monthly payments.


 Tax implications:

For Canadian residents, a high percentage of the distribution is treated as tax-deferred return of capital (78.4 per cent in 2014). This means that no tax is payable in the year the payment is received but the tax-deferred amount must be deducted from the cost base, increasing the amount that will be subject to capital gains tax when the units are eventually sold. For this reason, it’s a good idea to hold the units in a non-registered account.

 Who it’s for:

Chartwell REIT is a good choice for investors looking for a low-risk security that provides decent but not exciting cash flow. There is little upside potential.

Ask your financial adviser if Chartwell is suitable for your account.

Gordon Pape is Editor and Publisher of the Internet Wealth Builder and Income Investor newsletters. For more information and details on how to subscribe, go to