Sienna Senior Living Inc. (SIA) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to Sienna Senior Living Inc. company's update by Lois Cormack, President and Chief Executive Officer; and Nitin Jain, Chief Financial Officer and Chief Investment Officer of Sienna Senior Living Inc. Please be aware that certain statements or information discussed today are forward-looking, and actual results could differ materially. The company does not undertake to update any forward-looking statements or information. Please refer to the forward-looking information and Risk Factors section in the company's public filings, included in its most recent MD&A for more information. You will also find a more wholesome discussion of the company's results in MD&A and financial statements for the year ended December 31, 2019, which are posted on SEDAR and can be found on the company's website, siennaliving.ca. The company has posted slides on today's update, which accompany the host remarks on the company's website under Events and Presentations of its Investor page. With that, I will now turn the call over to Lois Cormack. Please go ahead, Lois.

Thank you, Sarah. Well, good morning, everyone, and thank you so much for joining our call this morning to provide -- we want to provide you with an update on our response to COVID-19. But before I begin the update, I first really want to acknowledge the incredible work and commitment of our 12,000 team members who are working day and night to tackle the COVID-19 pandemic and to provide residents with the services and care that they need. I am immensely proud of our team who are committed to doing everything that they can to respond to this challenge. While most of the world is being asked to stay at home, they are coming to work every day to provide care and services that residents require. I also want to acknowledge the leadership and support of our many stakeholders, including families, our sector association and all levels of government. Never has it been more important for us to work together and learn together to work through this situation. While our #1 priority at this time is the health and safety of our residents, team members and their families, we are committed to an open dialogue with our investors, and we really appreciate your support. As of today, Sienna has no reported cases of COVID-19. However, we know that this may change given the rapid spread of the virus. We are taking extensive measures to navigate the situation. We have implemented many safeguards to protect our residents and team members, and we have extensive expertise on our team. At all times, we have rigorous infection prevention and control in place, which are overseen by our internal expert infection control physician and clinician. We have had an internal expert incident management team in place for several months now, and this team is guiding the implementation of all of the preventative measures, communication and the provincially mandated directives across the company. Some of the measures in place include: rigorous hand hygiene, which is really the underpinning to infection prevention and control for any outbreak, including COVID-19; social distancing for all residents and team members; restricted access to essential visitors only, which is for end-of-life situation and for essential contracted service providers only; residents may not leave the properties at any time other than for very rare approved situations; everyone entering the premises, including team members, are undergoing an active streaming process, including the taking of temperatures at a single point of entry to each resident. Team members who have traveled outside of Canada within the last 2 weeks are required to self-isolate, and new residents moving in are also isolated for 14 days. Anyone who is suspected to have been exposed to COVID-19 is quarantined. The support services office is working remotely and is singularly focused on providing 24/7 support to the teams in all of our residences. We have regular communications with residents and their families through a number of mechanisms. And finally, we recognize the level of anxiety and fear that this situation creates for our team members, and we are working hard to support them through daily webinars, extensive daily communications, management support, virtual education and access to the employee assistance program. While managing this situation is extremely operationally intensive, Sienna is very fortunate to have a strong foundation and fundamentals to draw on. With a balanced portfolio of long-term care and retirement residences, 56% of Sienna's net operating income is derived from Long Term Care, which is an essential service for providing care and services to seniors who have extensive physical and health care needs. Long Term Care homes do receive full revenue when there is a reduction in occupancy associated with the temporary closure of admissions due to outbreaks such as COVID-19. We are very grateful that the government of Ontario has announced $50 million in funding for long-term care and $5 million for retirement residences to help with the costs related to managing the COVID-19 situation. This funding is intended to support costs related to screening, staffing, cleaning, supplies and equipment. At this time, health authorities in British Columbia and in Ontario are focused on building surge capacity for hospitals and this is by finding alternative care settings for patients, who are typically seniors, who no longer need hospital-based care. We are actively involved with our associations in providing input on the design of a program, which would enable appropriate seniors to move out of the hospital into retirement residences. Sienna has a number of vacant suites that we could potentially make available for this program. I have the utmost confidence in our team, our processes and our collective expertise to manage through the unprecedented, extraordinary circumstances. I will now turn the call over to Nitin to discuss Sienna's financial position.

Thank you, Lois, and good morning, everyone. Over the last several years, we have been focused on strengthening our balance sheet when lowering our debt, staggering our debt maturity and increasing liquidity. We have a balanced portfolio, supported by a robust balance sheet, with Long Term Care contributing 56% and Retirement contributing 44% to Sienna's 2019 net operating income. As of December 31, 2019, our interest coverage ratio was at 3.9x, debt to adjusted EBITDA coverage was at 6.7x, and we ended the year with debt-to-gross book value of 46%. During Q4 2019, Sienna received a BBB mid investment-grade credit rating with stable trend from DBRS. This rating highlights the strength of our balanced portfolio and strong operating platform. Last week, we successfully entered into a credit agreement with $200 million unsecured revolving credit facility for a 5-year term, which may be increased by up to $50 million during the term of the facility, subject to certain conditions. We believe that completing this unsecured financing in today's market is a recognition by lending partners of the strength of Sienna's business and balance sheet. With this unsecured credit facility, the company's liquidity now stands at approximately $215 million comprised of cash on hand and available credit lines. The value of Sienna's unencumbered asset pool is now approximately $540 million. With respect to our debt profile, a total of $46 million of our debt was maturing in 2020, of which $20 million relating to 1 asset was paid down as part of the $200 million unsecured revolver. This asset has now become part of the unencumbered pool. The balance for the year is $26 million. And given our strong liquidity and balance sheet, at this time, we do not anticipate any issues with refinancing the remaining amount. In February 2021, Sienna Series B debenture will become due. The outstanding balance for Series B debenture, net of the principal reserve fund, is $255 million, which is secured by 26 Long Term Care assets. Given the stable and predictable nature of Long Term Care, the strength of this asset class, our long-standing relationship with our lending partners and our current liquidity, there are several options to be refinanced with Series B debenture. Sienna has access to multiple sources of financing in addition to secured and unsecured debentures, credit facilities, conventional mortgages, the retirement properties and BC Long Term Care portfolio also has access to CMHC financing. At the end of 2019, the breakdown of our debt was 16% unsecured debentures, 26% secured debentures, 29% conventional mortgages and 29% CMHC insured mortgages. Moving to our dividend. Our current monthly dividend is $0.078 per share. For 2019, Sienna's AFFO payout ratio was 66%, and we currently believe that Sienna's dividend is secure and sustainable. We have temporarily suspended our dividend reinvestment plan until further notice, starting with the dividend payable to shareholders of record as at March 31, 2020, in order to not issue common shares at the current depressed prices. I will now turn the call back to Lois.

Thank you, Nitin. At this time, we are drawing on our strength to navigate through this extraordinary situation. We have an outstanding team and a strong culture. We have a sophisticated operating platform with good practices, programs and processes in place, and we are experienced in managing the spread of infectious outbreaks. We have a strong balance sheet, ample liquidity and good relationships with financial institutions, which will continue to provide us with financial flexibility. And we have strong relationships with the senior living sector and are working closely on solutions to navigate this unchartered territory. The Sienna team will work through this, and we will come out the other end as a stronger team and a stronger company. Of that, I am certain. On a final note, I want to acknowledge the outstanding work of our health care workers and encourage everyone to express gratitude to those that are required to go to work every day to support our society's basic needs. With that, Nitin and I would be pleased to take your questions. Sarah, I'll hand it back to you.

[Operator Instructions] Our first question comes from the line of Jonathan Kelcher with TD Securities.

First question, just on -- maybe give us a little bit more details on the, I guess, using some of the vacancy in the retirement homes to open up hospital beds. And I get that you're still negotiating with the governments. But how do you think the logistics of that would work?

Well, it is a challenging program, but we've done versions of this in the past, where there's seniors in hospitals that -- they're finished their acute episode of whatever it was, and they're just not well enough to go home. So these are the seniors, but they can't afford a retirement home, typically. So the way it works is, there would be some sort of a per diem set. The senior would move into the retirement residence, and it's a challenging time because of all of the precautions in place, which I mentioned, like no visitors. So they would move in. In this situation, we would make provisions for furnishings, like, again, through a rental program or whatever. They would move in, and we would try to colocate them in certain area because typically, they would require sort of -- definitely, there would be assisted living, they would not, for the most part, be independent living.

Right. And they -- it has to be the 14 days isolation, I'm assuming?

Yes. So they would go into a private suite. So they would be in a suite. So we'd have to make the suites available, single room, single suites, which we have some vacancy, and they would be on isolation for 14 days. We just don't want to risk the unknown because you can be asymptomatic for a period of time. We just don't want to risk the exposure to our team members and residents.

Okay. And then just...

And of course, they'd have to be COVID negative. They would have to have no symptoms. We would not be letting anyone to this program that's had exposure to COVID.

Right. And this is probably a tough question to answer right now, but I guess, with no tours or anything like that, the occupancy for retirements will go down in Q2. How do you -- how does turnover typically work in sort of April, May in terms of tenants, the number of tenants that you would typically -- that would typically leave a retirement home through those months?

I don't know that we have that specific, Jonathan. In general, the average length of stay is about 3 years. So on any given year, about 30% of the residents would move out for whatever reason, either to Long Term Care or whatever. Right now, because Long Term Care is being saved for hospitals only. No one in retirement would be moving into a Long Term Care home at this time. So there might -- it might be a little less at a time like this. And then as you know, the winter months, there's usually a little more attrition. But again, because there's been no movement into Long Term Care probably for a few weeks now, we can't comment. Yes, occupancy would definitely be lower because no one -- we're not doing tours. We're not marketing. That's just not a focus right now. We're just focused on residents and team member safety and managing the situation.

Okay. So broad brush, if it's 30%, that's just under 3% a month would be move-outs and it's probably a little than that right now because the Long Term Care is closed. Would that be a fair way to, like characterize it from a high level?

At a high level, that's the way to think about it.

Our next question comes from the line of Pammi Bir with RBC Capital Markets.

Just can you maybe just talk about some of the costs that have been incurred to-date, I guess, to ramp up all of the infection control measures that are required as part of this whole risk mitigation process. And just comment on how staffing levels have changed, whether it's at the Retirement homes or Long Term Care facilities?

Well, the major costs, as always, are staffing, in a situation like this because there's a lot of staff off, either self-isolation because they may have -- think they've come in contact, or they've been traveling. So we have a lot of staff in self isolation, which then reduces the number of staff available. And so our biggest challenge is getting staff. So the additional cost would be screening because we put active screening in place. There's a designated screening person probably a couple of weeks ago at the front entrance, so a single entrance. So there's additional protective equipment like masks, gloves, gowns for anyone that's in isolation or quarantined or potentially exposed. And then just because of the lack of staff, in some cases, we have staff that don't want to come in because of fear and so on, then so we're getting -- incurring overtime in agency costs and so on.

And just maybe going to Jonathan's question earlier about maybe turnover. Maybe just looking at it a bit differently. In terms of perhaps, I guess, the backlog of tours that have been perhaps postponed or being deferred. What can you say about that in terms of what was, I guess, in the pipe leading up to, I guess, the restriction of entry into the homes?

Well, we're doing virtual tours. So we have that capability. We would have prospects in every property that we're considering coming in. We were -- they were at some point making a decision. We would be keeping in touch with those individuals. And if they were -- got into a situation where they really wanted to move in, we would do that. We would make provisions for that. So that would be ongoing, but I would say it's a pretty small funnel just because of all of the fear around senior living right now in the current environment.

Got it. And maybe just one last one for me. In terms of the debt covenants, can you just remind us what your -- what the thresholds are for -- on your coverage ratios?

This is more -- are you talking from our -- when we finance what the debt covenants might be? Is that what your question is? Sorry, Pammi, go ahead.

No. I just can say, yes, no, that's right.

Yes. So for usually the DSCR covenant that mortgages look for is around 1.25 to 1.3. It's quite -- obviously, we are -- we have a lot of room from there. From some of our unsecured financing, the covenant is from an unencumbered asset pool that tests around 1.3, and we have a lot of room there. And then the last one would be -- or the major one would be debt to book value, and most of the covenants are in the 60s, and we are in the 40s. So we have a lot of room there as well. So at this point, we do not see, from a materiality perspective. But if you have challenges, time to time, you might have one-off mortgages where you could see where you might be working with a lender for a waiver or a small pay down, but nothing material for us at this time.

And sorry, what was the debt service coverage ratio requirement?

Yes. So debt service coverage, usually for mortgages is around 1.25 to 1.3. And we would be in the 2 range, right.

Our next question comes from the line of Tal Woolley with National Bank.

My first question is just on the financial side. I'm wondering if you can speak to -- one of the questions we're all dealing with right now is tenant credit quality. And I'm wondering if you can just speak to how you see the credit profile of your residents evolving through this crisis and how you plan to manage it.

Well, I guess, I would say, our asset class has 1 of the best tenant possible because Long Term Care is virtually secured by the resident, copayment is either -- it's from their pension. There's -- kind of out of the pension. Or they would receive -- they're already on a subsidized rate, which ministry government offsets if they're -- have a certain income, then government currently offsets the rent. So that's virtually bulletproof. And then government, as you know, the ministry of government funds the care. And they've just announced some additional funding to help offset the costs related to COVID, such as the extra staffing that I spoke about and the supplies and so on. So I would say that Long Term Care is essentially bulletproof. We receive full funding if there is an outbreak and the home is closed to admissions. That happens all the time, annually, in flu season. Every winter homes go through outbreak, and there's fully -- you have funded 97%, even when occupancy gaps related to closure -- for closure. In Retirement, again, I would say that residents who are living with us, have -- certainly have the means through the real estate of their assets, they did very -- extremely well on real estate. They also have portfolios. So they have -- when they moved in, they have done so knowing that they could live with us for a period of time easily on their income and their pensions and whatever else they had, their savings. So I think bad debt has never been an issue in retirement. So we think we have the most creditworthy tenant, probably of many of the asset classes possible.

Okay. And then the Ontario government yesterday announced a temporary order that made some changes to help, I think, give you some flexibility operationally. Can you just talk to those changes and how they could help?

Yes. I mean, there's -- right now, ourselves, as we're leaders in this sector, we work very actively with all levels of government and our association. And our associations have been advocating very strongly to government that you've got to relax some of the regulatory regime in Long Term Care, because it will stifle us. And so they did just that. They reduced a number of the regulatory requirements, and they're working on more now to reduce them so that we can just run the business the way we need to run it in order to get whatever staff we can. If we -- if this situation continues to escalate, it's going to be extremely difficult to get staff. So we'll be looking to recoup from hospitality and other sectors that are -- have now laid off. And we'll be providing them with basic training programs. We've already designed that and designed a new role called the care assistant, who will come in and have very specific responsibilities and will be a big help in all of the properties. So that's just intended to give us the flexibility we need to do whatever we have to do to manage through this situation.

Okay. And then, I guess, this next question probably relates to your answer just now. But just to be clear, like there's obviously an operationally intensive business and we're financial guys. And so from the outside, we don't necessarily get a good grip on how the day-to-day operations might really be impacted in one of the hardest risks to manage. And so just going back to I think it was Pammi's earlier question, it really does seem like this labor question is the biggest one that you guys have to deal with right now.

It always is. I mean labor is our #1 cost. It's what we do. We have 12,000 team members. So it really is -- the operational intenseness of this is really, every new directive that comes out around screening and visitors and so on we've got to implement that across the company, get to all employees, all residents and all family members with the new change and manage all of that, the change that goes along with that.

Our next question comes from the line of Chris Couprie with CIBC.

Just 2 questions for me. Just with respect to the hospital program that you were outlining earlier on the call, any sense for the number of beds that, that could potentially represent in the hospital system? And is this new program likely to be permanent or just kind of a wartime measure, so to speak? And then the second question I have is just regarding the essential visitor designation. Have you been given any guidance at all by the government as kind of what they're looking for before they relax that provision?

Well, on the essential visitor program, we will not be relaxing that anytime soon at all. We wouldn't even consider it because this situation, as you could see by the numbers every day in Ontario and across the country, are just escalating. So we will not be even thinking about changing that anytime soon. With respect to the number of days or beds or suites that this program, we don't know. All that we do know is that on any day, there's about 10% of hospital beds that are occupied by alternative level of care or hallway medicine, which you hear often a lot about. But we don't know of those, of the hallway medicine problem, how many of those would be suitable for the program because you can't take really heavy care or disruptive behavior issues. So we don't know what that number is. That has yet to be seen. And whether it's a temporary or permanent, again, way too early to tell in terms of the design, the success, the utility, how difficult it would be for us to manage it. So I would say that's -- we don't know. Too early to tell whether we'd actually want to do it on an ongoing basis, depending on how difficult or how it gets implemented.

Right, right. So I can definitely appreciate that you're not looking to relax the essential visitor for -- in the foreseeable future or in the near term. Is it a rate of change that you're keeping an eye on? Or what do you think it is -- whether it's yourselves or the government, what are some of the things you're thinking about in terms of how that might change?

Well, we just -- we cannot risk having it come into our -- any residents. We just can't take that risk. And the way it comes in is through someone that's had exposure or has traveled. And so it's just -- we can't even consider it at this time.

I think it's too early to tell, Chris. No one really knows. No one has dealt with a situation like this before. So at this point, I don't think we have any better answer than what Lois mentioned already.

Our next question comes from the line of Yashwant Sankpal with Laurentian Bank.

Lois, based on your past experience, Sienna's experience, are you seeing anything materially different in this situation than past and that you have handled or worked with?

What do you mean in the past?

Like SARS or any other infections like this? Is this situation materially different?

It's completely different. It's not even on the same trajectory. SARS was completely hospital based. That was something that was acquired. It was contained to hospitals. It wasn't community-based or community spread. So there's just no -- there's not even any comparison, to either SARS or H1N1 or anything else that's come before that. There was virtually no impact on senior living from H1N1 or SARS.

So for you guys, this is totally new situation?

Absolutely. It's a new situation for the world, I would say. This is -- it's unprecedented [indiscernible]. And it travels so rapidly.

Right. And just a hypothetical question. What happens if, let's say, you find that one of your residents is COVID-19 positive? Like what actions would you take or what procedures you have in place?

Well, there's a whole protocol around it. They're isolated, quarantine. So all the staff, there's a protocol around what equipment the staff wear in the room, designated team members. And then there's the treatment, whatever the treatment is. And as you know, there's not a cure for this. There's -- you really just treat the symptoms. And so that would be managed in accordance with the physicians.

What I mean to say is you are already under a lockdown. And let's say you find one of the residents is positive. So what are you going to do?

We're not -- no home is in a lockdown. A lockdown is when you're closed to admissions because you have an outbreak. That's a --

I'm not using the right term. But like at this point, are residents allowed to go to the dining room, halls or take part in any of the community activities? I'm assuming they have all have been stuck.

No, the -- no. Unless the home's in outbreak, the residents can go to the dining room where we can manage social distancing. So there would be fewer people in the dining room, but we would still be using the dining room. All large programs and activities would be stopped. It would only be small activities on the -- in the specific home area.

Got it. And do you have -- does every facility have its own testing facility to find out if somebody is positive -- COVID-19 positive? Or do they have to send the samples to the hospital?

Absolutely. The testing is all done by labs. They go out, and it takes a couple of days to get the result.

[Operator Instructions] Our next question comes from the line of Brendon Abrams with Canaccord Genuity.

Most of my questions have been answered already. I guess just 1 relating to viability. And Lois, would there be anything specific to the COVID-19 or a pandemic? In this situation, obviously, the company's taking all the necessary precautions. But, from -- just from a liability perspective, is there anything unique to this situation should wider outbreak somehow occur? And what would -- what insurance that -- would insurance cover that scenario if it did?

So I'm not sure, Brendon, what you mean.

Well, just in terms of the sensitive nature of this outbreak and the COVID-19, is there any possibility that should one occur, there would be any liability to the company in this scenario that -- and whether insurance would or would not kind of cover it?

I think that is yet to be seen. This is a global phenomenon. It's happening around the country, whether there is or isn't lawsuits that come out of it and what the outcome would be is hard to tell, but we certainly have insurance provisions for every -- anything that would be covered.

Thank you. This concludes today's question-and-answer session. I would now like to turn the call back to Lois Cormack for closing remarks.

Well, again, thank you very much, everyone, for joining our update on this. We will -- do intend to keep you informed. So reach out any time if there's specific questions that you do have. And thanks so much for your support and just supporting everyone that's out there providing essential services. Have a good day.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.