Q1 2024 Sienna Senior Living Inc Earnings Call
Operator: Ladies and gentlemen, welcome to Sienna Senior Living Incorporated's first quarter 2024 conference call. Today's call is hosted by Nitin Jain, President and Chief Executive Officer, and David Hung, Chief Financial Officer. 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 to walk M. D. C N S senior living incorporated first quarter 'twenty 'twenty four conference call. Today's call is hosted by Needham Jin, President and Chief Executive Officer, and David <unk>, Chief Financial Officer of Sienna Senior living incorporated.
Operator: Please refer to the forward-looking information and risk factor 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, siennaliving.ca. Today's call is being recorded, and a replay will be available. Instructions for accessing the call are posted on the company's website, and the details are provided in the company's news release. The company has posted slides which accompany the host's remarks on the company website under Events and Presentations.
Operator: If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. Again, to ask a question, press star number one. With that, I will turn the call to Mr. Jain. Please go ahead, Mr. Jain.
Be aware that certain statements or information discussed today are for a rig working and actual results could differ materially.
Company does not undertake to update any forward looking statement or information. Please refer to the forward looking information and risk factors section in the company's public filings, including its most recent MD&A and Ed and I asked for more information you will also find a more fulsome discussion of the company's reserve.
And it's M D and E and financial statements for the period, which are posted on SEDAR plush and can be found in the company's website. She had no living that's E. 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 our call.
Any news release, the company has posted slides, which accompany the host's remarks on the company website under events and presentation.
Nitin Jain: If you would like to ask a question. During this time simply press star followed by the number one on your telephone keypad again to ask a question press star one with that I will turn the call to Mr. Jain. Please go ahead Mr. Qi.
Jain: Thank you Cathy good morning, everyone and thank you for joining us on our call today.
Nitin Jain: Thank you, Kath. Good morning, everyone, and thank you for joining us on the call today. We are off to a great start this year. Our first quarter results highlight that we have transitioned into a period of stability and growth. We are grateful to the governments of Ontario and British Columbia, who continue to prioritize seniors and the growing need for long-term care. The recent funding announcements recognize the exceptional cost pressures operators in long-term care have experienced over the past four years.
Jain: We are off to a great start in this year, our first quarter results highlight that we have transitioned into a period of stability and growth.
Jain: We are grateful to the governments of Ontario, and British Columbia.
Jain: Tend to prioritize seniors and the growing need for long term care.
Jain: The recent funding announcements recognize the exceptional cost pressures all payers of long term care I have experienced over the past 40 years.
Nitin Jain: As for our retirement business, we continue to benefit from strong demand and limited new supply in many of our key markets. Construction starts of new retirement residences are at a multi-year low, and combined with an aging population, we anticipate notable occupancy gains across the retirement platform in the coming years. Our success would not be possible without our 12,000 strong team members, who are our greatest strength and at the core of everything we do.
Jain: That's what at the time in business, we continued to benefit from strong demand and limited new supply in many of our key markets.
Jain: Construction starts of new retirement residences are at multiyear low and combined with an aging population. We anticipate notable occupancy gains across our retirement platform in the coming years.
Jain: Our success would not be possible without our 12000 strong team members, who are our greatest strength and at the core of everything we do.
Nitin Jain: Creating a workspace where they can put their passion for their work into action is something we strive for each and every day. Moving on to slide five, our results show the significant progress we have made in closing the gap left behind by the pandemic. Supporting our results for fully occupied long-term care homes with higher revenue from preferred accommodations and significantly reduced staffing agency costs as a result of our ability to fill vacant positions with our own team members. These strong results also reflect notable one-time government funding from both Ontario and B.C. As a result, our same property NOI increased by $27.6 million to $63.9 million year-over-year.
Jain: Creating a workspace where they can put their passion for their work into action is something we strive for each and every day.
Jain: Okay.
Jain: Moving to slide five our results show the significant progress we have made in closing the gap left behind by the pandemic.
Jain: Supporting our results were fully occupied long term care homes with higher revenue from preferred accommodations and significantly reduced staffing agency cost as a result of our ability to fill vacant positions with our own team members.
The strong results also reflect notable onetime government funding from both Ontario and BC.
Jain: As a result, our same property NOI increased by $27 6 million to $63 $9 million year over year.
Nitin Jain: The recent funding announcements from the Government of Ontario and B.C. are expected to have a lasting impact on the sector and the well-being of our Canadian seniors. A total of $13.4 million of one-time funding in Ontario and $13.6 million of retroactive funding from the Government of British Columbia are included in our Q1 2024 results. Essentially, the governments are reimbursing us for the remaining unfunded pandemic costs and recognizing the significant cost escalations due to inflation over the past four years.
Jain: The recent funding announcements from the government of Ontario, and BC are expected to have a lasting impact on the sector and well being of our Canadian seniors.
A total of $13 4 million of onetime funding in Ontario, and $13 6 million of retroactive funding from the government of British Columbia are included in our Q1 Q1 2024 results.
Jain: Essentially the governments are reimbursing us for the remaining unfunded pandemic costs and recognizing the significant cost escalation due to inflation over the past four years.
Nitin Jain: Recent funding announcements also include enhancements to the construction funding subsidy of up to $35 per day for the next 25 years and a 6.6% increase in the level of care funding. The level of care funding increase includes a 4.5% increase in the flow-through funding envelope and an 11% increase in the other accommodation funding envelope, with a shortfall in recent years putting significant pressure on long-term care operators. Supported by these improvements, we expect to add up to 400 new care staff positions across Sienna.
Jain: Recent funding announcements also include enhancements to the construction funding subsidy of up to $35 per day for the next 25 years and a six 6% increase in the level of funding.
Jain: The level of care funding increase includes a 45% increase in the flow through funding envelope and an 11% increase in the other accommodation funding envelope.
Jain: Shortfall in recent years put significant pressure on long term care operators.
Jain: Supported by these improvements we expect to add up to 400, new care staff positions across Sienna.
Nitin Jain: The funding improvements will benefit seniors in Ontario and have a positive impact on the redevelopment momentum of Ontario's older long-term care homes. This will also support the Ontario government's important goal of building new and redeveloped long-term care spaces and enable us to advance our redevelopment program. As such, we are very pleased to move forward with the redevelopment of Cedarville Long-Term Care Home in Keswick, Ontario, where we expect to start construction in Q4 2024. Cedarville is located on a campus comprising a 130 suite retirement residence and a 60-bed Class B long-term care home.
Jain: The funding improvements with benefits seen as in Ontario, and have a positive impact on the redevelopment momentum among carriers older long term care homes.
Jain: This will also support Ontario government's important goal of building, new and Redeveloped long term care spaces.
Jain: Enable us to advance our redevelopment program.
Jain: As such we are very pleased to move forward with the redevelopment of <unk> long term care home in Keswick, Ontario.
Jain: Where do we expect to start construction in Q4 2024.
Jain: <unk> is located on the campus comprising of 130 sweep of time in residence and a 60 bed Cosby long term care homes.
Nitin Jain: We will redevelop the current long-term care home into a new state-of-the-art community that can accommodate 160 residents. The project has an expected development yield of approximately 8%. This will be our third long-term care redevelopment project, adding to the two projects currently under construction in North Bay and Brantford, which we expect to complete in the second half of 2025. Combined, these projects will support the government's important goal of building new and redeveloped long-term care spaces for the benefit of Ontario's seniors.
Jain: We will redevelop the current long term care home into a new state of that community that can accommodate 160 residents.
Jain: The project has an app has unexpected development yield of approximately 8%.
Jain: This will be our third long term care redevelopment project, adding to the two projects currently under construction in North Bay in Branford, which we expect to complete in the second half of 2025.
Jain: Combined these projects will support the government's important goal of building, new and Redeveloped long term care spaces for the benefit of Ontario seniors.
Nitin Jain: Moving to retirement, at our retirement operations, same property occupancy grew to 88.1% in Q1. This was an improvement of 30 basis points year over year. Monthly same property occupancy increased for the past three months and reached 88.9% in April. We are making good progress in leasing suites at our recently completed retirement residence in Niagara Falls, which is currently in a lease-up. Looking forward, we continue to make steady progress towards our goal of stabilized occupancy of 95 percent.
Jain: Moving to retirement at that at a time and operations same property occupancy grew to 88, 1%. In Q1. This was an improvement of 30 basis points year over year.
Monthly same property occupancy increased for the past few months and reached 88, 9% in April.
Jain: We are making good progress in leasing suites at our recently completed retirement residence in the Agro falls, which is currently in lease up.
Jain: Looking forward, we continue to make steady progress towards our goal of stabilized occupancy of 95%.
Nitin Jain: This is a level that is aligned with the industry-wide forecast for the Canadian retirement sector. An aging population and limited new supply as a result of very few construction starts in recent years are the key reasons for this expected increase in occupancy. Our intensified focus on homes with lower occupancy in addition to annual rent increases contributed to the increase in same property NOI year-over-year in the quarter.
Jain: This is a level that is aligned with industry wide forecast for the Canadian retirement sector.
Jain: An aging population and limited new supply as a result of very few construction starts in recent years are the key reasons for this expected increase in occupancy.
Jain: Our intensified focus on homes with lower occupancy. In addition to annual rent increases contributed to the increase in same property NOI year over year in the quarter.
Nitin Jain: Now moving to slide nine, team member engagement and retention are a core focus of our initiative. We're always looking for new ways to differentiate Sienna in a competitive labor market. In Q1, we introduced a program called Learning Bytes.
Jain: Now moving to slide nine team member engagement and retention are a core focus of our initiatives.
Jain: Always looking for new ways to differentiate Sina in a competitive labor market in Q1, we introduced a program called learning bytes through this program. We are providing one hour of learning per month to all of our team members. In addition to the job specific training.
Nitin Jain: Through this program, we are providing one hour of learning per month to all of our team members in addition to their job-specific training. This is just one of many initiatives that we introduced at Sienna in recent years to ensure we are aligned with our 12,000 strong team members. As a signature program, SOAR and SPARK remain very successful. The second round of SPARK, Sienna's version of Dragon's Den, is well underway.
Jain: This is just one of many initiatives that we introduced at <unk> in recent years to ensure we are aligned with our 12000 strong team members.
Jain: I had a signature program solar and spark remained very successful.
Jain: The second round of spark see analyst version of Dragon's den is well underway.
Nitin Jain: 175 ideas were submitted in the most recent round, and we are currently implementing pilot programs for those top submissions from our finalists. Ideas range from National Hiring Day to creating digital resident folders and more. With respect to SOAR, our Shared Ownership Program, which is unique in the Canadian senior living sector, thousands of our eligible team members have now received shares, with the next round of awards taking place later this month. We believe that initiatives like these were the key drivers for the 11% reduction in turnover in 2023.
Jain: 75 ideas was submitted in the most recent round and we are currently implementing pilot programs for those top submissions of our finalists.
These range from National hiring day, creating digital resident folders and more.
Jain: With respect to soar, our shared ownership program, which is unique in the Canadian senior living sector.
Jain: So by eligible team members have now received shares for the next round of awards taking place later this month.
Jain: We believe that initiatives like these were the key drivers for the 11% reduction in turnover in 2023.
Nitin Jain: Combined with various recruitment programs, including the placement of internationally educated nurses, these initiatives played a significant role in reducing our reliance on staffing agencies. Their costs have returned to pre-pandemic levels, and it is our goal to keep agency staffing at a minimum, which will have a lasting impact on Sienna's culture and our residents' quality of life. With that, I'll turn it over to David for an update on the
Jain: Combined with various improvement programs, including the placement of internationally educated nurses. These initiatives played a significant role in reducing our reliance on staffing agencies.
Jain: Agencies costs haven't returned to pre pandemic levels and it is our goal to keep agency staffing at a minimum.
Jain: Which will have a lasting impact on sienna's culture, and our residents quality of life.
With that I'll turn it over to David for an update on our results.
David Hung: Thank you Nitin and good morning everyone. I will start with slide 11 for the financial results. In Q1 2024, total adjusted revenues increased by 19.9% year-over-year to $239.4 million. This increase was largely due to rental rate and occupancy growth as well as increased care revenue in our retirement segment and significant one-time and retroactive funding in addition to annual inflationary funding increases and higher preferred accommodation revenue in our LTC segment. Total net operating income increased to $63.5 million this quarter compared to $36.3 million in Q1 2023.
David: Thank you Ian and good morning, everyone I'll start on slide 11 for financial results. In Q1, 2024 total adjusted revenues increased by 19, 9% year over year to $239 4 million. This increase was largely due to rental rate and occupancy growth as well as increased care revenue in our retirement segment.
David: And significant onetime and retroactive funding in addition to annual inflationary funding increases and higher preferred accommodation revenue in our <unk> segment.
David: Total net operating income increased to $63 $5 million this quarter compared to $36 $3 million in Q1 2023.
David Hung: NOI in our long-term care segment increased by $27 million in Q1 2024 due to significant one-time and retroactive funding, higher preferred accommodation revenues, and lower staffing agency costs. Year over year, we reduced our total agency staffing costs from approximately $10.3 million in Q1 2023 to $6.1 million in Q1 2024. Agency costs, which are predominantly covered by flow-through government funding, have now returned to pre-pandemic levels. In our retirement segment, same property NOI increased by $0.5 million in Q1 2024 compared to last year, primarily as a result of rate growth as well as improved occupancy. Moving to slide 12.
David: NOI in our long term care segment increased by $27 million in Q1, 2024 due to significant one time and retroactive funding higher preferred accommodation revenues and lower staffing agency costs.
David: Year over year, we reduced our total agency staffing costs from approximately $10 3 million in Q1 2023 to $6 1 million in Q1 2020 for agency.
David: Agency costs, which are predominantly covered by flow through government funding. How net now have now returned to pre pandemic levels.
David: In our retirement segment same property NOI increased by zero point $5 million in Q1, 2024 compared to last year, primarily as a result of rate growth as well as improved occupancy.
David Hung: During Q1 2024, operating funds from operations increased by 99.1% to $36.7 million compared to last year, primarily due to higher NOI. OSFO per share increased by 98.8% to $0.503 in Q1 2024. Adjusted funds from operations increased by 94.4% to $35.4 million compared to last year, the increase being due to higher OFFO offset by a decrease in construction funding income.
David: Moving to slide 12 during Q1 2020 for operating funds from operations increased by 99, 1% to $36 $7 million compared to last year, primarily due to higher NOI.
David: <unk> per share increased by 98, 8% to 53 in Q1 2024.
David: Adjusted funds from operations increased by 94, 4% to $35 $4 million compared to last year. The increase was due to higher <unk> offset by a decrease in construction funding income.
David Hung: AFFO per share increased by 94.8% to $0.485 in Q1 2024. In line with our results, our AFFO payout ratio decreased to 48.2% in Q1 2024. Moving to slide 13, with respect to our debt metrics, we have seen notable improvements and further strengthened our balance sheet. We maintained ample liquidity with $303 million at the end of Q1 2024 and extended the weighted average term to maturity for our debt to 5.7 years from five years in Q1 2023.
David: <unk> per share increased by 94, 8% to $48 five in Q1 2024.
David: In line with our results our <unk> payout ratio decreased to 48, 2% in Q1 2024.
David: Moving to slide 13, with respect to our debt metrics, we have seen notable improvements and further strengthened our balance sheet.
David: <unk> remained maintained ample liquidity with $303 million at the end of Q1, 2024 and extended the weighted average term to maturity for our debt to five seven years from five years in Q1 2023.
David Hung: Our debt-to-adjusted EBITDA was 7.1 times at the end of Q1 2024 compared to 8.8 times at the end of Q1 2023, and our debt-to-service coverage ratio was 3.4 times in Q1 2024 compared to 1.8 times in Q1 2023. We ended Q1 2024 with a debt-to-adjusted gross book value of 44.3% and $1 billion of un
David: Our debt to adjusted EBITDA was seven one times at the end of Q1 2024 compared to eight eight times at the end of Q1 2023, and our debt service coverage ratio was three four times in Q1 2024 compared to one eight times in Q1 2023.
David: We ended Q1 2024 with a debt to adjusted gross book value of 44, 3% and $1 billion of unencumbered assets. This provides financial flexibility and supports our refinancing initiatives at attractive rates in particular.
David Hung: This provides financial flexibility and supports our refinancing initiatives at attractive rates, in particular as we're actively exploring opportunities to refinance our upcoming debt expiry in the fourth quarter of 2024. We have the ability to refinance a portion of our expiring debt with proceeds from a new financing or up-financing of assets with CMHC-insured mortgages at interest rates significantly below those of other financing options. Our strong financial position will also support the redevelopment of our older, long-term care homes.
David: We are actively exploring opportunities to refinancing our upcoming debt expiry in the fourth quarter of 2024.
David: We have the ability to refinance a portion of our expiring debt with proceeds from a new financing were up financing of assets with CMA Sea insured mortgages at interest rates significantly below those of other financing options.
David: Our strong financial position will also support the redevelopment of our older long term care homes, we will continue to prudently manage capital and staggered construction starts to ensure our debt ratios remained strong as we support the Ontario government with this important initiative with that I will turn the call back to Nick <unk> for his closing remarks. Thank you David.
David Hung: We will continue to prudently manage capital and stagger construction starts to ensure our debt ratios remain strong as we support the Ontario government with this important initiative. With that, I will turn the call back to Nitin for his closing remarks.
Nitin Jain: Thank you, David. There's tremendous growth potential in Canadian senior living with the oldest baby boomer turning 80 in just two years, and life expectancy continues to increase. At the same time, the waitlist for long-term care is getting longer, and the supply of new senior living accommodations continues to decline.
Nick: There is tremendous growth potential in Canadian senior living with the oldest baby Boomer turning 80 in just two years and life expectancy continues to increase at.
Nick: At the same time waitlist for long term care and getting longer and.
Nick: The supply of new senior living accommodations continues to decline.
Nitin Jain: We're grateful to the governments of Ontario and British Columbia who recognize the growing need for long-term care in their recent funding announcements and continue to prioritize seniors. We expect that these updates will have a lasting impact on the health and well-being of our residents and our team members. As a result, we expect long-term care NOI for the full year to grow in the high single-digit percentage range compared to last year.
Nick: We are grateful to the governments of Ontario, and British Columbia, who recognize the growing need of long term care and the recent funding announcements and continue to prioritize seniors.
Nick: We expect that these updates will have a lasting impact on the health and wellbeing of our residents and our team members.
Nick: As a result, we expect long term care NOI for the full year to grow in the high single digit percentage range compared to last year.
Nitin Jain: With respect to retirement operations, we expect Same Property NOI to benefit from continued occupancy and rental rate growth, as well as other initiatives to optimize revenue and grow in the high single-digit percentage range. A year ago, we first outlined in detail how our initiatives to grow occupancy, reduce agency staff, and address government funding shortfalls were expected to have a positive impact on our financial results and our ability to grow and serve more seniors for generations to come.
Nick: With respect to retirement operations, we expect same property NOI to benefit from continued occupancy and rental rate growth as well as other initiatives to optimize revenue and grow in the high single digit percentage range.
Nick: A year ago, we first outlined in detail, how our initiatives to grow occupancy reduce agency staff and address government funding shortfalls were expected to have a positive impact on our financial results and our ability to grow and serve more seniors for generations to come.
Nitin Jain: Since then, quarter after quarter, we have seen growth in both businesses, affirming our commitment to a diversified approach to owning both retirement and long-term care homes. Combined with the flexibility provided by a very strong balance sheet and the continued support of our stakeholders, 2024 is shaping up to become the year of senior living.
Nick: Since then quarter after quarter, we have seen growth in both businesses affirming our commitment to a diversified approach to owning both retirement and long term care homes.
Nick: Combined with the flexibility provided by a very strong balance sheet and the continued support of our stake holders.
Nick: 24 is shaping up to become the ear of senior living.
Nitin Jain: Fueling this momentum is our belief that, as human beings, there are two things we love the most in our lives: our parents and our kids. And this is demonstrated daily by our team members, who strive to bring happiness into the lives of our residents. At one of our communities in Kingston, Ontario, our team had a resident's dream to watch the Montreal Canadiens game come true. Although hockey may be a sensitive topic for Toronto Maple Leaf fans right now, the game is at the heart of many Canadians, including our resident keeper, who is a lifelong fan of Montreal Canadiens. While rarely missing a game, he had never seen them like this.
Nick: Fueling this momentum as I believe that as human beings that do things, we love the most in our lives our parents and kids.
Nick: And this is demonstrated daily by our team members, who strive to bring happiness into the lives of our residents.
Nick: At one of our communities in Kingston, Ontario, our team and our residents dream to watch the Montreal Canadians play come true.
Nick: Although hockey maybe a sensitive topic for Toronto Maple leaf fans right now the game is at the heart of many Canadians, including a resident keep.
Nick: It was a lifelong fan of Montreal Canadiens, while rarely missing a game he had never seen them life.
Nitin Jain: To his surprise, our team had been planning for months to take him to Ottawa to watch his favorite team play the Senators. With tickets, a jersey, and the assistance from our Espirit Royale team, who provided a limo, Keith was chauffeured to Ottawa in style. Witnessing his beloved hockey team in action was a lifelong dream fulfilled and a day this resident will remember forever. This story highlights the impact of a team that is engaged and committed to living Sienna's purpose and values.
Nick: His surprise our team had been planning for months or take them to Ottawa to watch his favorite team pay the senators with tickets, a jersey and assistance from our spirit of our team who provided a limo Keith was sharper to Ottawa and style.
Nick: Witnessing his beloved hockey team in action was a lifelong dream fulfilled in a day. This resident will remember forever.
Nick: This story highlights the impact of a team that is engaged and committed to living sienna's purpose and values.
Nitin Jain: We see inspiring stories each and every day of residents like Keith and the team members who are dedicated to helping residents live meaningful lives. On behalf of our entire management team and our board of directors, I want to thank all of you for your continued support and commitment. We are now pleased to answer any questions you may have.
Nick: These inspiring stories, each and every day of residents like Keith and the team members, who are dedicated to helping residents live meaningful lives.
Speaker Change: On behalf of our entire management team and our board of directors I want to thank all of you for continued support and commitment we.
Speaker Change: We are now pleased to answer any questions you may have.
Operator: Thank you. We will now begin the question and answer session. If you have dialed in and would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, press star 1 again. If you are called upon to ask a question and are listening via loudspeaker on your device, please pick up your handset and ensure that your phone is not on mute when asking your question. Again, press star 1 to join the queue. Your first question comes from the line of Jonathan Kelcher with T.D. Cowan. Your line is open.
Speaker Change: Thank you we will now begin the question and answer session. If you have dialed in and would like to ask a question. Please press star one on your telephone keypad Teresa and trying to keep if you would like to withdraw your question Press Star. One again, if you are called upon to ask a question I know listening via loud speaker on your device. Please go ahead.
Speaker Change: And ensure that your phone is not any.
Speaker Change: Asking your question again press Star one to join the queue. Your first question comes from the line of Jonathan <unk> with TD Cowen Your line is open.
Jonathan Kelcher: Thanks. Good morning. Morning. First question, just on the long-term care funding, the 11.5% increase and how we should think about that going forward. If we back out all of the prior period funding from 2023, does Q1 NOI become a pretty good run rate?
Jonathan: Thanks, Good morning.
Jonathan: Good morning.
Jonathan: First question just on the long term care funding the 11, 5% increase in and how we should think about that going forward.
Jonathan: If we back out all of the prior period funding from 2023 does this Q1 NOI become.
Jonathan: A pretty good run rate.
Nitin Jain: That would be a good way of thinking about it, and the other way is that the 11.5 is a catch-up for the last four years. Our whole thesis has been that government funding always stayed in line with CPI, and I think as you plan forward, the funding increases would be closer to CPI. This was a one-time catch-up for the last four years.
Jonathan: And that would be a good way of thinking about it the other way as this is the $11 five as a catch up of last four years I mean, our whole pieces has been that governments funding always stayed in line with CPI and I think as you as you plan forward the funding increases would be more closer to <unk>.
Jonathan: This was a one time catch up for last four years.
Jonathan Kelcher: Okay, that and that kind of answers my second question. And then, so I guess flipping over to the retirement side. Margin, same property margins were actually down a little bit in the quarter. Was there anything one time in there, and how did the retirement results look versus your internal expectations? Yeah, I mean, there were.
Speaker Change: Okay and that kind of answers my second question and then so I guess flipping over.
Speaker Change: To the retirement side.
Margins same property margins were actually down a little bit in the quarter was there was there anything one time in there and how did the retirement results look.
Speaker Change: Versus your internal expectations.
Nitin Jain: Yeah, I mean there were some technical things in it, you know, for example, this is a leap year So we have an one extra day of expenses the Good Friday happened in March versus April And I think you know, we can say part of it was that but the reality is we have some work We need to do in better expense management What we are happy to see is the rental rate growth and we're happy to see on positive momentum and occupancy But we have quite a bit of work to do over the next three months To ensure that what got us from 76% to 88 we know is not going to get us to 95 So we'll have to do things some things differently and we are on
Speaker Change: Yes, I mean, there were some technical things in it for example, this was a leap year. So we have one extra day of expenses. The good Friday happened in March versus April.
Speaker Change: We can say part of it was that but the reality is we have some work we need to do and better expense management with what we are happy to see is the rental rate growth and we are happy to cease on positive momentum in occupancy, but we have quite a bit of work to do over the next three months.
Speaker Change: Ensure that what got us from 76% to 88, we know is not going to get us to 95. So we'll have to do with things some things differently and we are on it.
Jonathan Kelcher: OK, thanks; I'll turn it back.
Speaker Change: Okay. Thanks, I'll I'll turn it back thank you.
Lorne Kalmar: Your next question comes from the line of Lauren Colmar with Desjardins. Your line is open.
Speaker Change: Your next question comes from the line of Lorraine Kalmar with Chardan. Your line is open.
Lorne Kalmar: Thanks. Good morning, everybody.
Lorraine Kalmar: Thanks, Good morning, everybody.
Lorraine Kalmar: Maybe I know you guys are very kind of put out. The fact that you expect to get to 95% occupancy in the retirement portfolio and if I look at some of the Canadian forecast there.
And that in about 2026 at a national level I was just wondering if there was anything that youre seeing right now that would indicate why you couldn't achieve that level of occupancy by that point in time.
Lorne Kalmar: Maybe you guys were very kind and put out the fact that you expect to get to 95% occupancy in the retirement portfolio. And if I look at some of the Canadian forecasts, they're expecting that in about 2026 at a national level. I was just wondering if there's anything that you're seeing right now that would indicate why you couldn't achieve that level of occupancy by that point in time.
Nitin Jain: You know, we haven't said that we will not, but we also have not said that we will. So I think this is more around us being not ready to give an outlook that far out. And as you know, it's in IMDN as well, we're going to focus more on outlook on same property NOI because as important as occupancy is, I'm not walking away from that, you know; our focus is NOI.
Speaker Change: So we haven't said that we will not but we also have not said that we will so I think this is more around.
Speaker Change: We are not ready to give an outlook that far out and as.
Speaker Change: It's an IMD and as well, we're going to focus more on outlook on same property NOI because.
Speaker Change: As important and Occupancies are not walking away from that.
Speaker Change: Our focus is NOI so.
Nitin Jain: So you know, if you get to 93% or 94% and have a much better NOI than 96, because it will take us a lot more in marketing and sales expenses, we will stop at 94. And so the idea is not to try to get to a point and give an outlook, which then we are explaining every quarter why we can't get there at that time. So it's more, you know, our comfort level in giving a forecast out that far.
Speaker Change: If we get to 93%, 94% and have a much better NOI that 96, because it will take us a lot more in marketing and sales expense, we will stop at 94, so at the end.
Speaker Change: So the idea is not.
Speaker Change: How do you get to a point and give an outlook, which then we are expanding every quarter why we can't get there at that time, so it's more.
Speaker Change: Our comfort level, and giving a forecast out that far.
Lorne Kalmar: Okay, I promise I won't ask about it again next quarter. And then on the development side, as you mentioned, I guess, now with Keswick coming on, you're going to have three ongoing LTC redevelopments. How many of you are comfortable carrying at one time?
Okay, I promise I won't ask about it again next quarter.
Speaker Change: And then on on the development side. So you mentioned I guess now with <unk> coming on you're going to have three ongoing LTC redevelopments.
Speaker Change: How many do you are you comfortable carrying at one time.
Nitin Jain: Yeah, so Lauren, thanks for that question. We're pretty comfortable with the three that we currently have on hand right now. We're trying to stagger our construction starts, so we finished off Elgin Mills at the end of last year. You know, North Bay and Brantford are well underway, and we think that by the end of Q4 of this year, starting Keswick would make sense, you know, just from a funding standpoint.
Speaker Change: Yeah. So lauren thanks for that question, we're pretty comfortable with the three that we currently have on hand right now we're trying to stagger. Our construction starts. So we finished off Allergan mills at the end of last year North band Branford are well underway and we think that by the end of.
Speaker Change: Q4, this year, starting Keswick would makes sense just from a funding standpoint.
Lorne Kalmar: And, like, do all of the developments now make sense, and now you just kind of have to pick and choose which ones to initiate, or are there still some developments where, you know, even with the funding improvements, it's, you know, the numbers still don't work?
Speaker Change: And they do all of the sudden do all of the developments now make makes sense and now you're just kind of got to pick and choose which ones to initiate or are there still some developments, where you know even with the funding improvements.
Speaker Change: The numbers still don't work.
Nitin Jain: You know, there are more projects that work, and there were a bunch of projects that worked in the last funding announcement, so we started two. With this funding announcement, another one works, so we started with that one. We have a few others in the pipeline. The GTA one continues to be challenging, but there's significant land value in GT homes as well, so we have options open to us.
Speaker Change: Yes.
Speaker Change: The more projects that work.
Speaker Change: There are a bunch of projects that work in the last funding announcements. So we started to with this funding announcement. Another one work. So we started with that one we have few others in the pipeline.
Speaker Change: <unk> continues to be challenging, but theres significant land value in GTO homes as well so we have options open to us.
Lorne Kalmar: But the idea is, I think, you know, with each funding announcement, there are projects that will progress. And the bigger thing with this funding announcement and catching up to inflation is because the whole idea behind long-term care was this was an infrastructure-type, steady, stable cash flow, and it did not happen for four years. And as we know, a lot of capital left our sector, so, you know, there's been less development than people would have liked, including the government.
But the idea is I think with each funding announcements there are projects that will that will progress and the bigger thing with this funding announcement in catching up to inflation because the whole idea behind long term care was this is infrastructure time steady stable cash flow and did not happen for four years and as we know a lot of capital left our sector.
Speaker Change: So theres been less development than people would have liked including the government.
Lorne Kalmar: And I think catching up to this and going back to that 30-year run rate where the funding always stayed up with inflation, we feel very optimistic that it's going to bring capital back into long-term care, which will also help build more long-term care beds, including some of the ones that we have in our pipeline.
Speaker Change: And I think catching up to this and going back to that 30 year run rate, where the funding always stayed up with inflation. We feel very optimistic that is going to bring capital back into long term care, which will also help build more long term care beds, including some of the ones that we have in our pipeline.
Lorne Kalmar: Okay, and then maybe just last one for me on the retirement same property NOI outlook, obviously, you know, a little bit in or in the low single digits this quarter. What's sort of underpinning that? Is it mostly recovery and margin or occupancy or both?
Speaker Change: Okay, and then maybe just last one for me on the retirement same property NOI outlook, obviously a.
Speaker Change: A little bit.
Speaker Change: We're in the low single digits this quarter, what sort of underpinning that is it mostly you know recovery in margin or occupancy or both.
David Hung: Are you referring to Q1 or are you referring to the full year?
Speaker Change: Are you referring to Q Q1 are you referring to the full year political year, sorry for high single digits.
Lorne Kalmar: So the full year, sorry, for high single.
David Hung: Yeah, I mean, we're expected to, you know, our guidance is in the high single-digit range. That's going to come from, you know, a growth in occupancy as well as rental rate growth, which for the past two years has been in the four to five percent range. So that's going to help as well, and, you know, it's also going to come from additional revenues such as care revenues as well.
Speaker Change: Yes, I mean, we're expecting.
Speaker Change: Our guidance is in the high single digit range, that's going to come from.
Speaker Change: Growth in occupancy as well as our rental rate growth.
Speaker Change: For the past two years has been in the 4% to 5% range. So.
Speaker Change: So that's going to help as well.
Speaker Change: It's also going to come from.
Additional revenue such as care revenues.
Speaker Change: As well.
Lorne Kalmar: Okay, thank you so much. I will turn it back. Thank you.
Speaker Change: Okay. Thank you so much I will turn it back.
Speaker Change: Thank you.
Operator: Again, to ask a question, press star 1 on your phone keypad. Your next question comes from the line of Himanshu Gupta with Scotiabank.
Speaker Change: Again to ask a question Crestar one on your phone keypad. Your next question comes from the line of Himanshu Gupta with Scotiabank.
Himanshu Gupta: Thank you and good morning.
Himanshu Gupta: So just on the LTC guidance, I mean, obviously, you're saying high single-digit NOI growth this year. For the next year, should we say that it's going back to low single-digit growth?
Himanshu Gupta: So just on the LTC guidance.
Himanshu Gupta: All she has seen high single digit NOI growth this year.
Himanshu Gupta: For the next year or should.
Himanshu Gupta: Should we see that it's going back to single digits.
Nitin Jain: I think it's too early to, we haven't gone out for next year's guidance on that. Himanshu, other than the fact, I think that going back to the question that Jonathan asked, the 11.8 is because inflation was up nearly 18% and funding was up 4 or 5 in the last 4 years. So, you know, if inflation next year is 2 or 3%, I think we should expect government funding to be in that range as well.
Speaker Change: I think it's too early to.
Speaker Change: I haven't gone out to next year's guidance on that.
Speaker Change: Montreal is on the side, but I think that going back to the question that Jonathan asked the 11 data is because the.
Speaker Change: Inflation was up nearly 18% and funding was up four or five in the last four years. So if inflation next year or two or 3% I think we should expect the funding to be in that range as well other than care funding, which is expected to keep going up because we need a lot more care hours to support.
Nitin Jain: Other than care funding, which is expected to keep going up because we need a lot more care hours to support the frailty of seniors coming into long-term care. But I think it's too early because, you know, we cannot be predicting inflation for next year.
Speaker Change: The frailty of seniors coming into long term care, but I think it's too early because while.
Speaker Change: We cannot be predicting inflation for next year.
Himanshu Gupta: And how's the visibility on this, on this high symbol digit? Could there be an upside to this number, or are we, are we there? I mean, in terms of visibility?
Speaker Change: Alright and how.
Speaker Change: How's the visibility on this this year.
Speaker Change: High single digit Goldbergian upsides.
Speaker Change: Are we in terms of visibility.
David Hung: Yeah, we feel comfortable with, you know, our current guidance of high single digits. You know, we are, as we mentioned, getting the 11.5% increase. But keep in mind that some of that is to cover inflationary impacts as well, between 2.5% to 3%. So, when you take all that together, we think that, once you exclude the one-time funding relating to prior years, we would be in the range of the high, you know, high single digits for long-term care.
Speaker Change: Yeah, we feel comfortable with our current guidance of high.
Speaker Change: High single digits.
Speaker Change: As we mentioned we are getting the 11, 5% increase but keep in mind that some of that.
Speaker Change: Is to cover inflationary impacts as well.
Speaker Change: Between 2.5% to 3% so when.
Speaker Change: When you take all of that together, we think that once you exclude the onetime funding relating to prior years.
Speaker Change: We would be in the range of the high high single digits for long term care.
Himanshu Gupta: Got it. Okay.
Speaker Change: Got it okay.
Speaker Change: And then just on the home.
Speaker Change: Home side.
Speaker Change: Looking at the NOI margins.
Himanshu Gupta: And then just on the retirement home side, I'm looking at the NOI module. And it looks like the usage of agency staffing has come back to pre-pandemic levels. I mean, you're seeing that, you know, four to five percent rental growth as well as occupancy moving as well. Why is it not showing up in the NY margins yet?
Speaker Change: I mean, it looks like the usage of some stocking has come back to Cleveland at those levels.
Speaker Change: Youre seeing the 4% to 5% global growth as well.
Speaker Change: Occupancy moving as well why it's not showing up in the NOI margins yes.
David Hung: Yeah, no, so again, as Nitin mentioned, there were a couple of anomalies within the quarter, firstly leap year compared to the previous year, as well as Good Friday being in March of this year versus April of last year. So that definitely impacted our margins by about 1%. And in addition to that, I think that we are working towards growing those margins, and it's going to take, you know, three months or a little bit longer for it to pick back up.
Speaker Change: Yeah, no. So again as Nick mentioned, we like there was a couple of anomalies within the quarter first being a.
Leap year.
Speaker Change: Compared to the last year as well as good Friday being in March of this year versus.
Speaker Change: April of last year, so that definitely impacted our margins by about 1%.
Speaker Change: And in addition to that I think that.
Speaker Change: We are working towards growing those margins and it's going to take.
Speaker Change: Three months or a little bit longer for it to.
Speaker Change: Pick back up.
Himanshu Gupta: Okay, so 23 NOI margins were around like 36%. Do you think, you know, we're still looking for 100 basis point expansion for the full year?
Speaker Change: Okay.
Speaker Change: Any three NOI margins was at all like 36%.
Speaker Change: Do you think you're still looking for 100 basis point expansion for the full year.
David Hung: Himanshu, so as we're reflecting on MD&A as well, we're going to start focusing on same property NOI growth versus giving margin forecasts, so I, you know, I unfortunately can't really guide you towards a margin number.
Speaker Change: And Microsoft.
Speaker Change: It reflects in the MD&A as well, we're going to start focusing on the same property NOI growth versus giving margin forecast.
Speaker Change: Unfortunately cant really guided towards a margin number.
Himanshu Gupta: Okay, fair enough. Okay, thank you. Maybe the last question is on the CASWIC.
Speaker Change: Okay. Okay. Okay. Thank you and maybe the last question is on the cash sweep.
Himanshu Gupta: I think the construction will be started, or is going to be started. Just getting a sense, is there any NOI downtime while the construction is ongoing? I mean, overall, I mean, do you have a sense of how it's going to impact the FFO and the near-term and the long-term one of these once it's finished up?
Speaker Change: Hudson will be started.
Speaker Change: I'll go into we started.
Speaker Change: Just getting a sense is there any NOI downtime, while the construction is ongoing I mean overall I mean do you have a sense of how each one of them.
Hudson: And the long term.
Nitin Jain: Sorry, was the question whether during construction time, would there be any impact on NOI? Is that what the question was?
Hudson: Mr.
Speaker Change: Sorry. The question was during construction time would there be any impact on NOI is that was your question.
Himanshu Gupta: In this case, it would not have, because all of our projects have been greenfields. Even this building where it's being built is on the same site, but the site is actually close to 40 acres, so there is a lot of land available, and so it is not impacting any operations from a team member's perspective or resident perspective at all. And similar to North Bend Brantford, we're going to start construction. It will take a couple of years to build it, and when it's ready, we will move the residents. And in this case, they would be moving a few hundred meters from their current place. So even the move would be much, much simpler, so it would have no impact at all.
Speaker Change: That's right.
Speaker Change: And in this case it would not have because all of our projects have been greenfields that even them Theres building, where it's being built is on the same side, but the site is actually close to 40 acres. So theres a lot of land available and so it.
Speaker Change: It is not impacting any operations from a team members perspective resident perspective, as well at all and similar to not spend Branford, we're going to start construction will take couple of years to build it and when it's ready we will move those residents and in this case. They are frankly would be moving few hundred meters from the current play so they even the move would be much much simpler so no impact at all.
Himanshu Gupta: Okay, fair enough. Thank you, guys. I'll turn it back over to you.
Speaker Change: <unk>.
Speaker Change: Okay. Thank you guys.
Pammi Bir: Your next question comes from the line of Pammi Bir, with RBC Capital Markets.
Speaker Change: Your next question comes from the line of <unk> <unk> with RBC capital markets.
Speaker Change: Okay.
Pammi Bir: Thanks. Good morning. With the long-term care funding increases, when you strip out the retroactive and all the one-time stuff that came through this quarter, I guess the operational funding or the other accommodation increase in envelope funding there, does this start to get you back to the pre-pandemic levels of NOI and long-term care? I'm not sure if you sort of have a timeline on when that happened.
Speaker Change: Thanks, Good morning.
Speaker Change: With the the long term care funding increases when you strip out the the retroactive and all of the one time stuff that came through this quarter.
Speaker Change: Does the I guess the operational when you have the other accommodation increase envelope.
Speaker Change: Funding there does this start to get you back to the pre pandemic levels of NOI and long term care and I'm not sure. If you sort of have a timeline on when that happens.
Nitin Jain: Thank you, Pammi. Good morning.
Speaker Change: Thank you Patty good morning, and yes. This does bring us back to that time catching up to inflation and.
Nitin Jain: And yes, this does bring us back to the time of catching up to inflation. And, you know, that was the whole advocacy behind this is that, you know, no one is looking for long-term care to become a technology sector where, you know, there's a big up and down. This is infrastructure, stable, steady cash flow year over year going with inflation. This catches up for the last four years, and our expectation moving forward would be that it will continue to stay with inflation. This was a once in a lifetime event in the last 30 years, and I am hoping it will not happen again.
Speaker Change: That was the whole advocacy behind this is that.
No one is looking for long term care to become technology.
Speaker Change: Sector, where there is big of up and down this is infrastructure a stable steady cash flow year over year growing with inflation. This catches up for the last four years and our expectation moving forward would be that concludes David inflation. This was up one event in the last 30 years and hoping it will not happen again.
Pammi Bir: Okay, and I know you don't want to maybe focus too much on occupancy and the margins but more so on the absolute NOI, but, you know, looking back to pre-pandemic levels of, you know, long-term care, I think you were tracking around 17% in the NOI margin, but given the nature of the funding, you know, a lot of this being increased flow through, would those be unrealistic?
Speaker Change: Okay.
Speaker Change: And I know you're not you don't want to maybe focus too much on occupancy in the margins, but more so on the absolute NOI, but.
Speaker Change: Looking back to pre pandemic levels of long term care I think you were tracking at around 17% and the NOI margin.
Speaker Change: Given how the nature of the funding somewhat it is being increased flow through.
Speaker Change: Would those be unrealistic.
Speaker Change: With that 17% so it would be unrealistic, even with the new.
Speaker Change: OE funding.
David Hung: Yeah, that's a great question, Pammi, and yes, we wouldn't expect to get back to 17% margins. The amount of, you know, direct care and program funding that the government has provided over the last several years has been quite significant, you know, over a 40% increase. So we would anticipate that our margins would decline in the long-term care segment.
Speaker Change: Yes, that's a great question.
And yes.
Speaker Change: So we wouldn't expect to get back to 17% margins the amount of direct care and program funding that the government has provided over the last several years.
Speaker Change: Has been quite significant.
Speaker Change: Over 40% increase so we would anticipate that our margins would.
Speaker Change: The decline in long term care segment, but that being said our focus is really on margin dollars not margin percentage.
Pammi Bir: Right, okay. Last one for me, you know, from a capital allocation standpoint, nice to see another project moving forward in long-term care, but, you know, given the more stable environment that we are now in, and with maybe some of the updates or additions to management, is it making you more confident, perhaps, in putting capital to work from an acquisition standpoint in the retirement space?
Speaker Change: Alright, okay.
Speaker Change: Last one for me from a capital allocation standpoint.
Speaker Change: You see another project moving forward in long term care.
Speaker Change: But given the more stable environment that we are now.
Speaker Change: With maybe some of the updates or additions to management, giving you more confidence perhaps in putting capital to work from an acquisition standpoint in the retirement space.
Nitin Jain: Yes, for sure. I mean, we have not stopped looking even during this time. Our biggest acquisition was a year and a half ago, so we continue to look for opportunities. You know, there have been some things that have been out, but then nothing that fits that well with us. But we'll continue to look, and to your point, I think as capital is returning to the long-term care space and retirement space, we'll continue to invest both through acquisitions and development, but obviously, the deal has to make sense in the short and medium terms from an accretion perspective.
Speaker Change: Yes for sure I mean, we have not stopped looking even during this time, our biggest acquisition was a year and a half back. So we continue to look for opportunities there have been some things which have been out.
But nothing that.
Speaker Change: Which is that.
Speaker Change: Which fits well with us, but we'll continue looking.
Speaker Change: To your point I think as capital is returning to the long term care space and retirement space will continue to invest both through acquisitions and development, but obviously.
Speaker Change: The.
Speaker Change: The deal has to make sense in the in the short and medium term from an accretion perspective.
Speaker Change: Got it.
Pammi Bir: Thanks very much, Nitin. I will turn it back. Thank you. Again, to ask a question...
Speaker Change: Thanks, very much and I will turn it back.
Speaker Change: Thank you.
Operator: Again, to ask a question, press star 1 on your phone keypad. And your next question comes from the line of Jake Stivaletti with CIDC. Your line is open.
Speaker Change: Again to ask a question press star one on your phone keypad and your next question comes from the line of Jake is Stephen <unk> with CIBC. Your line is open.
Jake: Hey, guys good morning.
Jake: Wow.
Jake Stivaletti: So just looking at OFFO, so excluding the retroactive funding, can we think of the adjusted FFO of that $0.27 as a starting point for the 2024 run rate, kind of before we add any growth?
Jake: So just looking at <unk>, so excluding the retroactive funding.
Jake: We think of the adjusted up a follow up that that 27 cents as a starting point for 2024 run rate kind of before we had any growth.
David Hung: Yeah, I think that would be a good way to look at it. That would be a good starting point for the balance of 2024.
Stephen: Yes that I think that would be a good way to look at it that would be a good starting point.
Stephen: For for the balance of 2024.
Jake Stivaletti: Okay, and then I think I saw, correct me if I'm wrong, but I think I saw that you have about 62% of your, 60 or 62% of your property level mortgage is CMHC insured. Is there a goal to increase that or anything in mind regarding that?
Stephen: Okay.
Speaker Change: And then I think I saw correct me, if I'm wrong, but I think I saw that you have about 62% of your 60 or 62% of your property level mortgages CMA.
Speaker Change: <unk> C insured is there a goal to increase that or anything.
Anything in mind regarding that.
David Hung: Yeah, you're right. 62% of our mortgages are insured with CMHC financing. We do continue to have other properties that are currently unencumbered or that they're low leverage that we would add some more CMHC financing to.
Yes.
Speaker Change: We do plan, yes, youre right, 62% of our mortgages are insured with CMA sea financing we would.
Speaker Change: We do continue to have other properties that are currently unencumbered.
Speaker Change: Or that they're low leverage that we would need to add some more CMA sea financing.
Speaker Change: To that.
Jake Stivaletti: And that's probably the most attractive rates you're seeing, right, with CMHC insured debt.
Speaker Change: And that's probably the most attractive grades youre seeing rate was with the <unk> debt.
David Hung: That's correct. Those are the most attractive rates currently in the market right now, which is why we're pursuing, and we have active applications ongoing with CMHC right now.
Speaker Change: That's correct those are the most attractive rates currently in the market right now which is why we're pursuing.
Speaker Change: We have active applications ongoing with CMA sea right now.
Nitin Jain: You know, and we have seen this market change. We did a big acquisition in 2018 where CMHC rates were very compelling, and four months later, you know, unsecured money was actually cheaper than CMHC, so we pivoted very quickly. And I think our, to David's point, our focus is that we have the ability to borrow more from CMHC, but the biggest thing for us is really the flexibility between secure financing and unsecured financing. So, you know, we have multiple options as we get closer to the November timeline to refinance the debt.
Speaker Change: And we've seen this market change we did a big acquisition in 2018, where CMS fee rates were very compelling and four months later unsecured.
Jake Stivaletti: Got it. Okay, that's very helpful. I'll turn it back.
The money was actually cheaper than CME. So we've pivoted very quickly and I think to David's point. Our focus is we have the ability to borrow more than CEA mitzi, but the biggest thing for us is really the flexibility of between secured financing in unsecured financing so.
Speaker Change: We have multiple options as we get closer to the November timeline.
Speaker Change: To refinance the debt.
Speaker Change: Got it okay. That's very helpful I'll turn it back.
Operator: Ladies and gentlemen, that concludes our Q&A session. And on today's call. Thank you all for joining us. You may now disconnect.
Speaker Change: Ladies and gentlemen that concludes our Q&A session and today's call. Thank you all for joining you may now disconnect.
Speaker Change: [music].
Speaker Change: Yeah.
Speaker Change: [music].
Speaker Change: Yes.
Speaker Change: Yes.