Q4 2023 Sienna Senior Living Inc Earnings Call
Operator: Ladies and gentlemen, welcome to Sienna Senior Living Inc.'s Q4 2023 conference call. Today's call is hosted by Nitin Jain, President and Chief Executive Officer, and David Hung, 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 or information.
Ladies and gentlemen, welcome to Sienna Senior living Inc, Q4, 2023 conference call.
Today's call is hosted by niche and Jay President and Chief Executive Officer, and David Hong 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 or 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 Aif for more information.
Operator: Please refer to the forward-looking information and risk factors sections 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 in its MD&A and financial statements for the period, which are posted on CDAR Plus and can be found on the company's website, Sienna Living. C.A. Today's call is being recorded, and a replay will be available.
You will also find a more fulsome discussion of the company's results in its MD&A and financial statements for the period, which are posted on SEDAR plus and can be found on the company's website, she generally being dossier.
Today's call is being recorded and a replay will be available instructions for accessing the call are posted on the company's website and the details are provided in the company's news release.
Operator: 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. Jane. Please go ahead.
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.
Nitin Jain: Thank you. Good morning, everyone, and thank you for joining us on the call this morning. Last year we outlined where we see significant growth potential in our business over the next few years and how it will contribute to the expansion of Sienna's net operating income. Our consistently strong financial performance in 2023, which was driven by our focus on optimizing revenue and costs, indicates that we are on the right track. Each quarter throughout the year, we were able to achieve notable improvements in our same property net operating income in both lines of our businesses, resulting in a 16.5% increase year over year. Moving to slide five, our primary focus last year was to grow our business. Nowhere was this more evident than in our long-term care operations. Average occupancy was 97.6% in the fourth quarter, with occupancy exceeding the 97% required for full government funding.
Thank you good morning, everyone and thank you for joining us on our call. This morning.
Last year, we outlined where we see significant growth potential in our business over the next few years and how it will contribute to the expansion of Chinas net operating income.
Our consistently strong financial performance in 2023, which was driven by our focus on optimizing revenue and costs, indicating that we are on the right track.
Each quarter throughout the year, we were able to achieve notable improvements in our same property net operating income in both lines of businesses.
<unk> and a 16, 5% increase year over year.
Moving to slide five our primary focus last year was to grow our business.
Nowhere was this more evident than in our long term care operations.
Occupancy was 97, 6% in the fourth quarter, but occupancy exceeding the 97% required for full government funding.
Nitin Jain: Further supporting our results were higher preferred accommodation revenues and significantly reduced agency staffing costs as a result of our ability to fill vacant positions with our own team members and minimize agency usage whenever possible. We ended the year with a 21.1% increase in the same property NOI in Q4 compared to last year. Our results show the significant progress we have made in closing the gap left behind by the pandemic.
Further supporting our results were higher preferred accommodation revenues and significantly the newest agency staffing cost as a result of the ability to fill vacant positions with our own team members and minimize agency usage whenever possible.
We ended the year with a 21, 1% increase in our same property NOI in Q4 compared to last year.
Our results show the significant progress we have made in closing the gap left behind by the pandemic.
Nitin Jain: However, there's still work to be done to get back to the NOI levels we used to generate prior to 2020, and we are committed to fully closing that gap. With respect to retirement operations, same property occupancy grew to 88.2% in Q4 of 2023, an improvement of 20 basis points year-over-year and 130 basis points since the third quarter. The country is making steady progress towards a goal of stabilized occupancy of 95%.
There's still work to be done to get back to the NOI levels, we used to generate prior to 2020.
And we are committed to fully closing that gap.
With respect to the timing of operations same property occupancy to 88, 2% in Q4 of 2023.
This was an improvement of 20 basis points year over year.
130 basis points since the third quarter.
We tend to make steady progress towards our goal of stabilized occupancy of 95%.
Nitin Jain: Supporting this goal is our intensified focus on high opportunity homes with low occupancy levels, combined with the continued strong performance across the balance of our portfolio. Addressing high opportunity properties will remain a key focus for us in 2024. Our results were further supported by average rate increases of approximately 5%.
Supporting this goal as our intensified focus on high opportunity homes with low occupancy levels.
Combined with the continued strong performance across the balance of our portfolio.
Addressing the high opportunity properties will remain a key focus for us in 2024.
Our results were further supported by average rate increases approximately a 5%.
We ended the year with same property NOI growth of 11, 8% year over year.
Nitin Jain: We ended the year with same property NOI growth of 11.8% year-over-year in Q4 2023. Based on the occupancy forecast, we expect same property occupancy to improve by approximately 150 basis points to 89% for the full year of 2024. With the return of seasonal occupancy patterns, we expect some softness over the winter months before the resumption of occupancy growth. Moving to slide seven.
In Q4 2023.
Based on the occupancy forecast, we expect same property occupancy to improve by approximately 150 basis point to 89% for the full year of 2024.
But the return of seasonal occupancy patents, we expect some softness over the winter months before the resumption of occupancy growth.
Okay.
Moving to slide seven.
Nitin Jain: Throughout 2023, we continue to take advantage of select opportunities to expand our business. We started and ended the year by acquiring properties that we had already been managing for some time, including our Woods Park Campus of Care in Barrie, Ontario. And an additional 30% interest in Nicola Lodge in BC, where we now own 70% of the 256-bed long-term care community. In the fourth quarter, we made an inaugural entry into the Alberta market. We entered into a management contract for a retirement residence in a prime location in Calgary, which is owned by Sabra Healthcare Reit. Sabra is one of our largest joint venture partners, and this transaction underscores a strong relationship. We now manage 21 properties on behalf of Sabra or in a joint venture with them, including the 12 properties we acquired together in 2022. In December, we completed construction of a retirement residence in Niagara Falls. The first residents started to move in at the end of January, and leasing is progressing well. We own 70% of Elgin Falls in partnership with the Reitman Group, and once this home is stabilized, we will have the option to acquire the remaining 30% interest.
Throughout 2023, we continue to take advantage of select opportunities to expand our business.
He started and ended the year by acquiring properties that we had already been managing for some time.
Including our Woodland Park campus of Kevin Barrie, Ontario.
And an additional 30% interest Nikola large NBC, maybe now 70% of the 256 bad long term care community.
In the fourth quarter, we made an inaugural entry into the Alberta market.
We entered into a management contract for a retirement residents in a prime location in category, which is owned by Sabra healthcare REIT.
Sabra is one of our largest joint venture partner and this transaction underscores our strong relationship with.
We don't manage 21 properties on behalf of Sabra or a joint venture with them, including the 12 properties to be acquired together in 2022.
In December we completed construction of our retirement residence in Niagara Falls.
Firstly residents started to move in at the end of January and leasing is progressing well.
Beyond 70% of Elgin falls in partnership with the right Man group and once this one is stabilized we will have the option to acquire the remaining 30% interest.
Nitin Jain: Together with the Long-Term Care Development in North Bay and our Campus of Care Project in Brantford, these three projects are expected to improve our AFFO payout ratio in the mid to high single-digit percentage ranges once they are stabilized. With respect to future expansion plans, our strong balance sheet and active asset management initiatives will allow us to pursue opportunities to further grow and improve our company through acquisitions and strategic partnerships. Moving on, to our focus on our team members. Throughout last year, we continued to make team member engagement and retention a core focus of our initiatives, as staffing remains undoubtedly one of the biggest challenges in our sector. We invested in training and development, made significant improvements to the onboarding process, and enhanced the shift scheduling system.
Together with our long term care development in North Bay, and our campus of care project in Branford.
These three projects are expected to improve our <unk> payout ratio in the mid to high single digit percentage ranges once they are stabilized.
With respect to future expansion plans, our strong balance sheet and active asset management initiatives.
Now us to pursue opportunities to further grow and improve our company through acquisitions and strategic partnerships.
Moving to our focus on our team members.
Throughout last year, we continue to make team member engagement and retention a core focus of our initiatives as staffing remains undoubtedly one of the biggest challenges in our sector.
We invested in training and development made significant improvements to the on boarding process and then has the shift scheduling system.
Nitin Jain: We also awarded shares to an additional 800 team members as part of Sienna's Share Ownership Program; to date, approximately three-quarters of all eligible team members are now shareholders. And Spark, the platform where team members can share their ideas, is a great success and continues to generate hundreds of new ideas. The Grand Prize of 2023 was awarded to a team member for an idea on donating excess food to Canadians living with food insecurity. To date, we have donated thousands of meals through a partnership with Second Harvest.
You also wanted shares to an additional 800 team members as part of Chinas share ownership program.
To date, approximately three quarters of all eligible team members and our shareholders.
And spark the platform where team members can share their ideas as a great success and continues to generate hundreds of new ideas.
The grant price of 2023 was awarded to a team member for an idea on donating excess fluid to Canadians living that food insecurity.
We have donated thousands of may all through our partnership with second harvest.
David Hung: Combined, these initiatives are having a significant impact. We were able to increase team member engagement for the third consecutive year, and retention was up nearly 11% compared to last year. We believe that these improvements directly impact our ability to serve our residents. And with that, I'll turn it over to David for an update on our results. Thank you, and good morning everyone.
Combined these initiatives are having a significant impact we were able to increase team member engagement for the third consecutive year and retention was up nearly 11% compared to last year.
We believe that these improvements directly impact our ability to serve our residents.
And with that I'll turn it over to David for an update on our results.
Thank you Ian and good morning, everyone I will start on slide 10 for financial results.
David Hung: I will start on slide 10 with financial results. In Q4 2023, total adjusted revenues increased by 13.3% year over year to $218.9 million. This increase was largely due to rental rates, growth, and increased care revenue in our retirement segment, as well as flow-through funding for direct care, annual inflationary funding increases, and higher occupancy in our long-term care segment. Total night operating income increased by 17.5% to $38.2 million this quarter compared to Q4 2022, mainly due to same property NOI growth in both lines of business and the acquisition of a campus of care in Q1 20
In Q4 2023 total adjusted revenues increased by 13, 3% year over year to $218 9 million. This increase was largely due to rental rate growth and increased care revenue in our retirement segment as well as flow through funding for direct care annual inflationary funding increases and higher occupancy in our long term.
<unk> care segment.
Total net operating income increased by 17, 5% to $38 $2 million this quarter compared to Q4 2022, mainly due to same property NOI growth in both lines of business and the acquisition of a campus of care in Q1 2023.
David Hung: Same property NOI in our long-term care segment increased by 21.1% to $19.7 million in Q4 2023 due to funding increases, high occupancy levels in our long-term care homes, which enable us to receive full funding, and higher preferred accommodation revenue. Our retirement same property NOI increased by 11.8% to $18 million in Q4 2023 compared to last year, primarily as a result of rate growth, as well as improved occupancy, and was further supported by lower net pandemic and incremental agency expenses. Year-over-year, we reduced agency staffing costs by approximately $8.9 million to $5.8 million in Q4 2023. Agency costs, which are predominantly covered by flow-through government funding, have now returned to pre-pandemic levels.
Same property NOI in our long term care segment increased by 21, 1% to $19 7 million in Q4 2023 due to funding increases high occupancy levels, and our long term care homes, which enable us to receive full funding and higher preferred accommodation revenues.
Our retirement same property NOI increased by 11, 8% to $18 million in Q4 2023 compared to last year, primarily as a result of rate growth as well as improved occupancy and with further supported by lower net pandemic and incremental agency expenses.
Year over year, we reduced agency staffing costs by approximately $8 9 million to $5 $8 million in Q4, 2023 agency costs, which are predominantly covered by flow through government funding have now returned to pre pandemic levels.
David Hung: Moving to slide 11, during the fourth quarter of 2023, operating funds from operations increased by 24.9% to $22.1 million compared to last year, primarily due to higher NOI. OSFO per share increased by 24.7% to 30.3 cents in Q4 2023. Adjusted funds from operations increased by 2.6% to $17.8 million compared to last year.
Moving to slide 11 during the fourth quarter of 2023 operating funds from operations increased by 24, 9% to $22 $1 million compared to last year, primarily due to higher NOI.
<unk> per share increased by 24, 7% to 33 in Q4 2023.
Adjusted funds from operations increased by two 6% to $17 $8 million compared to the last year.
David Hung: The increase was largely due to higher OSFO, offset by higher spending on maintenance CapEx as a result of the timing of repairs and investments in our building systems ahead of the winter months, as well as a decrease in construction funding income. AFFO per share increased by 2.5% to $0.243 in Q4 2023. In line with our results, we made notable improvements to our AFFO payout ratio in 2023, lowering it by 240 basis points year over year to 96.3% in Q4 2023. For the full year, we lowered the payout ratio to 90.9% in 2023, and this is an 840 basis point improvement compared to 99.3% in 2022. Looking ahead, we expect continued improvements to our payout ratio. With respect to our debt metrics, we have seen notable improvements and further strengthened our balance sheet. We maintained ample liquidity of $307 million at the end of 2023.
The increase was largely due to higher <unk> offset by higher spending on maintenance Capex as a result of timing of repairs and investments in our building systems ahead of the winter months as well as a decrease in construction funding in crop income.
<unk> per share increased by two 5% to $24 <unk> in Q4 2023.
In line with our results we made notable improvements to our <unk> payout ratio in 2023, lowering it by 240 basis points year over year to 96, 3% in Q4 2023 for the full year, we lowered the payout ratio to 99% in Q in 2023, and this is an eight.
Third 40 basis improvement compared to 99, 3% in 2022.
Looking ahead, we expect continued improvements to our payout ratio.
With respect to our debt metrics, we have seen notable improvements and further strengthened our balance sheet, we maintained ample liquidity of $307 million at the end of 2023, we increased our debt service coverage ratio to one nine times year over year from one eight times in 2022.
Nitin Jain: We increased our debt service coverage ratio to 1.9 times year-over-year from 1.8 times in 2022 and extended the weighted average term to maturity of our debt to 5.9 years from 4.5 years at the end of 2022. We ended 2023 with a debt to gross book value of 44.6% and $1 billion of unencumbered assets. This provides financial flexibility and supports our refinancing initiatives at attractive rates. In particular, we are actively exploring opportunities to refinance our debt expiry in the fourth quarter of 2024. We have the option to refinance a portion of our expiring debt with proceeds from the financing or up-financing of assets with CMHC-insured mortgages at interest rates that are below those of other financing options. With that, I will turn the call back to Nitin for his closing remarks. Thank you, David.
And extended the weighted average term to maturity of our debt to five nine years from four five years at the end of 2022.
We ended 2023 with a debt to gross book value of 44, 6% and $1 billion of unencumbered assets. This provides financial flexibility and supports our refinancing initiatives at attractive rates in particularly we were actively exploring opportunities to refinance our debt expiring in the fourth quarter of 2024.
We have the option to refinance a portion of our expiring debt with proceeds from the financing or financing of assets with CMA Sea insured mortgages at interest rates that are.
Below those of other financing options.
With that I will turn the call back to Nick <unk> for his closing remarks. Thank you David.
Nitin Jain: 2023 was the year we returned to a stable operating environment and were able to achieve significant and consistent net operating income growth in both lines of our business. Throughout the year, our key performance indicators were moving in the right direction, which has put us in a strong position to take further advantage of the tremendous growth potential in the Canadian senior living sector. As we look ahead, we are actively working on a number of initiatives to further optimize revenue, reduce costs, and add value to our asset base. We expect NOI in our retirement segment to benefit from an approximately 150 basis point increase in average claimed property occupancy in 2024. Combined with the continued rental growth in line with market rates, as well as other initiatives to optimize revenue, we forecast NOI growth in the highest single-digit percentage ranges for our retirement segment.
2023 was the year, we returned to a stable operating environment, and we're able to achieve significant and consistent net operating income growth in both lines of our business.
Throughout the year, our key performance indicators, we're moving in the right direction.
Which has put us in a strong position to take further advantage of the tremendous growth potential and Canadian senior living sector.
As we look ahead, we are actively working on a number of initiatives to further optimize revenue reduce costs and add value to our asset base.
We expect NOI in our retirement segment to benefit from an approximate 150 basis point increase in average same property occupancy in 2024.
Combined with the continued rental growth in line with market rates as well as other initiatives to optimize revenue.
We forecast NOI growth in the high single digit percentage ranges for our retirement segment.
With respect to our long term care segment, we anticipate that current occupancy and cost management trends will continue in 2024.
And we expect that 2020 for NOI for the full year to grow in the low to mid single digit percentage range.
There is tremendous growth potential and Canadian senior living with the oldest baby boomers now turning 80 in two years and life expectancy continued to increase.
Nitin Jain: With respect to our long-term care segment, we anticipate that current occupancy and cost management trends will continue in 2024, and we expect our 2024 NOI for the full year to grow in the low to mid-single-digit percentage range. There is tremendous growth potential in Canadian senior living, with the oldest baby boomers now turning 80 in two years, and life expectancy continuing to increase. Canadian seniors in the 85-plus age group are expected to reach 1 million by 2026, and further grow by 25% from 2026 to 2031 and another 33% between 2031 and 2036. At the same time, wait lists for long-term care are getting longer, and the new supply of senior living accommodations has declined significantly in recent years.
Canadian seniors in the 85, plus age group are expected to reach $1 billion by 2026, and further grow by 25% from 2026% to 2031 and another 33% between 2031% to 2036.
At the same time weightless for long term care are getting longer and new supply of senior living accommodations has declined significantly in recent years.
The favorable demographic trends continue combined with the stability that has returned to a business gives us an optimistic outlook for 2024 and beyond.
Behalf of our board of directors and our management team I want to thank all of you for your continued support and commitment. We are now pleased to answer any questions you may have.
Thank you we are now opening the floor for questions and if you would like to ask a question. Please press star followed by the number one on your telephone keypad to raise your hand and into the queue.
When selected if you are using a loud speaker kindly switched your handset to ensure your question you said clearly.
Operator: The favorable demographic trends continue, combined with the stability that has returned to our business, giving us an optimistic outlook for 2024 and beyond. On behalf of our board of directors and our management team, I want to thank all of you for your continued support and commitment. We are now pleased to answer any questions you may have. We are now opening the floor to questions, and if you would like to ask a question, please press star followed by the number one on your telephone keypad to raise your hand and enter the queue. When selected, if you are using a loudspeaker, kindly switch to your handset to ensure your question is heard clearly. And again, that is star number one to join the queue, and your first question comes from the line of Jonathan Kelcher from TD Cowan. Your line is open. Thanks. Good morning. Good morning.
And again that is star one to join the queue and your first question comes from the line of Jonathan <unk> from TD Cowen Your line is open.
Thanks, Good morning.
Good morning.
First first question just on on long term care.
What are the current industry expectations for rate increases for 2020 for specifically for for Ontario.
So we expect some.
I'm going to come out in the March budgets. It is hard to really comment because there's only one party, which decides that which is the government.
The conversation on the government has been there has been lot of.
Investments in Ontario, and other areas, but other accommodation, which is how do we keep the homes open has frankly not been invested in so the expectation would be a bigger increase than just covered inflation, but again.
Nitin Jain: First question, just on long-term care, what are the current industry expectations for rate increases? You know, so we expect something to come out in the March budget. It is hard to really comment because there's only one party which decides that, which is the government.
Yet can be seen what comes out.
Okay, and I guess, that's sort of the gap between whether you you hit low single digit same property NOI or closer to mid.
And that would be correct that would be correct Jonathan.
And then on on development funding for long term care do you do you also expect an announcement on that.
Nitin Jain: The conversation with the government has been, there have been a lot of investments in Ontario and other areas, but other accommodation, which is how we keep the homes open, has frankly not been invested in. So the expectation would be a bigger increase than just covered inflation, but again, it is yet to be seen what comes out. And I guess that's sort of the gap between whether you hit a low, single-digit, same-property NOI or are closer to the minimum. That would be cracked. That would be cracked, John.
With the budget.
We are really focused on operational funding our conversation has been very clear that there is not model and the ability to construct homes unless we get the operating funding fixed. So we are very committed to getting that getting alignment on that with government before we start talking about adding new hotbeds to construction.
Nitin Jain: Okay, and then on development funding for long-term care, do you also expect an announcement on that with the budget? We are really focused on operational funding. Our conversation has been very clear that there is not an ability to construct homes unless we get the operating funding fixed.
Okay Fair enough and then just on the.
Your current the Ogden elegant falls.
What's the expected timing on the lease up of that property.
It's a bit early to comment on it I mean, usually it takes anywhere from 24 to 36 months.
Nitin Jain: So we are very committed to getting that, getting alignment on that with government before we start talking about adding new beds to construction. Okay, fair enough. And then just on Elgin Falls, what's the expected timing for the lease-up of that property? It's a bit early to comment on that. I mean, usually it takes anywhere from 24 to 36 months, you know, closer to 36 months than 24.
Closer to 36 months and 24, but again so far the results have been very strong we've had good move and so far I think we will be able to give a bit better and so as we progress further.
Okay Fair enough and then just last two quick modeling questions just on the your expectations for for current taxes for 2024 and in G&A.
David Hung: But again, so far, the results have been very strong. We have made a good move so far. I think we'll be able to give a bit better answer as we progress further. Okay, fair enough. And then just last two quick modeling questions just on current taxes for 2024. Yeah, so on current taxes, you know, I would expect, we would expect that it would be higher than in 2023. We did have, you know, some one-time recoveries in 2023, including a book-to-tax adjustment in the second quarter. So, you know, we would have to add that back on and then model on top of that. And then G&A, you know, the results are a little bit, you know, lumpy from quarter to quarter, but, you know, we would anticipate that, you know, 2024 G&A would be relatively flat to 2023. Okay, that's it for me; I'll turn it back.
Yeah.
So on current taxes I.
I would expect that we would expect that it would be higher than in 2023, we did have some one time.
Recoveries in 2023, including a book to tax adjustment in.
In the second quarter so.
We would have to add that back on and then and then model on top of that.
And then G&A.
The results are a little bit lumpy from quarter to quarter, but we would anticipate that 2020 for G&A would be relatively flat to 2023.
Okay.
That's it for me I'll turn it back thanks.
<unk>.
Your next question comes from the line of Himanshu Gupta from Scotiabank. Your line is open.
Thank you and good luck.
<unk>.
Good morning, just one he is a diamond hull business there.
I think the thing you mentioned rental rate increases of 5%.
Is that what you achieved in Q4 or was it like a for most of 2023.
It really is on an annual basis, because it's not.
Operator: Thank you. Your next question comes from the line of Himanshu Gupta from Scotiabank. Your line is open.
Depending on when the residents move in so on an average we achieved around 5% rental growth in all of 2023.
Nitin Jain: Thank you and good luck. Just on the retirement home business payer, I think, Nitin, you mentioned rental rate increases of 5%. Is that what you achieved in Q4 or was it like that for most of it? It really is on an annual basis because it's not a, you know, depending on when the residents move in. So on average, we achieved around 5% rental growth in all of 2023, and we would expect similar growth going forward. Okay, that was my next question. So you're expecting something like 5% for 2024, as in in that range, correct? In that range,
And we would expect similar going forward.
Okay that was my next question, so you're expecting something like 5% for 2024 and that range correct.
In that range okay. Okay. Thank you.
Then on the occupancy side I mean, obviously, you're expecting some increase.
This year as well.
So just wondering other homes.
To be like.
So 80% level.
Nitin Jain: Okay. Okay. Thank you.
Even below 80% occupancy, which you expect to increase.
Nitin Jain: And then on the retirement home occupancy side, I mean, obviously you're expecting some. So just wondering, are there homes which are still in the low 80% level or even below 80% occupancy which you expect to increase? I mean, what will be the breakdown of occupancy growth? You know, as we shared, there's a big chunk of our portfolio which is performing extremely well, and there are many homes which are in the 95% plus range. That tells us, so that obviously gets to the data, that there are a few homes which are not performing well, and some would be below that 80% occupancy range. And these are the homes which we have identified as high occupancy opportunities. Some of them need to be redesigned for something different.
What will be the breakdown of occupancy going forward.
As we shared we have most there is a big chunk of our portfolio, which is performing extremely well and there are many homes, which are under 95% plus range.
But that tells us and so that obviously gets to the data that we have a few homes, which are not performing well and some would be below that 80% occupancy range.
These are the homes, which we have identified as high occupancy.
Occupancy opportunities some of them needs to be redesigned for something different and in other cases, it's different sales and marketing programs different outreach. Some combination of renovation to really ensure that they are aligned with what the market is expecting and that's our focus in 2024.
Nitin Jain: And in other cases, it's different sales and marketing programs, different outreach, some combination of renovation to really ensure that they are aligned with what the market is expecting. And that's our focus in 2024. Okay, and how do you identify how many homes have been built? We haven't, obviously we know internally, but we have not identified it publicly.
Okay, and how do you identify how many homes are below 80%.
Lovely.
We haven't obviously, we know internally, but we have not identified publicly.
Got it okay, Okay Hello.
And then maybe just lastly on the NOI margin.
Nitin Jain: Okay. Okay. Enough. And then, maybe just lastly, on.
Under the dome and home side.
David Hung: Again, on the retirement home side, you know, it was around 36% give or take last year, but very similar to the last two years as well. So, you know, like we're getting this occupancy growth, which obviously you're doing a great job there. Why is the margin not moving?
It was around 36%.
Give or take a loss to us.
But are they similar lost.
So you know like they're getting this occupancy growth.
Good job here.
Why margin is not moving much or what will be otherwise margin tool.
David Hung: or what it will take. Yeah, no, thanks for that question, Himanshu. I mean, our expectation is that margin growth would increase between 50 to 100 basis points. And, you know, in our view, it is it is, you know. Meaningful growth back towards pre-pandemic levels, you know, we're going to achieve that through, you know, a combination of occupancy growth as well as rental rate increases. Okay, fair enough. And maybe I'll be in.
Yeah no. Thanks for that question Matthew I mean, our expectation is that margin growth.
Increased between 50 to 100 basis points.
No.
In our view it is it is.
Meaningful growth back towards pre pandemic levels.
We're going to achieve that through a combination of occupancy growth as well as rental rate increases.
Okay fair enough and maybe I'll.
Ben.
Nitin Jain: You mentioned stabilized retirement home occupancy of 95%. What do you think is a stabilized retirement home? If you achieve that, 95% is similar.
You mentioned stabilized retirement home occupancy of 95%.
What do you think is a stabilizer donlin home NOI margin.
We've done some similar as occupancy.
Nitin Jain: We haven't really given that guidance out yet, Timon, but the idea would be that going forward, there's a bigger chunk of revenue which goes into NOI, so we do expect margin to increase. And I think as you get further timing out in 2025 and beyond, we might be comfortable sharing those numbers at that stage, but not yet. OK, so my question was: Like you're expecting 50 to 100, this is 124, but that
We haven't really given that guidance out Tim on chairman the idea would be that.
Going forward there is a bigger chunk of revenue, which goes into NOI. So we do expect margin to increase and I think as you get further timing out in 'twenty five and beyond.
You might be comfortable sharing those numbers at that stage, but not yet.
Okay.
So my question was.
You're expecting 50 to 100, which is 124, but that's not stabilize you still have more that's correct.
David Hung: That's correct, that's correct. Okay, so that's it. Or maybe, you know, one last follow up.
That's correct.
Okay. So okay. So I think that said Oh, maybe one last follow up on LTC.
Nitin Jain: And I know you mentioned the March budget. You will get more visibility on funding. But are you assuming any further cost savings? Or most of them have been gone, with respect to agency software? Yeah, the biggest cost saving for us is really agency staffing; the rest of them are very fixed, you know. It would be, I mean, we continue to look for opportunities for cost savings, but nothing like the ones we saw in 2023, because the biggest impact has been staffing agencies, which we, in fact, have now down to the 2019 level. OK, thank you. Thank you guys. Very helpful. Thank you. Your next question comes from the line of Dean Wilkins. CIBC. Your line is open. Thanks. Good morning, guys. Go to Beadaholique.com for all of your beading supplies needs!
I know you mentioned about the mods budget.
More visibility on funding.
Are you assuming any further cost savings are you know most of them has been realized.
Back to you that you can see something that would take us.
Yes, the biggest cost saving for US is really agency staffing the rest of them are very fixed it would be I mean, we continue to look for opportunities for cost saving but nothing like the ones. We saw in 2023, because the biggest impact has been stopping agencies, which we in fact have now down to 2019 levels.
Alright, okay. Thank you.
That's one.
Thank you.
Your next question comes from the line of Dean Wilkinson from CIBC. Your line is open.
Morning, guys.
Operator: Nitin, I'm not trying to age you, but you've been around for a cycle or two. You look at construction starts as a percentage of the seniors in inventory. It looks to me to be, maybe, a dangerously low level.
And I'm not trying to age you, but you've been around for a cycle or two.
You look at construction starts as a percentage of the seniors in inventory.
It looks to me to be like maybe a dangerously low level.
Nitin Jain: Have you ever seen it this low, and how does it resolve itself? You're not aging me because I'm a newbie to this sector. I've only been here for 10, but people have been doing it for much longer than me.
Have you ever seen at this low and how it how does it resolve itself.
And Youre not aging me because I'm a newbie to this sector I've only been a half a turn because people have been doing is much longer than me.
Nitin Jain: I would say these numbers are quite low, and there are two things, maybe multiple things, at play. I think the first one is that for a long period of time, at least close to 20 years, we have not seen this level of interest rates, which has had a significant impact. And, combined with it, we have also not seen the difference between rental rate increases and construction costs.
I'd say these numbers are quite low and there are two things maybe multiple things at play I think the first one is for a long period of time at least close to 20 years, we have not seen this level of interest rates, which has had a significant impact.
And combined with that we have also not seen the difference between rental rate increases in construction costs of construction cost is up 40%.
Nitin Jain: So, construction costs are 40%, and obviously, rental rates have not gone up by 40% in the last three or four years. And the last thing I would say is that there is an understanding that this business has a big component of your platform. And so, the ability for a new developer to just come in and open a retirement home is getting less and less. I would say, in 2019 and 2020, there would not be a week where we would not get a phone call from someone who has land and wants to build a retirement home. You don't get those phone calls anymore.
And obviously rental rates have not gone up about 40% of the last three or four years and the last thing I would say Bob there is understanding that this.
That business has a big component of your platform and so the ability for a new developer to just come in and open a retirement home is getting less and less I would say in 2019 and 2020 that would not be a week. We have we would not get a phone call from someone who is land and wants to build a retirement home you don't get those phone calls anymore. It will be sufficient.
<unk> retirement operators owners, we're building new retirement homes not people outside the sector. So I would say a combination of all of those three has had a significant impact on supply.
Nitin Jain: It will be sophisticated. Retirement operators and owners are building new retirement homes, not people outside the sector. So, I would say a combination of all those three has had a significant impact on supply. And I think it will take a bit of time for it to get better. I mean, this asset class takes three, four years from the beginning to the end of construction, and that's aggressive. Frankly, in the GTA, it'll be much longer.
And I think it will take a bit of time for it to get better I mean these are these asset class takes three or four years from the beginning to end of construction and Thats aggressive frankly in <unk>. It will be much longer. So this short supply is here to stay for a for a period of time.
Right.
<unk> is really the limiting factor than just the construction costs and and the imputed carry on on interest rates or is there a regulatory burden as well that that sort of creates a log jam.
Nitin Jain: So this short supply is here to stay for a period of time. Right? Is really the limiting factor more than just the construction costs and the imputed carry on interest rates? Or is there a regulatory burden as well that sort of creates a lot of There's no regulatory burden more than it was in the past, so it's really been interest rates, construction costs, but also understanding that you need the right platform for this business.
Yes, Theres no regulatory burden more than it was in the past so it's really as being interest rates.
Construction costs, but also understanding that you need the right platform for this business I would say that third one.
I cannot overstate enough because there were a lot of new entrants to the market, who build one at a time and homeland looking to sell it very quickly and we are seeing less of that going forward.
Nitin Jain: I would say that third one, I cannot overstate it enough because there were a lot of new entrants to the market who built one retirement home and were looking to sell it very quickly, and we are seeing less of that going forward. Do you think that there is an opportunity to go out and acquire some of those one-offs now, or is that more of a... one-off distressed situation, kind of? There are opportunities here and there. In 2023, we did some acquisitions. We are very focused on our organic growth, and we continue to have very strong liquidity. We don't want to put it to work unless there's a compelling reason to do so. I think there will be opportunities as we move forward, but there are not many. There are not a lot of assets in distress.
Sure.
Do you think that there is a opportunity to go out and acquire some of those one offs now or is that more of a.
One one off distress situation kind of scenario.
Yes, I mean, there are opportunities here or there and 2023, we did some acquisition we are very focused on our organic growth we.
We continued a very strong liquidity, we don't want to put it make it put it to work unless there is a compelling reason to do that I think there would be opportunities as we move forward, but they're not many there are not a lot of assets in distress I think there were a lot of sales the market was extremely busy in 'twenty. One 'twenty two 'twenty three we in fact did a big acquisition during the time.
So a lot of that clearing has suffered a lack of better word has already happened.
Perfect. That's it thanks, thanks guys.
Thank you.
So we continue on to the next question. A reminder, if you would like to join the queue. Please press star one on your telephone keypad and your next question comes from the line of Penny beer from RBC capital markets. Your line is open.
Nitin Jain: I think there were a lot of sales. The market was extremely busy in 2021, 2022, and 2023. We, in fact, did a big acquisition during that time.
Thanks, Good morning, I just wanted to come back to you mentioned some of the properties, where you have had success in driving the occupancy because they were below average can you maybe just talk about which markets those are in and.
Nitin Jain: So a lot of that clearing has, for lack of a better word, already happened. Perfect, that's it. Thanks, guys.
Operator: Thank you. Before we continue on to the next question, a reminder, if you would like to join the queue, please press star 1 on your telephone keypad, and you'll come from the line of Pammi Beer from RBC Capital Markets. Your line is open.
What strategies have worked in those markets are at those assets.
Yes. This is actually is when we look at even the assets, which are currently under consideration for.
Nitin Jain: Thanks, good morning. I just wanted to come back to you mentioned some of the properties where you've had success in driving occupancy because they were below average. Can you maybe just talk about which markets those are in and what strategies have worked in those markets or at those assets? Yeah, this is actually when we look at even the assets which are currently under consideration for driving occupancy; they are, frankly, scattered all over. Some of them are market driven, you know. Ottawa, for example, continues to be a challenging market. Luckily, we don't have a lot of assets in that market.
Driving occupancy they are frankly scattered all over.
Some of them are as market driven Ottawa for example continues to be a challenging market. Luckily we don't have a lot of assets in that market.
But in many cases, it's more that new entrants to the market in the last three or four years. So we have to do a bit of.
Service offering difference there is a move towards more.
Care needs of residents in fact don't want to move out from our retirement living that easily so the ability to provide more services to those residents I think that is but that takes.
Some reconfiguration of the home and also more importantly reconfiguration of services.
Nitin Jain: But in many cases, it's more the new entrance to the market in the last three or four years, so we have to make a bit of a service offering difference. There is a move towards more care needs. Resident, in fact, don't want to move out of retirement living that easily, so the ability to provide more services to those residents, I think that is... But that takes some reconfiguration of the home and, more importantly, reconfiguration of the services that you provide. So those would be some of the examples that we're doing in specific homes. But the biggest, I would say, is really community outreach. No one makes a decision at the provincial level that they're going to live in this home, moving from somewhere else. These are very local decisions. People are making a choice close to where their family is, what their reputation is at that home, what their family doctor says which homes to go to, or if they're in the hospital, what the discharge agents say which homes have a good reputation.
It provides so those will be some of the examples that would be doing in specific homes, but the biggest I would say, it's really the community outreach.
No one makes a decision that the provincial level that they are going to live in this home moving from something that all of these are very local decisions people are making a choice close to where their family is what the reputation as a better home.
Sure.
Family Doctor saves, which homes to go anywhere in the hospital, while the discharge.
Agents say, which home has a good reputation and thats really where the big focus would be.
Okay. That's helpful. I guess, maybe just maybe as an extension to that have incentives really played much of a role.
To help push that occupancy or is it really about finding the right service for the right resident.
Yes, I mean, the incentives are pretty consistent across the sector and unusually surround one month are moving expenses. So those have not really changed a lot.
And I think the idea would be going forward is to continue with some incentives which are pretty common.
Nitin Jain: And that's really where the big focus is... Okay, that's helpful. I guess, maybe just maybe, as an extension to that, have incentives really played much of a role to help push that occupancy? Or is it really about, you know, finding the right service for the right residents? Yeah, I mean, the incentives are pretty consistent across the sector. You know, usually it's around one month of moving expenses. So, you know, those things have not really changed a lot.
Due to time, but it really is providing the right care and serve as that becomes a key I think that incentive is really more do you want people to moving faster than maybe three months later and Thats really the difference between that.
Okay, and then just last one for me coming back to long term care.
In BC I think there was a.
Mall.
Recovery for prior year pandemic are starting earlier in the year. Some expenses that were incurred is are there additional recoveries you are anticipating for 2024 or is that pretty much done.
Nitin Jain: You know, and I think the idea would be going forward is to continue with some incentives, which are pretty common time to time. But it really is providing the right care and service. That becomes a key. I think the incentive is really more. Do you want people to move in faster than maybe three months later? That's really the difference.
Yeah, I can I can answer that.
The province of Ontario.
Reimbursed virtually for all of the pandemic expenses that we've incurred in the past.
NBC they are about a year behind so we're actively working with the government there for some reimbursements. So we may get some retroactive funding in 2024, but the quantum is hard to define at this point.
David Hung: Okay, and then just last one for me, coming back to long-term care in B.C. I think there was a small, Recovery for prior year pandemic, or sorry, earlier in the year, some expenses that were incurred. Are there additional recoveries you're anticipating for 2024? Or is that pretty much done?
Okay and the guidance that you provided on the same property NOI growth for the retirement portfolio.
It's clear that that includes the.
David Hung: I can answer that. In the province of Ontario, we've been reimbursed virtually for all of the pandemic expenses that we've incurred in the past. In BC, they are about a year behind, so we're actively working with the government there for some reimbursements. So we may get some retroactive funding in 2024, but the quantum is hard to define at this point. Okay, and the guidance that you provided on the same property and why growth for the retirement portfolio, I think it's clear that that includes retroactive funding. That's correct on the long-term care side, yeah.
Retroactive funding.
That's correct on the long term care side yeah.
Got it thanks very much.
Thank you.
Yes.
As there are no further questions. This does close our Q&A session I would like to thank Newton and David for today's presentation and thank you all for joining US. This concludes today's conference call enjoy the rest of your day you may now disconnect.
[music].
Okay.
Yeah.
David Hung: Got it. Thanks very much. Thank you. As there are no further questions, this draws close our Q&A session. I would like to thank Nitin and David for today's presentation, and thank you all for joining us. This concludes today's conference call. Enjoy the rest of your day.
Okay.
[music].
Yes.
Yes.
Operator: You may now disconnect. Thank you for joining us. Thank you for joining us.