SIA Sienna Senior Living Inc

Sienna Senior Living Inc. (“Sienna” or the “Company”) (TSX: SIA) today announced its financial results for the three months and year ended December 31, 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.sedarplus.ca.

Sienna's strong fourth quarter and annual results reflect the return to a stable operating environment, the Company's successful cost management strategy, and sustained reductions in temporary agency staffing costs. Q4 2023 marks the fourth consecutive quarter of significant year over year same property net operating income (“NOI”) growth in the Company’s long-term care and retirement segments.

“Earlier in 2023, we outlined where we see significant growth potential in our business over the next several years and how we believe our current initiatives will contribute to a notable expansion of Sienna’s NOI,” said Nitin Jain, President and Chief Executive Officer. “Sienna’s consistently strong financial performance in 2023 indicates that we are on the right track.”

Operating Highlights

• Same-property NOI increased by 16.5% to $37.7 million in Q4 2023, compared to Q4 2022, including
  • a 21.1% increase in the long-term care segment and
  • a 11.8% increase in the retirement segment.
• Long-Term-Care (“LTC”) Occupancy – Average occupancy increased by 150 basis points (“bps”) year over year to 97.6% in Q4 2023:
  • return to stable operating environment supporting occupancy.
• Retirement Same Property Occupancy – Average same property occupancy increased by 20 bps to 88.2% in Q4 2023 compared to Q4 2022:
  • intensified focus on homes with below average occupancy levels combined with the strong leasing across the remainder of the portfolio supporting occupancy.
• Significant Reduction in Use of Staffing Agencies resulting in agency costs returning to pre-pandemic levels. Agency staffing costs, which are predominantly covered by flow-through funding from the government for resident care, declined by approximately $8.9 million year over year to $5.8 million in Q4 2023.

Growth and Expansion Highlights

• Acquisition of Additional 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 is taking place in two stages, each comprising a 30% interest to be purchased for approximately $26.5 million, before closing costs, and representing an expected yield of approximately 6.75%, based on the 2024 NOI projections in relation to the purchase price.On December 31, 2023, the Company completed the first stage of the acquisition, acquiring a 30% interest and increasing its total ownership interest in Nicola Lodge to 70%. The second closing is expected to occur between November 2024 and March 2026, depending on the Company's determination of the optimal timing.   

• 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 - Q4 2023

• Total Adjusted Revenue increased by 13.3% in Q4 2023 to $218.9 million, compared to Q4 2022. In the Retirement segment, the increase is mainly driven by annual rental rate increases, occupancy increases and higher care and ancillary revenue. In the LTC segment, the increase is mainly driven by increased flow-through funding for direct care, annual inflationary funding increases and higher occupancy compared to Q4 2022, which allowed for full government funding.
• Total NOI increased by 17.5% to $38.2 million, compared to Q4 2022, resulting from a $2.1 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 $3.6 million in the LTC segment, mainly due to annual inflationary funding increases and higher preferred accommodation revenues, offset by inflationary increase in expenses.
• Same Property NOI increased by 16.5% to $37.7 million, compared to Q4 2022, including a 21.1% increase to $19.7 million in the LTC segment, and a 11.8% increase to $18.0 million in the Retirement segment.
• OFFO per share increased by 24.7% in Q4 2023, or $0.060, to $0.303. The increase was primarily attributable to higher NOI.
• AFFO per share increased by 2.5% in Q4 2023, or $0.006, to $0.243. The increase was primarily related to the increase in OFFO, offset by higher maintenance capital expenditures as a result of timing and a decrease in construction funding.
• AFFO payout ratio was 96.3% for Q4 2023.

Financial performance - Year ended December 31, 2023

• Total Adjusted Revenue increased by 10.8%, or $79.8 million, to $816.7 million, compared to the year ended December 31, 2022. In the Retirement segment, the increase is mainly driven by rental rate increases and occupancy growth. In the LTC segment, the increase is mainly driven by increased flow-through funding for direct care, annual inflationary funding increases, higher preferred accommodation revenue and higher occupancy, which allowed for full government funding.
• Total NOI increased by 13.0% to $151.3 million, compared to Q4 2022, resulting from a $9.3 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 $8.0 million in the LTC segment, mainly due to annual inflationary funding increases, higher preferred accommodation revenue and higher occupancy which allowed for full government funding.
• Same Property NOI increased by 10.6% to $147.0 million, compared to Q4 2022, including a 12.4% increase to $78.7 million in the LTC segment, and a 8.6% increase to $68.3 million in the Retirement segment.
• OFFO per share increased by 16.6%, or $0.160, to $1.125, compared to the year ended December 31, 2022. The increase was primarily attributable to higher NOI, lower general and administrative expenses, partially offset by higher interest expenses.
• AFFO per share increased by 9.2%, or $0.087, to $1.030, compared to the year ended December 31, 2022. The increase was primarily related to the increase in OFFO, offset by higher maintenance capital expenditures, and a decrease in construction funding income.
• AFFO payout ratio was 90.9%, an 840 bps improvement compared to 99.3% for the year ended December 31, 2022.

Financial position

The Company maintained a strong financial position during Q4 2023:

• Maintained high liquidity at $307 million as at December 31, 2023, compared to $287 million as at December 31, 2022;
• Improved Debt Service Coverage Ratio to 1.9 for the twelve months ended December 31, 2023, compared to 1.8 for the twelve months ended December 31, 2022; and
• Extended Weighted Average Term to Maturity of its debt to 5.9 years as at December 31, 2023, from 4.5 years as at December 31, 2022.

Financial and Operating Results

	Three Months Ended				Year Ended
$000s except occupancy, per share and ratio data	December 31, 2023		December 31, 2022		December 31, 2023		December 31, 2022
Retirement - Average same property (1)	88.2	%	88.0	%	87.6	%	87.0	%
Retirement - Acquisition, development and others - Average occupancy (2)	98.3	%	n/a		87.2	%	72.2	%
Retirement - Average total occupancy	88.4	%	88.0	%	87.5	%	86.8	%
LTC - Average private occupancy	89.1	%	84.6	%	88.2	%	83.0	%
LTC - Average total occupancy (3)	97.6	%	96.1	%	97.7	%	94.9	%
Total Adjusted Revenue (4)	218,863		193,216		816,657		736,841
Same property NOI (4)	37,729		32,394		147,025		132,951
Total NOI (4)	38,204		32,517		151,255		133,893
OFFO per share (4)	0.303		0.243		1.125		0.965
AFFO per share (4)	0.243		0.237		1.030		0.943
AFFO Payout ratio (4)	96.3	%	98.7	%	90.9	%	99.3	%

(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” in the MD&A.

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. The return to a stable operating environment across our long-term care operations, coupled with continued occupancy improvements and rate increases in our retirement segment, resulted in strong year over year NOI growth, including a 21.1% increase in our LTC segment and a 11.8% increase in our retirement segment.

These positive factors in combination with our successful cost reduction strategy have supported our fourth quarter and full year results in 2023 and give us reason for an optimistic outlook for 2024.

At the same time, the current higher interest environment may increase our interest expenses in the coming years. However, with no major debt maturities 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 88.2% in Q4 2023. Sienna’s community outreach efforts, combined with a robust sales platform and an intensified focus on homes with below average occupancy levels, continued to support occupancy which grew by 20 bps year over year in 2023, from 88.0% in 2022.

Heading into 2024, we continue to capitalize on the growing demand for quality senior living. Based on the Company’s occupancy forecast, average same property occupancy is expected to grow to approximately 89% for the full year in 2024, representing a 150 bps increase compared to 2023.

Going forward, we will continue with our focused marketing and sales initiatives, working towards our target for stabilized average occupancy of 95% in our same-property portfolio. We further expect year over year same property NOI growth in the high single digit percentage range as a result of rate increases and occupancy growth.

Taking all factors into account, we expect the average operating margin in our retirement segment, excluding the recently completed Elgin Falls Retirement Residence, which is currently in lease-up, to improve by approximately 50 bps - 100 bps year over year in 2024 compared to 2023.

This expected improvement is primarily driven by increased average annual rates upon renewal in line with market rates, continued improvements with respect to labour market conditions and the results of our focused cost management.

Going forward, we intend to focus our outlook disclosure on same property NOI growth, without providing specific guidance on occupancy, margins or rate increases. This approach is consistent with our outlook disclosure for the Company's LTC segment and is aligned with our focus on expanding the Company's NOI.

Long-Term Care Operations – A stable post-pandemic operating environment supported the strong performance of Sienna's LTC portfolio during Q4 2023. Average same-property occupancy was 97.6% during the fourth quarter, compared to 96.1% in Q4 2022, supporting year over year NOI growth. The Company has also made great strides in reducing cost wherever possible, further contributing to the $3.4 million year over year increase in same property NOI in its LTC segment Q4 2023.

In 2024, Sienna expects to benefit from a stable operating environment, its focused cost management and continued improvements with respect to staffing. The Company further anticipates that current occupancy and cost management trends will continue, and expects its 2024 LTC NOI, inclusive of retroactive funding, for the full year to grow in the low to mid-single digit percentage range compared to 2023.

Developments – As at December 31, 2023, Sienna had two projects under construction, including the redevelopment of a long-term care community in North Bay and the development of a campus of care in Brantford.

Elgin Falls, the retirement project in Niagara Falls, was completed in Q4 2023. Construction cost for the project are in line with our estimates. The first residents have started to move into their suites in January 2024.

Once completed and fully operational, the three projects are expected to lead to a mid to high single digit percentage reduction in Sienna’s AFFO payout ratio.

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 95.0% in our same-property portfolio, which would represent a 680 bps increase from our average occupancy of 88.2% in Q4 2023;
• Contributions from acquisitions and new developments, including incremental NOI from:
  1. The Company’s 50% joint venture interest in 12 retirement properties, acquired in 2022 for $189.8 million;
  2. The completion of our 70% joint venture interest in the development of the 150-suite Elgin Falls Retirement Residence for $38.5 million, which has an expected stabilized unlevered yield of approximately 7.5%; and
  3. The Company’s acquisition of its remaining interest in Nicola Lodge, expected to generate an unlevered yield of 6.75%.
• 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 CallSienna will host a conference call on February 21, 2024 at 9:30 a.m. (ET). The toll-free dial-in number for participants is 1-800-715-9871, conference ID: 6738823. 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 February 20, 2025 and archived on Sienna’s website.

About Sienna Senior LivingSienna Senior Living Inc. (TSX:SIA) offers a full range of seniors' living options, including independent living, assisted living and memory care under its Aspira retirement brand, 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 FactorsRefer to the risk factors disclosed in the Company’s MD&A for the year ended December 31, 2023, and its most recent Annual Information Form for more information.

Forward-Looking StatementsCertain 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