© 2024 Alpha Spread Limited. All Rights Reserved.
www.alphaspread.com is not operated by a broker, a dealer, or a registered investment adviser. Under no circumstances does any information posted on www.alphaspread.com represent a recommendation to buy or sell a security. The information on this site, and in its related newsletters, is not intended to be, nor does it constitute, investment advice or recommendations. The information on this site is in no way guaranteed for completeness, accuracy or in any other way. In no event shall Alpha Spread Limited be liable to any member, guest or third party for any damages of any kind arising out of the use of any content or other material published or available on www.alphaspread.com, or relating to the use of, or inability to use, www.alphaspread.com or any content, including, without limitation, any investment losses, lost profits, lost opportunity, special, incidental, indirect, consequential or punitive damages. Past performance is a poor indicator of future performance.
You don't have any saved screeners yet
Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Ladies and gentlemen, welcome to Sienna Senior Living Inc. Third Quarter 2018 Conference Call. Today's call is hosted by Lois Cormack, President and Chief Executive Officer; and Nitin Jain, Chief Financial Officer and Chief Investment Officer of Sienna Living Inc. ( sic ) [ Sienna Senior Living Inc. ] Please be aware that certain statements or information discussed today are forward-looking and actual results could differ materially. The company does not undertake to update any forward-looking statements or information. Please refer to forward-looking information in the risk factors section in the company's public filings, including its most recent MD&A 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 SEDAR 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 hostess's remarks, on the company's website under Events & Presentations. With that, I would now like to turn the call over to Ms. Cormack. Please go ahead, Ms. Cormack.
Thank you, Amanda. Good morning, everyone. I'm pleased to share the highlights of another strong quarter for Sienna. Total net operating income grew by 31.7% from Q3 of 2017 with 3.7% coming from same-property growth and 28% from accretive acquisitions. Q3 same-property net operating income growth was 4.2% in Retirement and 3.5% in Long Term Care. In the third quarter, Sienna's diluted OFFO per share increased by 4.6% to $0.36. We have continued to strengthen our balance sheet and ended the quarter with debt-to-gross book value 350 basis points below the third quarter of 2017, up 48.3%.Moving to Slide 8. In terms of retirement operating performance. In our retirement same-property portfolio average Q3 occupancy was 91.8%, down 220 basis points, largely due to increased resident turnover during the quarter. We are very pleased that same-property occupancy has strengthened to end the quarter at 93%. Same-property net operating income in our retirement portfolio grew by 4.2% in the quarter and 5.3% year-to-date compared to 2017. Strong operating efficiencies compensated for the temporary decline in occupancy.Now turning to Slide 9. The Long Term Care portfolio achieved an average occupancy of 98.7%. Same-property NOI grew by 3.5% in the quarter and 1.8% year-to-date. The above-average increase this quarter is mainly due to the timing of expenses.Moving to Slide 10. We continued to have a high degree of resident satisfaction at 84% for 2018's results. Quality and safety continued to be Sienna's top priorities in Long Term Care. And the latest results from the Canadian Institute for Health Information in October showed that Sienna continues to outperform both provincial and national averages on the majority of publicly reported quality indicators. Most recently, Silverthorn Care Community in Mississauga was recognized for their work to reduce avoidable hospital transfers. This is a tremendous achievement and a prime example of Sienna providing a positive impact on residents and the health care system.Moving to Slide 11. We know that having a strong culture helps to recruit and retain the best talent in this sector, and we continue to invest in enhancing the team member experience. We have had excellent feedback on our Take the Lead on-demand learning platform, and we continue to see hundreds of our leaders join monthly education programs to build their leadership skills and grow their careers with Sienna. Sienna's strong operating platform has been invaluable as we integrate the 10 recently acquired retirement residences. We have taken a people-focused approach to integration that respects the identity, culture and tradition that residents, families and team members value in each of the communities that we serve. In addition, we have completed the integration of all of the support services function, including finance, information technology, payroll and procurement. We are now focused on enhancing the residents' experience and integrating all aspects of the Sienna operating platform, including the culinary experience, branding, team education and resident programs. Overall, the portfolio continues to perform as expected.Turning to Slide 12. Industry fundamentals in our key markets remain very strong. This is driven by an aging population and higher affluence among many seniors. With the growing demand for senior living, governments are increasingly looking to the private sector to meet the fast-growing demand. New developments and redevelopment of seniors living communities are key components to meet this increased demand. We are really pleased with the direction of the new Ontario government as it relates to the Long Term Care sector, and we are optimistic about the opportunities to advance our Phase 1 development plans. We are hopeful that the recently announced restructuring of the Ontario Ministry of Health will also streamline the development approval process and reduce administrative burden moving forward. I will now turn the call over to Nitin for further details on Sienna's financial results.
Thank you, Lois, and good morning, everyone. I will start on Slide 14. Net operating income for the quarter grew by 31.7% or $9.8 million compared to the same period last year for a total NOI of $40.5 million. The Retirement division achieved a moderate organic growth, generating same-property NOI increase of 4.2% over prior year to $8.9 million. This was driven by a combination of market rate adjustments, annual rate increases and operational efficiencies, which helped to offset lower occupancy results. Year-to-date Retirement NOI has grown by 5.3%. Sienna same-property Long Term Care NOI for the third quarter increased by 3.5% to $23 million due to the timing of expenses. Year-to-date Long Term Care same-property NOI growth of 1.8% includes a onetime $300,000 rate reduction in product premiums due to medical services premiums in B.C. being phased out and replaced by a new employer health tax effective in 2019. Excluding this, year-to-date Long Term Care NOI growth would be 1.3%, which is more indicative of the performance of this business. Similarly, reflected in total year-to-date Long Term Care NOI is a onetime prior year adjusted refund of approximately $1.3 million, which we received during the first quarter of this year. Diluted OFFO per share increased by 4.6% to $0.36. This was driven by income from accretive acquisitions completed since Q3 of 2017 and strong operating results, partially offset by higher interest expense on the acquired properties. Year-to-date diluted OFFO per share of $1.04, it is up 6.9% compared to the same period in 2017. Diluted AFFO per share decreased by $0.01 from the prior period to $0.37, driven by the timing of maintenance capital expenditure. And year-to-date diluted AFFO per share is $1.11, which is approximately 3% higher than the same period last year.For the full year of 2018, we expect maintenance capital expenditure as a percentage of revenue to be in the range of 1.3% to 1.4%. And as we continue to invest in our property portfolio, we anticipate maintenance capital expenditure to stay in a similar range for 2019.Now moving to our financial position on Slide 16. We continued to strengthen our balance sheet. At the end of Q3 2018, our debt-to-gross book value finished 350 basis points below third quarter 2017 at 48.3%. Sienna's debt-to-EBITDA declined to 6.9x in the quarter compared to 7x in the prior period. And the company's interest coverage ratio has further strengthened to 4x versus 3.9x in the prior year. Sienna ended the fourth quarter with approximately $115 million of undrawn credit lines in cash. During the first 9 months of 2018, Sienna has refinanced $182 million in debt at a weighted average interest rate of 3.4% and a weighted average term of maturity of 9 years through a combination of CMHC and conventional financing. In 2019, we anticipate to refinance $84 million of scheduled maturing debt with an existing weighted average interest rate of 4.5%. We expect the company's overall cost of debt to remain unchanged by the end of 2019.With that, I'll turn the call back to Lois.
Thank you, Nitin. Looking ahead, we believe the outlook for Sienna is strong, and we expect to continue the programs that we have made on our strategic priorities: growing the company, enhancing our operating platform and maintaining a strong balance sheet. Our focus on these priorities should continue to translate into long-term accretive growth for Sienna shareholders. We expect moderate, single-digit growth from the Retirement segment in 2019 through maintaining occupancy and achieving rate increases in accordance with market conditions. In regards to the funded part of the business, we expect consistent performance in 2019 similar to the 2018 performance after excluding the onetime benefit. We are pleased with the progress that we are making on the integration of our 10 recently acquired residences. This is a great portfolio, and we continue to expect it to perform as anticipated. On the development front, the expansion of Island Park is expected to be completed mid-2019. Further to this, we are optimistic the new Ontario government's policy will be favorable to advancing our Phase 1 development strategy, which will receive the renewing of over 1,000 older Long Term Care beds. Additionally, we'll be adding over 500 new retirement suites to create seniors living campuses. Currently, we have 2 projects that have reached preliminary approval by the Ministry of Health and have received 223 additional licenses, which will help support the feasibility of Phase 1 projects. With another solid quarter of operating results reflecting the contributions from our 12,000 dedicated team members and an exceptional operating platform, we are poised to end 2018 on a strong note. Thank you for your participation on the call this morning, and we will be pleased to answer your questions.
[Operator Instructions] Our first question comes from the line of Chris Couprie of CIBC.
Can you hear me?
Yes.
I want to just chat a little bit about the Retirement assets, specifically the acquisition portfolio. Where do you guys think that you can ultimately take occupancy to for that portfolio? And maybe looking -- by looking at the history of that portfolio, what's kind of been the peak for it? And just you mentioned integration of the acquisition portfolio coming along, just how far into that process are we?
Yes, so as I mentioned, the integration of all of the, I guess, we would call it the back office support functions, have been fully completed. We're now focused really on all of the front of the house. As you know, it's an operating business. So it really is getting all of the team members on to the Sienna platform and program and offering the residents, all -- everything that's in the Sienna platform. As we have indicated initially, that it would take a good year to integrate this platform, we're very much on track for that. And in terms of occupancy, as you know, some of these properties were in lease-up because of recent expansions. And so we expect again around...
Close to 90% in occupancy for this portfolio. I mean, that's where it's been trending. So I think our focus is, again, just making sure that margins are correct, the front office is integrated well, and then after that time, we'll try to see some uptick in occupancy. But we are on track as we originally anticipated.
So when you think about the organic growth outlook in Retirement, mid-single-digit growth, is that for both the same-store and the acquisition portfolio?
Yes.
Your next question comes from the line of Jonathan Kechler (sic) [ Kelcher ] of TD Securities.
First, Lois, maybe you can expand a little bit on your commentary. It sounds like you're happy with the direction of the new government. Do you think that could help accelerate the Phase 1 redevelopment?
Yes, I think so. I mean, as we've been -- we're very pleased that this government's moved swiftly, as you know, on rectifying the language in Bill 148 and it realigned the Ministry so that all of the approvals are now under one branch. It used to be under several branches. They're committed to reducing red tape. So we're really optimistic that this program is going to start to pick up speed in terms of approvals and feasibility.
Okay, that's good. And then just on the operations side, the occupancy in the Retirement portfolio did dip in Q3 but did recover by the end. Has that recovery carried on into Q4?
That is -- our current occupancy is close to where we ended the quarter, our average occupancy would be close to that, Jonathan. So we do expect that where we ended the quarter in Q3 is that what the average would be for Q4.
Okay. And then you normally get a little dip during the end of the year, right, with flu season and less movements?
Yes, I mean, that's always the same in Q1 typically. We're well prepared for that with -- in terms of our resident and employee immunization. We start that campaign aggressively kind of late October, early November.
[Operator Instructions] Our next question is from the line of Pammi Bir of Scotia Capital.
Just based on the, I guess, the discussions with the government, how are you feeling about any, perhaps, additional funding that could improve the overall economics of the Long Term Care redevelopment program?
I can't really comment on that, Pammi, just because we don't know. We don't have visibility into actual policy. All we can comment in terms of the meetings that we've had are very positive, and there seems to be a good understanding of the issues and some really -- real responsiveness.
So I guess, the favorable, I guess, commentary is more about, I guess, the timing of the ability to execute on these projects and the approval of the licenses, I guess?
That's part of it, Pammi, but part of that is to look at the funding as well. So it is both. But to Lois' point, I think what we can -- as an industry, what we can do is provide input. We don't really have insight into policy at the moment.
Okay, that's helpful. Just with respect to, I guess, the flu season, and maybe it's a little too early, but how are you feeling about that? What sort of indications have you seen of how it could be shaping up?
It's really too early. We haven't really seen anything at this point other than we're preparing, as always. We do get set with preparations in the fall.
Right. I guess, just in terms of new supply across some of your markets, any update there in terms of what you're seeing? Has there been any acceleration or -- in specific markets? Or is it still sort of holding in fairly well?
I would say, I mean, nothing -- it's always the same. Ottawa is always oversupplied and continues to be. So I think there continues to be new supply going in there. So that market's a challenge. There is some new supply in the Durham region area as well. So I'd say those two are probably the major ones at this point.
Okay. And then just, lastly, how are you feeling about the acquisition environment at this stage? Is there a lot out there? Are you looking at a lot of opportunities? Or are there just -- or perhaps pricing expectations too far apart?
I think there's always opportunity for us. We're very strategic and disciplined in our approach. And as we had indicated, I think when we acquired these recent residences within the past year, we really are focused on integration of these properties and getting the most out of it, adding the value that we know we can.
Our next question is from the line of Brendon Abrams of Canaccord Genuity.
Just looking at the revenue, maybe I missed it in the opening remarks, it was up about $3 million sequentially. Can you just remind us kind of the driver behind that? Was it all occupancy and rate driven? Or were there some onetime items in there?
So you're just talking a from Q2 to Q3 number?
Correct.
Is that for Retirement or overall?
Just overall, it went from $162 million to $165 million revenue.
Yes, I think when you look at revenue, you really have to look at by segment, Brendon, because for Long Term Care, a lot of the revenue that it would see is a pass-through, so it goes directly to expenses. So if there is a change in funding, the revenue goes up and the expenses go up in the same way and we don't really make any money off most of -- all of those envelopes. So really the revenue differential there wouldn't really make a difference. If you look at the retirement revenue, that's where I think you can make a difference in terms of how much the revenue went up. And our expenses went up around half of that, and that's where the growth in NOI came in Q3.
Right, okay. And just taking a look at G&A, it seems to have ticked up a bit. Is that what you would expect to be a normalized run rate Q2 to Q3?
Yes, that's in accordance with our significant growth over the past year.
Our next question is from the line of Yash Sankpal of Laurentian Bank.
Just following up on Brendon's question, would you be able to quantify the onetime revenue bump in the LTC segment this quarter?
No, what we meant by onetime, Yash, is I think when we just look at revenue and try to make sense of NOI, my point was more around you can't really look at revenue in Long Term Care and quantify the change in NOI for that. So that was the comment there. There's really no onetime impact in revenues this quarter that we have in the results other than these regular funding changes.
I mean, the 3.5% NOI growth, it does look like...
But, that's related to expenses, Yash.
Yes, that's the timing of the expenses.
Right. So if you were to adjust for that, whatever onetime thing was there, what would it be?
If you look at the year-to-date, the 1.8%, that's more kind of, I guess, a better context or a better way to think about it. Because quarter-to-quarter in the funded part, it can always be just the timing of revenue and expenses. So I think if you look to the year-to-date, that would be more relevant.
Got it. And just one more on your retirement home occupancy. How much of the decline in Q3 was related to new supply versus other things?
It's really all related to not new supply in this case. Ottawa is always oversupplied and we have a couple of properties there and that hasn't changed. It's really, as we mentioned in the script, it's really resident turnover. We have a high degree of residents just moving out either to Long Term Care or moving -- just moving out. So that was really the change in the same property.
Our next question is from the line of Michael Smith of RBC Capital Markets.
I have 2 questions. First, just on the acquisition front, Lois, when do you think you'll be in a position, like comfortable that you've fully integrated the acquisitions you did earlier this year and sort of start looking new and then what do you think you'd be targeting? And then just, secondly, when a resident moves out and they're not going to a nursing home, what's the typical reason?
They go to hospital. Normally, they would go to hospital if there's an illness or a fall or some sort of a -- some situation like that, typically Long Term Care. And this happens where if you have residents who have lived with you for 5 or 6 years, there can be some attrition, just natural attrition happen and it tends to go in spurts.
Okay.
On the other, I guess, with the acquisitions, we don't have targets. We're always very selective and we are looking to grow across Canada. You can say our integration we had bet it would take a year and it will and we're very committed to getting it right and so we would say Q2. Having said that, we always -- we're always looking at opportunities and developing relationships across the country. So I can't really guide you in terms of a target.
[Operator Instructions] The next question is from the line of Troy MacLean of BMO Capital.
It looks like you added 2 properties to your managed services business. I was kind of curious, how much EBITDA does a management contract generate?
In the past, Troy, we used to have a separate segment for management services and, as you might remember, it was always small and each quarter we would be explaining why it changed by 10% because we had $10,000 more in expenses. So we stopped to do that. It is not a material part of our business today. And the same team, which supports our management services supports our [ modal ] operations as well so it's very hard to just look at margins for those. And these contracts, we saw 2 go up and in 1 quarter or 2 you could see 1 or 2 going down because there is always, as contracts come due, we would lose some and there's some new that we'd sign on. So I would say, at this point today, it's not a material part of our business. And we originally had visitors on at 1%, 1.5% initially when we used to report it separately, and I don't think that has materially changed since then.
And then just on the 2019 refinancing, what length of term are you looking to replace the maturing mortgages?
So it's really a mix. So if it's at a retirement or if there's a B.C. Residential Care because there is CMHC program for B.C. Residential Care, that is always -- is the first option for us to look at because it's very favorable rates and you can lock in for a much longer term, close to 10 years, so we'd look at that as well. And we would look at some of mortgage financing for 5 and 7 years. But overall, when we refinanced in 2018, our average term was around 9 and we expect to do the same next year as well, again, market dependent.
Our next question is from the line of Chris Couprie of CIBC.
Just a quick follow-up on kind of what Troy was talking about, the balance sheet. What -- how are you thinking about the balance sheet in the context of the upcoming redevelopment program and in terms of where you'd like the leverage to sit as you embark on that?
So one of the things, Chris, as you already know, but just for a reminder for everyone, our balance sheet is debt-to-gross book value, not fair market value. So when we say we are at 48.3, on a fair market value basis it would be much lower because a big part of our portfolio was fair valued in 2010 when we did our IPO. So we think on a fair market value basis, we would be in the low 40s roughly. I think with the business we have and the stability of the Long Term Care, I think with where the margin is, close to 50% -- sorry, the balance sheet is close to 50% debt-to-equity, I think we're comfortable in that range. So with development, again, our goal is to go around $100 million a year, so we don't see that as a big change in that balance sheet as we do that. And that has been one of the reasons why we want to have a pretty strong balance sheet so when we get into development and you see 1% or 2% uptick in debt, it does not really tip us over the 50% range.
And at this time, there are no further questions. I'd like to turn the conference back over to Ms. Lois Cormack for the closing remarks.
Well, thank you, everyone, for joining our call this morning. We know it's been a busy quarter for you. So have a good holiday season and a good day.
Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the program. You may now disconnect.