Q4 2019 Earnings Call

On a 19 conference call.

Today's call. It is hosted by North <unk>, President and Chief Executive Officer, and Jane Chief Financial Officer, and Chief Investment Officer.

Thank you live in Inc.

Please be aware that certain statements or information discussed today <unk> looking.

Actual results could differ materially.

Company does not undertake to update any forward looking statements or information.

Please refer to the forward looking information and risk factors sections in the company's public filings and coolness. Its most recent mdna for more information.

You will also fine a mall foursome discussion in the company's resorts and its M. DNA and financial statements for the period, which are posted on SEDAR and can be found in the company's website Santa living Dot C.

Today's call is being recorded.

And a replay will be available.

Production for accessing the call posted on the company's website and the details are provided in the company's news release.

The company has posted flat, which a company the whole remarks on the company website under events and presentations.

With that I'll now turn the call it over to Miss Coleman. Please go ahead.

Thank you Towanda.

Good morning, everyone. Thank you for joining us on our Q2 Q4 call. This morning.

It's 2019, we continue to invest in our people platform and property. We further strength, that's deanna position as a high quality provider in a dynamic sector.

We have focused on operating and financing initiative and made great progress and Oh, yeah, integrating our retirement portfolio operating platform and team.

Our strategic initiatives or aimed at providing a great resident experience and building and retaining a high performing team.

We have achieved a high level up resident satisfaction of 81%.

Based on the results of our annual survey in 2019.

Our national quality indicators continue to exceed industry benchmark.

To support occupancy in retirement segment, we have continued to enhance fail operation and marketing programs and to invest in our property.

We have made great strides and optimizing our capital structure and in early November we finalized our 150 million inaugural unsecured debt financing.

Subsequently repaid some long term debt trading a pool of unencumbered asset.

Our financing initiatives further decrease the company's cost of debt continued to strengthen see on its balance sheet.

I think 2019, <unk> debt to enterprise value up 43.7%.

Moving to slide five.

The other benefits from owning a high quality at a balanced portfolio of long term care and retirement residences.

The long term care portfolio has remained virtually at full occupancy at 98.2% with waiting list for each of our residences.

The quality indicators in the portfolio consistently exceed industry benchmark.

And we anticipate positive result, with respect to the third party accreditation of the Ontario long term care portfolio, which is currently underway and will be completed by Q2 Twentytwenty.

Average same property occupancy in retirement was 86.1%.

Q4 2019.

There are a number of factors that are contributing to the softness in occupancy, which I addressed on our Q3 call as well.

Noting that temporary disruption associated with property up great and renovation at a number of the properties.

Oversupply in the auto while market.

And there was no supply in both Kingston and the so three markets, which are impacting our properties in these markets.

We have been focused on several initiatives in retirement, what's the goal to enhance the resident experience that's just a port occupancy.

These initiatives include enhancing our assisted living services.

Marketing campaigns and winter promotion.

And investing capital to make further suite and amenity upgrades at a number of the residences, which we expect to be complete by Q2 of 2020.

With respect to our people strategy, a more centralized approach to recruitment learning and leadership development has improved the quality and the delivery of our program and supports our goal to build and maintain a high quality engaged team a great culture.

The seniors living sector continues to evolve driven by an aging demographic, new technology, and changing consumer needs and preferences.

Yeah that is embracing these opportunities and will ensure that continued investment in our people platform properties will further strengthen our position as a high quality provider.

With respect to supply and demand we believed that the majority of see on his retirement residence inns are located in markets, where future demand, it's except expected to exceed supply.

I'll turn the call over 10 done for further details on C. on its financial results. Thank you Lewis and good morning, everyone I will start on slide nine.

Same property net operating income for the quarter was 38 million compared to 38.9 million in Q4 2019.

Largely as a result, the softer occupancy another carbon segment.

The long term care division generated same property NOI of 21.5 million compared to 21.8 million in the prior year.

The timing of expenses.

At a time in division generated same property NOI of 16.5 million impacted by softer occupancy, partially offset by rental rate increases in line with market conditions.

For the year same property NOI increase my 0.7% driven by steady growth in a long term care portfolio and a stable operating margin and retirement business so 45%.

Moving to slide 10.

Wonderful in Q4, 2019 was 22.8 million compared to 23.6 million in 2018.

Largely resulting from lower same property NOI and determine portfolio and nonrecurring DNA expenses.

It was partially offset by lower interest expense and lower current income taxes.

Q4, 2019, dilutive or AFFO per share was 34 cents compared with 35.7 cents under prior years fourth quarter.

Q4, 2019, impactful was 20.9 million compared to 21.7 million in 2018.

Diluted EPS AFFO per share was 31.3 cents in Q4 2019 compared to 32.9 cents in the prior years fourth quarter.

During the fourth quarter CNO to see the Triple B investment grade rating with a stable trend from DBRS.

This provided the company with additional financial flexibility and supported Fianna sports unsecured debt financing of hundred 50 million for a five year term at 33.109%.

We talked to you, which was used to pay down part of our higher interest rate debt, including a 35 million dollar buyback for series B debenture.

Thank you create a pool of unencumbered assets.

At December 31st 2019, she and I had over $300 million of unencumbered assets.

Moving to slide 12.

Continuing with the trends they said to what the past quarters before that improved our balance sheet and capital structure.

Ending 2019, with a debt to enterprise value a 42.7%.

And our debt to gross book value of 46% in.

Introduction of 480, 970 basis points, respectively year over year.

See enter the debt to EBITDA improved to 6.7 times in the quarter compared to 6.9 times in Q4 2018.

Our interest coverage ratio remained high at 2.7 times and be pool debated average cost of debt by 20 basis point here what are your to keep one 6%.

With that I'll turn the call back to Lois.

Thank you Milton.

What's more seniors than ever needing support we are optimistic about our company and feel confident about cnas long term growth potential.

With a balance portfolio and future development opportunities.

With respect to our operating result, we expect that long term care portfolio to generate 22, I think that operating in come in line with 2019.

In retirement, we expect a mid single digit decline in same property NOI for the first half of Twentytwenty.

We're working towards occupancy improvements in the second half a year with a view of generating low single digit and a wide growth in the second half the twentytwenty potential growth and 21.

We are committed to constantly upgrading the quality of our portfolio and well continue to focus on maintaining a balanced portfolio mix through strategic acquisition.

Potential disposition of non core assets in addition to development opportunities.

Our development plans and close freestanding retirement residences with joint venture partners and intensification opportunity at existing sites.

The developments the senior living campuses are subject to regulatory approvals and financial feasibility and we continue to collaborate with industry associations and government authorities and seeking solutions for the development of new long term care bad.

With respect to intensification, we expect our recently completed expansion Island Park in capital for Twitchy stabilized occupancy by mid 21.

We also plan to start an expansion at King's Mirror and Allison comprising approximately 60 suite by mid 2020.

This expansion has an estimated rate of return up 8% to 10% and unexpected completion date and 2021.

Looking ahead, we remain committed to initiative aimed at creating positive experiences for all of our stakeholders.

I am confident and the ability of our team to achieve continued success I remain nimble and adapting to change about keeping focused on providing best in class services to our resident.

With that sophisticated operating platform extensive management takes expertise and senior living and a strong balance sheet Fianna is very well positioned to achieve sustainable long term growth.

Thank you for your participation on the call today, a net and then I will be pleased to answer your question.

[noise], ladies and gentlemen to ask the question you would need to press Star then one on your telephone that star ones actually question to withdraw your question press the pound cake.

Please standby, while we compiled the Q1 I roster.

My first question comes from a lot of Max you comfortable with Scotiabank. Your line is open.

Thank you and good morning.

So on the documentation segment.

Do you take your expectation for a recovery twentytwenty.

Has changed to since we last spoke at quality results.

How does things found out as expected in the last few months.

Our my two for results you know a materially in line I am Entre with what you expected in Q4 I you know as Louis mentioned during the Q2 call and on our comments and all of his while we continue to see pressure in the three specific markets that you called out a you know I think some auto once held sorry.

And we are seeing you know more pressure from the new entrance to the market in terms of reducing rates worse is what people originally talked so.

Our original guidance was that we expected same property NOI to be slightly positive and next year and what you're coming back with days that we expect mid single digits in the first top and lower single digit recovery in the second huh.

Okay, and then supposed to be on New York see body in white guidance for the first half. So you expect a mid single digit decline are you expecting flat occupancy or do you see decline in occupancy as one.

You know what's up really what we are focused on is I'm, putting our occupancy for the long term and what we don't want to be doing is buying occupancy by you know.

Reducing right. So that has not been focused sandwiches evident in our margin for the full year, It's Matt stayed pretty stable to last year at 45%. So it'll be a focus on freezing margin over the long term and again as Louis mentioned, our focus would be.

We're not sitting idle on it but we expect.

Occupancy to start improving really in the second half of 2020.

Okay. So the expectation is the same as a recovery in the second half of Twentytwenty.

Yeah. That's right. We had said you know we know that the winter is it's always seats at all so that you know that size. We had forecasted that we did not expect any substantial improvement in occupancy until the latter half of the here.

Okay and be recovery is that a function all the renovations getting completed or is there do recovery in the fundamentals itself.

Yeah, well, we won't be completed our renovation. So that's a stock will definitely assess what the properties that are undergoing the renovation as well. There's just the usual increased seniors don't tend to move in the winter months and so.

So those later months our efforts over the summer and fall or use and got the months, where we have a better uptake in terms of I tours and leads and visits to our properties and move them.

True and you can you remind how many properties ugly ventilation right now and what are the timelines.

In terms of them getting completed.

And when do you start to see occupancy pick up on those properties.

So it's really the 10 may afford properties when you bought them in early 2018 be set aside $5 million.

To work on those and you know we are you continuing on that we expect most of them or sort of all of them would be completed by Q2 off 2020.

And again, the the change in occupancy would really be a blend all changing in occupancy indoors residences and in addition to the market in Kingston salt sort of yet some of the new supply gets absorbed.

Got it and maybe just a last question on social Remarket to what are you seeing you don't want new supply and how is that impacting your properties. How do you have two properties do we have two properties and there are two new properties that came into the market that are very close.

Okay. Okay. Thank you I'll, just I'll turn it back thank you.

Thank you next question comes from the line of Troy Mclean with BMO capital markets. Your line is open.

Good morning.

Right.

For the development program I'm, just kind of curious is that target at existing markets or as a way to enter new markets.

Oh, It took a hard development program. The two properties. The one that we completed under one of your doing knowledge could those intensification. So those are in existing markets.

The Standalone retirement homes, we talked about what would be in new markets with joint venture partners.

And would that be like get existing Terry like Ontario, BC or would you look to enter like Alberta doing development.

Not at this time, Troy when our development wouldn't but would be in existing markets with partners.

We would not Dod do development in new markets, where we don't exist right now that's not in the plan.

And then I believe you mentioned noncore asset sales.

Wow, what's your determination of won't be noncore like you're looking at like LTV was the class B or C. LTC properties worth something on retirement homes, where maybe you you think you have too much too much exposure already what's kind of the thought process there.

Well, we would lock out I mean, we evaluate the alignment of our older and smaller properties all the time and want to make sure that we're allocating capital in the right place and getting a backstop value for shareholders. So we're always kind of looking at what's the best opportunity where each of the us out.

And then could you provide any color on the average length of stay in the retirement portfolio has that been consistent over the last year or is that starting to trend down.

It's down about three years by and large.

Perfect. Thank you that's it for me I'll turn it back.

Thank you.

Our next question comes from the line of Brendan Abrams with Canaccord. Your line is open.

Hi, good morning.

Oh I'm just wondering if you could comment on any.

Changes or trends, you're seeing in traffic from potential residents.

For your retirement homes and.

I guess the lead conversions on that traffic I guess my question really is.

Are you seeing a good flow of potential residents coming through the building.

And just not converting or are they choosing and choosing maybe new supply in the area.

Wondering if you could comment on that well that's exactly the issue when there's no supply that comes into a market seniors have more options. So they're touring more properties are taking longer to make.

To make their decision and you know when a new so no supply comes on.

Dream. There you know can be very aggressive in their their marketing tactics and strategies and rates to be you know you know the strategy typically as to lease up the building as quickly as possible. So.

That often happens in any market, where there's new supply.

And in addition, usually typically late fall I mean Christmas time from after Christmas and into the winter months.

Seniors don't usually look for retirement living unless they really have to do so.

Top traffic is definitely always down in the winter months.

Right. So from your perspective, it's not necessarily a.

Demand issue, it's more a.

More driven by supply.

Okay.

Yeah demand is Ah I could take demand is there, particularly you know given the challenge with.

The hospitals and the.

You know the hallway Madison, there's there's just a lot of seniors that need other options and solutions outside of hospital. So demand is they are there's there's increased supply and in the winter months. We tend to have you know more people moving out with illness, and so on and just not as much moving yeah.

Last traffic.

And this might be a it might be a difficult question to answer but.

You had to ballpark, where youre rents are compared to let's say new supply going up.

In your in your market.

I would they be <unk>.

Significantly lower in the line like where would you compared to.

The supply.

Oh boy it depends I mean, we always say you know we're always.

And in market, we would do a competitive analysis and make sure that were in line with market.

But when new supply comes on you know there aren't they can be very aggressive with with rates and so.

No I think as net instead, we wouldn't we would never try to match that are react to that because you know we are approach rathers to maintain our.

Service level and consistency Oh.

Focus really on the resident experience over time.

Right, Okay, and maybe just two other questions.

Can you remind us again the cost of the total cost them the kings Amir.

60, some the range of around $20 million.

Okay and I know in your release you mentioned.

Under Genie nonrecurring expenses, just wondering if that.

A significant number or or not and what if so what it would really too.

It's close to a million dollars on its one time expenses in diagnostic DNA.

Okay I'll turn it over thank you. Thank you.

Thank you.

Your next question comes from the lot of France Blonde do what that's long wealth partners. Your line is Nelson.

Thank you and a good morning, good morning Fries.

From the Kings mere program be 10% expected yield or would that be levered yields or.

Mr. I might've missed though.

It's unlevered, it's a cash and cash so really wouldn't be then guar development cost with the including capitalized interest.

From losses that we will incur a bit and.

At that and dividing that by stabilized NOI or the other way dividing the stabilized NOI about the total development cost.

So on leverage.

Okay. Okay.

And maybe lastly from me I'm more general question.

How is your focus on improving occupancy within their retirement segment takes away your attention from the.

Development program, I guess, what I'm trying to understand is whether or not your arent your target commitment in terms of development at this stage.

Jack you know him in the only developments we have done last year wasn't Ics expansion, you know and be no doubt market very well so the risk off getting into new market as things go with that same thing with a current one that we're doing it's an expansion we understand the market quite well so from an execution standpoint, we don't see a lot of risk and the new.

Markets, you know you've talked about entering new developments, we are not looking at doing six or seven at a time you might do one or two so we do and you know there, obviously, but us different people, who do that kind of work. So in our case you know we have a big enough platform, but doing one doesn't really hinder us from doing another one or vice versa.

That's great. Thank you. Thank you.

Thank you.

Our next question comes from a lot of Jonathan Coucher with TD Securities. Your line is open.

Thanks, Good morning.

Just to follow up on on Freds. One question there on the on the Kings, where the 20 to 20 million.

Development cost does that include the the lease up losses and capitalized interest and that's correct John of what.

Okay, and then just switching gears.

How has flu season been.

So for this year versus last year.

I don't think there's really anything different we do have some some outbreaks that some of our communities, but I it hasn't been dramatically different other than kind of the usual.

Winter stuff, where again, we have more residents moving out with illness, or leaving and you are moving in.

Okay. So would it be fair to say that you'd expect occupancy to be pretty similar to Q4 or would you expect a little dip in Q1.

Probably a depth.

Yeah.

Okay and then on just on your guidance I guess, the the mid single digit down is really a function of tough comps on the occupancy front from Q1 in Q2.

Last year.

That's correct, Jonathan it's really driven by my occupancy.

Okay, and then if you're.

If you end up being more successful in Q3 Q4.

<unk>, obviously be helpful does a backend and.

In making the low single digit.

Come to fruition because you also have easier comps in Q3 Q4 next year right.

Yeah I mean, that's currently you know is included in our and my part process, but again as we get through the quarter, our cold wouldn't be to keep everyone informed toward Oakland.

Okay and then on the.

Supply front.

Have you noticed a slowdown at all owing to any cost pressure on on any new supply coming.

Where do you expect a pressure to sort of maintain.

It's hard to say, yes, I know that we have.

There is no supply coming on over the next two years in some of our market like Barry and some of the some of the other smaller markets that we're in there is others like coming on.

Okay and then just lastly, you do you have any update on on redevelopment on your own this class C assets.

Well I guess, what we would say there's we're very pleased with the ministries approach that there's a new ministry now for long term care and they've been extremely a collaborative consulting with sector.

I understand that they need to to make some changes. So we just don't really have any line of sight to watch or when they would be some changes to the program.

Okay. Thanks, all Oh, I'll turn it back they too.

Thank you.

Our next question comes from the line of critical free let's see RBC. Your line is open.

Good morning, I think on the last call you thought that potentially retirement home occupancy by the end of.

This year could be up 300 basis points versus I guess, where we were in in Q3 <unk> is that still a reasonable expectation.

Yeah, I mean, we ended the like you know acute for your 2019 at around 85% as an occupancy within two to develop and one as well.

And with our guidance was around getting close to 89% towards the end of the year. So we are still you still in that number.

Okay, and what gives you a well guess what kind of gives you that that that confidence in terms of the you know you alluded to that there's new supply that's going to still be coming on in a couple of your of your markets over the coming two years, so I get that you'll have [noise].

You'll you'll eventually got absorption in Kingston, and and some of the other markets better currently oversupplied. What gives you that confidence that this new supply is not going to then pressure occupancy in those markets.

Yeah, it's all in the timing of when the new supply comes on.

Ah so that a lot of that like a new projects.

In Barry for example.

Planned for later in 220 2021.

Okay. So is it kind of you know if we just think about the longer term.

Is the kind of stabilized level of occupancy maybe lower than we would have would have thought.

Overall.

Yeah, I think in the past, we had like 90% to 90% you know nabil have a bit more exposure in the auto market you know the two properties and south. So you didn't put up you have a bit of pressure for some time. So again I think it's very hard to for us to predict what might happen in the next two years fighting for now probably the outlook. He can provide you play sports.

2020.

Like the C M. A C data for 2019, what does the average occupancy was 90% runs right.

Understood.

In Europe to think about don't remember, what's up with Deanna, though the real opportunity we have because we've got a balanced portfolio web.

Long term care and retirement kind of.

You know helped to offset you know any any short term occupancy pressures that we have because the supply will be absorbed over time with a the demand and all of these markets you know even by 2023 all of the markets that we're in.

The supply should be absorbed and because we've got a balanced portfolio and the stability of long term care that really a is very beneficial first fianna.

Yep.

Understood.

And there in terms of your long term care guidance is.

I think there were some chatter that the structural compliance premium might be removed.

Think that's been delayed or if you can give us an update on on the status of that and how that could affect or your outlook at all in that segment.

Yeah, we are understanding and we know that all our industry Association is still in discussions with the ministry on that but are the last we heard that it was it may add in 2020.

Our 2020 right. So the original guidance, Chris is that it could potentially and in March of 2020 or end of March 31st 2020, and since that they've been some device conversation that they might have you looked at it and again, we don't really know what are we looking might mean at this point.

Okay. So in your.

Guidance, though you assume that engine in March March 2020.

Correct.

And then maybe just on on a cash taxes any thoughts for what that might look like this year, yes. So for this year being around 6.1 million of cash taxes I think for 2020, we should expect around seven to seven and a half million.

Okay. Okay. Thanks, I'll turn it back okay. Thank you.

Thank you.

As a reminder, ladies and gentlemen, that's all I want to ask the question.

Our next question comes on the line of yes.

Well with.

No were 10 Bank your line is open.

Hi, good morning.

[noise] I yeah.

What does your Uh huh.

Occupancy.

The Diamond <unk> occupancy at this point.

Sure acid occupancy for the oral close same properties that on 86%.

Well pretty similar to where we ended the Q3, which is it on 86 when piece will be a little bit below 86, when police or on 86%.

And just going back to this long term occupancy expectation for their time and home portfolio do you think 90% is a good range the long island.

Well do you think you can go above 90 to 90.

Yeah, I don't I right now I don't know I mean, we loved to be at 90 to 93, I think just given you know the supply over the next year or couple of years I went to kind of look more towards where C. M. A C is today at 90 I think that.

Probably the best guidance.

Alright, overall and again you know what it's all that kind of market specific depending on which markets you're exposed to unfortunately, we have you know a number of property in auto on Kingston, which right now are oversupplied.

And.

Would you.

Consider to increase.

<unk> <unk>.

<unk> at this point or do you think.

Oh.

It's no good proportion.

Well, we're always looking I mean, we do like a balanced portfolio was you know you can you can see the benefit that we haven't running a balanced portfolio. So we like that approach and well continue until I got you know strategic opportunities that are.

That.

Get us there to get a balanced portfolio.

Are you still want to go to reach the that's 50 50 proportion yeah, we'd be happy with that.

Okay and.

Are you looking just at any time and home properties under the been on <unk>.

I think inside laws, Bob just answer the same question previously as well, yes, I think idea would be to look at all assets and figure out you know, especially the smaller an older assets, where it would make sense. So I think that's across our portfolio.

The reason I ask because you were talking <unk>.

Yeah, it's near in the sense when you bought it but they are you know again I don't think it's just new and old it might be just the size of the property that it's located so I don't think it's anything specific.

A more that they can provide at this point.

Okay.

And the on this.

New supply.

Mm Hmm seeing in your existing time at home.

Penance, leaving.

Moving to new building or using that phenomenon.

That occurs from time to time I mean, it goes two ways often you know one new supply oftentimes they can be very aggressive in marketing not only within the community, but to our current rather than you don't doing mail drops and so on with current residents. So for occasionally we do have some residents that that's.

I'll move out for the shiny new Penny and then more often than not we'll also see them move back.

Okay. That's it for me. Thank you. Thank you Josh.

Thank you.

I'm not showing any further questions I would now like to turn the call back over to north for closing remarks.

Well. Thank you everyone for joining our call. This morning and for your support and well look forward to senior what our AG AMA in April.

Ladies and gentlemen, this concludes todays conference. Thank you for participating that you may now disconnect everyone have a one to one day.

[music].