Chartwell continues U.S. spree with Merrill Gardens purchase

Chartwell Seniors Housing Real Estate Investment Trust is continuing its expansion drive in the United States, closing a $400-million deal just days after new federal rules firmed up the cap on foreign investments for REITs.

Chartwell is buying a portfolio of 24 retirement homes from Merrill Gardens, a private firm run by a Seattle family. The deal, which will be partly financed by a $275-million bought deal, will add 2,374 units to Chartwell's holdings. Thirty-five per cent of Chartwell's new portfolio will be in the United States, which will put it well above the 25-per-cent limit contained in the new federal rules governing REITs.

Stephen Suske, Chartwell's vice-chairman and co-CEO, said the seniors housing company has clearly stated that it does not intend to let the new tax rules alter its plans.

"We've stated to the market that on a whole bunch of issues with the federal government, we are offside," Mr. Suske said in an interview. "We believed that we've got to continue to grow our business. We have a great platform in North America."

The new federal rules also state that REITs must get 95 per cent of their revenue from passive investment to qualify for the tax exemption, another test that Chartwell does not meet.

Chartwell is now the fifth-largest retirement home company in North America and, with this deal, is closing in on fourth place, Mr. Suske said.

He said the Merrill Gardens portfolio, concentrated in southern U.S. states, was brought to Chartwell by a broker. The deal represents about 40 per cent of the U.S. company's holdings and Mr. Suske said he hopes it will lead to other transactions. "We love their homes," he said. "This deal makes a lot of sense."

Yesterday's announcement comes at a time when the REIT is also considering its options, in light of the new federal tax rules. Chartwell confirmed this month that it has established a special committee of its board, a move many analysts now believe will result in a sale.

Individuals familiar with the company say the most likely candidate is ING Real Estate Australia, which is an investor in the REIT and has co-invested with Chartwell on several deals. The Public Sector Pension Investment Board, a Crown corporation that manages retirement funds for the federal civil service, the Canadian Forces and the Royal Canadian Mounted police, is also thought to be a possible buyer.

PSP bought another seniors' home company, Retirement Residences Real Estate Investment Trust, last fall.

This latest acquisition by Chartwell is expected to close on April 30. The bought deal, led by RBC Dominion Securities Inc. will include $200-million in units and $75-million in convertible debentures. The transaction also will be financed with $270-million in mortgage financing.