Sienna Senior Living Inc. Q1 2023 Earnings Call
Ladies and gentlemen, welcome to Sienna Senior living Inc. 's Q1, 'twenty twenty-three called French call too.
Today's call is hosted by knit 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 statement.
Information.
Please refer to the forward looking information and risk factors sections in the company's public filings, including its most recent MD&A and eight.
I asked for more information you will also find a more fulsome discussion of the company's results in 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, she and a living docs V. A today's call is being recorded and a replay will be available.
Instructions for accessing the call are posted on the company's website and the details are provided in the company's news release. The company has posted slides, which accompany the 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 Cheryl and good morning, everyone and thank you for joining us on our call today.
We have many reasons to be optimistic as we move further into 2023.
Our retirement segment is showing strong year over year growth, our long term care operations continue to stabilize and our cost management strategy is showing early signs of success.
In addition, we are spending on EBIT to the close.
And retain team members and have reduced our reliance on temporary agency staffing.
With respect to the operating results strong demand for our retirement residences supported an 11% increase in our same.
Same property NOI in the first quarter.
Occupancy growth in combination with rate increases supported a double digit increase in our retirement segment.
We will continue to capitalize on the growing demand for senior living and leverage our aspira, Brian and signature programs to generate strong interest in our retirement residences.
Okay.
Q1, rather than move ins remain consistent and supported occupancy growth. Despite the typical seasonal trend of higher winter move outs, primarily to long term care.
Average same property occupancy was 88, 2% in Q1.
300 basis point year over year.
And that acquisition portfolio average occupancy increased by 250 basis point to 85, 7% since we acquired 12 residences in Ontario, and Saskatchewan in May of 2022.
For the full year, we expect occupancy to reach approximately 90% and our same property portfolio.
<unk>, 887% and our acquisition portfolio in 2023.
Our long term care operations saw a steady increase in retirement and resonated missions with most communities that are turning to occupancy levels at or above 97% by the end of the first quarter, making them eligible for full funding.
Most remaining pandemic related restrictions have now been lifted and there's a real sense of optimism among team members and residents and their families.
Thing of restrictions also contributed to our strong results.
Same property NOI and a long term care segment increased by 9% in Q1 compared to prior year.
Demand for long term care beds is higher than ever over the next 10 years demand for long term care is expected to increase by nearly 40%.
At the end of March the Ontario Ministry of long term care allows a funding increase for long term care providers, providing a 2% increase in the other accommodation funding put to you.
Other accommodations covers everything from housekeeping building and property operations and maintenance as well as dietary services.
But the long term viability of the sector. It is crucial that funding reflects the impact of inflation.
Together with other sector participants will therefore continue to work with the government to address the funding shortfall.
Moving to slide seven.
Among the major improvements during the first quarter was a reduced reliance on agency staffing to full staffing gaps.
We reduced the number of agencies, we are working with from over 102 less in 'twenty and negotiated improved contract terms such as enforcing a minimum felt great threshold.
While reducing rates by approximately 15%.
You will start seeing the impact of this improvement in the second quarter.
Year over year, we were able to reduce overall agency cost about 35% in the first quarter and by 29% since fourth quarter 2022.
So a combination of an improving operating environment fewer stats holidays compared to Q4 and a focus on filling vacancies with permanent team members rather than temporary agency staff.
The need for agency staffing will always exist, but to a much lesser extent.
Recent years, many health care workers across the sector left their permanent jobs to work for agencies, which had a significant negative impact on team members morale and resident satisfaction.
We will continue to pursue all avenues to lessen our reliance on agency staff.
We have been working on a number of initiatives to deal with the ongoing staffing shortages as part of our talent acquisition strategy, we have improved our onboarding process and a further intensified our campus recruitment.
We have placed approximately 900 students at our residents in the first quarter alone and hope to have hired many of them once they graduate.
We also ramped up the placement of temporary foreign workers and we continue to imply Ukrainian refugees.
In addition, we invested in an automated centralized scheduling and call out system. The system helps to fold staffing gaps with our own team members before ships go to agency staff.
It also provides tighter control on all the time and offers insight into future staffing needs.
The system has been rolled out across all of our long term care communities and plan to roll it across our retirement residences are underway.
Moving to development at Sienna, our focus of owning a diversified portfolio of private pay retirement residences.
And public funded long term care communities is reflected in our development initiatives.
Our current retirement project in Niagara Falls is scheduled to be completed in the fourth quarter 2023.
The estimated total capital investment for 100% of the joint venture with right. When senior housing is approximately $55 million.
Please leasing indicators for the 152 had retirement residences had been strong.
In addition, we have started construction at our campus of Kerr project in Branford.
We're replacing a 120 costly long term care beds with 160 Clos ABS.
And adding 147 retirement suites.
Tomato total development cost for this project is approximately $140 million for which we will receive approximately $3 3 million of construction funding annually or 25 years for the long term care portion.
The estimated development deal for this project is around 8%.
Yeah.
We also continue with construction at our redevelopment project in North Bay, maybe replacing 148 toss he beds with 160 class eight beds.
The total development cost for this project, which has an approximate seven 5% development deal is close to $80 million, but which we will receive $3 3 million of construction funding annually for 25 years.
Once these three projects are completed operational theyre expected to lure sienna's <unk> payout ratio of mid to high single digits.
I'll turn it over to David for an update on our operating and financial results.
Thank you Nathan and good morning, everyone I will start on slide 11 for financial results.
Q1, 2023 total adjusted revenues increased by 14, 5% year over year until $199 6 million. This increase was largely due to occupancy and rental rate growth and additional revenue from the 12 properties. We acquired in Q2 2022 in our retirement segment as well as flow through funding for increased.
Direct resident care and funding received in relation to wage enhancements in our LTC segment.
Net operating income increased by 13% to $36 $3 million this quarter compared to Q1 2022, mainly due to a three 9% $3 9 million dollar increase in same property NOI in the retirement segment as well as the additional NOI from the 12 retirement properties, we acquired in Q2 of last.
Year.
Our retirement same property NOI increased by 11% to $15 $3 million in Q1 2023 compared to last year, primarily as a result of strong year over year occupancy and rate increases, partially offset by higher labor and food costs increased maintenance and utilities expenses.
Our successful leasing strategy and solid demand in key markets supported strong year over year occupancy in our same property portfolio Saint.
Same property NOI in our long term care segment increased by nine 1% to $19 $3 million in Q1 2023 due to a more stabilized operating environment. In addition to a retroactive funding for expenses incurred in prior years.
At the end of March we received additional information from the Ontario government with respect to the funding of third and fourth beds that have been permanently closed in our older Clos Seahorse the gun.
We will continue to fully fund the other accommodation per Dms until March 31, 2025 for these beds at the same time, there will be a gradual funding reduction for the nursing and personal care per Dms over the next two years.
Cost pressures and high inflation has impacted our operating margins in both our retirement and long term care segments for some time.
Many of our recent initiatives have been focused on cost management and early signs of positive impacted are reflected in our results.
Moving to slide 12 during Q1 2023 operating funds from operations increased by 14, 3% to $18 $4 million compared to last year, primarily due to higher NOI and lower general and administrative costs offset by higher interest expense.
<unk> per share increased by five 9% to $25 three <unk> in Q1 2023.
Adjusted funds from operations increased by 10, 6% to $18 $2 million compared to last year. The increase was due to higher OSF, all offset by higher maintenance costs and a decrease in construction funding income.
<unk> per share increased by two 5% to 24 nine turns in Q1 2023.
The <unk> payout ratio was 94% in Q1, 2023, or 230 basis point improvement compared to 96, 3% a year ago.
With respect to our debt metrics, we lowered debt to annualized adjusted EBITDA to eight four times in Q1 2023 from eight seven times in Q1, 2022 and increased our liquidity to $308 million as at March 31 2023.
In addition, we paid down $29 million of our revolving credit facility during the quarter using lower cost mortgage financing with CMA Sea.
We ended Q1 2023 with a debt to gross book value of 44, 5% and a $1 $1 billion of unencumbered assets, which positions us well to execute on our upcoming financing initiatives.
We expect to refinancing refinance the majority of our 2023 debt maturities with CMA sea mortgages at attractive rates I will now turn the call back to Nick for his closing remarks. Thank you David.
We are proud of the progress we have made so far this year, our ongoing initiatives to generate strong occupancy and rate increases coupled with a significant reduction in agency staffing costs are reflected in our results.
You also made some efficiencies at our corporate office, which is expected to result in an annual G&A savings of approximately $3 million.
As we look ahead long term fundamentals and Canadian senior living are stronger than ever and we see significant growth potential in our business over the next several years.
Actively working on a number of initiatives, which may contribute to a significant expansion of our net operating income.
The first one to occupancy growth in retirement as we continue on our path towards reaching stabilized same property occupancy of 92, 5%.
This represents a 430 basis point increase from our Q1 occupancy of 88, 2%.
Second we expect to generate incremental NOI from the contributions of our acquisitions in the past year as well as other time and project and Jaeger falls, which is expected to have a seven 5% development yield.
Third through the elimination of net pandemic expenses and agency costs, which were $8 2 million in 2020 to.
If you plan to do this by being laser focused on managing agency cost while working with governments to ensure that operators are fully funded for all cost of resident care.
And four to catch a funding from Ontario government to address funding shortfalls as a result of inflation in recent years, each percentage point increase and other accommodation funding represents an annual additional one $2 million of funding.
We believe that all of these initiatives could have a considerable impact on the value of our business and should help us to grow our NOI <unk> and improve our <unk> payout ratio in the coming years.
Okay.
Our success depends on a team that is fully aligned with sienna's purpose vision and values.
It was a key reason for the implementation of a company wide employee share ownership program and 40 defining our purpose vision and values.
Every day, we see amazing examples of her team members, who are putting our purpose of cultivating happiness in daily life into action.
Team members such as Shannon was the recreation therapist in BC, who help the residents learn to read and ultimately help them find happiness by becoming more socially connected to the broader community.
Danielle I resident engagement manager, who supports a pen Pal program at Kensington Places retirement residents in Toronto, which is now about 30 student volunteers, writing letters to our residents.
Danielle is already planning a yearend promised I'll get together with residents and the students.
And our team members from support service and our homes, who had been preparing and delivering meals foreseen isn't the community as part of our Sienna Sunday Supper program.
I'm, so incredibly proud of our team and I'm confident that together with our 12000 team members, we will continue to deliver on our purpose.
On behalf of everyone at C N 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.
To ask a question. Please press star one on your telephone keypad. If you would like to withdraw your question again Crestar. One. Your first question is from Jonathan culture of TD Cowen. Please go ahead. Your line is open.
Thanks, Good morning.
Good morning, Jonathan.
First question just on the the 2% always creates obviously you guys are disappointed with that and I know the industry is working with the government to try and rectify that but.
Hum.
If we if you're successful on that when when would that.
Then the question really is is there a chance for an increase.
This year or is that something that we kind of have to wait for April for us next year.
Sure Jonathan So you know in the past we have been used to being funding increases once a year, but over the last three years government has been for most and most program has been quite.
Proactive and really reacting to.
The needs of that time.
Obesity for example, we had a funding catch up with 9% last year and they are the funding we find in BC is quite substantial pretty close to inflation and in Ontario, and even the 2% funding was not appropriate you know we were.
Very pleased to see the funding on third and fourth rooms. The funding on CFS. So we continue to feel optimistic that we will get any air funding increase because that goes to the heart of the development of thousands of beds that needs to be redeveloped in Ontario.
Okay.
That's helpful and then on the on.
On the <unk>.
How many of those would be in homes that you plan to redevelop over there over the next couple of years.
Yeah, So in North Bay and in Branford, there would be about 50 of the beds out of the 350 that would be redeveloped.
Okay, but yes. Those are you does your current development, but what about I'm sure you guys have a list of what.
What's up next.
That's correct and so really the way we are prioritizing these projects Jonathan I would say maybe in multiple sources obviously.
The first one for us is operational viability to solve the homes, which are much older.
For example, if they're more complex operational needs that level first followed by the third or fourth Rolls and then there's a reality of there are some municipalities, which are easy to work with others. So obviously the timing of that would dictate that but.
Third and fourth rooms is definitely part of our equation.
Okay.
That's it for me I'll I'll turn it back thanks.
Thank you.
Your next question is from Himanshu Gupta with Scotiabank. Please go ahead. Your line is open.
Thank you and good morning.
So just sticking to putting food bags and there.
The real competition.
Can you identify strayed 25, so is it fair to say that minimal to no impact on these homes until then.
That's correct, Matthew we don't and we don't expect any impact because the OE funding will continue to 2025, so we wouldn't expect any impact until until that point.
Okay. That's good.
And then one on long term care in Hawaii.
Do you still expect 2023 NOI to be similar to last year.
On the last call.
Is it all upside to this stuff will give them the retroactive.
Sure.
Hey, Mike, it's a bit too early to tell as.
As we talked about like we are seeing stabilization across the portfolio you know that.
Coming off restrictions the ketchup pandemic funding getting to nearly all of our homes speaking, 97% or above so where we are are trending positively, but I think it's a bit early to commit to a different number at this stage.
Okay.
Or do you see that Q1 was I think a fair expectation.
Yeah.
I wasn't really I don't want to get into internal expectations horses. What's there I would say we are we are we are pleased to see.
It's been.
Difficult few years and I, we are finally seeing a.
A bit of a positive trend on it.
Okay fair to say that.
Pretty good and then just switching to Rhode Island, homeschool rental rate growth.
Has it accelerated I mean, what would you say that.
So it's been pretty consistent.
In U S rental rates have been on our 8% to 10% in Canada, I think its been around half of that.
And.
We still have not caught up in inflation. So there's definitely they intend to continue on that journey.
We don't we.
We don't see rates accelerating but we think.
The rental growth great should be that 4% to 5% that we have seen previously.
And this is Jeff.
45% is it happening across the board or is it mostly on home prices.
Places that one item.
Hello.
Okay.
Sure.
This is the operator, please remain on the line.
It's knickman David David.
Okay.
And then harriss, Okay Cheryl.
You're coming through loud and clear okay, perfect apologies for that he might just sorry.
You were just answering your question so the afford and 5% rental increase I would say in U. S are you seeing much bigger increases and I think a question around is it across on and it really is an average, but it's pretty consistent across.
Yeah.
Okay.
Okay.
There are no further questions at this time.
This concludes today's conference call. Thank you for your participation you may now disconnect.
Yeah.
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