Q3 2022 Sienna Senior Living Inc Earnings Call

November 10, 2022

Ladies and gentlemen, welcome to Sienna Senior living Inc. 's Q3, 2022 conference calls.

Today's call is hosted by knit and James President and Chief Executive Officer, and David <unk>, 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 statements or information.

Please refer to the forward looking information and risk factors section in the Companys 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 Siena living dossier.

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.

The company has posted slides, which accompany the host's remarks on the company website under events and presentations.

With that I will now turn the call over to Mr. James. Please go ahead Mr. Jain.

Thank you Josh and good afternoon, everyone and thank you for joining us on our call today.

As we are heading into the final months of 2022, we are adjusting our business to a more challenging economic climate.

Labor shortages and inflation are putting pressure on operating margins.

We continued to generate strong occupancy results maintained a solid balance sheet and increased our liquidity by 100 million.

We also rolled out a number of initiatives that will help us stand apart as an upgrade of an employer of choice in Canadian senior living.

Average same property occupancy in our retirement portfolio grew for the fifth consecutive quarter to a level, we have not seen in over three years.

And a further increase to 88, 6% in October .

We expect to end the year at a similar occupancy level in our same property portfolio.

With respect to our 2022 acquisitions, we achieved a 490 basis point occupancy increase during the third quarter.

One property and Lisa.

This was the first full quarter of owning the trial retirement residences, we acquired in Ontario, and Saskatchewan and after experiencing some initial softness the strong occupancy gains in Q3 is a clear indication of the successful integration of these residences into our platform.

Going forward, we expect the occupancy trends for acquisition to be in line with the overall the timing of portfolio.

Our sales and marketing team continue to generate strong interest in our residences and we are heading into the late fall and winter months.

Excellent relationships in the local communities and our Aspira, Brian and signature programs helped support our sales initiatives and qualified leads have increased by approximately 26% year over year.

Moving to long term care in a long term care communities resident admissions progress steadily throughout the third quarter.

Average occupancy reached 96, 7% in the third quarter and in February of 2022, the government of Ontario reinstated occupancy targets for 97% required for full funding and we anticipate to meet the five targets at the vast majority of our care communities.

We are currently closing monitoring a number of government funding changes and their potential impact on operating results.

C&I and other participants in our sector have been working with the Ontario government funding increased to accommodate inflationary pressures both of our operating costs and construction costs of our redevelopment projects.

While rising development costs have impacted the timing of our construction starts we remain optimistic about our ability to redevelop classy homes in Ontario.

The implementation of a new long term care platform is well underway. The platform changes are focused in four areas, the moving experience food and dining.

Being in visits and connections.

Our initial efforts are focused on Harvey help residents settle and we have a new platform wide standard aimed at decreasing anxiety of residents and families in making them feel welcome and at home.

Early feedback to date has been positive.

Our transformation of dining what we called stay where it is also an immediate area of focus.

Hired an executive chefs do need this work and we also aim to bring more of our hospitality like feel to our dining rooms.

Staffing would likely remain one of our biggest challenges for some time and we have been active on many fronts to bridge the existing labor gap, we're making significant investments in attracting and retaining employees, who are passionate about working with seniors.

We are currently implementing a new scheduling and call out technology, which will help us fill staffing gaps more seamlessly and faster.

Will also help us to better monitor agency staffing and improved scheduling of our team members.

The implementation is nearly complete across our long term care communities with the rollout at our retirement residences to follow in 2023.

We expect competition for talent to further intensify in the months and years ahead, and we have been working on a number of other initiatives. These include offering additional shifts to part time team members and a pilot program that supports the placement of Ukrainian refugees at our communities.

Okay.

Moving to spark our team members have told us that they want to share their ideas on how to grow and improve sienna.

As a result, we created our own version of Dragon's den named Spark.

During the first not our submissions last month, we received a total of 170 ideas not only did we get some outstanding submissions. It showed us a clear trend of what's top of mind for our team members.

Over the coming weeks, we will select a number of ideas to be piloted with a goal to implement the best of our company.

With that I'll turn it over to David for an update on our operating and financial results.

Thank you and good afternoon, everyone I will start on slide 11 for financial results long term care long term fundamentals in Canadian senior living and <unk> remained strong as was reflected in the growth of our retirement occupancy and long waitlist supporting steady resonated mission and our long term care segment.

However, intense competition for talent cost pressures and decades high inflation continued to affect our operations.

In Q3, 2022 total adjusted revenue increased by 11% year over year to $189 $2 million.

This increase was largely due to occupancy and rental rate growth and additional revenue from the 12 properties. We acquired in Q2 in our retirement segment as well as flow through funding for increased direct care provided to residents and higher preferred accommodation revenues from increased occupancy and our long term care segment, partly offset by lower <unk>.

<unk> as a result of a property that we sold earlier in 2022.

Total net operating income increased by four 8% to $35 million this quarter compared to last year. Our retirement segment contributed $3 7 million of this increase mainly through same property NOI growth and additional NOI from our 12, new retirement properties.

Our long term care segment decreased by $2 million year over year, mainly due to higher operating costs and the sale of a long term care community earlier in 2022.

Retirement same property NOI increased by 14% to $15 million compared to last year, primarily due to occupancy improvement in annual rental rate increases.

This was partly offset by higher costs for agency staffing food utilities insurance and marketing.

Rent collection levels remained high at approximately 99%.

We expect continued cost pressures to remain for some time due to labor shortages increased insurance premiums higher utility rates and high overall inflation.

We also expect continued unfunded pandemic expenses in Q4 in our retirement portfolio of less than $1 million.

At the same time, we anticipate that occupancy gains and rental rate increases will help mitigate some of these pressures in our retirement segment.

Considering all factors, we expect Q4 operating margins in our retirement segment to be similar to Q3.

Cna's long term care same property NOI decreased by 9% to $17 8 million in Q3 2022 compared to last year, primarily due to higher operating costs in particular with respect to labor utilities and insurance as well as higher unfunded pandemic costs because of lower government funding.

This was partly offset by an increase in preferred a combination of revenues as a result of higher occupancy.

We expect cost pressures to remain for some time at our long term care operation and have been actively working with other sector participants and the Ontario government for funding to reflect the current inflationary conditions and offset significant cost increases.

We are also working with the Ontario Ministry of long term care to better understand the full details of our recent announcements to not reopen the third and fourth in the part D homes and its financial implications.

We currently have approximately 353rd and fourth best in Ontario, which could be impacted by this announcement the extent of the impact will depend on how the government will implement the funding reductions.

In addition, we expect continued unfunded pandemic expenses up between $3 million to $4 million.

In Q4, 2022, and our long term care segment.

Moving to slide 12 during Q3 2022 operating funds from operation decreased by one 8% to $17 $9 million.

Compared to last year, primarily due to higher administrative expenses higher interest expenses as well as higher income taxes.

This was partly offset by an increase in NOI. This year, mainly as a result of our acquisitions.

Q3, <unk> per share decreased by nine 6% to $24 six.

Adjusted funds from operations increased by five 7% to $66 million compared to last year. The increase was due to the timing of maintenance costs, partly offset by lower <unk>.

<unk> per share decreased by 3% to $22 seven in Q3 2022, largely as a result of our 2022 equity offerings.

Looking at our debt metrics on slide 13, our debt to gross book value decreased by 230 basis points to 43, 3% at the end of Q3 2022 compared to 45, 6% at the end of Q3 2021, mainly as a result of our 2022 equity offerings to finance our acquisition.

Mortgage repayments with proceeds from property dispositions earlier in the year.

Adjusted EBITDA increased to nine times in Q3 2022 compared to seven eight times in Q3, 2021, and the interest coverage ratio decreased marginally to three three times in Q3 2022 compared to three four times in Q3 2021.

Our debt is well distributed between unsecured debentures credit facilities unsecured term loans conventional mortgages and mortgages insured by the Canada mortgage and housing Corporation and our debt maturities are staggered within that next significant expiry being our $90 million unsecured term loan due in may.

2023, which was used to support the acquisition of our 12 retirement residences.

On October 26, 2022, we upsized, our unsecured revolver revolving credit facility by $100 million.

The $300 million in.

And extended its maturity by two years to March 2027, this will provide additional financial flexibility as we refinancing refinance upcoming debt and support our strategic objectives in a more challenging operating environment.

This has increased our current liquidity to approximately $350 million I will now turn the call back to <unk> for his closing remarks. Thank you David throughout the pandemic in a rapidly rising interest rate environment. We have maintained a strong balance sheet and ample liquidity. The recent upsizing and extension of our credit facilities award of confidence in the future of our company.

In our sector and underscores the resiliency of our business.

As we finalize our business plan for 2023, we prepare for potential headwinds in our long term care portfolio to staffing in government funding and expect continued pressure on operating margins in other common segment.

Despite these short term challenges we remain focused on executing our long term strategy to maintain and grow our balanced portfolio in which our retirement and long term care operations each make a significant contribution to the company's overall net operating income.

We have deep experience and scale in each segment will put initiated into motion to stand apart and pursue our vision to become Canada's most trusted and most loved senior living provider on.

On behalf of our management team and our board of directors I want to thank all of you on this call for your continued support and with now we'll be pleased to answer any questions you may have.

Okay.

At this time, if you would like to ask a question. Please press star followed by the number one on your telephone keypad.

We'll pause for just a moment because from pilot list of questions.

Your first question comes from the line of Tal Woolley with National Bank Financial Your line is open.

Hi, good afternoon, everyone.

Hi, good afternoon good afternoon.

I guess my first question would be there.

You're talking about cost pressures for that.

That could persist for.

Your words were some time I guess what is your definition youre working definition of some time and then because I noticed like at the end and I'm not trying to play got you here, but you just said about the any sort of color. This short term challenge too. So I'm just trying to get a sense of what you think the timeframe here.

We're looking at.

Thank you for that question, Tal and Thats and I think it is.

It's the right question to ask and I will maybe break it into two so one those pandemic cost pressures and.

You feel that Youre nearly all of it and then suddenly in Canada, if you're talking about putting back from asking on and you saw some news coming out of there. So.

Those things are obviously out of our control and our goal is to react to them.

Keeping the health and well being of both residents and team members in mind. So there is a pandemic aspect of it which which we are we continue to work with government to resolve it and our view is that.

Government funds us for pandemic funding and we need to find a backup way because David shared that we will have three or $4 million of unfunded pin down the cost. So we have to find a way to stop that because.

Really in long term care.

The government assumes what the amount of money that you need.

To manage pandemic, and therefore decided what that money then we have to figure out a way to spend that.

It is easy to say that but obviously hard to do so our goal is to figure out a way to do that over the next couple of quarters.

On inflationary pressures that one.

It is again.

It's hard to predict what might happen with interest interest rates what might happen to the utility costs. So we do expect we do keep saying short term because there is some consensus around a softening on the economy. Then there is some.

Early indicators of that so as that happens the ideas, okay, well that is going to decrease.

The expenses, so thats why we say short term I think at this stage. It is very hard to say on both of those things because the both the pandemic and the economic uncertainty is honestly out of our <unk>.

All of our control.

Okay.

And I guess my question is like.

Because a lot of the weather general cost pressures versus.

Pandemics.

Or does it work.

Sort of like net pandemic expenses in general like labor conditions begin because they are kind of intertwined as far as I can Paul.

Yes, thanks for that question.

You are right.

<unk> expenses as we kind of move through the pandemic are getting a little bit blurred generally speaking pandemic expenses would be.

Weighted to agency costs when.

When we have.

Staffing shortages are homes that are an outbreak.

<unk> expenses would include keeping.

<unk> E.

So.

The pandemic expenses themselves would generally relate to homes that are either an outbreak or where we have.

Significant staffing shortages.

Okay.

The other thing too.

The question that sort of came up accounting today with Blake.

How useful if it now for us to sort of sitting there and be looking at like.

<unk> margins ex net pandemic expenses looks like.

After three years like I say, maybe sort of like.

Kind of where we are.

I don't know how.

Hi.

Or if there was like a real legal definition. There that you guys are working with because we think it is something thats recoverable from the government.

Yes.

So maybe just break it into two both retirement and long term care. So we do see a clear path of what's what is considered pandemic expenses and even though it might be related to staffing. It is we are saying there is a shortage of staff because you have nurses who are working at vaccine clinics are hospital systems, which are all about.

We do what we what we think is pandemic expense in our mind. It truly is pandemic expense each public health Union might have a different sense of outbreak, but at a company level.

We are quite clear what goes into that bucket. So.

You're right at some stage they become stabilized our view is we do have homes, which have figured out a way to go back to normal.

Pre pandemic levels, but its occupancy so we have multiple homes for example over time at home, which are at 100% occupancy we have long term care homes, which are not which do not have significant pandemic expenses and net margins are back to the pre pandemic levels or pretty close to it so.

We see a clear.

<unk>.

Over again.

It is hard to predict when everything will get back to that normalized level, but we continue to believe that there is a normalized level in homes, which do not see those outbreaks will.

Do are finding margins back to pre COVID-19 levels.

Got it okay.

David.

Could you just repeat the number of third and fourth beds, you thought might be exposed by this change.

Yes, we have approximately 353rd and fourth bets.

Right.

And.

Sorry, I was looking on the ministry relative to USA, where it looks like a public announcement or as an internal Bolton.

We would have seen from the outside.

It was an internal bulletin that would have been sent to our long term care operators. So it wouldn't have been in the public domain.

And when when with this theoretically you take place like women's this new new decision not to fund those particular.

So I think Thats. Your your last part of the question is key because that is why we do not have more information and so it is not our policy at the moment.

What we are what we are working with government is to get.

Clear indication what does that mean because.

Obviously, there are there areas, which you would you would have less expenses or if they are instead of 100 people in the home. If you have <unk> you, obviously will be used less nursing hours, but if you have 70 people in 100, if you change the royalty you still have to change the whole loyalty cannot change 70% of it are simply apply for housekeeping you cannot mop hospital floor, yet to master the full.

Home so.

So from based on our discussions with the government people understand that the issues.

With removing cleared for funding and we continue to remain optimistic that we'll find out a way where costs that should be say it should be safe and cost that should be reimbursed.

It should be reimbursed.

Okay.

I guess like this combined with the fact that there was no sort of occupancy premium increase.

This year like.

Is there is there sort of like a shift in lake.

So governments perspective on the sector Blake or is this sort of just part of the cycle of this business in terms of sometimes the funding is there and sometimes it's not.

Sure.

I would say this is this is an inflection point for long term care and governments have been very supportive of long term care, whether it's Ontario and BC. The two provinces. We are in long term care and there has been significant significant amount of money allocated long term care.

Whether it's prevention containment funding pandemic funding all sorts of different things.

But we also bought into a high inflationary environment at the same time. So the government has done a good job of managing the first part, but I don't think we have had a good understanding of the inflationary pressures that are at all levels. So thats. The piece that we have been working on because we see that pressure we see the decline.

<unk>.

Margin in 2021, we see that in 2022, and if you don't see a good funding increase it's obviously going to persist in 2023, and then it's going to start impacting really redevelopment, which is a big mandate for the government. We have to build new long term care beds. So regardless of the capital funding. If you don't have the right operating funding the projects.

Really work so again we've found.

Government to be understanding of the challenges obviously, but these things will take some time to work through.

It remains to be seen whether we are blindly optimistic or we are we are optimistic. So we will find that out in due course, but at this stage. We continue to be optimistic that there is going to be a viable solution because when we look back at the history of long term care funding.

It has been labs with inflation, but eventually that has always made up so and we and our and our hope is that that will be the case this time around as well.

Okay, and then just lastly.

<unk>.

Can you just talk a bit about then if you're thinking about pulling back on some of the redevelopment stuff.

What would you what would you guess are sort of working capital budget would be for <unk>.

'twenty three 'twenty four kind of time horizon.

Is there any appetite on M&A right now.

So we waited.

We did a big M&A deal in the beginning of this year.

We don't have specific M&A targets.

Any of our criteria, which is very helpful. Because it stops us from doing stupid deals so.

So we don't really are gunning for a certain amount and we will only do deals when they make sense I would say on redevelopment. We continue to be optimistic that data is going to be a viable construction program and when when does that when we do get that program will start construction work at three of our sites not baked Keswick in Branford.

Yeah.

Okay.

Perfect. Thanks, very much Alan.

Thank you. Thank you.

As a reminder, if you would like to ask a question at this time. Please press star followed by the number one on your telephone keypad.

Your next question comes from Himanshu Gupta with Scotiabank. Your line is open.

Thank you and good afternoon.

So.

Retirement home occupancy.

Are you already there.

Alright.

Alrighty.

So it has the corporate.

Sure.

<unk>.

Houston, pushing sales to get to like 90% and above.

Yes.

Hi, Himanshu good afternoon up so our target has not changed we think stabilize as low <unk> call it 90% to 94% and we are very optimistic.

With our team's ability to get there.

But our focus has changed to margin I would say two quarters back. So once you are in.

80, 586% range, and we have multiple homes, which had a 100% occupancy or multiple homes, which are 95, plus and at that time, you can start to now look at pricing and from our experience.

Because when we went to rental rate increases across our portfolio with an explanation of why the increase in food cost has gone up 20% utilities have gone up.

Our residents.

Given the choice between reducing services that increase in rates.

They gave us a very clear indication that would rather see rate increase and thats, what <unk> been doing and we have not seen any significant pressure on it.

The goal is not to overdo it because we can potentially try to get too much out of that and then that might have some positive margin pressure, but will result into some negative issues with resident relationships our ability to market more so that's that's what we're watching at the moment, but as our occupancy get more stabilized because we're not there.

We should see a margin increase.

Alright, Okay Thats helpful.

And then Neal.

Again like.

Hi, Brian .

<unk>.

What does the market vacancy.

Ontario market.

Alan do you.

How do you see the whole market moving above 90%.

And any color in terms of the market.

Okay.

Yes.

It's hard to there has been work that CBRE does cushman and Wakefield had.

<unk> is a market vacancy.

Data has not been a big.

Update on it for a period of time, because because of Covid. So I don't think view the change I mean previously when besides Ontario was call it 5% to 8% while vacancy rates and we don't think that has changed because not a lot of new supply has come in as.

So we expect those rates to be similar and that's why we think that stabilizes in the low nineties call it 90% to 94%.

Alright, thank you.

And then shifting to margins and I know John has already covered a lot of.

Expense questions.

<unk> simply on the retirement home NOI margin.

Adding in the MD&A, you mentioned Q4 margins to be similar to Q margin.

If I recall you previously mentioned.

The 100 basis point improvement.

Second half of the year.

Is that a change is that a reflection of all the discussion around the higher cost.

Yes, no. Thanks for that question answered so yes, that's right in the MD&A, we did indicate that our Q4 margins would be similar to Q3.

Our Q3 <unk>.

<unk> are at 36, 6% so we expect.

<unk> in Q4 and with respect to.

A change in sort of the narrative.

It is a little bit of a change.

We continue to see cost pressures around agency utilities and insurance.

Got it Okay, that's fair enough.

And then one more thing again.

Yes.

You mentioned about the funding.

Million.

Goldman funding.

Has that already been received and reflected in the financials are this is over and above.

What do you think.

Sorry can you repeat the number again I mentioned.

Yes.

Looking at the financials and then I think you mentioned that.

Timber.

The minutes.

Long term care and outcome.

Yes.

<unk> million dollars.

Most towards adjuvant expenses is that over and above just trying to understand worldwide.

Reflected on lockup connected on the books.

I believe relate to the pandemic funding pads.

Is that the government has.

Has allocated to Siena and that would relate to the period of April 'twenty two to March 2023, and we would use those funds as we're incurring pandemic expenses.

The answer is yes, we have been reflecting that within our financial statements.

Okay.

When you say that LTC will have $2 million to $4 million unfunded pandemic expenses.

This is over and above whatever funding.

Alright.

So that is the value so just.

Just to come out perspective.

That's correct the $3 million to $4 million would be in excess of the.

Pandemic funding that we would receive.

Got it okay. Thank you.

Final question on guidance.

You mentioned debt to adjusted EBITDA of around nine times.

Just wondering what is your view on leverage the next year or two.

Are you looking for any disclosure you can program or any noncore assets.

That could be.

I'll make this possible.

Sure. So our view on leverage Hasnt changed we have a very conservative balance sheet and a lot of liquidity our debt to book value is in the low <unk> and we will take our leverage up if need before the development that would probably be one of the only few reasons to take our leverage up and we don't really have.

Many.

<unk>, which are not part of our core strategy you might have one or two from time to time because of a change in market, but nothing material.

Okay. Thank you.

Thank you.

And there are no further questions at this time. This does conclude today's conference call. Thank you for joining you may now disconnect.

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Ladies and gentlemen, welcome to Sienna Senior living Inc. 's Q3, 2022 conference calls today.

Today's call is hosted by net and James <unk>, President and Chief Executive Officer, and David <unk>, 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 statements or information.

Please refer to the forward looking information and risk factors section in the Companys public filings, including its most recent MD&A and Aif for more information.

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.

Company has posted slides, which accompany the host's remarks on the company website under events and presentations.

With that I will now turn the call over to Mr. James. Please go ahead Mr. Jain.

Thank you Josh good afternoon, everyone and thank you for joining us on our call today.

As we are heading into the final months of 2022, we are adjusting our business to a more challenging economic climate.

While labor shortages and inflation are putting pressure on operating margins. We continued to generate strong occupancy results maintained a solid balance sheet and increased our liquidity by $100 million.

We also rolled out a number of initiatives that will help us stand apart as an operator and an employer of choice in Canadian senior living.

Average same property occupancy in our retirement portfolio grew for the fifth consecutive quarter to a level, we have not seen in over three years.

And a further increase to 88, 6% in October .

We expect to end the year at a similar occupancy level in our same property portfolio.

With respect to our 2022 acquisitions, we achieved a 490 basis point occupancy increased during the third quarter, excluding one property in lease up.

Going forward, we expect the occupancy trends for acquisition to be in line with the overall retirement portfolio.

Our sales and marketing team continue generate strong interest in our residences and we are heading into the late fall and winter months.

Excellent relationships in the local communities and our Aspira brand and signature programs helped support our sales initiatives and qualified leads have increased by approximately 26% year over year.

Moving to long term care and our long term care communities resident admissions progress steadily throughout the third quarter.

Average occupancy reached 96, 7% in the third quarter and in February of 2022, the government of Ontario reinstated occupancy targets for 97% required for full funding and we anticipate to meet the required targets at the vast majority if I care communities.

We are currently closing monitoring a number of government funding changes and their potential impact on operating results.

While rising development costs have impacted the timing of our construction starts we remain optimistic about our ability to redevelop costly homes in Ontario.

The implementation of a new long term care platform is well underway. The platform changes are focused in four areas, the moving experience food and dining.

Wellbeing and visits and connections.

Our initial efforts are focused on Harvey help residents settle and we have a new platform wide standard aimed at decreasing anxiety of residents and families in making them feel welcome and at home early feedback to date has been positive.

Our transformation of dining what we called stay where it is also an immediate area of focus we have hired an executive chefs do need this work and we also aim to bring more of a hospitality like feel to our dining rooms.

Staffing would likely remain one of our biggest challenges for some time and we've been active on many fronts to bridge the existing labor gap, we're making significant investments in attracting and retaining employees, who are passionate about working with seniors.

We are currently implementing a new scheduling and call out technology, which will help us fill staffing gaps more seamlessly and faster.

It will also help us to better monitor agency staffing and improve scheduling of our team members.

The implementation is nearly complete across our long term care communities with the rollout at retirement residences to follow in 2023.

Okay.

Moving to spark our team members have told us that they want to share their ideas on how to grow and improve Sienna and as a result, we created our own version of Dragon's Den Nims spark.

During the first not our submissions last month, we received a total of 170 ideas.

Not only did we get some outstanding submissions it showed us a clear trend of what's top of mind for our team members.

In the coming weeks, we will select a number of ideas to be piloted with a goal to implement the best of our company.

With that I'll turn it over to David for an update on our operating and financial results.

And good afternoon, everyone I will start.

On slide 11 for financial results long term care long term fundamentals in Canadian senior living and at PNM remained strong as was reflected in the growth of our retirement occupancy and long Weightlift supporting steady resident admission and our long term care segment.

However, intense competition for talent cost pressures and decade high inflation continued to affect our operations.

In Q3, 2022 total adjusted revenue increased by 11% year over year to $189 $2 million.

This increase was largely due to occupancy and rental rate growth and additional revenue from the 12 properties. We acquired in Q2 in our retirement segment as well as flow through funding for increased direct care provided to residents and higher preferred accommodation revenues from increased occupancy in our long term care segment, partly offset by lower <unk>.

<unk> as a result of a property that we sold earlier in 2022.

Our long term care segment decreased by $2 million year over year, mainly due to higher operating costs and the sale of a long term care community earlier in 2022.

Retirement same property NOI increased by 14% to $15 million compared to last year, primarily due to occupancy improvement in annual rental rate increases.

This was partly offset by higher costs for agency staffing food utilities insurance and marketing.

Rent collection levels remained high at approximately 99%.

We expect continued cost pressures to remain for some time due to labor shortages increased insurance premiums higher utility rates and high overall inflation.

We also expect continued unfunded pandemic expenses in Q4 in our retirement portfolio of less than $1 million.

At the same time, we anticipate that occupancy gains and rental rate increases will help mitigate some of these pressures in our retirement segment.

Considering all factors, we expect Q4 operating margins in our retirement segment to be similar to Q3.

CNS long term care same property NOI decreased by 9% to $17 8 million in Q3 2022 compared to last year, primarily due to higher operating costs in particular with respect to labor utilities and insurance as well as higher unfunded pandemic costs because of lower government funding.

This was partly offset by an increase in preferred a combination of revenues as a result of higher occupancy.

We are also working with the Ontario Ministry of long term care to better understand the full details of our recent announcements to not reopen the third and fourth best in the class C homes and its financial implications.

We currently have approximately 353rd and fourth best in Ontario, which could be impacted by this announcement the expenses the impact will depend on how the government will implement the funding reduction.

In addition, we expect continued unfunded pandemic expenses up between $3 million to $4 million in.

In Q4, 2022, and our long term care segment.

Moving to slide 12 during Q3 2022 operating funds from operation decreased by one 8% to $17 9 million compared to last year, primarily due to higher administrative expenses higher interest expenses as well as higher income taxes.

This was partly offset by an increase in NOI. This year, mainly as a result of our acquisitions.

Q3, <unk> per share decreased by nine 6% to $24 six.

Adjusted funds from operations increased by five 7% to $16 $6 million compared to last year. The increase was due to the timing of maintenance costs, partly offset by lower <unk>.

<unk> per share decreased by 3% to $22 seven in Q3 2022, largely as a result of our 2022 equity offerings.

Mortgage repayments with proceeds from property dispositions earlier in the year.

Next significant expiry being our $90 million unsecured term loan due in May 2023, which was used to support the acquisition of our 12 retirement residences.

On October 26, 2022, we upsized, our unsecured revolver revolving credit facility by $100 million.

It's a $300 million in.

Back to <unk> for his closing remarks, thank you David throughout the pandemic in a rapidly rising interest rate environment, we have maintained a strong balance sheet and ample liquidity.

Recent upsizing and extension of our credit facilities award of confidence in the future of our company in our sector and underscores the resiliency of our business.

With deep experience and scale in each segment will put initiatives into motion to stand apart and pursue our vision to become Canada's most trusted and most loved senior living provider.

On behalf of our management team and our board of directors I want to thank all of you on this call and for your continued support and with now we'll be pleased to answer any questions you may have.

Okay.

At this time, if you would like to ask a question. Please press star followed by the number one on your telephone keypad.

Pause for just a moment comes from pilot a list of questions.

Okay.

Yeah.

Your first question comes from the line of Tal Woolley with National Bank Financial Your line is open.

Hi, good afternoon, everyone.

Hi, good afternoon good afternoon.

I guess my first question would be versus <unk>.

You're talking about cost pressures.

And you know.

That could persist for.

We're looking at.

Thank you for that question, Tal and Thats and I think it is.

It's the right question to ask and I will maybe break it into Q1.

One there is pandemic cost pressures and.

You feel that youre nearly out of it and then suddenly in Canada, if you're talking about putting back from asking on and you saw some news coming out of there. So.

Those things are obviously out of our control and our goal is to react to them.

Government funds us for pandemic funding and we need to find a backup way because David shared that we will have three or $4 million of unfunded pandemic costs. So we have to find a way to stop that because.

Really in long term care.

The government assumes what the amount of money that you need FERC to manage pandemic and decided what that money then we have to figure out a way to spend that.

It is easy to say that but obviously hard to do so our goal is to figure out a way to do that over the next couple of quarters.

On inflationary pressures that one that.

That is again.

It's hard to predict what might happen with interest interest rates what might happen to the utility costs. So we do expect we do keep saying short term because there is some consensus around <unk>.

Softening on the economy, then theres some.

Early indicators of that so that happens to ideas, okay, well that is going to decrease.

On the expenses. So thats why we say short term I think at this stage. It is very hard to say on both of those things because the both the pandemic and the economic uncertainty is honestly auto for RF or control.

Okay.

And I guess my question is that because a lot of the weather general cost pressures versus.

Pandemics.

We're sort of like net pandemic expenses and in general like labor kind of conditions begin because they are kind of intertwined as far as I can Paul.

Yes, thanks for that question Youre.

Youre right.

Expenses expenses as we kind of move through the pandemic are getting a little bit blurred generally speaking pandemic expenses would be.

Related to agency costs.

We have.

Staffing shortages are homes that are an outbreak.

Pandemic expenses will include.

<unk> E.

So big.

The pandemic expenses themselves would generally relate to homes that are either an outbreak or where we have.

Significant staffing shortages.

Okay.

The other thing periods like the question that came up accounting today with Blake.

How useful if it now for a sort of sitting there would be looking at like.

Margins ex net pandemic effectively looks like.

After three years like I think maybe it's sort of like <unk>.

Kind of where we are.

No.

Or if there was like a real legal definition. There that you guys are working with because we think it is something thats recoverable from the government.

Yeah.

So maybe just break it into two both retirement and long term care. So we do see a clear path of what's what is considered pandemic expenses and even though it might be related to staffing. It is we're saying that the shortage of stop because you have nurses who are working at vaccine clinics are hospital systems, which are all about so.

We do what we what we think is pandemic expense in our mind. It truly is pandemic expense each public health Union might have a different sense of outbreak, but at a company level.

We are quite clear what goes into that bucket. So yeah.

You're right at some stage they become stabilized our view is we do have homes, which have figured out a way to go back to normal pre.

Pre pandemic levels, but then its occupancy so we have multiple homes for example over time at home, which are at 100% occupancy we have long term care homes, which are not which do not have significant pandemic expenses and net margins are back to the to pre pandemic levels or pretty close to it so.

We see a clear.

The difference.

However, again.

It is hard to predict when everything will get back to that normalized level, but we continue to believe that there is a normalized level in homes, which do not see those outbreaks.

We do continue our finding margins back to pre COVID-19 levels.

Got it okay.

David.

Could you just repeat the number of third and fourth beds, you thought might be exposed by this change.

Yes, we have approximately 353rd and fourth bets.

Hey.

And.

Sorry, I was looking on the ministry relative to USA, where it looks like a public announcement or is it internal Bolton.

We have seen from the outside.

It was an internal bulletin that would've been sent to our long term care operators. So it wouldn't have been in the public domain.

And when when with this theoretically you take place or willingness new new decision not to fund those beds, particularly.

So I think Thats. Your your last part of the question is key.

Why are we do not have more information and so it is not our policy at the moment.

What we are what we are working with government is to get.

Clear indication what does that mean because.

Obviously, there are there areas, which you would you would have less expenses or if they are instead of 100 people in the home. If you have <unk> you, obviously will be used less nursing hours, but if you have 70 people in 100, if you changed the rule do you still have to change the whole loyalty cannot change 70% of it are simply apply for housekeeping you cannot mop half the floor at them after the full.

Home so.

So from based on our discussions with the government people understand that the issues.

With removing <unk> funding and we continue to remain optimistic that we'll find a way where costs that should be steps should we say and cost that should be reimbursed.

It should be reimbursed.

Okay.

I guess like this combined with the fact that there was no sort of occupancy premium increase.

This year like.

Is there is there sort of like a shift in lake.

The government's perspective on the sector Blake or is this sort of just part of the cycle of this business in terms of sometimes the funding is there and sometimes it's not.

Sure.

I would say this is this is an inflection point for long term care and governments have been very supportive of long term care, whether it's Ontario and BC. The two provinces. We are in long term care and there had been significant significant amount of money allocated long term care.

Whether it's prevention containment funding pandemic funding all sorts of different things.

<unk>.

Margin in 2021, we see that in 2022, and if you don't see a good funding increased its obviously going to persist in 2023, and then it's going to start impacting really redevelopment, which is a big mandate for the government. We have to build new long term care beds. So regardless of capital funding. If you don't have the right operating funding the projects.

Really work so again, we found.

Government to be understanding of the challenges obviously, but these things will take some time to work through.

It remains to be seen whether we are blindly optimistic or we are we are optimistic. So we will find that out in due course, but at this stage. We continue to be optimistic that there is going to be a viable solution because when you look back at the history of long term care funding.

It has been labs with inflation, but eventually that has always made up so and we and our and our hope is that that will be the case this time around as well.

Okay, and then just lastly.

<unk>.

Can you just talk a bit about then if you're thinking about pulling back on some of the redevelopment stuff.

What would you what would you guess are sort of working capital budget would be for <unk>.

'twenty three 'twenty four kind of time horizon.

Is there any appetite on M&A right now.

So we are.

We did a big M&A deal in the beginning of this year.

We don't have specific M&A targets.

Any of our criteria, which is very helpful. Because it stops us from doing stupid deals so.

Sure.

Okay.

Perfect. Thanks, very much Alan.

Thank you. Thank you.

As a reminder, if you would like to ask a question at this time. Please press star followed by the number one on your telephone keypad.

Your next question comes from Himanshu Gupta with Scotiabank. Your line is open.

Thank you and good afternoon.

So.

Retirement home occupancy.

Are you already there.

Right.

So it has the corporate.

Sure.

<unk> use.

Houston, pushing sales to get to like 90% and above.

Hi, Himanshu good afternoon up so our target has not changed we think stabilizes low 90 call it 90% to 94% and we are very optimistic.

With our team's ability to get there.

But our focus has changed to margin I would say two quarters back. So once you are in the.

80, 586% range and we have multiple homes, which had a 100% occupancy multiple homes, which are 95, plus and at that time, you can start to now look at pricing and from our experience.

When we went to rental rate increases across our portfolio with an explanation of why the increase in food cost has gone up 20% utilities have gone up.

Our residents.

Given the choice between reducing services at increasing rates.

They gave us a very clear indication that would rather see rate increase and thats, what <unk> been doing and we have not seen any significant pressure on it.

The goal is not to overdo it because we can potentially try to get too much out of that and then that might have some positive margin pressure, but what results into some negative issues with resident relationships our ability to market more so that's that's what we're watching at the moment, but as our occupancy get more stabilized because we're not there yet.

We should see a margin increase.

Alright, Okay Thats helpful.

<unk>.

Again like.

Alright, NDA bridie with regard of levels.

What is the market vacancy.

The Ontario market.

Lynne do you.

I mean do you see the whole market moving above 90%.

Any color in terms of the markets.

Okay.

Yes.

It's hard to there has been work that CBRE does cushman and Wakefield.

<unk> market vacancy.

Data has not been a big.

So we expect those rates to be similar and that's why we think that stabilizes in the low nineties call it 90% to 94%.

Alright, thank you.

And then shifting to margins and I know John has already covered that.

Expense questions.

Simply on the retirement home NOI margin.

I think in the MD&A, you mentioned Q4 margins to be similar to Q3 margin.

If I recall previously.

Churn like 50 to 100 basis point improvement.

Second half of the year from Q2.

Is that <unk> is that a reflection of all the discussion around the higher cost what do you see.

Yeah, no. Thanks for that question.

So yes, that's right in the MD&A, we did indicate that our Q4 margins would be similar to Q3.

Our Q3.

Margins are at 36, 6% so we expect.

Being similar in Q4 and with respect to.

No.

A change in sort of the narrative.

It is a little bit of a change.

Because we continue to see cost pressures around agency utilities and insurance.

Got it okay. That's good enough.

And then one more thing again in Europe .

I see.

You mentioned about the funding profile.

Hello.

Goldman funding.

Doug already been received and reflected in the financials are this is over and above.

What do you think.

Sorry can you repeat the number again I mentioned, yes.

Yes.

Looking at the financials and I think you mentioned that in September .

The minutes.

Long term care, allowing some funding.

$18 million.

This could be towards the end given expenses is that over and above just trying to understand is that like.

Reflected on lockup connected on the books.

I believe relate to the pandemic funding pads.

That the government has.

<unk> allocated to Siena and that would relate to the period of April 'twenty two to March 2023, and we would use those funds as we're incurring pandemic expenses.

The answer is yes, we have been reflecting that within our financial statements.

Okay.

When you say that.

We'll have $2 million to $4 million unfunded Brendan <unk> expenses.

Over and above whatever funding.

<unk>.

At this time.

So that is a value.

While perspective.

That's correct the $3 million to $4 million would be in excess of the.

Pandemic funding that we would receive.

Got it okay. Thank you.

And final question on balance sheet.

I think you mentioned debt to adjusted EBITDA of around nine times.

Yes.

Just wondering what is your view on leverage and the mix.

Joe.

Are you looking for any disposition program or any noncore assets.

Which could be.

Amen disposal.

Many.

Assets, which are not part of our core strategy you might have one or two from time to time because of change in market, but nothing material.

Okay. Thank you ladies and gentlemen.

Thank you.

And there are no further questions at this time. This does conclude today's conference call. Thank you for joining you may now disconnect.

Q3 2022 Sienna Senior Living Inc Earnings Call

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