Sienna Senior Living Inc. Reports Strong Second Quarter 2023 Financial Results as Operating Fundamentals Continue to Improve

MARKHAM, Ontario, Aug. 10, 2023 (GLOBE NEWSWIRE) -- Sienna Senior Living Inc. (“Sienna” or the “Company”) (TSX: SIA) today announced its financial results for the three and six months ended June 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 second quarter underscores an improving operating environment in the senior living sector and highlights the significant growth potential in the Company’s business.

“Our second quarter results emphasize the strength of our diversified portfolio, which is reflected in the notable improvements of many key performance indicators, including a 9.3% increase in our same property NOI,” said Nitin Jain, President and Chief Executive Officer. “In addition, our effective cost reduction strategy and the continued stabilization of the operating environment further added to the strength of our results.”

Operating Highlights

• Same-property Net Operating Income (“NOI”) increased by 9.3% to $37.1 million in Q2 2023, compared to Q2 2022, including
  • a 13.9% increase in the long-term care segment and
  • a 4.0% increase in the retirement segment
• Long-Term-Care (“LTC”) Occupancy – Average occupancy increased by 330 basis points (“bps”) year over year to 98.0% in Q2 2023;
• Retirement Same Property Occupancy – Average same property occupancy increased by 10 bps year over year to 86.9% in Q2 2023 as a result of high levels of resident move-ins and the improved performance of 12 joint venture (“JV”) properties acquired in Q2 2022; quarter over quarter, same property occupancy declined by 130 bps in Q2 2023 compared to Q1 2023:
  • consistently high levels of resident move-ins of approximately 96 move-ins on average per month in the Company’s 100% owned portfolio in 2023 were offset by an elevated level of resident move-outs predominantly to long-term care facilities of approximately 104 move-outs, representing an 18% year over year increase in average monthly move-outs in 2023;
  • resident move-outs expected to stabilize in second half of 2023 as a result of long-term care facilities returning to full occupancy levels;
• Annual Rate Increases – Average annual rate increases of approximately 5% in the Company’s retirement segment in Q2 2023 continue to offset cost pressures;
• Focused Cost Management resulting in
  • a reduction in agency staffing cost to $6.0 million in Q2 2023, compared to $10.3 million in Q1 2023 and $10.0 million Q2 2022; and
  • a substantial decrease in general and administrative expenses through a restructuring at the Company’s corporate office in Q1 2023.
• Growth in Key Performance Indicators including
  • 24.1% increase in Operating Funds from Operations (“OFFO”) per share and
  • 13.6% increase in Adjusted Funds from Operations (“AFFO”) per share resulting in the continued improvement of the AFFO payout ratio to 87.3% in Q2 2023.

Sustainability Highlights

Today, Sienna released its 2022-2023 Environmental, Social and Governance (ESG) Report, providing updates on how Sienna incorporates sustainable business practices into its overall strategy and operations. Sienna’s ESG initiatives and stories highlighted in this report are deeply aligned with the Company’s key values to Act Positively, Be Accountable, Create Community and Demonstrate Caring.

Financial performance - Q2 2023

• Total Adjusted Revenue increased by 10.1% in Q2 2023 to $198.3 million, compared to Q2 2022. In the Retirement segment, the increase is mainly driven by rental rate increases, and additional revenue generated from a full quarter of contributions from the 12 JV properties acquired in Q2 2022. In the LTC segment, increased flow-through funding for direct care and annual inflationary funding increases contributed to the increase in total adjusted revenue.
• Total NOI increased by 13.7% to $38.9 million, compared to Q2 2022, resulting from a $1.8 million increase in the Retirement segment, driven by same-property NOI growth, a full quarter of NOI from the 12 JV properties acquired in Q2 2022, and the acquisition of a new retirement property in Q1 2023. Total NOI increased by $2.9 million in the LTC segment, mainly due to lower net pandemic expenses which included retroactive funding of $1.4 million.
• Same Property NOI increased by 9.3% to $37.1 million, compared to Q2 2022, including a 13.9% increase to $20.5 million in the LTC segment, and a 4.0% increase to $16.6 million in the Retirement segment.
• OFFO per share increased by 24.1% in Q2 2023, or $0.057, to $0.294. The increase was primarily due to higher NOI, a favourable tax adjustment of approximately $1.5 million relating to 2022, partially offset by higher current income taxes, lower general and administrative expenses, partially offset by higher interest expense.
• AFFO per share increased by 13.6% in Q2 2023, or $0.032, to $0.268. The increase was primarily related to higher OFFO, partially offset by higher maintenance capital expenditures and a decrease in construction funding.
• AFFO payout ratio was 87.3% for Q2 2023.

Financial performance in the six months ended June 30, 2023

• Total Adjusted Revenue increased by 12.3% or $43.5 million to $398.0 million, compared to the six months ended June 30, 2022 . In the Retirement segment, the increase is mainly driven by rental rate increases, occupancy growth and additional revenue generated from a full quarter of contributions from the 12 JV properties acquired in Q2 2022. In the LTC segment, flow-through funding for increased direct care and annual inflationary funding increases contributed to the increase in total adjusted revenue.
• Total NOI increased by 13.3% to $75.2 million, compared to Q2 2022, resulting from a $5.7 million increase in the Retirement segment, driven by same-property NOI growth, a full quarter of contributions from the 12 JV properties acquired in Q2 2022, and the acquisition of a retirement property in Q1 2023. Total NOI increased by $3.2 million in the LTC segment, mainly due to lower net pandemic expenses which included retroactive funding of $3.4 million.
• Same Property NOI increased by 9.6% to $71.8 million, compared to Q2 2022, including a 11.5% increase to $39.9 million in the LTC segment, and a 7.3% increase to $31.9 million in the Retirement segment.
• OFFO per share increased by 14.9% or $0.071, to $0.547, compared to the six months ended June 30, 2022. The increase was primarily due to higher NOI, a favourable tax adjustment of approximately $1.5 million relating to 2022, lower general and administrative expenses offset by higher interest expense.
• AFFO per share increased by 8.4%, or $0.040, to $0.518, compared to the six months ended June 30, 2022. The increase was primarily related to higher OFFO, partially offset by higher maintenance capital expenditures and a decrease in construction funding.
• AFFO payout ratio was 90.3% for the six months ended June 30, 2023.

Financial position

The Company maintained a strong financial position during Q2 2023:

• Paid off the Unsecured Term Loan and entered into financings with lower cost CMHC insured mortgages
• Maintained high liquidity at $276 million as at June 30, 2023, compared to $271 million as at June 30, 2022; and
• Increased Interest Coverage Ratio to 3.5 for the three months ended June 30, 2023, compared to 3.2 for the three months ended March 31, 2023.

Financial and Operating Results

^{(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.}

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. Despite rising interest rates, the Canadian economy remained resilient, with home prices rising across Canada throughout the spring and inflation continuing to slow. These positive factors in combination with Sienna’s successful cost reduction strategy give reason for an optimistic outlook for the balance of 2023 and beyond.

Retirement - Average occupancy in the Company's same property portfolio was 86.9% in Q2 2023, up marginally by 10 bps year over year compared to Q2 2022. Consistently high resident move-ins and the improved performance of the 12 joint venture retirement residences Sienna acquired in Q2 2022 were offset by an elevated level of resident move-outs predominantly to long-term care since the beginning of the year.

Lead indicators have strengthened significantly in recent months and occupancy levels have stabilized. Our community outreach efforts, combined with a robust sales platform, will continue to support occupancy during the second half of the year. Average same property occupancy growth in July, with further growth anticipated in August, indicates an improving occupancy trend for the balance of 2023.

Based on the Company’s updated occupancy forecast, average same property occupancy is expected to reach approximately 88% for the full year in 2023.

Considering all factors, Sienna anticipates an approximate 100 bps - 150 bps growth in the 2023 operating margin for the full year of 2023 compared to 2022, primarily driven by increased average annual rates upon renewal, continued improvements with respect to labour market conditions and the results of its focused cost management.

Long-Term Care - A stable post-pandemic operating environment supported the strong performance of Sienna's LTC portfolio during Q2 2023. Average same-property occupancy reached 98.0% during the second quarter and supported year over year NOI growth in Q2 2023.

Although the operating environment has improved significantly and we have made great strides in reducing costs wherever possible, we are still facing funding shortfalls in our long-term care segment as a result of high inflation in recent years. Together with other sector participants, we continue to work with the government to address these shortfalls.

For the balance of the year, we expect to benefit from a stable operating environment, our focused cost management and continued improvements with respect to staffing. We anticipate that current occupancy trends will continue for the balance of 2023, and expect LTC NOI growth for the second half of 2023 to be in the low single digit percent 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 the Company’s target for stabilized average occupancy of 92.5% in its same-property portfolio be reached, which would represent a 560 bps increase from the average occupancy of 86.9% in Q2 2023;
• Contributions from acquisitions and new developments, including incremental NOI from:
  1. The Company’s acquisition of a 50% joint venture interest in 12 retirement properties in 2022 for $189.8 million;
  2. The Company’s acquisition of Woods Park in early 2023 for $26.3 million, which is expected to generate an unlevered yield of 6.75%; and
  3. The completion of the Company’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%.
• Substantial reduction of net pandemic expenses and incremental agency costs, which were $8.2 million in 2022, as the pandemic subsides and the Company actively manages 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 the Company’s business, enhancing its financial performance with growth in NOI and OFFO, and supporting Sienna’s AFFO payout ratio.

Conference Call

Sienna will host a conference call on Friday, August 11, 2023 at 9:00 a.m. (ET). The toll-free dial-in number for participants is 1-800-715-9871, conference ID: 4521527. 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 six months ended June 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 Hung
Chief Financial Officer and Executive Vice President
(905) 489-0258
david.hung@siennaliving.ca 

Nancy Webb
Senior Vice President, Public Affairs and Marketing
(905) 489-0788
nancy.webb@siennaliving.ca