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

Hello, ladies and gentlemen, welcome to Sienna Senior Living Inc.'s Q3 2025 Conference Call. Today's call is hosted by Nitin Jain, President and Chief Executive Officer; and David Hung, Chief Financial Officer; and Executive Vice President, Investments 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 section 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 hosts' remarks on the company website under Events and Presentations. With that, I will now turn the call to Mr. Jain. Please go ahead, Mr. Jain.

Thank you, Sarah. Good morning, everyone, and thank you for joining us today. The third quarter set the stage for a strong finish to this year. There's positive momentum across every part of our company. We achieved strong operational results in both lines of our business, successfully completed 2 development projects in Ontario and continue to grow through acquisitions. We're on track to make 2025 a year that marks the next stage of Sienna's growth journey. Both operating platforms delivered strong results in the third quarter. Same-property NOI increased by 13.2% in the Retirement segment and by 6.7% in long-term care. Key drivers of the double-digit increase in the Retirement segment were a strong occupancy increase and rental rate growth as well as higher care revenue. Average same-property occupancy was up 230 basis points year-over-year and has reached 94.1% in the third quarter. Following the quarter, monthly occupancy increased to 94.7% in October, putting us well on our way to achieve a 95% target by the end of this year. Our results also reflect an increase in care revenue. We increasingly apply our expertise in clinical care at our retirement platform, which allows residents to stay with us longer as their care needs change. Additional key drivers behind the strong performance in our Retirement segment and a robust sales platform and focused marketing campaigns. Our call center leads remain high and the number of tours in our properties have significantly increased each quarter this year. Our Q3 leads have increased by 37% year-over-year compared to the same period last year. And we're also encouraged by the results of our recently hosted national open house in October. We generated a much stronger double-digit increase of new leads compared to our previous event in July. In addition, we maintain a robust focus on hospital outreach and excellent relationships with health care and business partners in the communities we operate in. All of these initiatives are expected to drive increasing lead generation and future movements. Beyond the strong same property performance and Retirement segment, we are pleased with the results of our optimization efforts in 5 of our properties. Occupancy increased by 970 basis points year-over-year in Q3 and in the optimization portfolio and supported NOI growth of over 40%. Our initiatives to better position these assets within the local markets are clearly delivering results. With respect to our long-term care operations, our fully occupied homes with growing waitlists, high revenue from private accommodations and annual government funding increases all added to the strength of our results. Our government-funded long-term care operations add significant value to our business and as they provide stability and are largely insulated from market volatility or economic uncertainty. In the coming quarters, we will also start to see the contributions from our recently opened redevelopment projects. Moving to Slide 6. In September, we opened our redeveloped long-term care community in North Bay, followed by a campus of care in Brantford in October. These large-scale projects are complex, require deep expertise and trusted partnerships. And we are especially proud to have delivered them on time and on budget. Once fully stabilized, each of our long-term care redevelopment is expected to grow Sienna's AFFO per share by about 3%. With long wait list, we expect to see the homes to be fully occupied within 60 days after they open. We're also on track to complete our next redevelopment project in Keswick in 2027. With respect to our development pipeline, we are encouraged by the funding improvements announced by the Ontario government this summer. Improvements for projects in the Greater Toronto area are especially important to us, given that over 80% of our remaining redevelopment pipeline is, in fact, in the GTA. As a result of these improvements, we expect to start construction of 1 to 2 projects next year. Since the beginning of the year, we have also been very active on the acquisition front. The majority of the properties we acquired in 2025 are less than 10 years old and are strategically located in large urban centers. During the third quarter, we strengthened our footprint in the Greater Toronto area with the addition of our previously announced 133 suite retirement residents and 192 bed long-term care home. Since the end of the quarter, we also entered into 2 additional acquisition agreements in Ontario. Last week, we signed a purchase agreement for Hygate on Lexington, our 216 suite retirement residents in the city of Waterloo, we will acquire the property in the desirable market for approximately $93.3 million. Hygate also includes our 4.7-acre development site, which is zoned for a retirement residence or residential condominium. 2 days ago, we signed a purchase agreement for LaSalle Park a 123 suite retirement residents in Burlington. A suburban GTA, we will initially acquire a 78.2% interest in the property for approximately $67.2 million followed by an additional 10.9% in January 2026 and the final 10.9% in 5 years. This is a third high-quality acquisition in the Greater Toronto area this year. where we already have a significant presence and continue to build scale. Collectively, we have added over $800 million of assets through acquisitions and developments to our platform in 2025 and our pipeline continues to stay very strong. Investing in our team members, as we grow and scale our operations, investing in our team members is fundamental to the success of Sienna. With over 15,000 employees, we recognize the importance of programs focused on learning and development, leadership skills, recognition and rewards, all designed to attract and retain a highly engaged workforce. The positive impact of these initiatives is reflected in our most recent employee engagement survey, which was completed in September. The participation rate reached an all-time high of 86% and and the team member engagement score rose for the fifth consecutive time. We're extremely proud of this achievement, which is crucial for the continued success of Sienna. Our investment in our team members was also recognized by Time Magazine, who named Sienna one of Canada's best companies in 2025. With that, I'd turn it over to David for an update on our financial results.

Thank you, Nitin, and good morning, everyone. I will start on Slide 10 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 Q3 2025, revenue on a proportionate basis increased by 16.4% year-over-year to $261.7 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 contributions from our long-term care platform, including higher flow-through funding for direct care, higher private accommodation revenue and additional revenue from acquisitions completed in 2025. Same-property NOI increased by 9.7% to $46.4 million in Q3 2025, including by 13.2% in our Retirement segment and by 6.7% in the Long-Term Care segment. In the Retirement segment, same property NOI increased by $2.6 million in Q3 2025 compared to last year, largely as a result of improved occupancy and rate growth. These improvements in addition to generating higher care revenue and maintaining a strict focus on operating expenses supported the year-over-year 220 basis point improvement of our same-property operating margin. In addition, we are making good progress with respect to our asset optimization initiatives, which includes 5 assets in the company's retirement portfolio. NOI in the optimization portfolio increased by over 40% year-over-year with an average margin increase of approximately 540 basis points compared to the same period in 2024. In the Long Term Care segment, NOI increased by $1.5 million, fully occupied homes with growing wait list and continued improvements in private occupancy supported the year-over-year growth. During Q3 2025, operating funds from operations increased by 33.3% to $31.8 million compared to last year, primarily due to higher NOI. Adjusted funds from operations increased by 36.1% to $27.7 million compared to last year. The increase was mainly due to higher OFFO, offset by an increase in maintenance capital expenditures. On a per share basis, OFFO and AFFO increased by 9.6% and 12%, respectively, in Q3 2020. Our Q3 2025 AFFO payout ratio was 78.7% compared to 91.3% in Q3 2024. The significant improvement highlights Sienna's strong operating results and our successful initiatives of deploying capital we raised to fund our growth. In the coming quarters, we also expect to see contributions from our recently completed redevelopment projects reflected in our AFFO. Each redevelopment is expected to contribute on average an additional $4.7 million to Sienna's annual AFFO once it is fully operational. This represents an approximate a 3% increase in AFFO per share for each project. In addition, these projects will enhance our balance sheet and further elevate the quality of our asset pool. Throughout the third quarter, we maintained our strong financial position and balance sheet. We ended the quarter with $464 million of liquidity and $1.3 billion of unencumbered assets. On August 21, we issued $175 million in unsecured debentures at an interest rate of 4.12% to finance our growth initiatives. The significant demand for the debenture resulted in the offering being multiple times oversubscribed. With respect to Sienna's upcoming debt maturities, including the maturity of our $175 million Series B unsecured debenture in Q1 2026, we have multiple attractive financing options available to us. With that, I will turn the call back to Nitin for his closing remarks.

Thank you, David. Our disciplined approach to enhancing our operations is clearly reflected in our results. Combined with our success in growing through acquisitions and developments, it reinforces our confidence and outlook for Sienna both in the near term and in the years ahead. We are on track to end the year with same property occupancy of 95% in the Retirement segment ahead of our original Q1 2026 target. In line with strong year-to-date performance, we also updated our same-property NOI growth targets. In our Retirement segment, we expect same-property NOI to increase between 13% to 14% year-over-year. And in Long-Term Care, we anticipate year-over-year NOI growth to 4% or 5% in our same-property portfolio. Our company has at a beginning of an exceptional growth phase. Supply is expected to remain constrained in the foreseeable future, while demand and operating fundamentals continue to strengthen. With our growing scale and the support of our highly engaged team members, we believe that we have a tremendous opportunity to generate sustained growth for many, many years to come. On behalf of our entire team and our Board of Directors, I want to thank our shareholders and for all of you on this call for your continued support. Sarah, we are ready for questions.

[Operator Instructions] Your first question comes from Jonathan Kelcher with TD Cowen.

First question, just on the operations front looks on the retirement side. It looks like you are sort of hitting it out of the ballpark a little bit here at hitting the 5% what should we think about going forward in terms of rent growth once you sort of meet that target?

Thank you, Jonathan, and we expect our rental growth to be in the range of 4% to 5%, which is a combination of annual escalations plus there would be some opportunity to, in fact, look at market rents again when you're running at those high occupancy. And even though your question was not around margin, once we have said before that once we get to the higher margin, a lot of that revenue will continue to fall on the bottom line. So the NOI growth rental revenue will be a part of it, but there will be multiple other levers, which will drive the NOI growth.

Fair enough. And then just secondly, on the acquisitions, could you maybe give a little bit more color on a just in terms of like the remaining 22%, is that pricing set? Do you see a lot of runway for rent growth there? Like the 5.7% cap rate is a little bit on the low side for what you guys have been buying in retirement.

Yes. No, thanks for that question, Jonathan. So just in terms of the structure, we are buying 78% now. at $67.2 million. We're going to buy another 11% in Q1 of 2026. Also at the same price that we're buying now. So it would be at 100%, the value would be $86 million. And then 5 years from now, it would be at the fair market value at that time, and we'll have some predetermined metrics for how we calculate that. I think that in terms of rental rate growth, it's going to be similar to what Nitin said, we see opportunity in the range of 4% to 5% rental rate growth within that market. So -- and a lot of that will also fall to the bottom line and expand the margins within that property.

The next question comes from Himanshu Gupta with Scotiabank.

So first on Long-Term Care, what led to NOI growth here? I mean I know you have been guiding to around like 2% high growth, and we got like 4% to 5% in the year so far. So is there like a margin expansion story in DC as well the.

Yes. It's a couple of factors, Himanshu. One is higher funding from all 3 provinces in Ontario, Alberta and B.C. and that has run a little bit higher than our increase in expenses. The second is around preferred revenues. So we have been driving growth through filling in our bets with residents who pay private accommodation rates and then there's a little bit around the acquisition of Nicola. We did buy that earlier in the year. So that's contributing moderately to the growth in long-term care NOI.

Okay. Okay. Fair enough. And I mean sticking to LGC, but on the developments, Bradford and North Wales complete now. When do you start receiving construction funding? And when will you start reflecting that in the financials? And I guess it will be like a breakdown between like interest income and contribution.

That's right. So CFS funding starts when the building is open. And in the case of Northern Heights, we opened the building and had our first lessened our first residents on September 7. And so CFS started flowing on September 7. And then Oakwood comments, which is in Brantford opened up in October, and that's when the CFS would start flowing at that time. So we've actually already started seeing a little bit of the CFS flowing through we're going to see the full impact of that, at least for Northern Heights in Q4 and then Brantford would be -- in terms of the breakdown of the CFS, we've actually disclosed that in our MD&A. So out of the $3.3 million, around $2.2 million would be interest income and the other $1.1 million approximately would be an add back to our AFFO.

Got it. Okay. Very helpful. My last question is on the retirement home side. I mean, I think that then, obviously, you mentioned 4% to 5% kind of rental growth. And if I look on the expenses side in pole expenses, I think they were up like 3% to 4% in 2025. Is that a good run rate for expenses for Q4 and beyond?

Yes, I think that's a good assumption, what you just talked about, about the rental growth and expense growth. One of the things that we have -- 1 idea we have -- which most people talk about is how more of it falls to the bottom line. The second part is an homes are stabilized. First of all, we use very less incentives and incentives around to revenue, but our ability to remove those, that definitely helps. And from a -- and also from an expense perspective and you have consistency in the number of residents in the home, you can become a lot more consistent in scheduling and other things which also drive down cost. So as a starting point, the assumptions you have talked about Himanshu are not unreasonable, but we do expect an opportunity to, in fact, drive them lower from an expense perspective.

Okay. Very helpful. Maybe just the last question here. On the retirement home occupancy, I think you mentioned Q3 leads were up like double digits, if I heard it correctly doesn't look like occupancy is going to stop here at like 95%. Is that a fair assumption given how the leads are coming in and you still have more opportunity to wrap it up?

Yes. I mean that is a fair share out of our 44 homes, roughly, 25% of them up close to 100%, if not at 100%. And then the other are, call it, 95% to 98%. So we're not it is not unusual to see really high occupancy. At a portfolio basis, it remains to be seen what can be sustainable. And I think the idea that it should not stop at 95% is that's not unreasonable. I think what remains to be seen, while it will go to 98% or would it be over the next number will be 96%. But I think that remains to be seen as an industry.

The next question comes from Sairam Srinivas with Cormark Securities.

Just looking at the redevelopments you guys completed -- how should we be thinking about the stabilization time line here? And I know likes have been coming in. So when does the -- so should we look at probably 12 months when it's 98% on an.

Thank you. One of the things that -- which is not well understood is really how well the long-term period development works, especially after the government funding. So David mentioned on September 7, we opened our Northway properties. On day 1, you get fully funded. -- and expectations from the government is that you will be fully leased up within 60 days, and we are fully leased up in North Bay in 60 days. The Brantford opened in October and we get full funding on day 1, and it would be fully leased up in 60 days. So in fact, there is no lease-up in Long-Term Care. And Brantford, we also have a campus of care which has retirement home attached to it, and that is also leasing quite well.

And when it comes to bank for, it's a mix of both retirement and LTC were there. how does the funding work? I mean like are governments more incentivized to actually provide funding for these kind of projects?

So government's funding is dedicated just to long-term care, and there is a whole mechanism to ensure your expenses, capital expenses are properly allocated just to long-term care. Your operational expenses are properly allocated just to long-term care. So -- and we have many other campuses. So that is -- and there are a few others who have campuses. So this is well established based in the industry.

That makes sense. And maybe my last question around acquisitions. Obviously, you guys have been pretty active both in Bataan as well as LTC space. When you look at the headlines right now, we do see a lot of infrastructure funds as the private players looking into these kind of assets. So when you compete in the market right now, are you seeing a lot more of those save funds come in? Or like what's the competition like?

Absolutely. And the Senior Living has been a quite competitive space. One of the key factors for us is we know how to operate them. This is not just a pure rental business. Operations are complex. And the fact that we have 15,000 employees, I mean that might be all the real estate companies combined and just the nature of the work that we do. So 1 of the things that works not benefit is really understanding the complexity of operations and driving synergies out of it. And this is also a very relationship-focused business even though we all compete with each other. A lot of the sector has been around for a while. Relationships are important in this space. Usually when someone is selling, whether it's generational or whether it's -- they built it and they want to sell, they want to make sure that they're selling it to people they know can close on a timely basis and because it has a high number of team members and residents involved, they want to make sure it gets to the right place. So all those things play. And I think our -- instead of me saying that we have been quite successful. You can just look at our numbers. We have been quite successful in closing -- getting these acquisitions and closing them.

So that makes sense. Sorry, I guess 1 last from me. You obviously mentioned these are operationally intense businesses. And on a huge part of that is labor cost. As you get into 2016, do you see any bottlenecks from that perspective? And what are the challenges that had come up on from the talent sourcing perspective?

You're talking about labor perspective, it's Sara. Yes. So I would say it's -- the industry as a whole has got better from a labor perspective. immigration helped significantly. Five years ago, we made a major pivot on the whole idea, if you take care of our team, they'll take care of your customer, residents and business will take care of itself. As simple as it sounds, that has had tremendous outcome for us. In the last 2 years, our turnover is down by 60%, 6-0. So we are hiring a lot many less people. People are staying much longer and that helps not only from a labor perspective in retirement homes how to drive occupancy residents get comfortable to refer us more. In long-term care, it's driving less compliance issues, less quality issues, residents are happy. So we are seeing massive improvements in labor front. And amend some very hard-to-fill areas. We, in fact, have no vacancies across our portfolio.

The next question comes from Giuliano Thornhill with National Bank Capital Markets.

I'm just wondering what led to the big occupancy uptick in your same-property portfolio in August.

So thank you, Julian. We have been working -- the strategy has been the same. We are very, very local the relationship with the hospitals, the relationship with other health care providers, water, all of those things are important. And -- it is not, frankly, rocket science. The idea is to ensure you have a set of processes, and you want to make sure you get done. So the approach we're taking is not to come up with new programs but be disciplined on the things that we have and to do them well on a regular basis. That applies to a call center that applies to how we follow it leads that applies to the sales cycle, and we are seeing good results with it the front and we do expect that to continue.

Okay. So just like on the retirement portion, is that like localized to geography at all or like specific to a couple of properties or is it more just broad based?

The occupancy gains is broad-based. So it's not that 1 home increased occupancy significantly and that moved the needle. Areas we are seeing a consistent increase across majority of our portfolio.

Okay. And then just another question was just on the capital funding program announced by the government last quarter. I'm wondering if that, I guess, revised funding program has led you to consider or improve the ability to pursue your GTA properties, your Class C GTA properties?

It is, Julian. So we've been studying the new program with great interest. 80% of our properties are within the K, and this program significantly improves the funding within the GTA. We're currently completing some of the analysis in terms of which projects would it make sense to proceed with. But our intention would be to proceed with 1 to 2 projects in 2026 within the GTA.

And how are you deciding on which ones to pursue within the GTA. Is it mostly based on like just how are you factoring, I guess, the land cost into that decision?