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

'26 conference call. This call is hosted by Nitin Jain, President and Chief Executive Officer, and David Hung, Chief Financial Officer and Executive Vice President, Investment 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 factor 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. [Operator Instructions] The company has posted slides which accompany the host remarks on the company's website under events and presentations. I'll now turn it over to Mr. Jain. Please go ahead, Mr. Jain.

Thank you. Good morning, everyone, and thank you for joining us today. Sienna's second quarter reflects the continued improvements across our operations and the success of a diversification strategy. We delivered strong organic growth for the 14th consecutive quarter with both our long-term care and retirement operations achieving double-digit growth. We also completed acquisitions of two retirement residences during the quarter, maintained a strong balance sheet and investment credit rating, and formed a strategic partnership to accelerate our long-term care redevelopments. This is happening at a compelling time for Canadian senior living. The sector remains exceptionally strong, driven by fast-growing demand from an aging population and limited supply. Moving to slide 5, during the second quarter, same property NOI increased by 15.2% in the retirement segment and by 22.6% in the long-term care. Key drivers of the strong results in the retirement segment were occupancy and rate increases. In addition to higher care revenue, same property occupancy was up 150 basis points year over year and has reached 94.1% in the second quarter. Together with a growing scale and operating efficiencies, this led to a 200 basis point margin expansion in our same property portfolio. Quarter over quarter, occupancy was marginally lower compared to the first quarter as a result of slightly elevated move-out activity. Subsequent to the end of the second quarter, occupancy increased to 94.5% in July. Our well-established sales platform and focused marketing campaigns continue to generate strong leads. This was evident at the recent annual open house, which attracted more than 500 attendees and resulted in an increase in qualified leads and deposits. We also continue our focus on hospital outreach and excellent relationships with healthcare partners in the local communities where we operate. A key driver behind the strong performance of retirement operations was higher care revenue. This is the result of our Aspira Wellness Program with more efficient processes, improved staffing models, and consistent care offerings. The program was launched last year and has led to an approximate 37% increase in care revenue year over year. With respect to Sienna's long-term care operations, fully occupied homes with growing wait lists, high revenue from private accommodations, and government funding increases all added to the strength of the results. In addition, the contributions from acquisitions and developments are further supporting our strong performance in the second quarter. Sienna's long-term care operations add significant value to our business and provide stability given that they're largely insulated from market volatility or economic uncertainty. After completing our first long-term care redevelopments in North Bay and Brantford last year, we continue to advance our redevelopment pipeline, in particular in the Greater Toronto Area. We expect to start construction at two projects in the GTA in early 2027, including a 448-bed long-term care community at Sienna's Glen Rouge site in Toronto, and the recently announced 256-bed redevelopment at a Streetsville community in Mississauga. The two projects are part of Sienna's 1,600-bed redevelopment pipeline, of which more than 80% is located in the GTA. We have been actively sourcing land, and with recent site acquisitions in Brampton and Toronto, we now have land for the majority of the projects in our pipeline. We also continue to be active on the acquisitions front with acquisition of two retirement residences for $100 million finalized during the quarter, and a purchase agreement for a newly built $68 million long-term care property under contract. These acquisitions further elevate the quality of Sienna's platform by adding modern, high-quality assets in attractive markets. Sienna's acquisition pipeline remains strong as we continue to pursue opportunities that fit our diversified growth strategy. Beyond our acquisitions and redevelopments, we remain focused on creating value within our existing portfolio through asset optimization, strategic renovations, and enhancements across the retirement and long-term care platforms. In our retirement segment, we are focused on aligning our residences with market demand, expanding services, and clinical care offerings to better support residents as their care needs change. This will allow residents to stay in our retirement residences longer and has already generated notable results, both in terms of financial performance and resident satisfaction. In our long-term care segment, we continue to enhance our operations to improve the resident experience. We're also encouraged by the recent introduction of a renovation program for long-term care homes by the Ontario government. The program provides capital funding to renovate existing long-term care homes or convert vacant buildings to long-term care homes. This program gives us additional options to make improvements to our portfolio, and we are currently evaluating possible opportunities to participate in the program. Moving to slide 9, in July, Sienna was once again named one of Canada's best companies by TIME magazine. We are truly honored to have earned this recognition for a second consecutive year. We've also moved higher in the rankings this year and earned a place among the top 125 companies recognized in Canada. While our significant growth played a role in earning this recognition, more than anything, it is a reflection of the passion of our 15,500 team members who care for approximately 14,000 residents each and every day. Their impact comes to life in our 2026 impact report published today, which shows how they are enriching the lives of thousands of residents, supporting families, and strengthening communities across Canada. Sienna's strong team member engagement, record-low turnover, and purpose-driven culture is at the heart of our success and will continue to be one of the company's greatest competitive advantages as we execute our growth strategy. 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 11 for financial results. 2026, revenue on a proportionate basis increased by 13.6% year-over-year to $288.2 million. This increase was largely due to acquisitions, 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, increased private accommodation revenues, $2.1 million in retroactive funding, as well as acquisitions and developments completed over the past year. Same property NOI increased by 19.4% to $57.6 million in Q2 2026, including by 15.2% in our retirement segment and by 22.6% in long-term care. In the retirement segment, same property NOI increased by $3.2 million in Q2 2026 compared to last year, largely as a result of improved occupancy, rate growth, and higher care revenues. Combined with our strict focus on operating expenses, the year-over-year operating margin improved by 200 basis points. In the long-term care segment, same property NOI increased by $6.1 million. Higher care revenue from private occupancy, government funding increases, and retroactive funding were the key drivers behind strong year-over-year growth. Our Q2 results in our long-term care segment include retroactive items in both comparative periods. Excluding these retroactive items in both years, same property NOI would have increased by 13.5%. During Q2 2026, operating funds from operations increased by 35% to $39.6 million compared to last year, primarily due to higher NOI partially offset by higher income tax and interest expenses. Adjusted funds from operations increased by 44.9% to $34.9 million compared to last year. The increase was mainly due to higher OFFO and construction funding income for redevelopments completed last year. On a per share basis, OFFO and AFFO increased by 16.4% and by 24.4% respectively in Q2 2026. Sienna's Q2 2026 AFFO payout ratio was lowered to 72.3% compared to 89.5% in Q2 2025. This improvement highlights Sienna's strong operating results, the contributions from our completed redevelopments and accretive acquisitions, as well as the progressive discipline of capital to fund growth initiatives. We ended Q2 2026 with a strong financial position, including approximately $604 million in liquidity and nearly $1.6 billion of unencumbered assets. At approximately 35%, our net debt to adjusted gross book value is conservative and our weighted average cost of debt remains low at 3.9%. Year over year, we also further improved Sienna's debt service coverage ratio to 2.7x from 2.4x in Q2 2025. Sienna has approximately $180 million of debt coming due in the next 12 months. Given our access to a broad range of capital and the recent confirmation by Morningstar DBRS of our BBB credit rating with stable trends, we are confident in our ability to refinance our expiring debt at extractive terms. With respect to our equity, we issued $98 million of shares under our current $150 million at-the-market equity distribution program during Q2, which provides the necessary liquidity to fund our continued growth through acquisitions and developments. As we execute our growth strategy, we will continue to stay disciplined in our approach to raising and allocating capital, always with a focus on maintaining a strong balance sheet. With that, I will turn the call back to Nitin for his closing remarks.

Thank you, David. As we enter the second half of 2026, we are confident in our ability to deliver on our growth objectives. We are confirming our 2026 target of more than 10% same property NOI growth in our retirement segment. In our long-term care segment, we are raising our same property NOI growth target to mid to high single digits. With respect to our platform growth, we believe that our ability to operate and invest across the full continuum of care communities differentiates Sienna and gives us a wide range of growth opportunities from private pay independent living to government-funded long-term care, from acquisitions to redevelopments, and from financing our growth with Sienna's equity to third-party joint venture capital. With that in mind, we are excited about our new joint venture partnerships with Fiera Infrastructure. Fiera Infrastructure is a global infrastructure investment manager and wholly owned subsidiary of Fiera Capital, a leading Canadian investment management firm with over $160 billion of assets under management. Given the significant capital requirements for long-term care redevelopments, the joint venture under which both Sienna and Fiera will hold a 50% ownership interest in selective redevelopments projects will allow us to execute more projects over a short period of time and diversify our development risk. Initially, the joint venture is targeting $625 million in redevelopment projects, with Glen Rouge and Streetsville being the first projects under consideration. All of this comes at a time when Canadian senior living is performing exceptionally well, and we believe Sienna is ideally positioned to benefit both over the near and long term. On behalf of our entire team and our board of directors, I want to thank our shareholders and to all of you on this call for your continued support. With that, we are open for questions.

[Operator Instructions] Your first question comes from the line of Sairam Srinivas with Cormark Securities.

Just looking at the Fiera JV, congratulations on that. Can you comment on the scope of the JV in terms of the size, especially considering the two projects that you're contemplating adding in could probably amount to about 55% of the capacity there?

Yes, good morning, Sairam. The intention is to, you know, not have high concentration with any given partner. You know, we have enjoyed working with them so far. The idea is to let's test the joint venture up to a certain amount. And over time, both parties have an opportunity to add more to it. So I would use that as a starting point. And as we do projects together and get more comfortable, you know, we can add more projects to it.

That's great. And, Nitin, when it comes to the timing of these projects, if you were to think about the timing you guys were thinking probably, let's say, last year for redevelopments in the GTA versus now considering the new policy that have come out, what's the revised timing look like versus what you thought earlier?

You mean in terms of starting of the current projects or the total pipeline in general?

Total pipeline in general. Yes, total.

I mean, the reality is till last year there was really no redevelopment program that worked for GTA, so that program came out last year, which we're extremely thankful for. However, behind the scenes, we already had land and we were planning to get these projects going because it takes at least 24 months of zoning work, drawings work to get the shovel ready. So we have been working behind the scenes to get those projects with being optimistic that eventually there would be a program in the GTA. So I think if anything that has given us more confidence in our ability to execute in GTA, we finally bought the last two pieces of land that for our current C homes it frankly serves all of the homes that we need to redevelop. So we bought land in Brampton and we bought another big portion of land in Toronto area. So from a GTA development we're well covered. So I would expect this program to take next 5 to 7 years roughly.

That is great, Nitin. My last question is around the new funding policy that's recently been announced. Do you anticipate more M&A in the space right now, considering you could probably see a lot more people getting interested in adding more properties onto the LTC pipeline?

The new funding program now has existed for 4 or 5 years, and it has made development possible. The GTA program came out last year, and that obviously makes programs possible in GTA. What continues to not change is that it is a complex project with high barriers to entry. In most cases, government is looking for someone to be an experienced operator because the complexity has only gone up. There are a lot more people employed in each one of the homes. When hours of care in Ontario, for example, went up from 2.8 to 4, means you have around 35%, 40% more staff now in every home. So a 160-bed home could easily have a couple of hundred people in it. So capital is definitely more interested in this space, which is very welcome, and Fiera being one of them, and we're looking forward to a good partnership, but what has not changed the barriers to entry and the complexity of operations. That's why having the scale and the ability to operate continues to be a key for us.

So I mean, just probably looking at the June 2026 announcement that just came out, would you say essentially the same standards that applied earlier would apply to this one as well where you'd need really experienced operators to step in and not other people interested?

Sairam, are you talking about the recently announced renovation program?

Yes. Oh, thank you. That renovation program only applies in most cases to the homes that are currently C homes. And it's an opportunity where you cannot find land to redevelop it on site, which are usually complex. But in some cases, it could actually make sense. So we wouldn't believe that would make any significant changes other than to make home renovations possible where there is not opportunity to buy additional land.

Perfect. Thank you, Nitin. Thank you, David. I'll turn it back.

Your next question comes from the line of Jonathan Kelcher with TD Cowen.

Just to clarify that last on the renovation of existing C homes, that new program, do you guys not have all the land that you need in Toronto to redo your C properties right now?

We recently acquired two properties in GTA, which was very difficult to buy in the past because we were always competing with multi-res and a few other areas which have because of the slowdown there, we have been able to source land. But I'll just use an example. We have a property on St. George Street, which is actually called St. George. It's right next to U of T. And you can potentially move that home, you know, 15, 20 kilometers away. But the reality, it serves a very specific population, and it's much needed. And a program like that is a perfect application there where you're landlocked, it is very difficult to buy land anywhere close to there, but you can renovate that 50-year-old building and afford it to make it for next 25, 30 years. So it would apply to very specific scenarios such as those, Jonathan. And that would be the purpose behind it. We don't really expect that it'll have thousands of additional beds built. I think it will be very specific to certain homes. And at this stage, it would be a pilot program.

Okay, that makes a lot of sense. So on the LTC portfolio, the margins were up, even if we back out the one-time stuff, the margins were up nicely year over year. And I guess that's partly on lower staff turnover and lower agency staffing. Do you maybe quantify the savings that you got on those two?

Yes, so I would break down the increase in LTC NOI into a couple of components. So, you know, definitely the staff savings and the agency, that would have been a couple of percentage points that contributed towards the year-over-year NOI growth. I would also highlight, you know, a couple of other things. First of all, it's around higher government funding. So similar to what we saw in Ontario a couple years where we had the catch-up funding, we're seeing the same thing now in Alberta and BC. So as we reported, Alberta has increased their funding by 7.25%, and that was to catch up for several years the increases were a little bit lower. And BC did the same thing. So one of the health authorities that we operate in increased their accommodation funding by 20% after not having increased it for many years. So that is a factor that we're seeing factor within why our NOI increased. The second one is around redevelopments. We are seeing all of the accretive impact in NOI from the opening of our North Bay and Brantford buildings. Not only do we have some additional beds, we also get more preferred accommodation revenues, our overall maintenance and operating costs on a per bed basis is lower. And then the other reason that contributed this quarter was around private revenue. So within our long-term care portfolio, we do have around 200 beds that are private pay long-term care. And so we've been able to increase the market rates for those beds in BC.

Okay, that is helpful. But on the staffing levels, how sustainable do you think 20% turnover is?

Hi, Jonathan. Good morning. I mean, we have never been in the space where the turnover is in 20%. I came from the hospitality sector where turnover was more expected close to 100%. I mean, part of the lower turnover is driven by general macro factors where, you know, many people are not hiring. There was a lot of PSWs and nurses who graduated in the recent year, so we have definitely benefited from that. We continue to believe some of the work we did at Sienna, whether it's a shared ownership program or the work on cultural alignment, adds to a lot of it as well. So I think it's hard to predict, can we stay at 20% for the next, you know, for the next 5, 10 years, I think macro factors definitely would have a play. But internally, we will continue to do things that we're doing to reduce this turnover. And I think to your question, I think it's very hard to quantify those things. I'll maybe just give, you know, usually when you hire a staff member, on average, you're training them for a week, right? So instead of hiring, when you have 15,000 team members and the turnover is 50%, you're hiring 7,500 people. Now at 20%, you're hiring, you know, 3,000 people. So that's 4,500 people less, a week less of training. That's one. Second, people being in, team members being in the roles for longer, you know, there is a lot more efficiency there. Family members are happy, residents are happy, because they understand the needs and wants for our residents and families. And lastly, it allows us for our team members to grow within the company. So again, as we look at recruitment costs and filling roles, we see more and more promotions internally. I mean, just in the first half of this year, we had 80 promotions into management from frontline or management to bigger roles, including senior leadership within Sienna, which, again, significant savings in recruitment, but even bigger savings in people already knowing the culture and fit more easily within Sienna's platform.

Okay, that's helpful. And then just lastly, the full year bump to the long-term care same property NOI, does that exclude one-time items?

It does. It excludes the one-time items.

Okay, thanks. I'll turn it back.

Your next question comes from the line of Lorne Kalmar with Desjardins.

I just wanted to go back to the newly announced JV. Nitin, I think you said that the program will take about 5 to 7 years, which I think is pretty consistent with what you'd said previously. I just wanted to get a better understanding of how the formation of this joint venture action changes the cadence of project starts versus what was anticipated prior to its formation.

Lorne, so the joint venture would not change the timing of project starts. The projects will start when they're supposed to start. What it allows us to do is actually do more projects. So we have been quite clear from the beginning that we don't want more than roughly 10% of our assets under development. Some of you all rightly pointed out that $375 million between these two projects would be roughly 10% of our asset value, around $3.5 billion or so. So what it allowed us to do is start working on additional projects which we would have been, which we would not have been able to do. So previously, you know, if we did not find capital partners, either we'll do other creative structures or figure out a way, you know, to spread them out a bit more. What it allows us to do is be actively sourcing land and actively working on putting more projects. So essentially it has doubled our capacity for redevelopment.

So you don't expect it to actually, you don't expect to start more developments any sooner per se. It just kind of gives you the backstop to, I guess, execute on, or the certainty, I guess, to execute on more projects than you had before. Is that a good way to think of it?

I would say it's a combination. So for Streetsville and Glen Rouge, the project already announced and the one under construction, which is in Keswick, it will stay on track. And, you know, they are both, they're all on an expedited basis. One would be finished next year, which is Keswick, and the other two will start early next year. If we did not have a capital partner, what it will do is probably not, you probably would not look at any additional projects to start next year or the year after. Given where we are in a pipeline, there is a high likelihood that we might add additional projects next year or announce next year and begin construction in 2028. So again, it has doubled our speed of adding projects to a pipeline.

Okay, that's sort of what I was getting at. Okay, that's very helpful. And then I guess maybe I'm going to keep piggybacking off of my peers' questions here, but on the LTC same property NOI growth, do you guys think this is something that can stay elevated into 2027 or is this sort of a 2026 phenomenon and then we go back to low single-digit same property NOI growth?

I mean, our medium-term forecast or projection would be long-term care is stable, predictable, it will eventually moderate back into the low single digits. Whether that is by the end of 2026, 2027 has yet to be seen. We are still seeing governments respond to the need for long-term care, and like what we've seen in BC and Alberta, where they've done these catch-up funding amounts. So eventually, it will moderate back into low single digits, whether it's 2027 is a little bit hard to say at this point.

Okay, I guess that's a good problem to have. And then maybe just lastly, before I let you guys go, on the retirement side, are you guys seeing any meaningful acceleration in market rents at this time?

I mean, market rents and annual rent increases have been pretty consistent. So, you know, our goal is not to increase rents by 20% and upset everyone. We would rather have sustained growth over the next 5, 10 years than a big bang for a year and a lot of upset residents. So we continue to see the same rate we have seen in the past. When you are at 95% occupancy, again, you have the opportunity to set your market rates on a consistent basis. So we are not really seeing any changes from what we've seen in the last two or three years. Other than the fact that we are seeing a lot more care-focused revenue, not only we have clarified our programs and made them more standardized and they're more operationally efficient, but the residents are looking for more care. And when we're doing our strategic renovations, which we have quite a few projects underway, we're adding more cares to our retirement homes.

Okay, thank you so much.

Your next question comes from the line of Brad Sturges with Raymond James.

Just wanted to circle back to the formation of the new JV with Fiera and just understand the mechanics of it a bit more. I guess Sienna will be acting as a development manager over the course of the construction. Would you be earning development fees along the way or how should we think about perhaps that type of income stream through the construction process?

Sure. Good morning, Brad. So we would be, as developers, we would be earning development fees. We would also be lending in our land and the work that we've done so far because many of these projects are pretty far along at fair market value. And in addition, we will manage these assets. All of those fees, obviously, would be confidential because of our joint venture terms and conditions, but they are completely would be at market. So if a third-party appraiser would do an appraisal of a construction project, what they would assume market development fee would be, you can assume those would be the same fee in our and the same applies to management fee. So truly third-party arm's length market fee structure.

Perfect. And then just in terms of the understanding of the cash or the acquisition structure, there's a, I guess, as construction starts, there's an acquisition by Fiera of 50%. With that, would Sienna receive cash in at that point, or is it just effectively reducing your cash outlay for the construction phase?

At the inception of the partnership, both Sienna and Fiera would contribute an equal amount. Again, to Nitin's point, in the case of Sienna, part of our contribution is going to be the fair value of land and Fiera's contribution would be cash. From there on in, our expectation is to get project level financing to finance the rest of the project.

Perfect. And then just as you're thinking or contemplating new projects, does Fiera have like a right of first look to participate in future projects that you may commence or is this sort of being driven by the Sienna side in terms of whether you want to bring in a partner on future projects?

I think there are a few terms and conditions around which projects we take to Fiera, you know, our opportunity, we continue to have the rights to do them ourselves, you know, this is only focused in Ontario. So I think without revealing our confidential terms and conditions, I think Fiera would be a great partner for projects the way we decide to partner and it's focused on Ontario.

And as projects complete a few years out, is there any formal mechanics around unwinding on each specific project, like would you both have right of first opportunity to acquire the other out or how would the mechanics of that work?

Sure, we would have typical liquidity provisions, but the intent of this partnership is that, obviously, we would never have any intent to sell any long-term care homes or to give up our operations. And Fiera has the same intent. This is not a fund which has a time limit attached to it. So, you know, based on all our conversations so far, in their mind this is an evergreen joint venture.