Q4 2022 Sienna Senior Living Inc Earnings Call

February 24, 2023

Okay.

Ladies and gentlemen, welcome to Sienna Senior living Inc. 's Q4, 2022 conference call. Today's call is hosted by niche and Jane 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 risk factors section in the company's public filings, including its most recent MD&A and Aif for more information.

You will also find a more fulsome discussion of the company's results and its M D and E and financial statements for the period, which are posted on SEDAR.

And can be found on the company's website CN living Dot C E.

Today's call is being recorded and a replay will be available.

Structures for assessing the call are posted on the company's website and the details are provided in the company's news release. The company has posted slides, which accompany the host's remarks on the company's website under events and presentations with that I will now turn the call over to Mr. Jay. Please go ahead Mr. Jain.

Good afternoon, everyone and thank you for joining us on our call today.

Long term fundamentals and Canadian senior living remains strong despite an uncertain economic environment and a challenging labor market.

Q4 financial results out of the reflection of the growth potential embedded in our business as well as the current economic challenges.

Continued occupancy and rate increases in our retirement segment offset some of the significant cost increases across both of our business lines and funding shortfalls in the long term care segment.

Despite these challenges, we believe that having a balanced portfolio in which our retirement and long term care operations each make a significant contribution to the overall net operating income after the financial strength of our business and how to achieve sustainable long term growth.

With respect to our operating results average same property occupancy in our retirement portfolio grew for the sixth consecutive quarter to 88, 6% in Q4, which is a 440 basis point year over year, and 20 basis points compared to the third quarter in 2022.

Average occupancy in our <unk>.

Position portfolio was approximately 85, 3%.

Which is an improvement of 310 basis points since we acquired the 12 assets in May of 2022.

Going forward, we will continue to capitalize on the growing demand for senior living and expect further occupancy.

<unk>.

In 2023, we forecast average occupancy for the full year to achieve 90% and our same property portfolio, Andrew it's at 87% and our acquisition portfolio.

We continue to leverage our Aspira brand and signage program to generate strong interest in our residences qualified leads have increased by approximately 29% year over year in the fourth quarter.

Moving to slide six in our long term care communities resident admissions progress steadily throughout 2022 with average occupancy, reaching 96, 3% in the fourth quarter.

Demand for long term care beds is higher than ever with the rapid increase of Canadian seniors. The 85, plus cohort is expected to triple over the next 25 years.

This will put further pressure on the already long waiting list for long term care beds and on Canada The hospital systems.

At the same time labor shortages high inflation and funding gaps are impacting our operations.

Together with other sector participants and associations, we have been working with the government to address the situation and feel confident that we'll find a solution to ensure the long term viability of this sector.

Elevating the quality of life and well being of our residents is at the center of what we do.

We are very pleased that <unk> maintained the highest achievement status of aspire to excellence in Ontario, which is awarded by car.

And also received an example award of exemplary standing from a tradition, Canada for our communities in British Columbia.

These are strong indicators that our team has demonstrated excellence in the quality of care to provide.

A national shortage of healthcare workers continue to put immense pressure on our sector.

Although a number of important government initiatives are underway, we expect staffing shortages remain for some time.

In 2023 will continue to strengthen team engagement and retention by offering a compelling team member experience and we are creating a purpose driven culture.

We will also continue to improve our onboarding process invest in team member training and development and intensify our recruitment campaigns.

Our initiatives to improve team member satisfaction and engagement have been reflecting our recent engagement survey.

Approximately 85% of our team members feel that they are able to do meaningful work everyday. This was the second consecutive quarter year of improvement in our employee engagement score.

Recently, we have implemented a centralized call out and ship scheduling system to meet our staffing needs on a real time basis the.

The system provides greater flexibility in a more seamless process to fill the staffing gaps.

It also helps with tighter controls on overtime allow team members to optimize their schedules and ultimately reduces our reliance on external agency staffing.

To further reduce the impact of agency and agency related cost we are finalizing an RFP process to reduce the number of agencies that we use from nearly 102 less in 'twenty.

At the same time, we are strengthening our contract terms such as enforcing a minimum fill rate threshold and surcharges, while reducing agency rates by an average of 10%.

Moving to our focus on development last year, the feasibility of a long term care redevelopment plans was challenged as a result of rising construction costs and rapidly increasing interest rates.

Together with other participants in the senior living sector, we have been working with the Ontario government to address the situation.

We are very pleased that in late 2022, the government announced a significant increase to its long term care construction funding.

As a result, we expect to have a total of 480 beds under construction by mid 2023, including projects in Las Vegas Keswick in Branford.

The project in Branford consist of 160 long term care beds, and 147 retirement suites as part of campus a cure.

The campus will have an estimated total development cost of approximately $140 million and our projected development yield of approximately seven 5%.

In addition, Siena has over 1000 beds in the planning stages in the greater Toronto area.

We will continue to advocate for funding that is aligned with inflation. So that they can move forward with our redevelopment plans and improve long term care in Ontario.

We are also approaching the finish line for our joint venture development Reichman Senior housing our 150 suite retirement residents in the agro calls, which we expect to complete by the end of this year.

Estimated total capital investments for this project is approximately $55 million.

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

Thank you and good afternoon, everyone I will start on slide 11 for financial results. In Q4, 2022 total adjusted revenues increased by 10, 9% year over year to $193 2 million. This increase was largely due to occupancy and rental rate growth and additional revenue from the 12 properties we acquired in Q2.

Two in our retirement segment as well as flow through funding for increased direct resident care and higher preferred accommodation revenues from increased occupancy and our long term care segment, partly offset by occupancy clawbacks in homes, where we did not reach the required 97% occupancy target.

Total net operating income decreased by two 8% to $32 $5 million this quarter compared to Q4 2021, our LTC segment decreased by $2 $9 million year over year, mainly due to higher operating costs and the impact of the sale of a long term care community in Q1 2022.

NOI in our retirement segment increased by $1 $9 million, mainly as a result of same property NOI growth and additional NOI from our 12, new retirement properties offset by higher operating costs.

CNS LTC same property NOI decreased by 11, 3% to $16 $4 million in Q4, 2022 compared to last year, primarily due to higher operating costs in particular with respect to labor as well as occupancy products.

This was partly offset by an increase in preferred accommodation revenues as a result of higher occupancy compared to Q4 2021.

We expect cost pressures to remain for some time at our long term care operations and forecast that our 2023 NOI for the full year in the LTC segment will remain at a similar level compared to 2020 to.

Last year, the Ministry of long term care advice that it will not reopen the third and fourth beds in ward rooms, and is a signal that it intends to introduce faced in revisions to the funding for these beds.

<unk>, which could impact 350 of the.

Three and four beds at Sienna were expected to begin in January 2023, but have been delayed until at least the end of March.

In addition, we expect continue unfunded pandemic expenses of between $2 million to $3 million in Q1 2023 for our long term care segment, largely as a result of incremental labor costs.

Retirement same property NOI increased by 5% in Q4, 2022 to $14 $7 million compared to last year, primarily due to occupancy improvements and annual rates increases. This was partly offset by higher cost for labor and food as well as increased maintenance and property taxes in 2023.

We expect NOI growth in our retirement portfolio to be supported by occupancy improvements and rate increases of approximately 5%. These factors will contribute to revenue growth while cost pressures will remain for some time in particular with respect to staffing shortages as.

As well as high overall inflation.

Considering all factors, we expect the operating margin in our retirement segment in Q1 2023 to be similar to the full year margin of 35, 7% in 2022, and we further expect that 2023 operating margin to improve by approximately 150 to 250.

200 basis points for the full year.

Moving to slide 12 during Q4 2022 operating funds from operations decreased by three 1% to $17 7 million compared to last year, primarily due to lower NOI and higher interest expenses.

Q4, <unk> per share decreased by 10, 7% to $24 <unk>, primarily due to additional shares issued in March 2022 to finance the company's growth initiatives.

Adjusted funds from operations increased by four 5% to $17 $3 million compared to last year. The increase was due to the timing of maintenance costs, partly offset by lower Oss fall.

<unk> per share decreased by $4.

4% to $23 seven in Q4 2022.

The <unk> payout ratio was 98, 7% for the quarter and 99, 3% for the full year. In addition, we recorded restructuring cost of $6 $6 million in connection with the permanent closure of a long term care community in 2023.

Looking at our debt metrics on slide 13, our debt to gross book value decreased by 80 basis points to 43, 9% at the end of 2022 compared to 44, 7% at the end of 2021, mainly due to mortgage repayments with proceeds from property dispositions earlier in the year.

Debt to adjusted EBITDA increased to eight nine times in 2022 compared to seven nine times in 2021 and interest coverage ratio decreased to three three times in 2022 compared to three seven times in 2021.

On December nine 2022, <unk> confirmed CNS issuer rating and senior unsecured debenture rating of Triple B with stable trends. These ratings underscore the resiliency and strength of our business and a reflection of our strong balance sheet.

We ended 2022 with approximately $287 million of liquidity, an increase of $61 million compared to 2021. We also had nearly $1 2 billion of unencumbered assets, which represents a year over year increase of approximately $80 million I will now turn the call back to Nick for his closing remarks.

Thank you David 2022 has been a significant year for our company.

Expanded our footprint in Ontario and entered Saskatchewan.

And have successfully integrated 12 retirement residences into our operating platform.

At the same time, you put many initiatives into motion to sent a team member engagement and continued with enhancements to our operating platform to elevate the quality of life of our residents.

These initiatives will support us at a time our sector remains under immense pressure amid a national shortage of healthcare workers and economic uncertainty.

In 2023 will focus on operational excellence, we will continue with our disciplined approach of growing our revenue streams in both long term care and retirement, while reducing cost in particular with respect to temporary agency staff.

Also advanced the redevelopment of our long term care portfolio and continued with enhancements at existing residences, all while maintaining a diversified portfolio and a strong balance sheet.

We are confident that the significant changes in 2022 positions us well to execute on our strategic objectives in 2023 and help us achieve sustainable long term success.

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.

We're now pleased to answer any questions you may have.

The floor is now open for your questions to ask a question at this time. Please press star one on your telephone keypad at any point you would like to withdraw from the queue. Please press star one again.

Provide the opportunity to ask one question and one further follow up questions. We will take a moment to render our roster.

Our first question comes from the line of Jonathan Culture from TD Securities. Please proceed.

Thanks, Good afternoon.

First I'll just start.

Just on the LTC outlook with the NOI being expected to be flat versus 2022.

What sort of assumptions are in there on pandemic expenses and reimbursements.

As well as what do you guys think the outcome will be.

The three in core.

Award rooms.

Sure Jonathan get option I can.

Start by answering some of the questions on David and can specifically address pandemic expenses.

I would say starting in the third and fourth bedrooms, there was I.

I think the diarrhea of closing the third and fourth bedroom for quality of life, we are completely aligned with and supportive of and I think the work with the government is that they are things that would not reduce expenses don't get reduced if you have a building of 100 people and only ADR and you still have to clean the entire building you have utilities and then <unk>.

You have the same administration and so for them government overall has been receptive of understanding the issues that had so at this stage. We can't do feel confident that we will have a funding mechanics, which obviously reflects the reduced number of residents and.

Those homes, but also reflect that the cost has not changed and also reflects nearly a 9% funding gap between what inflation has been and what the long term care funding has been so we continue to believe and expect that we'll have a viable program to continue to fund these.

These homes, which are which had three or four bedrooms.

Assumptions on funding increases over a year, our going in assumption is similar to what we ever had in the past having set so really the ask is a key.

Clear ask as a 9% funding increase because that is the gap between inflation.

And what the funding has been and we have data going all the way since 2000 and this is the first time in the period of last 25 years, where the long term care funding has fallen before inflation and the gap is around 9% and that's what's needed to close that gap, David do you want to address the pandemic expenses.

Sure, Yes, so with respect to pandemic expenses, our pandemic expenses do continue to contain it to include costs that preventing contain outbreaks, but increasingly they are also incur.

Include cost for incremental staffing and agency costs, particularly in our rural communities, where we.

Staffing shortages with respect to our assumption.

Our underlying assumption is really that net pandemic expenses will stay flat relative to 2022. So in 2022, our net pandemic expenses were $8 million, but that also included about $5 million of retroactive.

Funding relating to 2021.

In 2023, we would expect that our net pandemic expenses will be similar to 2020 to around $8 million.

Yeah.

Sure.

Okay. So just sorry to go back to the.

You ask on the funding increase you said you're expecting.

<unk>, historically gotten but asking for 9% and that also that kicked in April 1st if I recall correct.

Yes, that's correct. So I would say I think to answer your question more directly our outlook at this stage to just only includes what has been in the past which is.

Around 2% or so what we what we are expecting though or be advocating for is the 9% because that has been the gap.

And funding over the last four years.

So obviously when that comes through that outlook will change.

Hopefully hopefully do the better okay. Thanks, I'll turn it back.

Thank you.

Our next question comes from the line of <unk>.

<unk> Gupta.

From Scotiabank. Please proceed.

Thank you and good afternoon.

So just to follow up on long term care question by Jonathan.

So.

On long term care, how many calls.

Would you see.

97% occupancy production last year.

And what was the impact in the last handful why because of that.

Yeah. Thanks, Thanks for that question demand shifts. So there were about 10 homes that did not achieve the 97% most were actually very close to 97%.

And overall the impact in Q4 was about $800000 in terms of occupancy clawback and $1 $3 million for the year.

And for your guidance.

<unk>.

Do you assume.

Thanks.

This $1 billion.

No guidance.

And our guidance, we assume that most of it will be recouped back because 2022 had still had significant outbreaks. We were working public health. When you can admit people. When you cannot so I think that has been a bit all over the place from a from a policy perspective and process perspective, what we're really looking for is that it really should be.

In extreme cases, where either there is no demand, which is going to be very surprising considering the 40000 people on a waitlist or some circumstances, which are outside of everyone's control. So we expect some majority for our homes to reach to get to 97%.

Okay. That's helpful. My next question would be.

Thank you Brandon.

<unk> guidance.

Because of <unk>.

Toward that.

Basically are you now.

Thank you.

Guidance.

We are not assuming any impact from.

From the phase out of the third important bets.

Okay. Okay.

If I see that.

Is there more upside or downside.

Slide <unk>.

Hi, guys.

Looking at both of these items.

Ultimately it does on the mindset of a person who is downside.

Yes.

The impact as well because of a potent against those bonds.

How would you frame.

Good question.

Sure.

That's great.

Great question, So I would maybe add sort of in a few different is the first is totaled four bedrooms.

<unk> built in any impact and we come to feel that.

The funding is obviously, one thing and the impact on NOI, but I think it will frankly destabilize the whole C portfolio and this is on takeaway problems because they are still 30000 beds.

Our <unk> homes and that they'll put them significantly under duress.

The second part on.

97%. So obviously, we are assuming that we'll get to a majority of our homes being 97%. So the $1 3 million that David spoke about is frankly being eaten up because you have costs, which are running much higher to the 1% 2% funding increase that we are assuming at the moment.

The upside is not really the right word frankly, the right size is what we are after that what we wanted to do is ensure that the long term care funding at the right size, because it's going to put the sector at.

Significant challenge than the whole sector is trying to build.

Thousands of beds to meet their growing demands of long term care.

So I would say, whether it's upside or downside I think remains to be seen.

And as you had talked about previously we find government in Ontario, BC and Saskatchewan.

Right understanding of the challenges.

And willing to hair. So I think we continue to have very good access in terms of explaining what the challenges are obviously what remains when the budget comes out that's when we'll find out what the outcome is.

Awesome. Thank you. Thank you Nathan.

My next question is on the development. So it looks like the projected cost of construction has gone up.

$255 million.

Yet the development yield is unchanged at seven five.

Underwriting better rates.

Led to that.

Conclusion.

Thank you.

Sure. So the cost frankly, you are right the cost has gone up from nearly.

$50 to $51 million or 55, and given that those costs were from 2019, we frankly think it's.

Cortland medical that will all cost only went up 10% and a big chunk of it is obviously.

Our construction financing that impact on interest rates. So we are very happy with the outcome of it considering cost has gone up nearly 30, 40% on other projects and we are seeing better right. So I mean, we're seeing better rates across our portfolio. So that's why the yield is not not changing.

Okay. Thank you.

Maybe my last question is on.

Donovan, who NOI margins.

You provided guidance of 150 to 200 basis point expansion.

This year.

How do you get visibility what is causing those margins to go up.

Sure I mean really.

We are also expecting a change in occupancy. So we ended the year at an average of around 88, 6% and we are calling an average occupancy in our same property portfolio of nearly 90%. So thats. The average so you start at 88 and a half you averaged 90. So that's mathematically will put us close to 92% and as that occupancy.

At the end of next year, So just from a math perspective, so we are.

Factoring in.

A significant change in occupancy going from $88 six two.

Up to the low ninety's and with that obviously at these occupancy levels a bigger chunk of your revenue is going into the NOI. So that gives us the first comfort.

And then just margin in general for example, the margin are running lower than what we have in the past.

However, when you look at our full year NOI for retirement were up nearly 10%, where we ended the year 2021 at around $52 5 million in the same property. We are ending this year at around 58, and a half. So it is up significantly and that's the challenge and are rising.

<unk>, an inflationary environment. So for example, if you had a pom, which had a revenue of 100 and your NOI is 50 and year.

Cost is going up by.

6% is going up $3, so you're increasing your revenue by nearly similar amount because at some stage. There is a cap to what you can increase.

Your NOI continues to increase but your margin is going to reduce a little bit. So that's what we're dealing with at the moment and if we were not in an inflationary environment. We would have expected our margin in fact to be higher as we are progressing towards these higher occupancy of nearly stabilized levels.

Thank you that's very helpful. So it looks like.

Margin.

Please note that these levels, but maybe NOI, but there was a place we could still be up.

That's very helpful and thanks.

Thank you.

Our next question comes from the line of Tal Woolley from National Bank. Please proceed.

Hi, good afternoon.

Good afternoon.

On the long term care business, just maybe if we could step back a little bit further if we go back pre pandemic. This is sort of like a.

$85 million NOI business.

Wondering as you look out going forward, you've obviously provided some specific guidance for the near term and that's helpful.

Can this business get back to that level of profitability do you think or should we be thinking.

A little.

Lower rebound.

A slower rebound than maybe.

What was initially hoped coming out of a kind of a couple years ago.

I would say so youre right thats around 85, I would've just for we did sell one long term care home in Q1 of 2022 a C platform.

To a significant gain so.

Remove that there was around a couple of million dollars of NOI have been unfortunate closing our long term care home because of some building deficiency and even though it had really no NOI impact in 2022, that's why we don't see any negative impact in 2023.

And that was another million and a half nearly of NOI. So I would say the starting point it might not be 85, it might be 81, and a half but the question.

It remains the same and we continue to believe that a big chunk of that is driven by.

The funding shortfall, which is around 9% and that would account for nearly two third of the difference between what we are forecasting.

And that $82 million. The other part of it is pandemic expenses, then even though the world around us change and for many people covet is in one way over but as I visit our communities. We still have screening we still have people masking, we still have outbreaks, which puts.

Significant pressure on staffing and agency. So there is an aspect of that and we continue to believe that because the impact of Covid today has been very different than it was three or four years ago and as time passes it's going to become.

More and more or less so thats why we are continuing.

Continue to feel confident that we can get to that number which was which was pre pandemic.

Okay.

And then I know there had been some discussion too.

Funding increases.

Maybe some work with the government around regulating.

Agency, how agencies practice in the province has there been any headway made on that on that particular file.

I would say there has been lot of discussion because it is.

Issue is two folds one is obviously the impact on funding, but the second is really an equally important is the impact. It has had on the stability of team members because linear agents senior team.

They are new they don't understand what's happening at homes at times that obviously creates more work for current team members. So it gets into higher turnover eventually and the second is the impact on resident experience because.

Especially in long term care than you have complex healthcare needs of residents and Youre getting new staff members on a daily basis is really not that household. So frankly, it's a combination of all of those things. So we don't know what the what the end would be in terms of resolving it but but we find there is more and more discussion about finding a viable process. So.

We're not trying to limit competition are.

<unk> businesses, but we are now looking at a scarce resource, which especially in nursing staff and in a place where you need to have nurses and Europe at times paying and multiples of work Youre Union wages are so that has to get resolved and we feel that.

We feel that there is traction on getting something done on it.

Okay and this is something also that in <unk>.

Next to the hospital.

The other part of that is correct.

Yes.

By the government.

I'm just wondering if we could walk through given that you're a green light a couple of new development projects. Here can you just walk through like what you expect total capital spending to be this year.

So we are going to be very cautious on how we how we do that given what is happening to the share price obviously the capital markets in general So even though we continue our very good access to capital and David and his team recently went through some refinancing work in CMC financing is very attractive either window. It doesn't apply to long term care, but.

We have a number of unencumbered.

Projects, we can obviously more.

Financing around our funded through different ways.

This is something which is.

Top of our mind, making sure that we.

Fully committed to doing three development, especially the three projects, we announced but we have to do it in a responsible way that it does not put undue pressure on our balance sheet. So.

So far we feel comfortable with what we've announced which is the brand for project as we decided the next too. That's those are the different things we are contemplating a how best to finance them. So we are set up for the long term without putting too much pressure on the short term.

Can we put some numbers around that.

I think.

Sure.

Maybe it's a month and a half too early so we are in the tender process for us to put two projects we have.

Given our construction costs in the past and we have been wildly wrong. So we don't want to repeat the same mistake again, so for Brian Foote for example, a $140 million that what we are what we are placing here that standard cost projects awarded.

Construction at the start.

And in short order, so we feel lot more comfortable sharing those the other two.

High level could be in the same quantum combined at all but I think again, we'll have to wait for a bit of time to get those costs finalized.

The new normal course, maintenance Capex, where would you peg that right now.

So we already disclosed our maintenance Capex is actual so David you can speak to our spend in 2022, yes. So in 2022, we spent approximately.

$11 million in maintenance capital and we would see we would see that in 2023, our maintenance capital will increase partly because of the acquisitions that we made earlier in the year, but also because of the inflation general inflationary increases.

Okay.

And I guess.

Just lastly lake B.

Can you just talk a little bit about where you are seeing.

Financing and you talked a little reducing financing cost right now and you talked earlier about you wanted to be make sure that youre not stretching too far with the balance sheet.

Can you give us some idea of what that envelope may look like what would you consider to be kind of like two months too much leverage at this point in time.

Yes, I mean, I can start and then I'll jump in after but with respect to financing we're seeing.

We're seeing very attractive market right now.

The <unk> debt.

Just as an example, we refinanced one of our retirement buildings in Q4 for about $45 million and that helped us repay $40 million of our acquisition term loan.

So currently CMA sea that is where we're where we're looking right now and we do have a number of unencumbered assets that we could use to.

Basically.

Our refinance with CMA CGM.

The rate itself, what we got in for this particular retirement home it was under 4%.

Okay.

Okay. So how much more seamlessly up financing theoretically could you be able to do.

Yes, probably.

We certainly don't want to stretch our balance sheet, we are very mindful of.

Our debt to gross book value probably in the range of $100 million is what we would be looking at.

Okay.

And then.

Again.

As you start to take on more development like what sort.

The.

Envelope you'd like to keep the balance sheet in terms of ratios.

So from a debt to book value.

Two ratios, we're managing closely one is the.

Debt to book value, where we have lot of room here around 43, 44% and we set a development they're comfortable getting it closer to 50.

But it will take will take its time, because even when you start these three projects.

Back in 2023, smaller obviously 2024 would be a bigger spend year and the second one is the debt to EBITDA. So again, our goal is to be between around eight I think with development is going to go a little bit higher and Thats. What we are trying to match that we don't really exceeded by too much.

And the credit rating agencies are cool if you.

Pushing north of Miami, you think thats going to be.

Bill will allow for that.

So we have had very good discussion with GPRS. So the current <unk> rating does not include a lot of development, but they know that there is a lot of development of the horizon. So I think it really would depend on the pace.

As we said the three projects by itself and there are some interesting things we're looking at how best to finance those.

So we all.

Honestly continue to work very closely with them. They expect the development to happen and with that in mind, obviously, our rating was reconfirmed, but that is something we will be a continuous ongoing discussion and a very important metric for us to ensure that we preserve that credit rating.

Okay. Thanks, very much gentlemen.

Thank you.

Our next question comes from the line of Tammy <unk> from RBC capital markets. Please proceed.

Thanks, Good afternoon.

Just with respect to the persistent pressures on labor costs and shortages.

There are two retirement homes or in long term care.

In your mind at this really now perhaps permanent.

Structural issue that could last well beyond the next year or two.

Absolutely.

I think there are two things. We said, we believe that will be true forces theyre not going to be enough places casino slip because we have a long waiting list and long term care already and retirement construction is.

Slow down significantly in the second is the human resource prices is here to stay so youre absolutely right.

We have a big push on immigration as a country and all sorts of different things, but I would say many other countries are doing the same.

And that is why I think we are.

A lot of people a year I mean last year.

200, North of 5000 people. So we have a very good talent acquisition team. The focus really for US is how do we hold on to those people for longer period of time, because theres a higher churn of people in this sector, whether it's driven by wages.

Whether that's driven by more flexibility.

Other factors. So that's what we're after and that's why the work around scheduling systems to focus on culture focus on making sure. Our team is paid competitively that's going to be that's going to be a key factor.

Got it.

And then maybe just coming back to you I wanted to just clarify your comment earlier, you mentioned the 9% funding gap.

Last quarter I think you said for years is that the average annual funding gap or the total funding gap in terms of I guess.

Recoveries versus the actual funding that was received.

Yes, thankfully its combined 9% timing.

Otherwise, we will frankly, whatever very different call today.

No. So it's a combined 9% funding gap during this time and that's in our mind will put us on the right course, and obviously then funding changes on annual basis, which stay up with inflation.

Right, Okay, and then just maybe to clarify with your <unk>.

Q1 to date have there been any recut.

Recoveries have pandemic costs related to 2022.

No there have not.

In any.

Okay.

And then just maybe.

In the loop on the whole.

The question is around capital and development spending.

I'm just curious what the payout ratio has now hit.

It's al.

Elevated.

Percent.

Yes, you are assuming some growth in the retirement portfolio next year, and maybe flat long term care, but.

Under what circumstances would you consider or reconsider the current payout.

Sure we have always talked about I mean, the question is we used to get for years by the way the exact opposite because our payout ratio was 60% ratio and two things have happened, which to take it from 60% to <unk> 98 or 99% now.

One is obviously the impact of a pandemic and reduced reduction of occupancy and retirement and increased expenses in both lines of businesses and the second which is peculiar to to us and senior living.

The construction funding, which used to be a habit for our <unk> homes, which were previously which has come down by nearly $6 million to $7 million over the last four years. So those are the two drivers, which are which are which have been factoring that.

We continue to feel confident on a recovery path both from a construction funding thats why the importance of these three projects to start construction and being able to get.

The funding gap between what the government is funding what we expect the government to fund going forward and our retirement occupancy, but if you don't get to those.

The gap of that.

Long term funding and we don't get occupancy, obviously, and we don't get spec construction that would be the time that we would have to rethink this but at this stage. We continue feel confident on our recovery on all of those three fronts.

Thanks for the color and then I will turn it back.

Thank you.

There are no more questions. Thank you ladies and gentlemen, this does conclude today's call. Thank you for your participation you may now disconnect.

Yes.

Okay.

[music].

Ladies and gentlemen, welcome to the Sienna Senior living Inc. Q4, 2022 conference calls.

<unk> call is hosted by niche and James President and Chief Executive Officer, and David <unk>, Chief Financial Officer of Sienna Senior.

They're 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 risk factors section in the company's public filings, including its most recent MD&A and Aif for more information.

You will also find a more fulsome discussion of the company's results and its M D and E and financial statements for the period, which are posted on SEDAR.

And can be found on the company's website CN living dossier.

Today's call is being recorded and a replay will be available.

<unk>, we're assessing the call are posted on the company's website and the details are provided in the company's news release. The company has posted slides, which accompany the host's remarks on the company's website under events and presentations.

I will now turn the call over to Mr. Jin. Please go ahead Mr. Jain.

Good afternoon, everyone and thank you for joining us on our call today.

The long term fundamentals and Canadian senior living remains strong despite an uncertain economic environment and a challenging labor market.

Q4 financial results out of the reflection of the growth potential embedded in our business as well as the current economic challenges.

<unk> occupancy and rate increases and at a time and segment offset some of the significant cost increases across both of our business lines and funding shortfalls and the long term care segment.

Despite these challenges we believe that having a balanced portfolio and which are at a time in the long term care operations each make a significant contribution to the overall net operating income after the financial strength of our business and how to achieve sustainable long term growth.

With respect to our operating results average same property occupancy in our retirement portfolio grew for the sixth consecutive quarter to 88, 6% in Q4, which is up 440 basis points year over year, and 20 basis points compared to the third quarter in 2022.

Average occupancy in our acquisition portfolio was approximately 85, 3%.

Which is an improvement of 310 basis points since we acquired the 12 assets in May of 2022.

Going forward, we'll continue to capitalize on the growing demand for senior living and expect further occupancy improvements in.

In 2023, we forecast average occupancy for the full year to achieve 90% and our same property portfolio, Andrew it's at 87% and our acquisition portfolio.

To leverage our Aspira brand and signage program to generate strong interest in our residences qualified leads have increased by approximately 29% year over year in the fourth quarter.

Moving to slide six and our long term care communities resident admissions progressed steadily throughout 2022 with average occupancy reaching 96, 3% in the fourth quarter.

Demand for long term care beds is higher than ever but the rapid increase of Canadian seniors.

85, plus cohort is expected to triple over the next 25 years.

Will put further pressure on the already long waiting list for long term care beds and on Canada as hospital systems.

At the same time labor shortages high inflation and funding gaps are impacting our operations.

Elevating the quality of life and well being of our residents is at the center of what we do.

We are very pleased that <unk> maintained the highest achievement status of aspire to excellence in Ontario, which is awarded by car.

And also received an example award of exemplary standing from expedition, Canada for our communities in British Columbia.

These are strong indicators that our team has demonstrated excellence in the quality of care to provide.

A national shortage of healthcare workers continue to put immense pressure on our sector.

Although a number of important government initiatives are underway, we expect staffing shortages to remain for some time.

In 2023 will continue to strengthen team engagement and retention by offering a compelling team member experience and by creating a purpose driven culture.

We will also continue to improve our onboarding process invest in team member training and development and intensify our recruitment campaigns.

Our initiatives to improve team member satisfaction and engagement have been reflecting our recent engagement survey.

Approximately 85% of our team members feel that they are able to do meaningful work everyday. This was the second consecutive quarter year of improvement in unemployed engagement score.

Recently, we have implemented a centralized call out and shipped scheduling system to meet our staffing needs on a real time basis the.

The system provides greater flexibility in a more seamless process to fill the staffing gaps.

It also helps with tighter controls on overtime and our team members to optimize their schedules and ultimately reduces our reliance on external agency staffing.

You can further reduce the impact of agency and agency related cost we are finalizing an RFP process to reduce the number of agencies that we use from nearly 102 less in 'twenty.

At the same time, we are strengthening our contract terms such as enforcing a minimum fill rate threshold and surcharges, while reducing agency rates by an average of 10%.

Moving to our focus on development last year, the feasibility of a long term care redevelopment plans was challenged as a result of rising construction costs and rapidly increasing interest rates.

Together with other participants in the senior living sector, we have been working with the Ontario government to address this situation.

We are very pleased that in late 2022, the government announced a significant time.

<unk> to its long term care construction funding.

As a result, we expect to have a total of 480 beds under construction by mid 2023, including projects in North Bay Keswick in Branford.

The project in Branford consist of 160 long term care beds, and 147 retirement suites as part of campus a cure.

The campus will have an estimated total development cost of approximately $140 million and our projected development yield of approximately seven 5%.

In addition, Siena has over 1000 beds in the planning stages in the greater Toronto area.

We will continue to advocate for funding that is aligned with inflation. So that we can move forward with our redevelopment plans and improve long term care in Ontario.

We are also approaching the finish line for a joint venture development regimen Senior housing our 153 retirement residents in Niagara Falls, which we expect to complete by the end of this year.

Estimated total capital investments for this project is approximately $55 million.

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

In our retirement segment as well as flow through funding for increased direct resident care and higher preferred a combination revenues from increased occupancy and our long term care segment, partly offset by occupancy clawbacks in homes, where we did not reach the required 97% occupancy target.

NOI in our retirement segment increased by $1 $9 million, mainly as a result of same property NOI growth and additional NOI from our 12, new retirement properties offset by higher operating costs.

CNS LTC same property NOI decreased by 11, 3% to $16 4 million in Q4 2022 compared to last year, primarily due to higher operating costs in particular with respect to labor as well as occupancy products.

This was partly offset by an increase in preferred accommodation revenues as a result of higher occupancy compared to Q4 2021, we.

Last year, the Ministry of long term care advice that it will not reopen the third and fourth beds in ward rooms, and as signaled that it intends to introduce faced in revisions to the funding for these beds.

<unk>, which could impact 350 of the.

Three and four beds at Sienna were expected to begin in January 2023, but have been delayed until at least the end of March.

In addition, we expect continue unfunded pandemic expenses up between $2 million to $3 million in Q1 2023 for our long term care segment, largely as a result of incremental labor costs.

Retirement same property NOI increased by 5% in Q4, 2022 to $14 $7 million compared to last year, primarily due to occupancy improvements and annual rates increases. This was partly offset by higher costs for labor and food as well as increased maintenance and property taxes.

In 2023, we expect NOI growth in our retirement portfolio to be supported by occupancy improvements and rate increases of approximately 5%. These factors will contribute to revenue growth while cost pressures will remain for some time in particular with respect to staffing shortages.

Well as high overall inflation.

200 basis points for the full year.

Moving to slide 12 during Q4 2022 operating funds from operations decreased by three 1% to $17 7 million compared to last year, primarily due to lower NOI and higher interest expenses.

Q4, <unk> per share decreased by 10, 7% to $24 <unk>, primarily due to additional shares issued in March 2022 to finance the company's growth initiatives.

Adjusted funds from operations increased by four 5% to $17 $3 million compared to last year. The increase was due to the timing of maintenance costs, partly offset by lower Oss fall.

<unk> per share decreased by four point.

4% to $23 seven in Q4 2022.

The <unk> payout ratio was 98, 7% for the quarter and 99, 3% for the full year.

In addition, we recorded restructuring cost of $6 $6 million in connection with the permanent closure of a long term care community in 2023.

Adjusted EBITDA increased to eight nine times in 2022 compared to seven nine times in 2021 and interest coverage ratio decreased to three three times in 2022 compared to three seven times in 2021.

On December nine 2022, D. Brs confirmed CNS issuer rating and senior unsecured debenture rating of Triple B with stable trends. These ratings underscore the resiliency and strength of our business and a reflection of our strong balance sheet.

We ended 2022 with approximately $287 million up liquidity, an increase of $61 million compared to 2021. We also had nearly $1 2 billion of unencumbered assets, which represents a year over year increase of approximately $80 million I will now turn the call back to Nick for his closing remarks.

Thank you David 2022 has been a significant year for our company.

Expanded our footprint in Ontario, and entered Saskatchewan and have successfully integrated 12 retirement residences into our operating platform.

At the same time, you put many initiatives into motion to sent a team member engagement and continued with enhancements to our operating platform to elevate the quality of life of our residents.

These initiatives will support us at a time, our sector remains and remains pressure amid a national shortage of health care workers and economic uncertainty.

In 2023, we will focus on operational excellence, we will continue with our disciplined approach of growing our revenue streams in both long term care and retirement, while reducing cost in particular with respect to temporary agency staff.

We also advanced the redevelopment of our long term care portfolio and continued with enhancements at existing residences, all while maintaining a diversified portfolio and a strong balance sheet.

We are confident that the significant changes in 2022 positions us well to execute on our strategic objectives in 2023 and help us achieve sustainable long term success.

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 we are not pleased to answer any questions you may have.

Provide the opportunity to ask one question and one further follow up questions. We will take a moment to render our roster.

Okay.

Our first question comes from the line of Jonathan Culture from TD Securities. Please proceed.

Thanks, Good afternoon.

First question I was just.

Just on the LTC outlook with the NOI being expected to be flat versus 2022.

What sort of assumptions are in there on pandemic expenses and reimbursements.

As well as what do you guys think the outcome will be on the.

The three in core.

Award rooms.

Sure Jonathan and good afternoon, if I can.

Start by answering some of the questions on David and Ken specifically address pandemic expenses.

I would say starting with the third and fourth bedrooms there was.

I think the idea of closing the third and fourth bedroom for quality of life, we are completely aligned with and supportive of and I think the work with the government is that they are things that would not reduce expenses don't get reduced if you have a building of 100 people and only ADR in it you still have to obtain that entire building you have utilities.

The entire building you have the same administration and all so far than government overall has been receptive of understanding the issues that had so at this stage. We can't do feel confident that we will have our funding Mckenna zone, which obviously reflects the reduced number of residents and those homes, but also reflect that the cost has not changed.

And also reflects nearly a 9% funding gap between what inflation has been and what their long term care funding has been so we continue to believe and expect that we'll have a viable program to continue to fund these.

These homes, which are which have three or four bedrooms on assumptions on funding increases over a year our going in assumption is similar to what we ever had in the past having set so really the ask is.

Clear ask as a 9% funding increase because that is the gap between inflation.

And.

And what the funding has been and we have data going all the way since 2000 and this is the first time and the period of last 25 years, where the long term care funding has fallen before inflation and the gap is around 9% and that's what's needed.

To close that gap, David do you want to address the pandemic expenses sure. Yes, so with respect to pandemic expenses, our pandemic expenses to continue to contain it.

To include costs that preventing contain.

But increasingly they are also.

Include cost for incremental staffing and agency costs, particularly in our rural communities, where we experienced staffing shortages with respect to our assumption.

Funding relating to 2021 and.

In 2023, we would expect that our net pandemic expenses will be similar to 2020 to around $8 million.

Okay.

Sure.

Okay. So just sorry to go back to the.

Ask on the funding increase you said you're expecting.

What you have historically gotten but asking for 9% and that also that kicked in April one if I recall correct.

Yes, that's correct. So I would say I think to answer your question more directly our outlook at this stage to just only includes what has been in the past which is our.

Around 2% or so what we what we are expecting though or be advocating for is the 9% because that has been the gap.

And funding over the last four years.

So obviously when that comes through that outlook will change.

Hopefully hopefully do the better okay. Thanks, I'll turn it back.

Thank you.

Our next question comes from the line of <unk>.

<unk> Gupta from Scotiabank. Please proceed.

Thank you and good afternoon.

So just to follow up on long term care question by Jonathan.

So.

On long term care, how many calls.

Would you see.

97% occupancy protection posture.

And what was the impact of the loss in Hawaii because of that.

Yes. Thanks for that question demand shifts. So there were about 10 homes that did not achieve the 97% most were actually very close to 97%.

And overall the impact in Q4 was about $800000 in terms of occupancy clawback and $1 $3 million for the year.

Okay.

And for your guidance.

Do you assume a similar thing with <unk>.

This once again.

Guidance.

In our guidance, we assume that most of it will be recouped back because 2022 had still had significant outbreaks. We were working public health. When you can admit people. When you cannot so I think that has been a bit all over the place from a from a policy perspective and process perspective, what we're really looking for is that it really should be.

In extreme cases, where either there is no demand, which is going to be very surprising considering that 40000 people on a waitlist or some circumstances, which are outside of everyone's control. So we expect some majority for our homes to reach to get to 97%.

Okay. That's helpful. My next question would be upwards of your NOI guidance.

Because of that.

Basically are you assuming any mega.

Dave about $2 this guidance.

We are not assuming any impact.

From the phase out of the third and fourth beds.

Okay. Okay.

If I would see that.

Yes.

Upside or downside.

Yes.

Slide <unk>.

Hi, guys looking at.

Both of these items.

The occupancy it doesn't move items have a person there is downside.

Yes.

In fact, it will because of potent portraits against those.

How would you.

A couple questions.

Sure.

That's great.

Great question, So I would maybe answer that in a few different is the first is total four bedrooms.

Not built in any impact and we continue to feel that.

The funding is obviously, one thing and the impact on NOI, but I think it will frankly destabilize the whole C portfolio and this is on takeaway problems, because there's still 30000 beds, which are <unk> and they'll put them significantly under duress.

The second part on that.

97%. So obviously, we are assuming that we will get to a majority of our homes being 97%. So the $1 3 million that David spoke about is frankly being eaten up because you have costs, which are running much higher to the 102% funding increase that you're assuming at the moment. So.

The upside is not really the right word frankly, the right size is what we are after that what we want to do is ensure that the long term care funding is right sized because it's going to put the sector at a significant challenge than the whole sector is trying to build.

Thousands of beds to meet this growing demand of long term care needs. So I would say, whether it's upside or downside I think remains to be seen.

And as you had talked about previously we find government in Ontario, BC and Saskatchewan quite.

Quite understanding of the challenges.

Awesome. Thank you. Thank you Vincent.

My next question is on the.

Yes.

So it looks like the projected cost of construction has gone up from $50 million to $55 million.

And yet the development yield is unchanged at seven five.

So are you underwriting better lead so what led to that.

Yes.

Thank you.

Sure. So the cost frankly, you are right the cost has gone up from nearly.

<unk> $50 to $51 million or 55, and given that those costs were from 2019, we frankly think it's amir.

Berlin Miracle that will all cost only went up 10% and a big chunk of it is obviously a.

Construction financing that impact on interest rates. So we are very happy with the outcome of it considering cost has gone up nearly 30, 40% another projects and we are seeing better rates I mean, we're seeing better rates across our portfolio. So that's why the yield is not changing.

Okay. Thank you and maybe my last question is on.

Donovan.

Annualized margins I think you provided guidance, so 150 to 200 basis point expansion.

This year.

How do you get visibility what is causing those margins to go up.

Sure.

Really.

We are also expecting a change in occupancy. So we ended the year at an average of around 88, 6% and we are calling an average occupancy in our same property portfolio of nearly 90%. So that's the average that you started 88 and a half year average of 90, so that.

<unk> will put us close to 92% and as that occupancy at the end of next year. So just from a math perspective. So we are.

Factoring in.

A significant change in occupancy going from $88 62.

To the low ninety's and with that obviously.

These occupancy levels, a bigger chunk of your revenue is going into the NOI. So that gives us the first comfort.

And then just margin in general for example, the margin are running lower than what we have in the past.

However, when you look at our full year NOI for retirement were up nearly 10% from where we ended the year 2021 at around $52 5 million in same property, we're ending this year at around $58. Five so it is up significantly and Thats the challenge in a rising.

Already in an inflationary environment. So for example, if you had a home which had a revenue of 100 and your NOI is 50 and year.

Cost is going up by.

6%, so going up $3, so you're increasing your revenue by nearly similar amount because at some stage. There is a cap to what you can increase.

Thank you that sort of influenced that looks like.

Margin.

Please note that these levels, but maybe NOI, but there was a place we could still be up.

That's very helpful. Thanks, and I'm done.

Thank you.

Our next question comes from the line of Tal Woolley from National Bank. Please proceed.

Hi, good afternoon.

Good afternoon.

On the long term care business, just maybe if we could step back a little bit further if we go back pre pandemic. This was sort of like a.

$85 million NOI business.

I'm wondering as we look out going forward, you've obviously provided some specific guidance for the near term and that's helpful.

Can this business get back to that level of profitability do you think or should we be thinking.

Something a little lower rebound.

Much slower rebound there maybe.

Initially hoped coming out of a kind of a couple years ago.

Okay.

So youre right. There is around 85 out of just four we did sell one long term care home in Q1 of 2022, a C class home.

To a significant gain so.

Remove that there was around a couple of million dollars of NOI have you. Unfortunately are closing a long term care home because of some building deficiency and even though it had really no NOI impact in 2022, that's why we don't see any negative impact in 2023.

And that was another million and a half nearly of NOI. So I would say the starting point it might not be 85, it might be 81 half, but the question.

It remains the same and we continue to believe that a big chunk of that is driven by.

The funding shortfall, which is around 9% and that would account for nearly two third of the difference between what we are forecasting.

And that $82 million. The other part of it is pandemic expenses, then even though the world around US has changed and for many people covet is in one way over but as I visit our communities. We still have screening we still have people masking, we still have outbreaks, which puts.

Significant pressure on staffing and agency. So there is an aspect of that and we continue to believe that because the impact of COVID-19. Today. It has been very different than it was three or four years ago and as time passes it's going to become.

More and more or less so thats why we are we continue to feel confident that we can get to that number which was up versus pre pandemic.

Okay.

And then I know there had been some discussion to like in addition to funding increases.

Maybe some work with the government around regulating.

You can see how agencies practice in the province.

Any headway made on that.

On that particular file.

I would say there has been lot of discussion because it is the issue.

<unk> is two folds one is obviously the impact on funding, but the second is really an equally important is the impact. It has had on the stability of team members because when agents.

<unk> agents senior team.

They are new they don't understand what's happening at homes at times that obviously creates more work for current team members. So gets into higher turnover eventually and the second is the impact on resident experience because.

Especially in long term care, when you're a complex healthcare needs of residents and you're getting new staff member on a daily basis is really not that household. So frankly, it's a combination of all of those things. So we don't know what the what the end would be in terms of resolving it but but we find there is more and more discussion about finding a viable process. So we.

We're not trying to limit competition or <unk>.

Peoples businesses, but we are now looking at a scarce resource, which especially in nursing staff and in a place where you need to have nurses and you're at times paying and multiples of work Youre Union wages are so that has to get resolved and we feel that.

We feel that theres traction on getting something done on it.

Okay and this is something also that it either.

Back to the hospital, but the other part of that is correct.

Yes.

By the government.

I'm just wondering if we could walk through given that you Greenlit a couple new development projects here can you just walk through like what you expect total capital spending to be this year.

So we're going to be very cautious on how we how we do that given what is happening to the share price obviously the capital markets in general So even though we continue have very good access to capital and David and his team recently went through some refinancing work in CMC financing is very attractive even though it doesn't apply to long term care, but.

We have a number of unencumbered.

Projects, we can obviously more.

Financing around our funded through different ways.

So this is something which is.

Top of mind, making sure that we.

We're fully committed to doing three development, especially the three projects, we announced but we have to do it in a responsible way that it does not put undue pressure on our balance sheet. So so.

So far we feel comfortable with what we've announced which is the brand for project as we decide the next two.

Those are the different things we are contemplating a how best to finance them. So we are set up for the long term without putting too much pressure on the short term.

Can we put some numbers around that.

I think.

Sure.

Maybe it's a month and a half too early so we are in the tender process for us to put two projects.

Given our construction costs in the past and we have been wildly wrong. So we don't want to repeat the same mistake again, so for brand foot for example, the $140 million that what we are what we are placing air that's tended cost projects awarded.

Construction at the start.

And in short order, so we feel lot more comfortable sharing those the other two.

High level could be in the same quantum combined at all but I think again, we will have to wait for a bit of time to get those costs finalized.

The new normal course, maintenance Capex, where would you peg that right now.

So we.

<unk> always disclosed our maintenance Capex is actual so David you can speak to our spend in 2022.

In 2022, we spent approximately.

$11 million in maintenance capital and we would see we would see that in 2023.

Our maintenance capital will increase partly because of the acquisitions that we made earlier in the year, but also because of the inflation general inflationary increases.

Okay.

And I guess.

And just lastly Lake B.

Can you just talk a little bit about where you are seeing.

Financing and you talked a little rising financing costs right now and you talked earlier about you want to be sure that youre not stretching too far with the balance sheet.

Can you give us some idea of what that envelope may look like what would you consider to be kind of like two months too much leverage at this point in time.

Yes, I mean, I can start and can jump in after.

With respect to financing we are seeing.

We're seeing very attractive market right now with.

With <unk> debt.

Just as an example, we refinanced one of our retirement buildings in Q4 for about $45 million and that helped us repay $40 million of our acquisition term loan.

So currently CMA seat that is where we're where we're looking right now and we do have a number of unencumbered assets that we could use to.

Okay.

Basically.

Refinance with CMA to see that the rate itself.

<unk> got in for this particular retirement home it was under 4%.

Okay.

Okay. So how much more seamless financing theoretically could you be able to do.

Yes, probably.

We certainly don't want to stretch our balance sheet, we are very mindful of.

Our debt to gross book value probably in the range of $100 million is what we would be looking at.

Okay.

And then.

Again as you start to take on more development.

Sort of the.

Envelope you'd like to keep the balance sheet in terms of ratios.

So from a debt to book value.

Two ratios, we're managing closely one is the debt.

Debt to book value, where we have lot of room, where around 43, 44% and we set a development that comfortable getting it closer to 50, but.

But it will take will take its time, because even when you start these three projects.

Back in 2023, smaller obviously 2024 would be a bigger spend year and the second one is that.

Debt to EBITDA. So again, our goal is to be between around eight I think the development is going to grow a little bit higher and thats. What we are trying to match that we don't really exceeded by too much.

And the credit rating agencies are cool if you.

Pushing north of Miami, you think that that's going to be.

Bill Bill allow for that.

As we said the three projects by itself and there are some interesting things we're looking at how best to finance those.

So we obviously continue to work very closely with them. They expect the development to happen and with that in mind, obviously, our rating was reconfirmed, but that is something we will be a continuous ongoing discussion and a very important metric for us to ensure that we preserve the credit rating.

Okay. Thanks, very much gentlemen.

Thank you.

Our next question comes from the line of Tammy <unk> from RBC capital markets. Please proceed.

Thanks, Good afternoon.

With respect to the persistent pressures on labor costs and shortages whether to retire or in long term care.

Your mind, it really now a perhaps permanent structural issue that could last well beyond the next year or two.

Absolutely.

Pardon me I think there are two things we said, we believe that it will be true forces. The inaugural enough places casinos to lift because we have a long waiting list and long term care already and retirement construction has.

Slow down significantly in the second is.

The human resource prices is here to stay so youre absolutely right.

We have a big push on immigration as a country and all sorts of different things, but I would say many other countries are doing the same.

And that is why I think we are.

A lot of people a year I mean last year.

With 200 North of 5000 people. So we have a very good talent acquisition team. The focus really for US is how do we hold on to those people for longer period of time, because theres a higher churn of people.

This sector, whether it's driven by wages.

Whether that's driven by more flexibility.

Got it.

And then maybe just coming back to you I wanted to just clarify your comment earlier, you mentioned the 9% funding gap.

The last four I think you said for years is that the average annual funding gap or the total funding gap in terms of I guess the.

Recoveries versus the actual funding that was received.

Yes, thankfully its combined 9% the timing.

Otherwise, we will frankly, whatever very different call today.

So it's a combined 9% funding gap during this time and that's in our mind will put us on the right course, and obviously then funding changes on annual basis, which stay up with inflation.

Right, Okay, and then just maybe to clarify with your.

Q1 to date have there been any <unk>.

Recoveries of pandemic costs related to 2022, so far.

No there have not.

I mean any.

Okay.

And then just maybe.

Those in the loop on the whole.

The question is around capital and leverage and development spending.

Im just curious what the payout ratio has now hit.

It's elevated.

<unk> percent note.

Yes, you are assuming some growth in the retirement portfolio next year, and maybe flat long term care, but.

Under what circumstances would you consider or reconsider the current payout.

The construction funding, which used to have it for our homes, which were previously which has come down by nearly $6 million to $7 million over the last four years. So those are the two drivers, which are which are which have been factoring that.

We continue to feel confident on a recovery path both from a construction funding thats why the importance of these three projects to start construction and being able to get.

The funding gap between what the government is funding what we expect the government to fund going forward and our comment occupancy.

But if you don't get to those.

The gap of that.

Long term funding and we don't get occupancy, obviously, and we don't get spec construction that would be the time.

We would have to rethink this but at this stage, we continue to feel confident on a recovery.

All of those three fronts.

Thanks for the color and then I will turn it back.

Thank you.

There are no more questions. Thank you ladies and gentlemen, this does conclude today's call. Thank you for your participation you may now disconnect.

Q4 2022 Sienna Senior Living Inc Earnings Call

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