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

Ladies and gentlemen, welcome to Sienna Senior Living Inc.'s Q4 2024 Conference Call. Today's call is hosted by Nitin Jain, President and Chief Executive Officer; and David Hung, Chief Financial 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 statement or information. Please refer to the forward-looking information and Risk Factors sections in the company's public filings, including its most recent MD&A and AIF for more information. You will also find a more fulsome discussion of the company's results in its MD&A and financial statements for the period, which are posted on SEDAR+ and can be found on the company's website, siennaliving.ca. Today's call is being recorded, and a replay will be available. Instructions for accessing the call are posted on the company's website and the details are provided in the company's news release. The company has posted slides, which accompany the host remarks on the company website under Events and Presentations. With that, I will now turn the call over to Mr. Jain. Please go ahead, Mr. Jain.

Thank you. Good morning, everyone, and thank you for joining us today. We had a great start to 2025. We maintain our growth momentum, which is reflected in our financial results. So far, we are also on track to add nearly $600 million of assets through acquisitions and developments by the third quarter, and we see significant potential for future growth throughout the balance of the year. Our increasing scale comes at a time when demand for senior living is accelerating and supply remains highly constrained. This positions us extremely well for continued growth. With respect to Sienna's operating results, our key performance indicators continue to trend in a positive direction in the first quarter. Adjusted same-property NOI increased by 16.7% in the Retirement segment and 2.2% in the long-term care segment. On retirement, increasing occupancy and rental rate growth were the key drivers of the double-digit increase. Average same-property occupancy was up 260 basis points year-over-year and has reached 92.5% in the first quarter, and we remain confident to reach our stabilized occupancy target of 95% by Q1 2026. Our robust sales platform and focused marketing campaigns continue to generate strong interest in our residences. Our call center leads remain strong, and our recent national open house had significant higher attendance and tours than in recent years. In addition, we remain focused on maintaining excellent relationships with health care and business partners in the local communities of our residences. On long-term care, our fully occupied homes with growing wait list added to the continued stability of this segment, which reinforces the strength of our operating platform. Moving to Slide 6. 2025 is shaping up to be a year of considerable growth through acquisitions and developments. By the third quarter, our platform will exceed 100 properties, and we will not end there. To date, we have closed $250 million of acquisitions in British Columbia, Alberta and Ontario. And just yesterday announced an $85 million acquisition of a Class A retirement residence in Ottawa with an anticipated closing date this summer. The residence is currently 93% occupied, and we feel confident with our platform, we will get it to stabilized occupancy of 95% within the next 12 months. With closing of our portfolio acquisition in Alberta at the beginning in April, we established platform in one of Canada's fastest-growing provinces. This acquisition of 4 properties has provided immediate scale and positions us well for continued growth in Alberta. Each acquisition is expected to be immediately accretive to Sienna's AFFO per share, and we remain very active in the acquisition market and see strong potential to create long-term value as we continue to scale our business. On the development side, we are ahead of schedule to complete Sienna's first 2 long-term care redevelopment projects in North Bay and Branford. Both projects remain on budget and will be completed this summer. With no lease-up risk, the redevelopments should immediately contribute to Sienna's financial performance upon opening. Each project is expected to grow Sienna's AFFO per share by about 3%. At our Branford location, we are also nearing the completion of our new 147 retirement residents. By developing our retirement residence next to our long-term care redevelopment, we have enhanced the economic viability of this $140 million project with an expected development yield of 8.5%. Moving to our team members. Investing in our team members and building a workforce that is fully aligned is fundamental to growth and scaling our operations. We are particularly proud of our shared ownership program, which allows team members to participate in the growth and success of Sienna. Starting this year, we have expanded the program beyond this original onetime award. Under Sienna's new SOAR for service, team members will receive additional shares as they celebrate milestone work anniversaries working for the company. Programs like SOAR ensure a strong sense of ownership and shared purpose among our team members and have delivered clear results. For 2 years in a row, we are able to reduce turnover by about 30%, which has led to a significant reduction in the use of agency staff and year-over-year agency costs are down nearly 70%. With that, I'll turn it over to David for an update on our financial results.

Thank you, Nitin, and good morning, everyone. I will start on Slide 9 for financial results. In my commentary, in accordance with our MD&A disclosure, I will make reference to our operating results, excluding onetime items in order to provide a clearer picture of Sienna's underlying performance. In Q1 2025, total adjusted revenues increased by 12.1% year-over-year to $241.8 million. This increase was largely due to occupancy and rental rate growth as well as increased care revenue in the Retirement segment. Adding to the increase were the significant contributions of our long-term care platform, including higher flow-through funding for direct care and higher private accommodation revenues. Total adjusted same-property NOI increased by 8.5% to $42.5 million in Q1 2025, including by 16.7% in our Retirement segment and by 2.2% in the long-term care segment. In the Retirement segment, adjusted NOI increased by $2.9 million in Q1 2025 compared to the prior year, largely as a result of improved occupancy and rental rate growth. These improvements, in addition to generating higher care revenue and maintaining a strict focus on operating expenses, supported the year-over-year 210 basis point improvement of our same-property operating margin. We expect the margin expansion to continue as we get closer to our 95% occupancy target and achieve additional efficiencies through scale. In addition, we are progressing well with respect to our asset optimization initiatives, which includes 5 assets in the company's retirement portfolio that will benefit from a range of initiatives. These initiatives target a better market fit and include renovations, the change in suite mix, additional services or the alternative use of our property. Occupancy in our optimization portfolio increased by 500 basis points year-over-year, adding to the strength of our Q1 results in the Retirement segment. In the Long-Term Care segment, NOI increased by $0.5 million and reflects the segment's stability, which is supported by fully occupied homes and growing waitlist. During Q1 2025, operating funds from operations increased by 27.5% to $24.7 million compared to last year, primarily due to higher NOI. OFFO per share increased by 8.3% to $0.287 in Q1 2025. Adjusted funds from operations increased by 27.1% to $22.9 million compared to the prior year. The increase was mainly due to higher OFFO and a decrease in maintenance capital expenditures, offset by lower construction funding income. AFFO per share increased by 7.7% to $0.266 in Q1 2025. Our Q1 2025 AFFO payout ratio was 91%, a 390 basis point improvement compared to Q1 2024. Excluding the impact of the February share offering, our payout ratio was 86% in Q1 2025. Moving to Slide 10. Throughout the first quarter, we further strengthened our financial position and balance sheet. We ended the quarter with $445 million in liquidity, $1.1 billion of unencumbered assets with no major debt maturities until Q1 2026. At the end of February, we successfully raised $144 million in equity, and we are on track to deploy our cash on hand into accretive acquisitions and developments. Yesterday, we announced the acquisition of Hazeldean Gardens in Ottawa. We will acquire this 172-suite retirement residence at a purchase price of $85.25 million and at an investment yield of 6.33% with additional upside through synergies. Hazeldean is our second acquisition in the Ottawa region this year and will be acquired at a significant discount to replacement cost. Our expansion in Ottawa reflects our confidence in this market where our existing portfolio has shown an impressive performance in recent quarters. With that, I will turn the call back to Nitin for his closing remarks.

Thank you, David. I'll start on Slide 11. The fundamentals in Canadian senior living remain exceptionally strong. Demand for senior housing continues to accelerate while new supply dropped below 1% of the total inventory in the past 2 years, and it is expected to remain below 2% for at least next 5 years. In addition, an aging infrastructure further adds to the significant supply constraint. These trends not only make our assets more valuable, but they also make Canadian senior living an increasingly attractive sector for long-term investments. Looking ahead, we expect same-property NOI in our Retirement segment to benefit from continued occupancy and rental rate increases. We remain on track to reach our stabilized occupancy target of 95% by Q1 of 2026. Based on our strong first quarter results and outlook for the balance of the year, we have increased the guidance for Sienna's 2025 retirement NOI segment target to exceed now 10%. Sienna's long-term care portfolio is expected to benefit from the continued stability of this segment. The 2025 target for long-term care is expected to be in the low single digits, in line with inflation. In addition, we expect Sienna's growth through acquisitions and development to continue. So far, we are on track to add nearly $600 million of assets by Q3, and we see significant potential for additional growth during the balance of the year. At the time of broader economic uncertainty, the Canadian senior living sector continues to demonstrate stability, resilience and opportunity for growth. Coupled with Sienna's increasing scale and strong balance sheet, we have never been more confident about the opportunities ahead. On behalf of our entire team and our Board of Directors, I want to thank our shareholders and all of you on this call for your continued support. And with that, we'll open it up for your questions.

[Operator Instructions] Your first question comes from the line of Lorne Kalmar with Desjardins.

Congrats on another solid result here. Maybe just on the guidance side of things for the retirement homes. Was there perhaps an element of conservatism built in? Or in the last couple of months, have you guys really seen a change that warranted the bump in the guidance?

That's always the challenge when you provide guidance, you don't want to undersell and you don't want to oversell. So, you're always trying to find the right balance. When we started the year, we are making significant changes to our platform. We are trying to expand our margin, and we're seeing those results. So, we want to make sure that our programs work before we start giving -- strengthening our guidance. And our Q1 results show that we are on track. So, our same-property NOI was around 17%, and now that is giving us confidence to put a little bit more optimism into our numbers, which is the 10% plus guidance.

Okay. And then so, you said 17% this quarter, is there any reason to believe you can't repeat that over the balance of the year? Or do you expect it to kind of trend down over the balance of the year?

It's too early to say that just yet. So, we don't want to give you guidance and not meet those. So, I think at this stage, we'll stick to it will be 10% plus. And you're right, 17% is 10% plus, but so is 11%. So, I think at this stage, it's a bit early to commit to a number.

Fair enough. Better under promise. And then maybe just last one. I think this time last year, you guys had the update around the LTC funding for Ontario. Just wondering if there's any update to be provided there or if you guys are still waiting?

The budget is supposed to come out in the next 2 weeks, and that's when we expect the funding announcement to come out as well. Obviously, no one knows what government will decide, but the sector expects the funding should grow in line with inflation, not only it is needed for the existing homes, but it is much needed to continue to grow long-term care as the wait list only grows to continue.

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

Just maybe, Nitin, just coming back to the comments you just made on changes in the platform. Can you maybe just expand on that? You're certainly seeing momentum, but what are some of the key pieces that are driving perhaps the upsized outlook?

Sure, Pammi. One of the things, and that was a common question last year, we saw a significant uptick in occupancy. And our view is for every occupancy change, it's $2 million in revenue, nearly 75% goes to NOI, but we were not seeing that last year. And we have done a few things. One is just looking at our operating platforms efficiencies. We have done that or in the process of completing it. The second is care. residents in our portfolio, which is more care focused. So, we've not -- so the good part is you don't see a lot of slowdown with the economic uncertainty, but people do need more care. And the way we were charging for that care, the way we were structured for it needs some work. I would say we are in the early stages of fixing that, and we would continue to see that momentum going forward.

Okay. That's helpful. And then just on the acquisition pipeline, it sounds like it's active still. In terms of maybe what's under review beyond the deal that you just announced, but can you quantify that in terms of what else is under review? And what sort of potential do you see in terms of total acquisitions for the year?

I would be a bit hesitant giving those pipeline because a lot of times, there are people who are just kicking the tires, the properties are for sale, but it's not really for sale. Having said so, the pipeline continues to be very robust. In Q1, we guided that we have a pipeline of $150 million to $250 million. Since then, we have announced close to $150 million of acquisitions already. So, I think just maybe at a 10,000 feet level, I would say that pipeline continues to be in that quantum.

Okay. And then maybe just stepping back, big picture here, as you work towards driving a stronger valuation, is there any shift in your thinking between the long-term mix of the business between retirement and long-term care? Or just are you comfortable keeping it where it is or toward that 50-50 target?

So, we're not really fussed about a 50-50. I think what we are focused on is making sure we continue to be diversified. And doing the acquisitions we have done so far reflects that doing $250 million of acquisition in all 3 provinces, it is possible because we're growing in all those 3 in both segments of the business. That's one. Second, in the Western provinces, there are quite a few more campuses, which has the benefit of both long-term care and retirement. And as we are seeing ourselves in Branford, where we're building both, it is nearly impossible to get an 8.5% yield in a retirement home, but we're getting that because it's combined with long-term care. And the third part is, I think there is still a big valuation gap in the private markets and public markets for long-term care. We bought a long-term care home in Ontario for around 6.75% cap rate, and it was competitive. We were not the highest bid. And we bought 4 continuing care homes called Long-term care light in Alberta at around 6.5% cap rate, and it was competitive and we were not the highest price because the business has stabilized significantly. All signals from government is that funding will continue to grow with inflation and staffing has gone better significantly. So, I do think that business fundamentals has changed all for the better, but somehow it has not reflected in the public markets yet, but we remain optimistic and confident that, that would happen.

Your next question is from the line of Jonathan Kelcher with TD Securities.

Just continuing on the acquisition and the pipeline, which of your markets are you seeing the most opportunities? And I guess, secondly, what is the seller profile look like?

So, I think all these markets, Ontario, BC, Alberta, we continue to be active. We see opportunities in all of those markets, see more opportunities on the retirement side and some opportunities on the campus side. So, we'll continue to focus on that. I would expect a big part of our long-term care growth is going to come through acquisitions, which is a pretty unique time in Ontario, considering that you have the inflationary growth and then you can grow your nearly AFFO by 3% per project, which is unique, and I think that should stay with us for the next 5 years. The kind of sellers, Jonathan, is really similar to what has been in the past. So, it might be companies who are focusing on one part of the business versus another. So, we saw that when we bought the Sprit portfolio 2 years back. We saw that with another smaller regional senior housing where they were focused on retirement and wanted to exit from a long-term care side. The properties we bought in Alberta were developers where their goal is to build them and sell it to stabilize, which works perfectly for us because the development dollars are going to be tied to Ontario. So, it really continues to be a mixture of all of those kind of sellers, and we remain active in all those 3 provinces and expect to do so for the balance of the year and next year.

Okay. That's helpful. And Hazeldean, that's stable, like what's the occupancy on that? I'm assuming it's stabilized.

Jonathan, it's at 93%.

Okay. And then just on the margins, 210 basis point improvement on the same property. Obviously, I'm guessing that's part of your confidence in increasing your guidance. But if we think about the repositioning portfolio, do you think margin expansion there could be a little bit higher than the stabilized portfolio?

Our target, Jonathan, is to get the repositioning portfolio to be same or similar as our same-property portfolio. So, we're currently at around 38% right now on same property. We would anticipate that the repositioning portfolio can get there.

Over and what are you now on the repositioning?

Currently at 26% in Q1.

Okay. And I'm assuming that's a multiyear goal, not for 2026?

Yes, we would see it somewhere between the next, let's say, 12 to 18 months. Some of these properties take time, whether it be through renovation, changes in service offering or whatnot, it does take a little bit of time. That being said, we are seeing some very good momentum. Our margins, for example, this quarter were at 26%. A year ago, they were at 22%. So, we're seeing good progress in that portfolio.

Okay. So, it should all else equal, it should grow a little bit faster or faster than maybe a little bit, but faster than stabilized.

We would anticipate that, yes.

We saw that this quarter as well. I mean that had much bigger growth than our stabilized portfolio, and that's why we separated them out of our same-property NOI.

Your next question comes from the line of Himanshu Gupta with Scotiabank.

So just on the Ottawa acquisition, Hazeldean is 93%, I think, occupancy. How do you expect occupancy ramp up here? And is there any near-term upside on margins as well?

I would say there would be some upside in margin from a synergy perspective. Himanshu, there would also, we see a path of 95% from 93% with our operating platform. So, this was very good developers, and I think they've done a great job of stabilizing that home, but it is one home. So given with our call center and our marketing and sales, we do expect our occupancy to be closer to 95%. We have multiple other homes in that area, and those occupancies are higher. The Ottawa market has changed for the better because people have finally stopped building there after many, many years and now demand is catching up to the supply we had of retirement homes there. So, I think given all of those, we do see a path to 95%, call it, in the next 12 months.

Got it. And I mean, you mentioned multiple homes here to this property and there are some synergies. So, synergies are mostly on the cost side or revenue side as well?

They're mostly on cost side. I mean that's when you think about procurement, food cost, medical supplies, labor, those are all synergies we can add operational efficiency and how we staff. For the homes, that's one. But there, when you have multiple homes, and they're not next to each other, but they're apart from each other, you can actually sell them. We see that in Kingston, where we have 4 retirement homes. And for a lack of a better word, there are 4 different levels. For example, one is independent living and another one has memory care. So, if someone is looking for memory care, that's the top of the place to recommend is our own home. So, we do see some synergies on revenue as well.

Got it. Okay. And then if I look at the acquisition price on a dollar per suite basis, I mean, Hazeldean looks a bit higher than Wildpine. I mean, is there a reason like, are the bigger units, better rent profile? Or what's causing that?

Absolutely. And I think your answer is in your question, there are exactly those 2 things. The suite sizes are bigger. And because of suite sizes being bigger, it also has a higher rent. It has a bigger mix of assisted living memory care. The common areas are bigger, and obviously, that gets into the rent. So that's -- it is very reflective of the level of retirement home versus Wildpie.

Okay. Fair enough. Shifting gears here on LTC NOI growth of 2.2% in Q1, obviously, excluding one-timers, fair to say this could be the run rate for the full year?

That's right. We anticipate for 2025 that LTC will grow in the low single-digit range. So, the 2.2% is fairly representative of what we could see through the rest of the year, again, in the low single-digit range.

Fair enough. Last question is on retirement home margins, and I know a bit of discussion already. So, 100 to 150 basis point margin expansion expectation. What other -- I mean, like agency staffing is already down like 70%. I mean you've done a lot of progress there. What other expense or cost items do you think there is like further scope to bring it down?

I would mention what I said already, we saw a significant increase in occupancy last year, but we did not see appropriate levels of margin expansion. So, we are working on those. Care is one of them, optimizing our staff to making sure that we are not overstaffing and it is coming at the right shift. That would be second. How do we do sales and marketing, that's third. There's some synergy opportunities for cost there. So, it will be a combination of all of that. And again, we feel comfortable with that $100 million to $150 million range. And so far, good results on the work that the team has done.

Your next question comes from the line of Giuliano Thornhill with National Bank.

Just a few for me. I'm just wondering how much in remaining spend there is for your current projects under construction?

Yes. So, our budget for the 3 projects were $300 million. To date, we've spent about 58% of that, so around $175 million.

And I know you guys mentioned that the Class A cap rates for LTC, they're kind of tight in that low 6 area is what you mentioned earlier. What's demand like for the Class C units? And like how is that being underwritten?

I mean we haven't really bought any Class C homes, Giuliano. So, I think most of them, they would trade. It's a combination of free cash flow for the next 10, 15 years, value of land and it really varies. Like in our case, majority of our C homes, which are not developed now are in GTA. In some cases, with significant land value, we have a property in St. George Street, where the land value would be close to $30 million, $40 million. So, it really depends where those C homes are.

Right. And then with your couple of LTC projects being completed soon, what are the kind of key inputs that you're looking for when greenlighting the next couple?

So, we already started our project in Cedarvale in Keswick. So that project is already underway. We have probably another couple of projects ready to go in the budget, we expect to see -- let's see what comes out in the construction funding, one of those projects in the GTA, which there has been a long time to get the appropriate construction funding. So, we would be ready to start construction. But obviously, we will do that if it's financially viable, similar in the range of what we see in North Bay and Branford. So, it's a bit of -- we are ready with drawings and ready to go on the ground, but the financial viability still has to get proven out.

Your next question comes from the line of Tom Callaghan with BMO Capital Markets.

Maybe just 2 quick ones for me. I appreciate all the commentary on the retirement outlook and specifically margins. But maybe just one on that or sticking with that theme. Just trying to get a sense of the trajectory over the balance of the year. Was there anything nonrecurring or kind of one-off either this Q1 or last year that helped drive the very strong performance in Q1?

Not really. I think from a balance perspective, we ended the year at around 37.3%. So, I would take the total margin percent we expect is the 100 to 150 basis points on top of it. So, this 38.1% is pretty much in range for that. So, I think nothing abnormal and all the onetime items, as David said, we stripped them out because we really wanted to compare apples-to-apples with the growth.

Okay. And then just one other one on the repositioning portfolio. You talked a bit about it, but I think if I look in the disclosure there, occupancy of 80%, and I think that's up from 76%, which you noted in Q4. Are there any kind of key drivers there? I'm guessing it still might be a little early for the repositioning programs to be driving this, but just interested in any color there.

Yes. We continue to be active in this particular portfolio. So, we've been doing renovation, repositioning of some of the suites. And what we've seen is that some of that has started taking traction at this point. So that has definitely contributed to the growth in occupancy in that portfolio.

There are no other questions at this time. I will now turn the call back over to you guys for closing remarks, please.

I just want to thank everyone for your time and for your questions and look forward to speaking to you in the next quarter.

Ladies and gentlemen, this does conclude today's call. You may now disconnect.