Q2 2023 Sienna Senior Living Inc Earnings Call
Ladies and gentlemen, welcome to Shannon senior living execute a 'twenty 'twenty conference call. Today's call is hosted by <unk> and James <unk>, President and Chief Executive Officer, and David I'll Jump Financial Officer, Shaina Senior living Inc. Needs to be already that's right. The 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 company's public filings.
Its most recent MD&A and AI.
For more information.
You will also find a more fulsome discussion of the company's results in its MD&A and financial statements Friday.
Which are posted on SEDAR and can be found on the company's website channel, leaving that T. A C.
Today's call is being recorded and a replay will be available.
For accessing the call are posted on the company's website and the details I provided in the company's news release. The company has posted slides for your company. The host's remarks on the company website under events and presentations with that I will now turn the call to Mr. Chang. Please go ahead Mr. Jain.
Thank you Mark good morning, everyone and thank you for joining us on our call today.
There is tremendous growth potential for our company with demand for the care and services, we provide expected device for many years.
This year, we outlined in detail, where we see the potential for expanding our net operating income and how we believe our strategic initiatives will support such expansion.
Our solid financial performance during the second quarter and the positive indicators for the balance of the year highlight that'd be it on the right track.
Yeah.
Our long term care operations benefited from a stabilizing operating environment.
Average occupancy has now reached 98% in the second quarter with occupancy exceeding the required level for full government funding at all of our homes.
Further supporting our results were annual government funding increases and funding related to prior periods.
As well as reduce agency staffing costs as a result of better rates and are able to do to fill vacant positions through increased high.
Same property NOI and a long term care segment increased by 13, 9% in Q2 compared to prior year.
For the second half of this year, we expect long term care same property NOI growth in the low single digits compared to prior period.
The operating environment has improved significantly and we have made great strides in reducing costs where possible.
We still have funding shortfalls as a result of inflation and continue to work with other sector participants and the government to address the shortfalls.
Moving to retirement.
With respect to occupancy in our retirement segment consistently high levels of resident move ins and the improved performance of the <unk> joint venture residences.
Higher last year were partially offset by an approximately 18% year over year increase of resident move outs.
Glee into long term care.
Average occupancy in the company's same property portfolio was 86, 9% in the second quarter up marginally 10 basis point year over year.
The operating environment stabilizing in many long term care facilities now at full occupancy we expect the level of resident move outs long compared to normalize during the second half of this year.
Same property NOI and retirement segment increased by 4% in the second quarter.
Largely as a result of annual rental rate increases.
Our marketing and sales teams continue to generate strong interest and a lot of time in residences community outreach efforts such as open houses in London lines with community partners and a robust sales platform will support occupancy growth during the second half of the year.
We're also providing targeted onsite sales support to homes with lower occupancy.
Lead indicators have strengthened significantly during the second quarter and qualified leads are up approximately 23% year over year.
We are starting to see this positive trend reflected in our current occupancy numbers average same property occupancy was up 10 basis point in July and further gains are expected in August .
Based on our updated occupancy forecast, we expect average same property occupancy for the full year in 2023 to be approximately 88%.
Before that I anticipate an approximate 100 to 150 basis points year over year growth in the retirement operating margins for the full year in 2023.
Moving to slide eight among the major improvements during the second quarter, what the reduction of agency staffing costs and G&A expenses.
Okay.
Since the beginning of the year, we reduced the number of agencies. We are working with from over 100 to less than 15 and negotiated improved contract terms, such as enforcing a minimum fill rate threshold, which reducing while reducing hourly rates.
Year over year, you were able to reduce overall agency costs by approximately 40%.
Filling vacancies with permanent team members rather than temporary agency staff was a key reason for this improvement.
Agency staff also has a negative impact on team members morale and resident satisfaction and we will do everything possible to further reduce our reliance on agency staff.
Our investment in an automated centralized scheduling and carload system has significantly improved our ability to fill staffing gaps with our own team members before ships go to external agency staff.
It also provides tighter controls on overtime and offer insights into future staffing needs.
We also reduced G&A expenses, resulting from our restructuring at our corporate office. This restructuring led to a workforce reduction of approximately 10% of non union employees at our head office and operational efficiencies and a reduced reliance on pandemic related support what the key reasons for the restructuring which was completed in the first quarter of this year.
Moving to our team members investments to improve team member engagement and fostering a positive workplace culture remains a priority for us.
This is reflected in a number of our initiatives.
In connection with our shared ownership and rewards program approximately 800 team members, who receive CNS shares in the second quarter.
To date, approximately 63% of all eligible team members and our shareholders.
We also announced the winner of Spark a program that allows our team members to share ideas on how team our C&I can grow and improve.
We received nearly 170 ideas during the first round of submissions pilot at eight of them and ultimately identified four inaugural vendors.
Your ideas range from reducing food waste enhancing resident engagement to improving the hiring process of new team members.
Look forward to implementing some of the best ideas across our operations.
Building a talent pipeline for the future is crucial in our sector, which remains extremely competitive.
As part of a talent acquisition strategy, we have improved our onboarding process, and then and have enhanced our campus recruitment campaigns with key universities and colleges we.
We have placed approximately 460 students at our residences in the second quarter and hope to have hired many of them once they graduate.
We also believe that the appeal of our purpose vision and values differentiate Sina and helps us attract and retain a highly engaged workforce and a competitive recruitment market.
Our recruitment initiatives has earned us the recognition for having the best talent acquisition team and the health and wellness category by Linkedin Talent Awards. This is a testament to the strength of our recruitment team.
Moving to development, our strategy of owning a diversified portfolio of private period of time in residences and publicly funded long term care communities is reflected in our development initiatives in Ontario.
We currently have $275 million of development projects under construction.
With a development project in the agro Pauls scheduled to be completed in the fourth quarter of this year.
Pre leasing activities for 150 suite retirement residents have been strong and we expect the first residents to move in later this year.
In addition, construction of our long term care community in North Bay with 160 long term care beds, and our campus of care in Frankfurt, comprising a 160 long term care beds and 147 retirement suites is fully underway.
Once all three projects are operational that are expected to lower sienna's <unk> payout ratio by mid to high single digits and will further add to the long term stability of our cash flow and dividend.
That I will 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 13 for financial results. In Q2, 2023 total adjusted revenues increased by 10, 1% year over year to $198 $3 million.
This increase was largely due to rental rate growth and additional revenue from a full quarter of contribution from the 12 joint venture properties. We acquired in Q2 2022 in our retirement segment as well as flow through funding for increased direct resident care and annual inflationary funding increases and our long term care segment.
Total net operating income increased by 13, 7% to $38 $9 million this quarter compared to Q2 2022, mainly due to same property NOI growth a full quarter of contributions from 12 joint venture retirement residences as well as the acquisition of a campus of care in Q1 2023.
Same property NOI in our long term care segment increased by 13, 9% to $25 million in Q2 2023 due to a more stabilized operating environment and lower net pandemic expenses, which included a retroactive funding adjustment up $1 4 million.
For expenses, including 1 million incurred in Q1, 2023 and $400000 incurred last year.
Our retirement same property NOI increased by 4% to $16 6 million in Q2 2023 compared to last year, primarily as a result of rate growth improved performance. After 12 retirement properties acquired in Q2 2022, partially offset by an elevated level of resident move outs to long term character in the first six.
A a year starting this June occupancy and operating results of our 50% share in the 12 retirement residences have been reflected in our same property results.
Moving to slide 14 during Q2 2023 operating funds from operations increased by 24% to $21 $4 million compared to last year, primarily due to higher NOI and lower general and administrative costs as a result of the restructuring in Q1 2023 offset by higher interest.
Expense.
<unk> per share increased by 24, 1% to 29 <unk> in Q2 2023.
Adjusted funds from operations increased by 14, 1% to $19 $6 million compared to last year. The increase was due to a higher <unk> offset by higher maintenance costs and a decrease in construction funding income.
<unk> per share increased by 13, 6% to $26 eight in Q2 2023 in line with our strong results, we were able to significantly improve our <unk> payout ratio lowering it to 87, 3% in Q2 2023. This was an 11, 9%.
<unk> decreased compared to a year ago.
With respect to our debt metrics, we lowered our debt to annualized adjusted EBITDA to 8.0 times in Q2 2023 from $9 two times in Q2, 2022 and increased our interest coverage ratio to three five times from three four times a year ago.
We also maintained ample liquidity of approximately $276 million as at June 32023, and in addition, we paid off the remaining balance of our unsecured term loan during the quarter.
And entered into low cost mortgage financing with CMA.
At this time, we have no major debt maturities until the fourth quarter of 2024.
We ended Q2 with a debt to gross book value of 44% and $1 1 billion of unencumbered assets, our solid balance sheet and limited debt expiries over the next 15 months positions us well to execute on our strategic initiatives with that I will now turn the call back to <unk> for his closing remarks. Thank you David.
Our strong second quarter results combined with the flexibility of our solid balance sheet and ample liquidity gives us reason for an optimistic outlook for the second half of the year.
Our long term care segment has virtually returned to full occupancy and we expect full occupancy levels during the second half of 2023.
And our retirement portfolio of showing occupancy growth in July with continued improvements anticipated for August , indicating a steady increase during the balance of the year in.
An additional great growth were further supported at a time and results.
We also achieved a number of operational efficiencies, which are adding to the resilience of our business successfully reducing agency staffing costs and G&A expenses have been key drivers of the strong second quarter results.
Our success depends on our team members and their alignment with CNS purpose vision and values.
It was a key reason for the implementation of a company wide employee share ownership plan or our spark program and are focused on improving two way communication all of which helped to foster a positive workplace culture.
Every day, we see amazing examples so the impact our team members have on the quality of life and well being of our residents.
Sunday inspiring examples are highlighted in our most recent ESG report.
Team members like Jennifer our community relation specialist in BC.
We'll filter residents dream to attend to power, while with our family and friends in Kamloops.
This involved a collaboration of two of our communities to ensure the resident would be able to travel safely and have her care needs met.
I could not be prouder of our team members' efforts and creativity to cultivate happiness for our residents and I feel fortunate that often get to witness firsthand during my visits to our homes.
These days when I stopped by team members also want to talk about our company's financial performance to ask questions about sienna's results and stock price because they are now owners of the company.
With many of them having become shareholders for the first time to our share ownership in rewards program. We also provide financial literacy education, which has now become an additional benefit of the <unk> program.
I'm confident that together 12000 team members, we will continue to seize the growth potential for our company and drive results on.
On behalf of everyone at <unk> I want to thank you all of you on this call for your continued support we.
We are now pleased to answer any questions you may have.
Yes.
At this time I would like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad.
Alright, and then the number one on your telephone keypad.
Boss for just a moment to compile the Q&A roster.
Okay.
Your first question comes from the line of Jonathan closer with Didi Cohen, Jonathan Your line is now open.
Thanks, Good morning.
Good mornings question I was just just a little surprised on the pullback in occupancy.
In the quarter were there any on the retirement side were there any specific markets.
That occurred.
Hi, Jonathan Good morning, there's really no specific market for this it really was driven mostly by moving into long term care.
And we already have seen the trend reverse for example, when we look at our June year to date move outs.
Our July is running around 10% below that move out rate in our August is running the really the same number so it's across the market and it really we and we had for the first time in four years long term care homes were not full so that now we find across the sector has been corrected.
Okay. So is it like.
Guests typically people.
A lot of people would move out to go into the long term care.
Does it sort of normalizing back to pre pandemic levels and this is just sort of a hiccup because there were some extra space.
That's correct. So if you remember we were.
But even in Q1, we had some homes, which are not fully occupied.
Across the sector some homes will not occupied so I think the second quarters when there were.
A lot of people who are waiting to go into long term care, which eventually did go to long term care.
It really was driven by that.
Okay, and then the 88%.
Alright thats it.
Just to confirm that the average for the year.
That's correct.
Okay.
And then lastly, just on the agency costs nice to see them.
Down so much.
Are they do you expect them to be back to sort of pre pandemic levels.
For 2024.
I would say Jonathan what I've said in my script, we will do everything in our power to reduce agency staff. It is not good for team members. It is not good for residents and it's not good for US financially. So our focus is not going back to pre pandemic level. Our focus is to go as close to zero as possible with zero is not possible because you always need.
Agency support, but our goal is to be as close to zero as possible.
Okay, and how would you.
2023, comparing to pre pandemic levels.
Yes, Jonathan so.
Compared to pre pandemic levels were actually running fairly close to pre pandemic.
Levels at six months, we incurred $6 million.
In Q2 and that would have been fairly close to <unk>.
Pandemic levels.
Okay. That's helpful I'll turn it back thanks.
Your next questions come from the line of opinions Gupta with Scotiabank.
Is now open.
Thank you and good morning.
Good morning, Don.
Just some of the dominant home occupancy and your target is around 88%.
And as you look into next year, where do you think stabilized occupancy can be for your portfolio.
Our mantra, we expect our our forecast for stabilized Hasnt changed it really is around 92% to 95% and we have multiple homes, which are at 100% occupancy we have many homes, which are above 90% and are close to more than half of our portfolio is in fact over 90% current.
Fleet.
So at this stage we are not.
Ready to give the forecast for 2024, but we expect stabilized to be 92% to 95.
Okay, that's fair enough.
And it's in the hall of the annual meeting.
Andy I'm going with this a bit moderation in occupancy in the last few months has that changed anything in terms of how much could you are pushing in the system.
So we are steadfast that we will not be discounting to Vietnam War by occupancy will continue to provide initiatives, whether it's moving expenses getting a free TV.
Giving half a month rent free so, but we are not looking to reduce our rates because that has a significant impact long term on the margins in this in this sector.
Okay.
You started doing like 4% to 5% that increases or is it higher or lower than that.
Yeah Matthew.
We started implementing rate increases close to 5% starting in Q4 of 2022 and we continue to.
Rollout those rate increases across all of our homes.
Awesome. Thank you.
And maybe just turning to LTC on the long term care side.
And David I think there was $1 $4 million retroactive funding.
Do we have visibility in how this will shape out in the coming quarters too.
Yes, so youre right, we did have $1 $4 million of retroactive funding it was related to.
Prior periods in Ontario were pretty much.
With our retroactive funding and we don't expect any additional funding in.
In the province of Ontario in.
In BC.
They're about a year behind so we may get some retroactive funding there, but the timing and the amount are uncertain at this point.
Got it.
And maybe just last question again on LTC guidance I think you are.
Guidance kind of implies mid single digit on full year basis in 2023.
But if I look at the NOI. This is still like you know call it 15% below pre pandemic levels. So.
Is that how is it going to London.
In the near future do you expect any anything happening there too.
Digital short form there.
Youre right Himanshu are results of better versus last year, because last year was I would say probably the bottom out bottoming out of long term care financial performance. We continue to have a significant funding shortfall because funding has not kept up with inflation.
Continue to work with government that sector partners without association to really stress the importance of liability of this because we need to build thousands of new beds in Ontario, and that is not going to be possible unless the funding is fixed so we continue to be optimistic.
There would be a viable funding program.
We have no expectation to be running 15% to 20% below 2019 levels.
Got it thank you guys.
Thank you.
Your next question comes from the line of Todd <unk> from National Bank financial your.
Your line is now open.
Alright, good morning.
Good morning.
Okay.
Just to pick up on Steve's questions about sort of LTC profitability going forward.
Outlook statement.
You said youre looking for low single digit increases.
Over the prior year in the back half.
Cannot at this time off the top of my head remember or any of the puts and takes in the numbers from last year are you talking about low single digit over the reported NOI or adjusted NOI.
Yes, we are.
Talking about the <unk>.
Of the total NOI for long term care and that would be that would include our net pandemic expenses.
Got it okay.
And then.
In your outlook for the retirement side.
You cited the area you are looking for 100 to 150 basis points Thats down a little bit from where we were at the start of the year is that purely a function of the occupancy change or is there anything else in the cost structure thats shifted a little bit.
Yes, the decline in our guidance is really because of the lower occupancy targets that the 88% for the full full year average we continue to believe that we will have margin gains as a result of our rental rate increases exceeding our operating expense increases.
Okay, and then just across the broader.
Landscape for retirement.
Would you say the competitive intensity right now is higher than it has been lower than it has been I could see the industry, maybe you know as people.
People have sort of gotten back to a more normal pace of living this year like maybe are easing off a little bit because it feels like the demand is finally coming back to the industry or is it still quite high just because everyone's still scraping and trying to get ahead coming out of the pandemic.
The market really hasnt changed.
The sector is a pretty sophisticated in terms of not trying to.
These rates too much upfront because.
That that can a multiyear impact.
Because you can you can you are able to increase rates when people come in is quite limited. So I would say the competition continues to be the same and so it really not really much change.
Okay and.
Beam regions are still the ones that are the.
The toughest look the Ottawa, our Ottawa area Durham region. Those are still the ones with the you know that remain the most competitive out there.
That's correct.
Okay, and then I guess just lastly.
How have you found employer or like recruitment efforts.
Is it getting easier to hire people or is it still a big a big challenge I'm just wondering as.
The post pandemic economy is one thing we're looking at maybe a different a different or a softening outlook.
Going ahead, how how how recruitment how's recruitment interest changed.
So it.
It is definitely got better from the last two or three years, but to say, it's simple would be a big understatement. So it's simpler compared to the last two years as things have settled down.
<unk> role continues to be nurses, and which will take a bit of a bit of time to fix even as you get foreign trade nurses, because theres a theres a bridging program in all kind of visa issues, which come into play as we get people international nurses coming to Canada, but we do expect knowing that the provincial government the federal government.
There's a big focus on fixing that so I would say we should start to see some relief in it over the next 12 months to two years 12 months to two years.
Okay perfect. Thank you very much gentlemen.
Thank you. Thank you.
There are no further questions at this time and this concludes today's conference call you may now disconnect.
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Yeah.
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