Q3 2023 Sienna Senior Living Inc Earnings Call
Ladies and gentlemen, welcome to Sienna senior living incorporated third quarter 2023 conference call. Today's call is hosted by niche and Jane President and Chief Executive Officer, and David Hoang, Chief Financial Officer, I've, Sienna senior living incorporated.
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.
These refer to the forward looking information and risk factors section in the company's public filings, including its most recent M. D N a and a I asked for more information.
You will also find a more fulsome discussion of the company's results in its M. D N a and financial statements for the period, which are posted on SEDAR and can be found on the company's website C. I know living Dot C. 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's website under events and presentations with that I will now turn the call over to Mr. Jain. Please go ahead Mr. <unk>.
<unk>.
Thank you Christina good morning, everyone and thank you for joining us on our call today.
Our third quarter marks the fourth consecutive quarter of improvement in <unk> per share.
Our relentless efforts to bring down agency cost improve team member engagement and growing occupancy are all reflected in our strong third quarter.
Our results, which include a 7% increase in same property net operating income and a nearly 12% increase in our operating funds from operations per share highlight that the initiatives that effective.
Agency costs have essentially returned to pre pandemic levels team member engagement improved for the third consecutive year. Our long term care operations ran at full occupancy and are not fully stabilized and at a time and occupancy is growing with rental rates increasing in line with inflation.
At the same time, our balance sheet remains strong and essentially all of our debt and key financial metrics have improved year over year.
This has allowed us to act on strategic growth projects and opportunities despite a challenging capital markets environment.
Focusing on strategic growth and expansion.
On November 1st we made our inaugural entry into the Alberta market.
We entered into a management contract for a 70 suite retirement residents in a prime location in Calgary, which is owned by Sabra health care REIT.
Sabra is our largest joint venture partner in this transaction underscores our strong relationship.
It also in the process of increasing our ownership interest in Nicola Lodge in the greater Vancouver area.
We currently own 40% of this 256 best in class long term care community and we will acquire the remaining 60% in two separate transactions.
The first tranche is expected to take place in Q1 2024 with a second transaction to close between November 2024, and March 2026.
Nicola Lodge was built in 2016 and offers long term care with specialized services for bariatric care dementia and mental health care.
In addition, we are making good progress on the development front in Ontario.
We are approaching the finish line with respect to our retirement residents and Jaeger falls beyond 70% of this project in partnership with the Reichman group.
Construction will be completed later this month and the first residents are expected to move into the beginning of 2024.
With respect to a long term care developments, we are on track with the construction of long term care redevelopment in North Bay, and our campus of care project in Branford, Ontario.
Regarding additional long term care redevelopment in Ontario, we continue to advocate for government funding that is aligned with our significant cost pressures, we've been experiencing in both capital and operating platform.
Moving to slide six our long term care operations are benefiting from a stabilizing operating environment.
Average occupancy has reached 98, 4% in the third quarter with occupancy exceeding the required level of full government funding.
Further support our results were annual government funding increases with hard preferred accommodation revenues.
In addition, significant reduced agency cost as a result of better rates and our ability to fill vacant positions within our own team members.
Further improved our results.
Same property NOI in our long term care segment increased by six 1% in Q3 2023 compared to last year.
We expect long term care same property NOI growth to be in the mid to high single digits for the full year in 2023.
Moving to retirement average occupancy in our same property at a time and portfolio has improved by four consecutive months through the middle of the year and reached 88% in October.
Consistently high levels of resident move outs move ins have supported this positive trend after two quarters of elevated levels of resident move outs to LPC, we are making steady progress towards fully stabilizing same property occupancy.
CN also continues to lead Canadian and U S peers in terms of our retirement occupancy performance on average we had approximately 470 basis points ahead of our North American peers, and the listed senior living sector.
Same property NOI in our retirement segment increased by seven 9% in Q3 compared to prior year.
Largely as a result of rental rate increases as well as our successful cost management strategy.
Annual rent increases in line with inflation will further help offset the cost pressures we have been experiencing.
Our marketing and sales teams continue to generate strong interest in our retirement residences qualified leads are up approximately 30% year over year in Q3.
Based on the positive occupancy trends in July our targeted average same property occupancy for Q4 is approximately 88%.
We further anticipate an approximate 100 to 150 basis point increase year over year and the retirement operating margins for the full year in 2023.
Okay.
Moving to our team members our continued focus on team culture, which while reducing our reliance on agencies is reflected in our operating results.
The investments we have made in our team like store, which is our stock ownership program Spark our program that empower team members to share their ideas on how to grow and improve the company.
Recognition programs, where spot awards and a continued focus on team member communication to our team member App and our quarterly town halls held across every shift have all played a significant role in our improving team culture.
And our most recent team member engagement survey and off to work two things stood out.
Members' engagement score in port for third year in a row with improvements across all drivers of engagement.
And second the participation rate increased by 10 percentage points to 72%. This year the highest participation we have ever had since you started conducting service.
A key driver for our team members is the ability to do meaningful work for which they gave an average score of $9 one out of 10.
Feedback from these surveys provide important insights and allows us to build and implement action plans to improve engagement and team member experience.
Moving to slide nine with a highly engaged team and a significant improved operating environment, we have been able to make major head ways to bring down the agency cost.
Year over year with reduced cost by nearly 60% in the third quarter at $4 8 million agency cost have essentially returned to pre pandemic levels in Q3 2023.
Over the past year, we also drastically reduced the number of agencies Youre working with Andrew negotiated improved contract terms such.
Such as enforcing a minimum fill rate threshold, while reducing hourly rates, but most importantly, we are filling vacancies with permanent team members rather than temporary agency staff.
Our investment in an automated centralized scheduling and Carlos system has significantly improved unable to do fill staffing gaps with our own team members before shifts score to the external agency staff. It also provides tighter controls on overtime and offers insight into future staffing needs.
And with that I'll turn it over to David for an update to our results.
Thank you Nathan and good morning, everyone I will start on slide 11 for financial results. In Q3, 2023 total adjusted revenues increased by five 6% year over year to $199 8 million. This increase was largely due to rental rate growth and increased care revenue in our retirement segment as well as close.
Through funding for direct care annual inflationary funding increases and higher occupancy in our long term care segment.
Total net operating income increased by 8% to $37 $8 million this quarter compared to Q3 2022, mainly due to same property NOI growth and the acquisition of a campus of care in Q1 2023.
Property NOI and our long term care segment increased by six 1% to $19 2 million in Q3 2023 due to funding increases high occupancy levels in our long term care homes, which enable us to receive both funding and higher preferred accommodation revenues.
Our retirement same property NOI increased by seven 9% to $18 $3 million in Q3 2023 compared to the last year, primarily as a result of rate growth as well as an increase in care revenue and was further supported by lower net pandemic and incremental agency expenses.
Moving to slide 12 during Q3 2023 operating funds from operations increased by 11, 8% to $20 $1 million compared to last year, primarily due to higher NOI and lower general and administrative costs as a result of restructuring initiatives that we completed in Q1 offset by <unk>.
Higher taxes as a result of higher income as well as interest expenses.
OSF all per share increased by 11, 8% to 27 five in Q3 2023.
Adjusted funds from operations increased by 18, 4% to $19 $6 million compared to last year. The increase was due to higher <unk> lower spend on maintenance capital as a result of timing, partly offset by a decrease in construction funding income.
<unk> per share increased by 18, 5% to $26.09 in Q3 2023.
In line with our strong results, we significantly improved our <unk> payout ratio to 87.0% in Q3 2023.
Moving to slide 13, with respect to our debt metrics. We've seen notable improvements and further strengthening of our balance sheet, we entered into financings with lower cost <unk> insured mortgages and pay down credit facilities, we maintained ample liquidity at $324 million at the end of Q3.
We increased our debt service coverage ratio to two times per year year over year from one eight times in Q3 2022, we decreased our debt to adjusted EBITDA to eight three times from nine times in Q3 2022.
And we extended the weighted average term to maturity of our debt to five seven years from $4 nine years in Q3 2022.
We ended Q3 with a debt to gross book value of 44, 4% and $1 billion of unencumbered assets with no major debt maturities until Q4 of 2024 and strengthening debt metrics, we are well positioned to execute on our strategic initiatives with that I will turn the call back to knit and for his closing remarks.
Thank you David.
Key performance indicators are all moving in a positive direction, which puts us in a strong position to take advantage of the favorable supply and demand fundamentals in our sector.
We see significant growth potential in our business and we will continue to add value to a growing retirement occupancy minimizing agency costs and implementing efficiencies across our operating platforms.
All of this is expected to support same property NOI growth.
With respect to our expansion plans our disciplined capital approach is opening up opportunities even during a more challenging economic backdrop.
We will continue to pursue select opportunities that align with our objectives and allow us to further grow and improve our asset base.
And all of this we never lose sight of the immense responsibility we have at Sienna and we aim to distinguish our company as an operator, an employer of choice always with a vision to become Canada's most trusted and most loved senior living provider.
I couldnt be prouder of our team members, who share this vision and demonstrate that what it means to live sienna's values, each and every day.
Team members like Fernandes, who is an activation aid at one of our communities and Brandon and a talented singer with experience in the music industry.
And then Fernando found out that one of our residents who reported rediscovered has for music and poetry. During the pandemic had written a song she told him that she would help him.
Make his song available for listening to everyone across the globe.
Fernando supported him and creating the Colorado and guide them through the process of distribution.
To the great Joy of odd his song is now streaming on Spotify Youtube and Apple.
By sharing her passion for music with their resident Fernanda helped start a new journey.
What a great example of living our purpose cultivating happiness in daily life.
On behalf of our management team and our board of directors I want to thank all of you for your continued support.
And we are now pleased to answer any questions you may have.
If you would like to ask a question. Please press star one on your telephone keypad. Your first question comes from the line of Jonathan <unk> from TD Cowen. Please go ahead.
Thanks, Good morning.
First question just on the the agency costs good to see them decline back to pre pandemic levels.
But with all the investments you've made.
Is there an opportunity to get that.
Lower than pre pandemic and if so how much lower.
You can go.
Hi, Jonathan Good morning, and Great question and when you first started in the beginning of this year and one down from $50 million a year to 'twenty seemed like an impossible task and I'm very proud to say that our team is actually ahead of on schedule. Because wherever you are in Q3, we expect it to be by end of the year and whats even.
Exciting is that not even figured out a way to do that the goal is not to stop there.
And its costs in most cases at this stage gets covered to government funding, but the bigger issue. We had also as the resident experience and team member experience because there isn't the whole aspect of fairness and Theres a whole aspect of providing continue services to residents. So our focus on this is not to bring it down here and our focus would be to go to <unk>.
It's close to zero as possible knowing that is not always possible then during the shift at changes at the very last minute.
Okay. So this is the most so if you spend roughly if I got it right 5 million Bucks on agency costs.
Q3, the majority of that would be covered by government.
Yes, that's correct that is correct Jonathan the majority of that would get covered by a government funding.
Okay.
Turning to operations Theres, obviously, COVID-19 going through the community Dallas I'm, assuming you guys have had outbreaks in some of your homes could you maybe talk about the <unk>.
The impact that is having and how that's being handled operationally versus.
Versus say last year.
Jonathan.
Long term care communities on retirement residence in general always have outbreaks. So previously it was flu hit.
It is COVID-19 I think the difference in the last three years versus now as you know, especially when you look at 2020 in 2021, it wasn't that to come in at as an outbreak nearly the whole world was an outbreak and everything was in short supply. So now with things back to normal it's.
Its the same protocol in most cases, what we will do as a regular outbreak. So you would go into homes, which had an outbreak obviously theyre more precautions people are wearing more people are wearing masks and those homes. There are restrictions on people can die, but it doesn't really impact things outside the home and in lot of cases, not even outside of that whole area of 32 beds. If it's in.
A home for example, so we continue to.
Manage outbreaks, but.
There are no way shape or form anything close to what it what it used to be in 2020 and 21.
Okay. That's helpful. And then last question just on the retirement occupancy.
It's been trending trending in the right direction targeting 88% for Q4, but in.
So you are 92, 5% stabilized goal is that is that something you think you can get to in 2024.
We haven't given out that now forecast 2024 at this stage, Jonathan So can't really provide any color other than to say that we continue to see very good lease up we see our leads continue to go up and our four months of continued increased only <unk> seen in our occupancy was due to people moving.
Two long term care. So we are optimistic of reaching to our goals at this stage I cant really talk about what from a timing perspective.
Okay would it be fair to say that long term care is essentially like I know you guys are pull up I would it be fair to say that.
Most long term care is full up in the province, and Youre not youre not seeing move outs to long term care anymore.
That will be out, but ive been back to normal.
That's correct the residents still move out to long term care, but it's at the same pace what it was and some of it was a pent up demand of nearly two five years because many of the homes were closed due to outbreaks and that has not changed.
Okay. Thanks, I'll turn it back.
Thank you.
Your next question comes from the line of human <unk> from Scotiabank. Please go ahead.
Thank you and good morning.
So good morning, Joseph LTC looks.
It looks like there was some small goldman with retroactive funding this quarter.
What was the amount.
Should we expect any.
The funding.
A couple of quarters.
Yeah. Thanks. Thanks for that question I mentioned that we did receive some very small retroactive funding this quarter it was less than $600000.
In terms of retroactive funding going forward, we may get some retroactive retroactive funding from the BC government, but really the timing and the amount of that is is unknown at this point.
Okay.
And then bigger picture on ADC NOI also visibility looking for the next year and and lumpy compared to only 24 <unk> 2022.
Sure <unk> good morning.
Can't really give a forecast for next year, yet and lot of it is contingent on government funding, which we continue to advocate for I think what has changed in before pandemic, we would always say that.
Long term care NOI might not might not increase considerably but it also would not decrease and it was hard to say that in 2020 'twenty one 'twenty two.
But we are back to that stage, where unless something drastic happens, which no. One can predict we don't expect major volatility in occupancy.
Going down and what we.
What we are waiting for and working with government as for the operating funding to go up more with inflation and do a bit of a catch up because and it's also tied to how do we build more long term care beds in Ontario, which are badly needed until we fix that funding so I think that the.
Volatility on the on the negative has gone away, what we need to work with and continue work with government is to catch up on some of the funding shortfall from last four years.
Okay. So fair to say that you know.
Established a floor, that's what I see.
<unk> and.
D C NOI is concerned.
Now you're kind of catching up with like 2019, NOI, which is still a very big gap. So is that still the goal we got closer to 2019 NOI levels.
We would that that is our plan and we expect to get there and in most cases government has caught up on most of the funding from a direct care hours funding and food and everything else those funding have been up by nearly 30% so the.
Many of the operational challenges in long term care.
This business continues to be extremely complex, but many of those operational challenges and matching operating funding for care to the complexity of residents have now gone away because that funding is going up by 30%. Then we all nearly all of our operators are hiring more and more people to make up for that so many of the structural challenges are going.
[noise] away frankly, one of the last ones left is the operating funding, which impacts directly to other accommodation.
Got it okay. Thanks for that.
G&A expenses it looks like you've made some good progress there. So is this the new as I said the Q2 levels.
Yes, so within our G&A costs, we did have a reversal of some of our restructuring provision in the quarter, but if you were to back that out.
That wouldn't be an unreasonable run rate going forward.
Awesome, Okay. Thank you.
And maybe.
On the on the financing them and yielded some seem as he does financing Uh huh.
And what's neat.
<unk>.
Yes, so over the last 12 months, we did about $150 million of refinancing most of that was with CMA sea debt and the average rate was just above 4% for bad debt.
Okay.
Was anything done in the quarter in the last few months on the CMC side.
In the last three months, yes, we are we had one property that was refinanced once you may see that in.
With those proceeds that was what helped us pay down some of our credit facility.
Okay, Okay fair enough. Thank you.
I'll turn it back.
Again, if you would like to ask a question. Please press star one on your telephone keypad.
Your next question comes from the line of Gaurav Mehta wearer from Laurentian Bank Securities. Please go ahead.
Thank you and good morning, everyone.
And just with your.
Partnership with Sabra Health care REIT and the fact that the number of U S. Listed players are very active in Canada can we expect more such partnerships are.
With this cohort as you look at the trailing 24, and maybe you could try and quantify them.
Hi, Gaurav. Good morning that is very much possible we have we.
Do you have that partnership with sovereign off of nearly five years. It started as a management contract for the portfolio in Canada and now we have a joint venture with them already where we are.
Owned and operated with them 12 sites, where we co own it and we all played almost 12 and as the right opportunities come along that that.
That certainly could be possible, obviously subject to <unk> approval.
We are quite.
Partnership. These are long partnership these are not by itself. So we are very careful in how we partner and how do we structure things for the long term. So I think we should see.
Wait to growth is through partnership but through a very.
Distinctive selection process on both sides.
Okay, Great and then just switching gears here on your balance sheet for a moment I noticed that you all see me on your.
Unsecured debenture series a.
It's coming due November turning 24, I'm, just wondering is that would be our like for likes work or how youre thinking about that in conversations with lenders have begun.
Yeah, No. That's a great question. Thank you for that were currently looking at all of our options at the moment between secured and unsecured.
So we have not made a definitive decision in terms of how.
How we will refinancing where.
The good news is that we've got.
Plenty of time and so we're currently looking at all of our options at the moment.
Okay.
Okay great.
With that in mind, I'm kind of back to the operator.
Your next question comes from the line of Tami Barron from RBC capital markets. Please go ahead.
Thanks, Good morning.
Just on the on the Nicola large transaction can you just maybe expand on the timing.
Timing for the I guess the.
A second phase or second stage of the closing.
Hi, good morning, so while we bought RBC portfolio in 2015 and part of that purchase was two properties, which are under development at that stage yet.
So one of them is Nicola Lodge, which you own 40% and we had options and put options on both sides to buy the remaining 60%. So we bought 30% now and given some of the.
Challenges with capital markets, what we don't want to do is come up with just one firm dates. So we bought ourselves a bit of flexibility on when we close the other 30%. So we are committed to buying back about 30%, but we have nearly 18 months to two act that.
Okay and then in this property is I mean, it's fully stabilized long term care.
Sure.
Pricing I guess parameters have already been set.
That's why it's fully stabilize it it has long term debt on it.
It's.
One of the newest and best properties and long term care NBC, if I may say so so.
It has all the right things that we would look for in an acquisition.
Okay.
And then just lastly.
Looking at the entry to Alberta through the management contract on that property with Sabra.
The market, maybe where youre lucky too.
Stablish a bigger ownership.
Vince.
Pointer.
That is correct I mean, the whole idea we have been the two provinces you wanted to enter one was Saskatchewan and one in Alberta, and just from a timing perspective because of the spring portfolio Saskatchewan happened first so we always had Alberta in our in our sites and this is a good way for us to get that working with an existing partner.
We have operations in BC. So the management of this is not that difficult from a geography perspective, so and yes.
And to answer your question directly our intent is to grow in that province.
Okay, and then just when you when you kind of think about maybe the opportunities there.
Or how you would sort of structure that.
Expanding footprint over time would it be through one off type transactions or similar.
Similar to what you did in Saskatchewan.
During our portfolio at some point.
Okay.
That's very opportunity driven than pricing driven so.
We have had over the last.
10 years, we have bought nearly one $5 billion in assets and they have been one off properties as small as $10 million to $15 million last acquisition with a joint runs was nearly 400 million. So I think we have any ability to do both and that's going to be our focus.
Thanks very much.
I will turn it back thank you.
Thank you. Your next your next question comes from the line of Dean Wilkinson from CIBC. Please go ahead.
Thank you morning.
David I, just want to circle back on that class eight debenture or series a debenture.
Basically a year from now.
How is the pricing differential look today between where you could go from a secured basis and I guess on a secured basis you'd have to probably do a bunch of cross collateralized loans.
Versus just rolling that debt given what we've seen with interest rates backing up to where they are.
Yeah. So.
What we're seeing in the market right now is not a lot of variability between spreads between secured and unsecured form of financing right now it might be about let's say 20, or 30 basis points, but that being said the.
The environment has changed quite significantly over the last six months so it could.
Interchange again over the next year as well that's why we want to keep all of our auctions fully open to us.
So that we have we take advantage of the best pricing when the time comes to mature.
When the time comes for renewal of that debenture.
Right I I suppose if you did want to do something other than just slowed the debenture given given the backlog and how long, it's taking to get sort of mortgages secured that's something you'd have to turn your attention to the.
Spring.
Yes, that's right.
We are yeah it would.
We would certainly have to plan ahead for it and we are making up keeping all of our options open we are making.
Different plans for it, but but you're right we would have to start that process.
Probably in the springtime.
Okay, great that's it thanks.
Yes.
We have no further questions in our queue at this time and this does conclude today's conference call. Thank you for your participation and you may now disconnect.
[music].
Okay.