Sienna Senior Living Inc. (“
Sienna” or the
“
Company”) (TSX: SIA) today announced its
financial results for the three and nine months ended September 30,
2023. The Consolidated Financial Statements and accompanying
Management’s Discussion and Analysis (“
MD&A”)
are available on the Company’s website at www.siennaliving.ca and
on SEDAR at www.sedar.com.
Sienna’s strong year over year growth in the
third quarter, which marks the Company’s fourth consecutive quarter
of improvements in Adjusted Funds from Operations
(“AFFO”) per share, underscores our continued
focus on operating efficiencies, enhancing team member engagement
and the successful reduction of agency staffing to pre-pandemic
levels, and resulted in net operating income
(“NOI”) growth and a double digit increase in the
Company’s Operating Funds from Operations (“OFFO”)
per share.
“Over the past two years, we have relentlessly
put initiatives into motion to distinguish Sienna as an operator
and employer of choice in Canadian senior living,” said Nitin Jain,
President and Chief Executive Officer. “These initiatives, which
supported our strategic priorities of bringing down agency costs,
improving team member engagement and stabilizing occupancy, are all
reflected in the nearly 12% year over year increase in our Q3 OFFO.
Combined with our strong balance sheet, minimal near term exposure
to debt maturities, and significant improvements in our debt
metrics, we are excited about the opportunities that lie ahead for
our Company.”
Operating Highlights
-
Same-property NOI increased by 7.0% to $37.5
million in Q3 2023, compared to Q3 2022, including
- a 6.1% increase
in the long-term care segment and
- a 7.9% increase
in the retirement segment
-
Long-Term-Care (“LTC”) Occupancy – Average
occupancy increased by 250 basis points (“bps”)
year over year to 98.4% in Q3 2023;
-
Retirement Same Property
Occupancy – Average same property occupancy of 86.9% in Q3
2023:
- strong leasing
and stabilizing resident move-outs resulting in four consecutive
months of average same property occupancy gains since the end of Q2
2023, with occupancy reaching 88.0% in October 2023.
-
Substantial Reduction in Use of Staffing Agencies
resulting in agency costs returning to pre-pandemic levels,
including a 59% year over year reduction of agency costs to $4.8
million in Q3 2023, compared to $11.6 million in Q3 2022; quarter
over quarter, agency staffing costs declined by $1.2 million.
Growth and Expansion
Highlights
- Acquisition of Remaining
Ownership Interest in Nicola Lodge, Port Coquitlam, British
Columbia – On September 14, 2023, Sienna entered into an
agreement to acquire the remaining 60% interest in Nicola Lodge, a
256-bed long-term care community managed and partially owned by the
Company. A best-in-class complex care facility, Nicola Lodge was
built in 2016 and offers long term care with specialized services
for bariatric care, dementia and mental health care.
The transaction will take place in two stages,
each comprising a 30% interest to be purchased for approximately
$26.5 million, before closing costs, and representing a yield of
approximately 6.75%. The purchase will be financed through the
assumption of a pro rata share on the in-place mortgage loan with a
5.01% interest rate and cash on hand. Subject to lender and
regulatory approvals, the first closing is anticipated to take
place during Q1 2024, at which time the Company will gain majority
ownership, with the second closing to occur between November 2024
and March 2026.
-
Expansion into Alberta – On November 1, 2023,
Sienna entered into a management contract for a 70-suite retirement
residence in a prime location in Calgary with Sabra Health Care
REIT, Inc. This is the Company's entry into the Alberta market and
a reinforcement of its key relationship with a strategic
partner.
Financial performance - Q3
2023
- Total
Adjusted Revenue increased by 5.6% in Q3 2023 to $199.8
million, compared to Q3 2022. In the Retirement segment, the
increase is mainly driven by annual rental rate increases, and care
and ancillary revenue. In the LTC segment, increased flow-through
funding for direct care, annual inflationary funding increases and
higher occupancy contributed to the increase in total adjusted
revenue.
- Total
NOI increased by 8.0% to $37.8 million, compared to Q3
2022, resulting from a $1.6 million increase in the Retirement
segment, driven by same-property NOI growth and the acquisition of
a campus of care in Q1 2023. Total NOI increased by $1.3 million in
the LTC segment, mainly due to annual inflationary funding
increases and higher preferred accommodation revenue.
- Same
Property NOI increased by 7.0% to $37.5 million, compared
to Q3 2022, including a 6.1% increase to $19.2 million in the LTC
segment, and a 7.9% increase to $18.3 million in the Retirement
segment.
-
OFFO per share
increased by 11.8% in Q3 2023, or $0.029, to $0.275. The increase
was primarily attributable to higher NOI, lower general and
administrative expenses, partially offset by higher current taxes
and interest expenses.
-
AFFO per share increased by 18.5%
in Q3 2023, or $0.042, to $0.269. The increase was primarily
related to the increase in OFFO, lower maintenance capital
expenditures due to timing, offset by a decrease in construction
funding income.
- AFFO
payout ratio was 87.0% for Q3 2023.
Financial performance in the nine months
ended September 30, 2023
- Total
Adjusted Revenue increased by 10.0% or $54.2 million to
$597.8 million, compared to the nine months ended
September 30, 2022. In the Retirement segment, the increase is
mainly driven by rental rate increases and occupancy growth. In the
LTC segment, increased flow-through funding for direct care, annual
inflationary funding increases and higher occupancy contributed to
the increase in total adjusted revenue.
- Total
NOI increased by 11.5% to $113.1 million, compared to Q3
2022, resulting from a $7.2 million increase in the Retirement
segment, driven by same-property NOI growth and the acquisition of
a campus of care in Q1 2023. Total NOI increased by $4.4 million in
the LTC segment, mainly due to annual inflationary funding
increases and higher preferred accommodation revenue.
- Same
Property NOI increased by 8.7% to $109 million, compared
to Q3 2022, including a 9.7% increase to $59 million in the LTC
segment, and a 7.5% increase to $50 million in the Retirement
segment.
-
OFFO per share increased by
13.9%, or $0.100, to $0.822, compared to the nine months ended
September 30, 2022. The increase was primarily attributable to
higher NOI, lower general and administrative expenses, a favourable
tax adjustment of approximately $1.5 million relating to 2022,
partially offset by higher current taxes and interest
expenses.
-
AFFO per share increased by
11.6%, or $0.082, to $0.787, compared to the nine months ended
September 30, 2022. The increase was primarily related to the
increase in OFFO, lower maintenance capital expenditures due to
timing, offset by a decrease in construction funding income.
- AFFO
payout ratio was 89.2% for the nine months ended September
30, 2023.
Financial position
The Company maintained a strong financial
position during Q3 2023:
- Paid down
credit facilities and entered into financings with lower cost CMHC
insured mortgages;
- Maintained high
liquidity at $324 million as at September 30, 2023, compared to
$259 million as at September 30, 2022;
- Increased Debt
Service Coverage Ratio to 2.0 for the three months ended September
30, 2023, compared to 1.8 for the three months ended September 30,
2022; and
- Extended
Weighted Average Term to Maturity of its debt to 5.7 years as at
September 30, 2023, from 4.9 years as at September 30, 2022.
Financial and Operating
Results
|
Three Months Ended |
Nine Months Ended |
$000s except occupancy, per share and ratio data |
September 30, 2023 |
September 30, 2022 |
September 30, 2023 |
September 30, 2022 |
Retirement - Average same property (1) |
86.9% |
87.5% |
87.3% |
86.6% |
Retirement - Acquisition, development and others - Average
occupancy (2) |
97.1% |
n/a |
86.6% |
72.2% |
Retirement - Average total occupancy |
87.1% |
87.5% |
87.2% |
86.4% |
LTC - Average private occupancy |
89.6% |
84.0% |
87.9% |
82.1% |
LTC - Average total occupancy (3) |
98.4% |
95.9% |
97.7% |
94.5% |
Total Adjusted Revenue (4) |
199,840 |
189,192 |
597,794 |
543,625 |
Same property NOI (4) |
37,499 |
35,048 |
109,296 |
100,557 |
Total NOI (4) |
37,837 |
35,020 |
113,051 |
101,376 |
OFFO per share (4) |
0.275 |
0.246 |
0.822 |
0.722 |
AFFO per share (4) |
0.269 |
0.227 |
0.787 |
0.705 |
AFFO Payout ratio (4) |
87.0% |
103.1% |
89.2% |
99.6% |
(1) Effective June 1, 2023, the results of the
12 joint venture retirement residences acquired in Q2 2022
("Acquired Properties") were reclassified from "acquisitions" to
"same property" in the table above. Accordingly, "same property"
includes results of the Acquired Properties from June 1, 2023
onwards. (2) Includes results of the Acquired Properties from
January 1, 2023 to May 31, 2023. (3) Excludes the 3rd and 4th beds
in multi-bed rooms in Ontario.(4) Total Adjusted Revenue, Same
property NOI, Total NOI, OFFO per share, AFFO per share, AFFO
payout ratio are non-IFRS measures. These measures do not have
standardized meanings prescribed by IFRS and, therefore, may not be
comparable to similar measures used by other issuers. These
measures are used by management in evaluating operating and
financial performance. Please refer to the heading "Non-IFRS
Performance Measures” on page 2 of the MD&A.
Changes to Board of
Directors
Sienna is pleased to announce the appointment of
Ms. Barbara Bellissimo to its Board of Directors, effective
today.
Ms. Bellissimo is a seasoned executive with over
30 years of experience in the insurance and the financial services
sectors. She is a former head of one of the top property and
casualty insurers in Canada and held several influential senior
executive roles in Canada and the United States. Ms. Bellissimo is
renowned for her leadership and development of culture on her
teams. She is also an experienced corporate director and an active
community leader with board affiliations in the health sector, the
arts, and academia. Ms. Bellissimo currently serves as the Board
Chair of the Southlake Regional Hospital Foundation.
Also, today Ms. Paula Jourdain Coleman announced
her resignation as a director and Chair of the Quality Committee of
the Company after having served on the Board of Directors for
nearly a decade following Sienna’s acquisition of Specialty Care
Inc., a senior living company of which she was Chair and Chief
Executive Officer, and where she led its transformation from four
small rural homes into a vibrant organization. Throughout her
career, Ms. Jourdain Coleman helped shape senior living in Ontario,
including as past President of the Ontario Long Term Care
Association (OLTCA) and the Ontario Retirement Communities
Association (ORCA). Ms. Jourdain Coleman’s resignation is effective
on January 1, 2024.
As part of the ongoing renewal of Sienna’s
Board, effective immediately, Ms. Bellissimo has been appointed to
the Audit Committee and the Compensation, Governance and Nominating
Committee.
“Barbara’s extensive experience in the financial
services and insurance industries, coupled with her insights as
corporate director and her commitment as a community leader will
support our company as we continue to grow and evolve,” said Shelly
Jamieson, Chair of Sienna’s Board of Directors. “On behalf of our
Board of Directors, I also want to thank Paula, who brought her
invaluable knowledge and industry experience to Sienna and has been
instrumental in our successful growth and transformation over the
past 10 years.”
“We look forward to benefiting from Barbara’s
unique expertise and are excited about the extensive knowledge and
new perspectives she will bring to our organization,” said Mr.
Nitin Jain, President and CEO of Sienna. “I also want to thank
Paula for her decade-long dedication to Sienna that helped shape
our journey towards becoming one of the leading owners and
operators in Canadian senior living.”
Outlook
Long-term demand fundamentals in Canadian senior
living remain strong, driven by the rising needs of seniors, who
make up the fastest-growing demographic in Canada. Strong leasing
and the stabilization of resident move-outs during the third
quarter resulted in monthly occupancy increases since the end of Q2
2023. In addition, rental rates have risen significantly in most of
Sienna's markets. These positive factors in combination with
Sienna’s successful cost reduction strategy have supported the
Company’s strong results and give reason for an optimistic outlook
for the balance of the year and beyond.
At the same time, the current higher interest
environment may increase our interest expenses in the coming years.
However, with no major debt maturity until Q4 2024 and ample
sources of attractive financing options, we are well positioned to
execute on our strategic initiatives.
Retirement Operations – Average
occupancy in the Company's same property portfolio was 86.9% in Q3
2023. Lead indicators have strengthened significantly in recent
months and occupancy levels have stabilized. Sienna’s community
outreach efforts, combined with a robust sales platform, will
continue to support occupancy during the last quarter of the year.
Average same property occupancy growth to 88.0% in October, the
fourth consecutive month of occupancy gains, indicates an improving
occupancy trend for the balance of 2023.
Based on the Company’s occupancy forecast,
average same property occupancy is expected to be approximately 88%
in Q4 2023. Going forward, we will continue with our focused
marketing and sales initiatives, working towards our target for
stabilized average occupancy of 92.5% in our same-property
portfolio.
Considering all factors, we anticipate an
approximate 100 bps - 150 bps growth in the 2023 operating margin
in our retirement segment for the full year of 2023 compared to
2022. This expected improvement is primarily driven by increased
average annual rates upon renewal in line with inflation, continued
improvements with respect to labour market conditions and the
results of our focused cost management.
Long-Term Care Operations – A
stable post-pandemic operating environment supported the strong
performance of Sienna's LTC portfolio during Q3 2023. Average
same-property occupancy reached 98.4% during the third quarter and
supported year over year NOI growth in Q3 2023.
Although the operating environment has improved
significantly and Sienna made great strides in reducing costs
wherever possible, the Company is still facing funding shortfalls
in its long-term care segment as a result of high inflation in
recent years. Together with other sector participants, Sienna
continues to work with the government to address these
shortfalls.
For the balance of the year, Sienna expects to
benefit from a stable operating environment, its focused cost
management and continued improvements with respect to staffing. We
anticipate that current occupancy and cost management trends will
continue for the balance of 2023, and expect LTC NOI growth for the
full year of 2023 to be in the mid to high single digit percentage
range compared to the same period in 2022.
Developments – Sienna’s three
projects currently under construction, including the redevelopment
of a long-term care community in North Bay, the development of a
campus of care in Brantford and the development of a joint venture
retirement residence in Niagara Falls, are expected to lower the
Company’s AFFO payout ratio by mid to high single digit percent,
once completed and fully operational.
Significant Potential for Growth in
NOI - Sienna sees significant growth potential in its
business over the next several years and is actively working on a
number initiatives which may contribute to the Company’s NOI
expansion including:
-
Occupancy growth in the Company’s retirement
segment, including incremental NOI should we reach our
target for stabilized average occupancy of 92.5% in our
same-property portfolio, which would represent a 560 bps increase
from our average occupancy of 86.9% in Q3 2023;
-
Contributions from acquisitions and new
developments, including incremental NOI from:
- The Company’s
50% joint venture interest in 12 retirement properties, acquired in
2022 for $189.8 million;
- The Company’s
Woods Park Care Centre, acquired in early 2023 for $26.3 million,
and expected to generate an unlevered yield of 6.75%;
- The completion
of Sienna’s 70% joint venture interest in the development of a
150-suite retirement residence in Niagara Falls for $38.5 million,
which has an expected development yield of approximately 7.5%;
and
- The Company’s planned acquisition of its remaining 60% interest
in Nicola Lodge, expected to generate an unlevered yield of
6.75%.
-
Substantial reduction of net pandemic expenses and
incremental agency costs, which were $8.2 million in 2022,
as the operating environment continues to stabilize and we actively
manage incremental agency costs, while working with governments to
ensure that operators are fully funded for all costs of resident
care; and
-
Catch-Up Funding from the Ontario government to
address funding shortfalls to offset the significant inflationary
and cost pressures operators have experienced over the past years.
Each percentage point in additional Other Accommodations funding
would represent an approximate annual funding increase of $1.2
million for Sienna.
These initiatives, individually and
collectively, could have a significant positive impact on the value
of Sienna’s business, enhancing its financial performance with
growth in NOI and OFFO, and supporting the Company’s AFFO payout
ratio.
Conference Call
Sienna will host a conference call on Friday,
November 10, 2023 at 9:00 a.m. (ET). The toll-free dial-in number
for participants is 1-800-715-9871, conference ID: 9383036. A
webcast of the call will be accessible via Sienna's website at
www.siennaliving.ca/investors/events-presentations. It will be
available for replay until August 10, 2024 and archived on Sienna’s
website.
About Sienna Senior Living
Sienna Senior Living Inc. (TSX:SIA) offers a
full range of seniors' living options, including independent
living, assisted living, memory care, long-term care, and
specialized programs and services. Sienna's approximately 12,000
employees are passionate about cultivating happiness in daily life.
For more information, please visit www.siennaliving.ca.
Risk Factors
Refer to the risk factors disclosed in the
Company’s MD&A for the three and nine months ended
September 30, 2023, and its most recent Annual Information
Form for more information.
Forward-Looking Statements
Certain of the statements contained in this news
release are forward-looking statements and are provided for the
purpose of presenting information about management’s current
expectations and plans relating to the future. Readers are
cautioned that such statements may not be appropriate for other
purposes. These statements generally use forward-looking words,
such as “anticipate,” “continue,” “could,” “expect,” “may,” “will,”
“estimate,” “believe,” “goals” or other similar words and are based
on the Company’s expectations, estimates, forecasts and
projections. These statements are subject to significant known and
unknown risks and uncertainties that may cause actual results or
events to differ materially from those expressed or implied by such
statements and, accordingly, should not be read as guarantees of
future performance or results and will not necessarily be accurate
indications of whether or not such results will be achieved. The
forward-looking statements in this news release are based on
information currently available and what management currently
believes are reasonable assumptions. The Company does not undertake
any obligation to publicly update or revise any forward-looking
statements except as may be required by applicable law.
FOR FURTHER INFORMATION, PLEASE CONTACT:
David HungChief Financial Officer and Executive Vice
President(905) 489-0258david.hung@siennaliving.ca
Nancy WebbSenior Vice President, Public Affairs and Marketing
(905) 489-0788nancy.webb@siennaliving.ca
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