Q4 2024 Sienna Senior Living Inc Earnings Call
Ladies and gentlemen, welcome to Sienna Senior living Inc. Fourth quarter 'twenty 'twenty four conference call. Today's call is hosted by knit and Jane President and Chief Executive Officer, and David <unk>, Chief Financial Officer of Sienna Senior living Inc. Please be aware that certain statements or information.
<unk> 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 M. D N a N a F 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 Cedar plush and can be found on the company's website Deanna living Dot C. A today's call is being recorded and a replay will be available instructions for accessing the call are posted.
Speaker Change: On the company's website and the details are provided in the company's news release. The company has posted slides, which accompany the host's remarks on the company's web site under events and presentations with that I will now turn the call to Mr. Jain. Please go ahead Mr. Jain.
Jain: Thank you and good morning, everyone and thank you for joining us on our call today two.
Jain: 2024 has been tremendous growth for Sienna, we ended the year with the Companys eighth consecutive quarter of NOI growth further strengthened the balance sheet and made great strides in the development pipeline.
Jain: In addition, we entered the Alberta market with a highly attractive portfolio acquisition.
Jain: But this has just the beginning with the rapid growth of Canada senior population driving demand that is exceptional growth potential for ciena for years to come.
Jain: We have consistently achieved year over year growth in our operating results across both lines of business.
Jain: It shows the strength and the potential of our company in Q4 2024, adjusted same property NOI increased by 29% and Cna's long term care segment and by 15, 2% in the retirement segment.
Jain: Our long term care homes are fully occupied with Duane waitlist supporting our patients with government funding increases and higher preferred accommodation revenues.
Jain: On the retirement side driving demand coupled with limited new supply was a key driver of continued occupancy improvements. In addition, our asset optimization initiatives and focused marketing and sales campaigns further supported the strong results.
Jain: Moving to slide six same property occupancy in the company's retirement segment increased by 300 basis points of year over year to 92, 9% in the fourth quarter.
Jain: Monthly occupancy levels improved throughout the quarter and reached 93, 1% in January.
Jain: This puts us on a path to achieve a stabilized occupancy target of 95% in the next 12 months.
Jain: We also believe that there is significant opportunity to create value for our asset optimization initiatives at the number of retirement residences.
Jain: These initiatives target a better market and include renovations the change in sweet mix additional services or the alternative use a property.
Jain: One such example is our property in Durham region, and older but historic and beautiful building.
Jain: This region has faced significant competition, they're doing things at all and we've made some key operational changes and completed a major renovation.
Jain: Within a year of completing the renovation occupancy has now increased by more than 20%.
Jain: We also just completed the renovation of another time at home and not York.
Jain: And converted one of the floors to assisted living as a result of increasing demand for care in that area.
Jain: We believe that we can achieve stabilized occupancy in that property over the next 12 months.
Jain: We have also identified five assets in the company at a time and portfolio that would benefit from a range of optimization initiatives.
Jain: Average occupancy rate of 7% to 6% and margin of 22%. This growth of properties. In this group of properties is expected to achieve substantial NOI and margin growth.
Jain: Yesterday, we announced two high quality acquisitions in Ottawa, and then in Mississauga, So that would be a great fit within the existing portfolio.
Jain: We had acquired in Wildland retirement residents 165 suite retirement home and Ottawa suburb of fits well for approximately $48 million at a capitalization rate of six 5%.
Jain: This was built in 2019 and offers attractive amenities, including luxury suites with balconies and patios multiple dining rooms, and excellent health and fitness facilities.
Jain: We had also acquired in Qatar Gardens, 192 bed class a long term care home in the city of Mississauga, but approximately $32 6 million at a capitalization rate of 675%.
The purchase price includes a $2 million capital allowance.
Both acquisitions are located in markets with Ana has an existing operating platform.
Jain: Enabling us to achieve synergies that transactions will be completed at a significant discount to replacement cost and I would expect it to be immediately accretive to CNS <unk> per share.
Jain: CN is also on track to complete a number of previously announced acquisitions by the end of Q1.
Jain: These acquisitions include a portfolio of four high quality continuing care homes in Alberta, and the remaining 30% interest in nickel, a large 256 bad long term care home and Metro Vancouver.
Jain: Combined we now have nearly $300 million of acquisitions under contract and continue to remain active in the market seeking opportunities that are strategic fit.
Jain: Redevelopment is an equally important way to grow and create value for us.
Jain: The redevelopment of our LTC homes in Ontario, and enhances the quality of the portfolio through efficient and environmentally friendly buildings and.
Jain: And aligns with the government target to build more long term care beds at a time in Waitlists continue to grow.
Jain: We are on track to complete the long term care development and North Bay and a campus of care project in Branford later this year and.
Jain: And we're making good progress and our redevelopment in gastric where construction started few months back.
Jain: The combined development cost for these three projects are exceeding $300 million.
Jain: And once completed and fully operational each long term care project is expected to grow sienna's <unk> per share by about 3%.
Jain: And with that I'll turn it over to David for an update on our financial results.
David: Thank you and good morning, everyone I will start on slide 11 for financial results. In Q4, 2024 total adjusted revenues increased by 12, 5% year over year to $246 3 million. This increase was largely due to occupancy and rental rate growth as well as increased care revenue in the retirement segment.
Due to the increase were the significant contributions from the long term care segment, including a substantial government funding increase in Ontario, which came into effect in Q2 retroactive funding in British Columbia and higher per <unk>.
David: Accommodation revenue.
David: Total adjusted same property NOI increased by 22, 6% to $45 $5 million in Q4, 2024, including 15, 3% in our retirement segment and 29% in the long term care segment.
David: In the retirement segment adjusted NOI increased by $2 $7 million in Q4 2024 compared to the prior year largely as a result of improved occupancy and rental rate growth.
David: In the fourth quarter, we revised our definition of same property to exclude assets, which are expected to undergo optimization. We currently have five assets in our retirement portfolio that will benefit from a range of optimization initiatives.
David: In the long term care segment, NOI increased by $5 $8 million largely due to significant annual funding increases and BC funding of $2 5 million recognized in the quarter offset by inflationary expense increases.
David: After excluding one time items total adjusted same property NOI would have increased by 16, 6% in our long term care segment.
David: Moving to slide 12 during Q4 2020 for operating funds from operations increased by 33, 1% to $29 4 million compared to the prior year, primarily due to higher NOI lower transaction costs and lower interest, partly offset by higher income taxes OSA.
<unk> per share increased by 17, 5% to 35 six in Q4 2024.
David: Adjusted funds from operations increased 541, 3% to $25 $1 million compared to last year. The increase was due to higher O&M football and a decrease in maintenance capital expenditures offset partially by a decrease in construction funding income.
David: <unk> per share increased by 25, 1% to 30 <unk> in Q4 2024.
David: Q4, 2024, <unk> payout ratio was 77, 1% after adjusting for onetime items, our payout ratio was 83, 1% and we are pleased with the significant improvement in 2024.
David: Throughout the fourth quarter, we further strengthened our financial position and balance sheet.
David: <unk> liquidity was $435 million at the end of 2024 compared to $307 million at the end of 2023, largely as a result of proceeds from the Companys equity offering in August 2024, partly offset by continued investments in our development portfolio.
David: We also improved our interest coverage ratio to three nine times for the 12 months ended December 31, 2024 compared to three four times in 2023, and we extended the weighted average term to maturity of sienna's debt to six seven years from five nine years in.
David: In addition, we improved our debt to adjusted EBITDA to six four times at the end of Q4 2024 compared to $8.
David: Four times in the prior year.
David: Sienna ended Q4 2024 with a debt to adjusted gross book value of 41, 1% and approximately $1 1 billion of unencumbered assets.
David: CN is strong financial position with no major debt maturities until Q1 2026, coupled with significant liquidity provides flexibility to navigate potential economic disruptions. It also supports CNS growth initiatives with respect to both acquisitions and developments.
David: Our three development projects in Ontario have an average development yield up between 8% to eight 5% and once they are completed they will make a significant contribution to sienna's operating results two of our three projects are expected to be operational by Q4, 2025, and immediately accretive to OSI Boe due to the various <unk>.
David: Short lease up period as a result of the significant waitlist in Ontario and <unk>.
David: Moving forward, we will continue to prudently manage our capital as we further expand the company's asset base through developments.
David: Through acquisitions and make improvements as part of our asset optimization initiatives with that I will turn the call back to Nick for his closing remarks. Thank you, David the fundamentals and Canadian senior living remain exceptionally strong.
Nick: Our ability to meet the growing demand of an aging population depends on a stable and engaged workforce.
Nick: At CN of investing in our team has made a real difference by focusing on engagement recognition and a culture of ownership.
We have improved our attention in our sector with high turnover.
Nick: A second year in a row, we were able to reduce turnover by about 30%, which was further reduced <unk> lines on agency staff and contributed to strength of our results.
With respect to our long term care portfolio, we expect to benefit from the continued stability of this segment in 2025.
Nick: <unk> target for long term care NOI growth, excluding one time and retroactive amount is in the low single digit percentage range in line with inflation.
With respect to the company at a time and operations. We expect same property NOI to benefit from continued occupancy and rental rate increases.
Nick: The 2025 NOI growth target in the retirement segment is approximately 10%.
Nick: Yeah.
Nick: But occupancy steadily improving towards our 95% target. We also expected to see margin growth of approximately 100 to 150 basis point in 2025 compared to the prior year.
Nick: We expect chinas growth through acquisitions and development to continue.
Nick: With nearly $300 million of acquisitions under contract and a significant pipeline. We plan to continue our acquisition activities in 2025 on.
Nick: On the development side, we are excited to approach the finish line on two projects later this year.
Nick: Given the outstanding sector dynamics, our growing operations with the addition of $600 million of acquisitions and development and a very strong balance sheet supporting future growth, we have never been more confident about the opportunities ahead.
Nick: On behalf of all of Us at CN I want to thank our team members for residents families. Our shareholders and all of you on this call for your continued support and with that we will take your questions.
Nick: Yes.
Nick: This time I would like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad.
Nick: We'll pause for just a moment to compile the Q&A roster.
Speaker Change: Your first question comes from the line of Lorne Kalmar with Desjardins capital market.
Lorne Kalmar: Thanks, Good morning, everyone and congrats on a nice finish to 2024.
Lorne Kalmar: Maybe just on the repositioning program I know you guys have had success with that before but I was wondering if you could give us a little bit more color in terms of timing yields and costs at this point.
Speaker Change: Hi, Good morning, Lauren Great question. So we have been talking about this for nearly a year of any use to call them high opportunity homes, and we had around 15 homes nearly a year back in that portfolio and we are now down to five.
Some of them were low hanging fruit will be making some operational changes and those don't really have much capital.
Speaker Change: Reason, but you don't have significant.
Speaker Change: Packed on occupancy and NOI growth and margins.
Speaker Change: There was a.
Speaker Change: There is a subset of them, which needs capital, which which we did a few already and we have plans to do a few more this year around three or four of those projects and then there are a few which need some repositioning in a different way they are.
Speaker Change: At this stage the plans are too early to share interim what time of year.
Yields we can see but from a margin perspective I mean these are retirement homes. These fives at a margin of 22%. Our same property is 37, three we expect that to grow this year and we expect to grow the year. After so we see significant opportunity in those five homes as we progress.
Speaker Change: So these five I guess are kind of the <unk>.
Speaker Change: Ones that need the most TLC of this $50.
Speaker Change: Portfolio 50 home grouping.
Speaker Change: I wouldn't say I wouldn't say that I mean, the capital investment we have in the homes, where we have done major renovation has been in the range of $2 million to $4 million. So these are not that capital intensive in the scheme of things, sometimes when you're changing services. It just takes time to do that right because you might have people living on the floor. So when you're trying to fix that for it has some impact on residents.
Speaker Change: When you're adding new services you are looking at market study to ensure that you get it right, sometimes youre working with other partners in terms of an alternative use of the properties.
Speaker Change: Multiple reasons why they take long so I think that would be these properties out of the same level of complexity as you know there's all the others are just yet.
Speaker Change: Time to fix these five now.
Speaker Change: Okay fair enough.
And then maybe on the development side you guys mentioned you got two that are expected to conclude at the end of the year.
Speaker Change: One more currently in the pipeline have you guys looked at any other projects that you've looked at adding to the pipeline this year.
Speaker Change: Absolutely.
Speaker Change: To close we need to develop another call. It 500 to 2000 beds and depending on how much additional capacity, we would add including homes in the GTA, we see encouraging signs.
Speaker Change: Recently, the city of Mississauga reduced the development charges significantly more needs to happen for development to happen in GTA, we have some very interesting and big projects in GTA.
Speaker Change: That could become viable in the short to medium term.
Speaker Change: However, we would be cautious.
Speaker Change: These developments on a scale of development, a very low risk that government backed they get full within a couple of months, but we also don't want to commit too much to development. All at one time, so we will pace ourselves, but you can expect.
Speaker Change: <unk> two maybe this year and then we will end the pacings after that.
Speaker Change: Okay Perfect and then just one last quick one for me.
Speaker Change: I'm just wondering what the blended rent growth in retirement.
Speaker Change: The retirement portfolio was for 'twenty four.
Speaker Change: It would have been close to four 5% on a blended rate basis.
Speaker Change: Perfect. Thank you very much.
Speaker Change: Your next question comes from the line of Tom Callaghan with BMO capital markets.
Tom Callaghan: Thanks, Good morning, guys, maybe just to follow up on the rent growth topic. There can you just talk a bit about kind of how you see that growth unfolding over the course of not just this year, but into 2026 as occupancy marches towards at that.
Speaker Change: 95% range.
Speaker Change: Good morning, Tom.
Speaker Change: Very optimistic as we are now seeing many of our homes above the 95% Mark.
Speaker Change: Limited supply so from a market rent market rate perspective, because for any development to work they would have to charge significantly higher rates than what we're charging in many of our homes. So we see that we don't see that trend change for us I would say I would call. It medium term pleased because any development for this asset class is call. It four.
Speaker Change: Five years.
Speaker Change: Even if you have land.
Speaker Change: So we don't see that to change we also see opportunity.
Speaker Change: Where we see big opportunity within Sienna for example is fixing our care margins, even though our revenue has gone up our margin has not match so we'd see a tremendous opportunity there as well and then just annual rent increases in general the.
The U S has been much ahead of you of annual rates versus Canada. So we have not fully made up for inflation in the past, but we do expect to do that over the next couple of years.
Speaker Change: Okay, Great that's helpful.
Speaker Change: Maybe just switching gears.
Speaker Change: You talked a bit about the acquisition pipeline, there and then green active on that front.
Speaker Change: Big picture our high level can you just talk a little bit about what youre seeing in the market today.
Speaker Change: And our opportunities weighted two to one piece of the business versus the other or fairly fairly good opportunities on both sides.
Speaker Change: I can answer that Tom So we continue to see a very robust acquisition pipeline somewhere in the range of $150 million to $200 million.
Speaker Change: One of the strike.
Speaker Change: Strength of our business is the fact that we are a diversified business. So we are looking at both sides of the business. Both long term care retirement as well as campuses of Karen I think that.
Speaker Change: Is the fact that we purchased a long term care home as well as retirement residence.
Speaker Change: Speaks to the fact that we are looking at both both markets at this point in time.
Speaker Change: Okay, perfect I'll pass back congrats on the results guys.
Jonathan: Your next question comes from the line of Jonathan <unk> with TD Cowen.
Jonathan: Thanks, Good morning, just.
Speaker Change: Just sticking with the pipeline on the acquisition front.
Speaker Change: $150 million to $200 million would you be comfortable in late both assets. You just bought were stabilized would you be comfortable bringing on.
Speaker Change: Non stabilized retirement homes.
Speaker Change: Good morning, Jonathan we will be comfortable that we are very very confident of our platform. Many of the opportunities. We are seeing though are not in that on stabilized place of the property. We just bought in <unk> is in fact is a higher than 95% occupancy. So in the long term care home, obviously, Bob is fall to four homes you bought in.
Speaker Change: Albert.
Speaker Change: Our awful.
We would be open to it but the opportunities. We are currently reviewing do not have homes, which are highly on stabilized.
Speaker Change: Okay.
Speaker Change: Fair enough and then in the MD&A on the on the five properties and the optimization of the portfolio I think you talked a little bit.
Speaker Change: Use the word potential alternative use.
Speaker Change: Are you are you just talking about maybe switching a florida assisted living or or is there anything more to that and can we think about maybe selling one or one or two of those properties.
Speaker Change: Our portfolio overall is quite new and because recently acquired it the only thing, which you are which is all of that in our portfolio as long term care homes, which are which is a huge development opportunity. So other than one or two properties here or there. We don't really see a lot of dispositions from our scanner perspective and alternative views.
Speaker Change: Could easily include what you just talked about they are for example in North Europe. We it was more independent living and there'll be a added assisted living to it in some cases working with government to see if theres a need to.
Speaker Change: And to add additional beds for services that is important to them. So it's really would be a combination of those things.
Speaker Change: Okay, and then lastly, I think you can touch on development, maybe starting one or two projects this year.
Speaker Change: Hi.
Speaker Change: I guess two parts here have you have you identified them and if so.
Speaker Change: Or either one or both going to include a campus with care.
Speaker Change: So we havent identified them around 40 years back because it's been a painful journey for some of these development projects.
Speaker Change: Once that we're looking at would be all long long term care on lease and in many cases bigger than the current.
Speaker Change: Property, because thats, where we see the synergies of construction costs and making sure that the yield is in the 8% plus range. So.
Speaker Change: So I think you could potentially see some bigger homes than smaller ones from the past.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: That's it for me I'll turn it back thanks.
Speaker Change: Thank you.
Himanshu Gupta: Your next question comes from the line of Himanshu Gupta with Scotiabank.
Thank you and good morning.
Speaker Change: So on the long term outlook.
Himanshu Gupta: Outlook of low single digits in line with inflation.
Speaker Change: I mean is there any potential to pick some margins here or we should simply look at absolute. Thank you see NOI, excluding one time, and then grow without the need of inflation.
Himanshu Gupta: Yes, thanks for that question.
Himanshu Gupta: Our outlook is to grow in the low single digits on the long term care side, we don't focus as much on.
Himanshu Gupta: On the margin side in long term care because of the significant amount of.
Himanshu Gupta: Government funding that we get specifically for care.
Himanshu Gupta: So.
Himanshu Gupta: What we would be looking for in that sector.
Himanshu Gupta: Within that segment would be low single digit growth coupled with the significant development that we're doing in that sector.
On the development side each of these projects would be accretive to our <unk> per share by about 3%. So that's where we're going to get to summit.
Himanshu Gupta: Additional growth on long term care.
Himanshu Gupta: Got it.
Himanshu Gupta: And then moving to the retirement home side.
Himanshu Gupta: Same property margin expansion of 100 to 150 basis points this year.
Speaker Change: Will that stabilize margins levels once you achieve that goal.
Speaker Change: I'll keep it at this point or do you think there is still scope for improvement.
Speaker Change: Beyond that.
Speaker Change: So we had a very good 2024 from a revenue perspective, where.
Speaker Change: We are turning our focus in addition to that.
Speaker Change: Margin expansion is wildly.
Speaker Change: We are targeting 100 to 150 basis point next year, we see tremendous opportunity even after that because the.
For lack of better word this would be.
Speaker Change: Some complexity, but I think there is further opportunity to grow that margin or margin pre pandemic was 44%. It's too early to say, whether we will get all the way there, but we continue to see a lot of opportunity between 37% and that 44% number.
Speaker Change: Okay, that's fair.
Speaker Change: Yes.
Speaker Change: And then on the optimization portfolio.
Speaker Change: I mean, obviously you mentioned the same property pool NOI to increase by 10%.
Speaker Change: Where do you see the optimized.
Speaker Change: Portfolio should increase more than 10%. Despite the very fact of Lady was in March and then 75% of occupancy.
Speaker Change: Yes, we would we would see NOI margin.
Speaker Change: Growth, sorry, excuse me year over year NOI growth in excess of 10% again, our margins on these five properties would be around 22%. So.
Speaker Change: Over the next while we would expect that they would get back towards our same property margins. So definitely we would expect to see significant NOI growth on that portfolio.
Speaker Change: Okay. That's that's again very helpful.
Speaker Change: And then these five properties.
Speaker Change: Like are these suffering from supplying that.
Speaker Change: Is it order product like why are these.
Speaker Change: Five properties the media right now.
Speaker Change: Sure remind you I think it's a combination of those things for example, the property I used an example in the Durham region that was oversupplied.
Speaker Change: The couple of homes are in smaller markets.
Speaker Change: And our province, so what have you.
Speaker Change: Seeing some challenges there in terms of NOI growth, even though occupancy is okay. There in some cases the market has changed.
Speaker Change: Gave you an example of North York.
Speaker Change: There were that it was more independent living in the past and all that the demand is for dedicated assisted living floors. So it would be a combination of those things.
Speaker Change: Thank you.
Speaker Change: Last question is on the acquisition.
It was done in the heartworm market.
Speaker Change:
Speaker Change: Based on commentary you know onto our hygiene oversupplied market in the past so.
Speaker Change: Yeah, I think yeah in that bucket.
Speaker Change: Absolutely yes.
There's a lot of conversation.
Speaker Change: Demand is outpacing supply and I think using Ottawa would be a perfect example, because that market used to be notoriously oversupplied, even though there was always healthy demand supply always outpaced that that has changed significantly and to just use our properties. We have two other properties.
Speaker Change: Closer to the one that we just bought their where they were in the low 80% range struggled in fact to stay in that range. In Q1 2023, both of those homes are combined at above 95% now the home. We just bought at white pine is above 95%. So.
Speaker Change: The idea that there is less supply and demand is outpacing supply in fact has come true and that is a great market that is a perfect market to actually make that example.
Speaker Change: Okay.
David: Thank you David.
David: Thank you.
Speaker Change: Your next question comes from the line of Julianna Thornhill with National Bank financial.
Julianna Thornhill: Hey, guys good morning.
Julianna Thornhill: First question is just on the Ministry of extension on your third and fourth.
Speaker Change: But beds there.
Speaker Change: Is the one year timeline better than you hope for and I'm just wondering what the rationale was there from their standpoint.
Speaker Change: Listen this is not this is not our policy.
Speaker Change: Traction, but I would tell you our point of view.
Speaker Change: Given that there are 46000 people on a waitlist, we don't see any part of closing any of these homes. The path is to redevelop them are to invest capital in those buildings.
Speaker Change: We do expect these license to continue to be extended in a period of time and the government deciding to do it in a to funded fully and to do it on annual basis, I think that just part of the process in our mind, but we do not see any significant risk of any form.
Speaker Change: Bed closures for those.
Speaker Change: Older homes.
Speaker Change: Okay.
Speaker Change: And then just is there any progress on the Alberta announcement, whether or not there'll be some catch up funding there for where you just entered in the market.
Speaker Change: There is a lot of <unk>.
Speaker Change: Discussions to Alberta is going through a pretty big process and getting feedback from the industry. We have been one of the participants who have been asked you provided and put in we have done that.
Speaker Change: Mains to be seen whether they will act on it because there is.
Speaker Change: It actually goes also the structure of how things are organized there, but overall, we find the province are very focused on building capacity very focused on ensuring that this is a very viable sector. So whether it happens in next two months are it takes a bit longer time, we continue to be optimistic that there would be the right funding change.
Speaker Change: To continue to make the long term care viable there.
Speaker Change: And just the last one is for David is just.
Speaker Change: Do you anticipate any other CMA see coming through the pipeline I know you had $150 million or so than you did unsecured is this kind of a source of proceeds that you anticipate coming into 2025 now to fund some of the acquisitions.
Speaker Change: While <unk> was extremely helpful. In 2023, and 2024 rates were very low we had a number of unencumbered property. So we've over the last 18 months, we finance over $2 million on that we see that flowing.
Speaker Change: In 2025, the unsecured bond market has become pretty attractive.
Speaker Change: And so it might still be an option, but not nearly as big as it was in the over the last 18 months.
Speaker Change: Okay. Thanks, guys.
Speaker Change: Your next question comes from the line of Xyrem Sweeny This with <unk> Securities.
Speaker Change: Good morning, David and Dan Congratulations on a good 2024.
Speaker Change: I'm just wondering looking at the occupancy trending away.
Speaker Change: Going back to your commentary on occupancy.
Speaker Change: 5%.
Nine months.
Speaker Change: Or are you guys thinking about the balance between occupancy and.
Speaker Change: Growing davidsons suites.
Speaker Change: Thank you sure Amit that we think those things.
Speaker Change: Don't really have a lot of convergence in our mind because the reason occupancy has been going up significant pleased where demand is outpacing supply in these markets and I think that is independent of rents we have talked about how the U S. Rents went up much higher I think in the last three years.
Speaker Change: We heard around 10% rental rate increases to catch up to inflation.
Speaker Change: We saw significant inflationary pressures in Canada that rental growth has been lower so we do tank.
Speaker Change: The paces as appropriate rather than a big shock to the system. So we do see that going on in the future and then as you get to 95% occupancy and that many of our homes, which are way above 95% occupancy in that portfolio pretty close to 100% and we see tremendous opportunity there from a market rent perspective.
Speaker Change: Resident leaves and our average length of stays around two five to three years, so the opportunity to mark to market is very real.
Speaker Change: Our portfolio on a annual basis.
Speaker Change: That's the type of client.
Speaker Change: And maybe just thinking about the product mix of these properties and you know historically you added.
Speaker Change: Depends about the living into suites, and you change the niches of it all.
Speaker Change: Or is that actually impacted margins now can you just give us some color in terms of hunger. Thank you between the margins between the different.
Speaker Change: Start up the service types.
Speaker Change: Absolutely.
Speaker Change: Talked about it before that the kind of the margin from call. It 44% somewhat driven by occupancy and all of you are pretty close to that occupancy number. So the decline in margin at the moment is frankly all.
Speaker Change: Two points one is it's driven by a lot more care revenue with not very high margin in many cases.
Speaker Change: And then the other portion of that is just some sort of a staffing things that we have to fix over time as the home gets fully stabilized so it'll be a combination of both of those things are care revenue, usually would have lower margin overall, but we see a.
A lot of opportunity from wherever you are today versus where it could be on a stabilized basis and thats. The joining me around for the next couple of years.
That's good.
Speaker Change: And maybe just last question on the transaction market, David just for board.
Speaker Change: Right.
Speaker Change: Can you give us some color on the kind of tenants can seek out there then the source of this transaction pipeline.
Speaker Change: Yeah, I mean, it really.
Speaker Change: Theories.
Speaker Change: Can range from independence.
Speaker Change: An independent group owners. They developed they are now looking to sell because of because that's not their primary line of business.
Speaker Change: It could be larger operators that are selling one or two of their properties. It really is a mixture of.
Speaker Change: Suppliers I mean excuse me our vendors at this.
Speaker Change: Hi.
Speaker Change: Alright, guys. Thank you for that and congratulations again I'll turn it back.
Speaker Change: Thank you.
Speaker Change: Your next question comes from the line of Tony <unk> with RBC capital markets.
Tony <unk>: Thanks, Good morning.
Speaker Change: I just wanted to come back to the the five repositioning assets.
Speaker Change: Whats the timeline that youre looking at Youre budgeting for in terms of reaching stabilized occupancy levels there.
Speaker Change: Hi, Good morning, I would say, it's a bit early to answer that just yet because some of them youre working with external partners benefit to reuse or are you working with hospital partners or others.
Speaker Change: Lease of part of the build beds of building. So it's a combination of those.
Speaker Change: Our renovation project usually it takes around 67 months from very big until it's ready and then there is a bit of a lease up period. So I would say these projects will be call. It 12 months to 24 months.
Speaker Change: Okay, and then in the interim as.
Speaker Change: <unk> are happening.
Speaker Change: Is there any impact to the existing NOI, meaning are you taking any suites offline just trying to see if the I think you quoted at 22% margins that kind of hang in there for a little island or does it drop off.
Speaker Change: Until you ramp back up.
Speaker Change: Usually we have not seen in the two buildings, where we did a significant renovation. We in fact did not see a lot of decline in margin and it's driven by the average occupancy is quite lower so theres enough suites, where you can do the work we also see.
Speaker Change: Matt.
Speaker Change: <unk>.
Speaker Change: It creates quite a bit of excitement when you are renovating a building we do have the team does an excellent job of showcasing what the final product would look like the buying decision at a time and usually is not immediate people when they're coming in they are in the planning either a few months out or a month out and since these innovations are four to five months they could see that how.
Speaker Change: There could be there could be a place where they are.
Speaker Change: They are moving that moving and either right before or right at that time. So we have not seen any margin decline or even occupancy decline when we've done those renovations in the past.
Speaker Change: Okay. That's helpful and then.
Speaker Change: As these.
Speaker Change: Once these are stabilized or would these be assets that perhaps you maybe cycle outlets.
Speaker Change: Or even maybe maximize value cycle out of it and maybe move into or redeploy that into perhaps some stronger markets or with the with these just speak continue to own them.
Speaker Change: At this stage they all make strategic sense to us we think we can get to stabilize and this would be pretty aligned with the portfolio that we have now we don't really have a lot of properties for disposition I would call. It one or two at time, we haven't done one I think in a couple of years. So I would say never say never but it's a very small number of properties.
Speaker Change: That we think might not get to what we want them to do for Sienna.
Speaker Change: Okay. That's helpful last one for me just on the that 95% stabilized occupancy target I just wanted to clarify does that include.
Speaker Change: I'm, sorry that I am assuming does not include these repositioning properties. This is just in reference to the same property bucket correct.
Speaker Change: That is correct, it's only in reference to the same property bucket.
Speaker Change: Okay, Thanks, very much and I'll turn it back.
Speaker Change: Your next question comes from the line of Dean Wilkinson with CIBC.
Speaker Change: Thanks.
Dean Wilkinson: Hey, guys.
Dean Wilkinson: Net net the risk of Politicising the conversation.
Dean Wilkinson: We're in the midst of a provincial election.
Dean Wilkinson: There's been a lot of talk about housing, but it seems to me as I look at these platforms.
Dean Wilkinson: Theres a bit of a silence around the more acute issue of seniors housing has anyone had conversations with you or an industry wide around that and if you had the opportunity to give them. Some advice around this issue what would that be.
Speaker Change: Thank you Dan I think your.
Dean Wilkinson: And so is all the questions that Joe I don't want to pull up the size of this either.
Speaker Change: Senior housing has been.
Speaker Change: A hot topic and the reason why it is not a hot topic because it has never gone away from being a big priority for government and for example, you heard a lot.
Speaker Change: Talked about Mississauga cutting the development charges to a point I think those they're not all the way there.
Speaker Change: They talked a lot about housing, but long term care was included in it.
Speaker Change: We also see a continuous.
Speaker Change: Focus from government and building more and more beds in all the areas that we are active in so you have not seen any decline of any way shape or form on the priority of adding more capacity, especially for long term care.
Speaker Change: It's just how do we get there I guess is kind of the challenge right. It seems hard to kind of put shovels in the ground with the economics as they as they sit right now.
Speaker Change: I would say, yes no.
Speaker Change: Yes, Youre right, we should build a lot more but when you don't build for 20 years, because nothing happened between 2014, nearly 2000 2021, and we are in a place where you have aging demographics. So so.
Speaker Change: We are building a lot more beds is affected than we ever built in the past but.
It is going to take quite a bit of time to actually make that a reality. These projects do take a significant amount of time to go from.
Speaker Change: Sourcing land all the way through construction, so I continue to be optimistic that the.
Speaker Change: The trend will continue.
Speaker Change: The the focus from government fixing the funding and also the focus on construction funding. We think that will continue on Alberta is a new market for us, but it's the same discussion there where the government is focused on building more capacity and understanding that unless operating funding as appropriate people would not build.
Speaker Change: Just because of the construction funding. So I think that will continue on and we will build more beds would that be enough to meet the aging demographics I think that question remains to be answered.
Speaker Change: Yes, it seems like we're all getting older faster than we can we can build these things.
Speaker Change: I appreciate the comments thanks, guys. Thank you.
Speaker Change: Yeah.
Speaker Change: Okay.
Speaker Change: Ladies and gentlemen that concludes today's call. Thank you all for joining you may now disconnect.
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: Yes.