Sienna Senior Living Inc. Reports First Quarter 2022 Financial Results and Provides Update on Operating and Growth Initiatives
MARKHAM, Ontario, May 12, 2022 (GLOBE NEWSWIRE) — Sienna Senior Living Inc. (“Sienna” or the “Company”) (TSX: SIA) today announced its financial results for the three months ended March 31, 2022 and provided an update on recent growth and operating initiatives. 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.
During the first quarter of 2022, Sienna made significant progress with respect to many of the Company’s strategic initiatives to grow the Company’s asset base and increase the scale and depth of its operations.
“Our strategic initiatives to enhance our operating platforms and grow our Company are positioning us to meet the needs of an unprecedented demographic shift and growth of Canada’s seniors’ population,” said Nitin Jain, President and Chief Executive Officer. “In the coming months, we will continue with our platform changes to enhance the resident experience, integrate our acquisition properties and welcome new team members joining our Company. We will also unveil a new vision statement for Sienna, underscoring what we think it takes to be Canada’s leading provider of seniors’ living.”
Operating Highlights
- Strong Q1 Retirement Occupancy Gains – Average same property occupancy up 90 basis points (“bps”) to 85.5% in Q1 2022, from 84.6% in Q4 2021 and up 640 bps year over year from 79.1% in Q1 2021;
Q1 2022 resident move-ins and rent deposits increased by 58% and 51%, respectively, year over year compared to Q1 2021.
- LTC Occupancy – Average same-property occupancy based on licensed beds up 550 bps to 87.0% year over year in Q1 2022, compared to 81.5% in Q1 2021; excluding beds unavailable due to capacity limitations or isolation requirements, Q1 2022 occupancy would be 93.8%.
Portfolio Growth and Expansion Highlights
- $308 Million Joint Venture Acquisition – As of May 12, 2022, the Company has received all necessary regulatory approvals related to the previously announced acquisition of a 50% ownership interest in 11 private-pay retirement residences in Ontario and Saskatchewan with joint venture partner Sabra Health Care REIT, Inc. Subject to customary closing conditions, the Company expects to close the transaction on or about May 16, 2022.
- $26.0 Million Acquisition of Woods Park Care Centre – On February 28, 2022, the Company entered into an agreement with a related party to purchase Woods Park Care Centre in Barrie, Ontario, comprising 55 private-pay independent living suites and 123 government-funded Class A long-term care beds, expected to close in Q4 2022.
- $72 Million Joint Venture Acquisition of The Village at Stonebridge – On March 11, 2022, the Company entered into an agreement to acquire a 50% ownership interest in The Village at Stonebridge in Saskatoon, Saskatchewan, a retirement residence consisting of 186 high-quality, private-pay suites in Saskatoon, Saskatchewan, expected to close in Q2 2022.
- Additional Approvals Received for $600+ million Long-Term Care Redevelopment – To date, the Government of Ontario has provided bed licence allocations relating to 12 of Sienna’s older long-term care communities, comprising approximately 2,600 beds, of which approximately 1,800 are for renewals and over 800 are for new beds, substantially covering all of Sienna’s Class B and C portfolio.
Financing Highlights
- $86.3 Million Equity Issue – On March 23, 2022, a total of 5,750,000 common shares were issued at a price of $15.00 per share for aggregate gross proceeds of $86.3 million, including gross proceeds from the full exercise of an over-allotment option;
- $150 Million Acquisition Term Loan – In connection with the expected closing on or about May 16, 2022 of its 11-property portfolio acquisition, the Company intends to make a one-time drawdown of $90 million on its previously secured acquisition term loan at a rate of 145 bps per annum over the floating BA rate for a 12-month term from the closing of the acquisition.
Financial performance in Q1 2022
Year-over-year comparative operating results, including NOI, OFFO and AFFO, were impacted by a retroactive funding payment of $15.3 million received in Q1 2021 for expenses incurred in 2020. In Q1 2022, the Company received $2.2 million of retroactive funding related to expenses incurred in 2021.
- Revenue increased by 8.1% year-over-year to $174.3 million;
- Net Operating Income (“NOI”) decreased by 27.4% year-over-year to $32.1 million; excluding net pandemic expenses, NOI increased by 1.9% year-over-year to $33.9 million.
- Same Property NOI decreased by 25.3% year-over-year to $31.6 million, including a 7.2% increase to $13.5 million in the Retirement portfolio and a 39% decrease to $18.1 million in the Long-term Care (“LTC”) portfolio; excluding net pandemic expenses, same property NOI increased by 2.8% year-over-year to $33.3 million, including a 6.4% increase to $14.1 million in the Retirement portfolio and a 0.4% increase to $19.2 million in LTC;
- OFFO per share decreased by 36.8% year-over-year to $0.239 per share; excluding net pandemic expenses, OFFO decreased by 3.3% year-over-year to $0.260 per share;
- AFFO per share decreased by 38.3% year-over-year to $0.243 per share; excluding net pandemic expenses, AFFO decreased by 9.6% year-over-year to $0.264 per share.
- AFFO payout ratio was 96.3% for Q1 2022; excluding net pandemic expenses AFFO payout ratio was 88.6%.
Financial position
The Company maintained a strong financial position during Q1 2022:
- Debt to gross book value lowered by 450 bps to 41.5% year-over-year;
- Debt to Adjusted EBITDA increased from 6.2 years to 8.7 year-over-year;
- Maintained high liquidity of $326.4 million as of March 31, 2022, representing an increase of $100.9 million from December 31, 2021;
- Debt service coverage ratio, decreased to 1.8 times from 2.7 times year-over-year.
Financial and Operating Results
| Three Months Ended | ||||||
| $000s except occupancy, per share and ratio data | March 31, 2022 | March 31, 2021 | ||||
| Retirement – Average same property occupancy(1) | 85.5 | % | 79.1 | % | ||
| LTC – Average total occupancy(2) | 87.0 | % | 81.5 | % | ||
| LTC – Average private occupancy | 80.4 | % | 78.4 | % | ||
| LTC – Average total occupancy excl. 3 and 4 ward beds and isolation beds | 93.8 | % | n/a | |||
| Revenue | $ | 174,282 | $ | 161,228 | ||
| Operating expenses, net of government assistance | $ | 142,144 | $ | 116,961 | ||
| Same property NOI(3) | $ | 31,642 | $ | 42,372 | ||
| Total NOI(3)(9) | $ | 32,138 | $ | 44,267 | ||
| EBITDA(4)(9) | $ | 47,914 | $ | 35,948 | ||
| Net income | $ | 26,020 | $ | 10,143 | ||
| OFFO(5)(9) | $ | 16,134 | $ | 25,343 | ||
| AFFO(6)(9) | $ | 16,447 | $ | 26,430 | ||
| Total assets(7) | $ | 1,702,288 | $ | 1,616,357 | ||
| Net income per share | $ | 0.385 | $ | 0.150 | ||
| OFFO per share(5)(9) | $ | 0.239 | $ | 0.378 | ||
| AFFO per share(6)(9) | $ | 0.243 | $ | 0.394 | ||
| Dividends per share | $ | 0.234 | $ | 0.234 | ||
| Payout ratio(8) | 96.3 | % | 59.4 | % | ||
Notes:
- Retirement same property occupancy excludes the financial results of the 57-suite expansion at Island Park Retirement Residence, which opened in July 2019 and is in the lease-up period, and one retirement residence which was disposed of on January 31, 2022, both of which are included in retirement total average occupancy.
- Long-term care residences received occupancy protection funding for vacancies caused by temporary closure of admissions due to an outbreak, including COVID-19, and for capacity limitations and isolation requirements until January 31, 2022.
- NOI for the three months ended March 31, 2022 includes net pandemic expenses (recoveries) of $1,730 (2021 – $(11,027) (as discussed in the “Our Operations Update” section of this MD&A).
- EBITDA for the three months ended March 31, 2022 increased by $11,966 to $47,914, over the comparative periods primarily due to gain on disposal of properties and lower administrative expenses offset partly by retroactive pandemic funding received in Q1 2021 related to pandemic expenses incurred in excess of available funding during the year ended December 31, 2020.
- OFFO for the three months ended March 31, 2022 includes an after-tax net pandemic expense (recoveries) of $1,415 (2021 – $(7,275)) and mark-to-market (recovery) expense on share-based compensation of $(39) (2021 – $(25)). OFFO per share for the three months ended March 31, 2022 excluding after-tax net pandemic expense (recoveries) and mark-to-market adjustments on share-based compensation was $0.259 (2021 – $0.269).
- AFFO for the three months ended March 31, 2022 includes net pandemic capital expenditures of $nil (2021 – $417), after-tax net pandemic expenses (recoveries) of $1,415, respectively (2021 – $(7,275) and mark-to-market (recovery) expense on share-based compensation of $(39) (2021 – $(25). AFFO per share for the three months ended March 31, 2022 excluding net pandemic capital expenditures (recoveries) and after-tax net pandemic expense (recoveries) and mark-to-market adjustments on share-based compensation was $0.263 (2021 – $0.292).
- Property and equipment and intangible assets included in total assets are measured at cost less accumulated depreciation and amortization.
- Payout ratio for Q1 2022, excluding after-tax net pandemic impact and mark-to-market adjustments on share-based compensation, would be 89.0% (2021 – 80.1%).
- Debt to enterprise value decreased to 47.4% as at March 31, 2022 from 50.1% as at March 31, 2021. The decrease is mainly due to the $26,700 decrease in total debt.
- This is a non-IFRS measure, refer to “Non-IFRS Performance Measures” section of the MD&A.
2022 First Quarter Summary
NOI decreased by $12.1 million in Q1 2022, or 27.4%, to $32.1 million, compared to Q1 2021, mainly due to retroactive pandemic funding received in Q1 2021 related to pandemic expenses during the year ended December 31, 2020, higher costs of staffing, culinary costs, utilities costs, insurance premiums and increased repairs and maintenance expenses, partially offset by occupancy growth and annual rental rate increases in line with market conditions in the Retirement segment, annual inflationary funding increases, increases in preferred accommodation revenue in the LTC segment, and moderation of pandemic costs.
Retirement’s same property NOI for Q1 2022 increased by $0.9 million to $13.5 million, compared to Q1 2021. Excluding net pandemic expenses, Retirement’s same property NOI for Q1 2022 increased by $0.9 million to $14.1 million, compared to Q1 2021.
LTC’s same property NOI for Q1 2022 decreased by $11.6 million to $18.1 million, compared to Q1 2021. Excluding net pandemic expenses, LTC’s same property NOI for Q1 2022 increased by $0.1 million to $19.2 million, compared to Q1 2021.
Revenue increased by 8.1% in Q1 2022, or $13.1 million, to $174.3 million, compared to Q1 2021. In the Retirement segment, revenues increased by $2.3 million or 6.4% compared to Q1 2021 driven by occupancy growth and annual rental rate increases in line with market conditions. LTC’s revenues for Q1 2022 increased by $10.7 million, or 8.6% compared to Q1 2021, primarily due to funding for direct care hours, annual inflationary funding increases, and higher preferred accommodation revenues from higher occupancy in private and semi-private rooms.
Operating Expenses, net of government assistance increased by $25.2 million in Q1 2022, or 21.5%, to $142.1 million, compared to Q1 2021, primarily due to retroactive pandemic funding received in Q1 2021 related to pandemic expenses during the year ended December 31, 2020, flow-through expenses related to increase in direct care hours and other funding in LTC, higher costs of staffing, culinary costs, utilities costs, insurance premiums and increased repairs and maintenance expenses.
Net income was $26.0 million for Q1 2022, representing an increase of $15.9 million compared to Q1 2021. The increase was primarily due a pre-tax gain of $23.7 million recognized upon the sale of two properties, lower amortization on intangible assets, lower administrative expenses, lower net finance charges, partially offset by lower NOI, higher income tax expense and higher transaction costs.
OFFO decreased by 36.3% in Q1 2022, or $9.2 million, to $16.1 million, compared to Q1 2021. OFFO per share decreased by 36.8% in Q1 2022, or $0.139, to $0.239. The decrease was primarily due to lower NOI, higher current income tax expense partially offset by lower administrative expenses, and lower interest expense on long-term debt.
AFFO decreased by 37.8% in Q1 2022, or $10.0 million, to $16.4 million compared to Q1 2021. AFFO per share decreased 38.3% in Q1 2021, or $0.151, to $0.243. The decrease was primarily related to the decrease in OFFO noted above, partially offset by higher maintenance costs and lower construction funding.
Outlook
For 2022, Sienna forecasts continued occupancy improvements in the Company’s retirement portfolio, based on the assumption that residences will be open for in-person tours, and supported by pent-up demand and the Company’s continued investment in sales, marketing and rebranding initiatives. Sienna maintains its forecast for occupancy levels to reach approximately 87% to 89% in its in-place Retirement portfolio by the end of 2022.
In Sienna’s LTC portfolio, admissions of new residents slowed in Q1 2022 as a result of the impact of the highly transmissible Omicron variant. Starting in February 2022, occupancy targets required for full funding, including the occupancy funding protection during outbreaks, have been reinstated, excluding beds unavailable as a result of capacity limitations and isolation requirements. Given the long waiting list for long-term care beds in Ontario and British Columbia, we anticipate to meet the required occupancy targets at the vast majority of our care communities for full funding in 2022 with limited impact on NOI.
After normalizing for the two property dispositions which have been completed in Q1 2022 contributing approximately $4 million of NOI in 2021, Sienna expects year-over-year NOI growth in 2022 to be supported by continuing occupancy growth, rental rate increases and added scale from acquisitions. These factors are expected to contribute to revenue growth, while cost pressures are expected to continue for some time due to labour shortages, increased insurance premiums, higher utility rates and high overall inflation. Taking all factors into account, the Company continues to expect operating margins to gradually improve over the coming years.
With respect to incremental pandemic-related expenses, Sienna anticipates continued improvements as the pandemic subsides, while related government funding is expected to decline gradually. We anticipate that incremental net pandemic-related expenses could range from $2.0 to $3.0 million in Q2 2022 with continued declines in the second half of 2022.
The acquisitions announced in Q1 2022 will enable us to achieve one of our strategic priorities of expanding our retirement platform to new geographies. The Saskatchewan properties give us immediate scale in the province and a platform for further growth. The acquisitions also solidify our position as a leading seniors’ living provider in Ontario. We intend to capitalize on the growing demand for quality seniors living in these markets and achieve operating efficiencies with the Company’s existing retirement residences and care communities.
Non-IFRS Performance Measures
Management uses financial measures based on International Financial Reporting Standards (“IFRS”) and non-IFRS measures to assess Sienna’s performance. Non-IFRS measures do not have any standardized meaning prescribed under IFRS, and therefore, should not be constructed as alternatives to net income or cash flow from operating activities calculated in accordance with IFRS. Refer to the Non-IFRS Performance Measures section of the MD&A for the period ended March 31, 2022, available on www.sedar.com, for an explanation of the composition of the non-IFRS measures used in this press release and their usefulness for readers in assessing Sienna’s performance. Such explanation is incorporated by reference herein.
Reconciliations of Non-IFRS Measures
The following tables reconcile the non-IFRS measures to the most comparable IFRS measures for the three months ended March 31, 2022 and the comparable periods in 2021. The Company’s method of calculating these measures may differ from other issuers’ methods and accordingly, these measures may not be comparable to measures presented by other publicly traded entities.
Earning Before Interest, Taxes, Depreciation and Amortization “EBITDA”
“EBITDA” is defined as net income excluding interest, taxes, depreciation and amortization. EBITDA is relevant in understanding the Company’s ability to service its debt, finance capital expenditures and pay dividends to shareholders. The IFRS measure most directly comparable to EBITDA is “net income”.
The following table reconciles Sienna’s net income to EBITDA, a non-IFRS measure, for the period ended March 31:
| Three Months Ended | ||||
| Thousands of Canadian dollars | 2022 | 2021 | ||
| Net income | 26,020 | 10,143 | ||
| Depreciation and amortization | 12,067 | 17,349 | ||
| Net finance charges | 3,331 | 4,238 | ||
| Provision for income taxes | 5,157 | 3,702 | ||
| Transaction costs | 1,339 | 516 | ||
| EBITDA | 47,914 | 35,948 | ||
| Proceeds from construction funding | 2,610 | 3,060 | ||
| Gain on sale of properties | (23,722 | ) | — | |
| Adjusted EBITDA | 26,802 | 39,008 | ||
Net Operating Income
“NOI” is defined as property revenue and government assistance related to the pandemic net of property operating expenses. The Company believes that NOI is a useful additional measure of operating performance as it provides a measure of core operations that is unaffected by depreciation, amortization, administrative expenses, net finance charges and income taxes. The IFRS measure most directly comparable to NOI is “net income”.
The following table reconciles Sienna’s net income to NOI, a non-IFRS measure, for the periods ended March.
| Three Months Ended | |||
| Thousands of Canadian dollars | 2022 | 2021 | |
| Net income (loss) | 26,020 | 10,143 | |
| Add: | |||
| Depreciation and amortization | 12,067 | 17,349 | |
| Administrative expenses | 7,946 | 8,311 | |
| Net finance charges | 3,331 | 4,238 | |
| Provision for income taxes | 5,157 | 3,702 | |
| Transactions costs | 1,339 | 516 | |
| Share of net loss in joint venture | — | 8 | |
| Gain on disposal of properties | (23,722 | ) | — |
| Net operating income (NOI) | 32,138 | 44,267 | |
Funds from Operations (“FFO”) and Operating Funds from Operations (“OFFO”)
“FFO” is defined as NOI less certain adjustments including administrative expenses, finance charges and current income taxes. FFO is a recognized earnings measure that is widely used by public real estate entities, particularly by those entities that own and/or operate income-producing properties. The use of FFO, combined with the required IFRS presentations, has been included for the purpose of improving the understanding of the Company’s operating results. The IFRS measure most directly comparable to FFO is “net income”.
“OFFO” is FFO adjusted for non-recurring items, which includes restructuring costs, and presents finance charges on a cash interest basis. Management of the Company is of the view that OFFO is a relevant measure of the operating performance of the Company.
The following table reconciles Sienna’s net income to FFO and OFFO, which are non-IFRS measures, for the periods ended March. The reconciliation from FFO to AFFO is provided as supplementary information.
| Three Months Ended | ||||||
| Thousands of Canadian dollars | 2022 | 2021 | Change | |||
| Net income (loss) | 26,020 | 10,143 | 15,877 | |||
| Deferred income tax expense (recovery) | 1,711 | 722 | 989 | |||
| Depreciation and amortization | 11,221 | 16,422 | (5,201 | ) | ||
| Transaction costs | 1,339 | 516 | 823 | |||
| Net settlement payment on interest rate swap contracts | 658 | 704 | (46 | ) | ||
| Fair value (gain) loss on interest rate swap contracts | (4,969 | ) | (4,115 | ) | (854 | ) |
| Gain on disposal of properties, net of tax | (20,586 | ) | — | (20,586 | ) | |
| Funds from operations (FFO) | 15,394 | 24,392 | (8,998 | ) | ||
| Depreciation and amortization – corporate | 846 | 927 | (81 | ) | ||
| Amortization of financing charges and fair value adjustments on acquired debt | 552 | 728 | (176 | ) | ||
| Net settlement payment on interest rate swap contracts | (658 | ) | (704 | ) | 46 | |
| Operating funds from operations (OFFO) | 16,134 | 25,343 | (9,209 | ) | ||
| Construction funding | 2,355 | 2,707 | (352 | ) | ||
| Maintenance capital expenditure | (2,042 | ) | (1,203 | ) | (839 | ) |
| Net pandemic capital recovery | — | (417 | ) | 417 | ||
| Adjusted funds from operations (AFFO) | 16,447 | 26,430 | (9,983 | ) | ||
Adjusted Funds From Operations (“AFFO”)
“AFFO” is defined as OFFO plus the principal portion of construction funding received, less actual maintenance and net pandemic capital expenditures. Management of the Company believes AFFO is a cash flow measure, which is relevant in understanding the Company’s ability to earn cash and pay dividends to shareholders. The IFRS measure most directly comparable to AFFO is “cash flow from operating activities.”
The following table reconciles Sienna’s cash flow from operating activities to AFFO, which a non-IFRS measures, for the periods ended March.
| Three Months Ended | ||||||
| Thousands of Canadian dollars | 2022 | 2021 | Change | |||
| Cash provided by operating activities | 40,603 | 18,891 | 21,712 | |||
| Construction funding principal | 2,355 | 2,707 | (352 | ) | ||
| Transaction costs | 1,339 | 516 | 823 | |||
| Maintenance capital expenditures | (2,042 | ) | (1,203 | ) | (839 | ) |
| Net pandemic capital expenditures | — | (417 | ) | 417 | ||
| Net change in working capital, interest and taxes | (5,428 | ) | 5,872 | (11,300 | ) | |
| Restricted share units recovery | 206 | 64 | 142 | |||
| Gain on disposal of properties, net of tax | (20,586 | ) | — | (20,586 | ) | |
| Adjusted funds from operations (AFFO) | 16,447 | 26,430 | (9,983 | ) | ||
Conference Call
The conference call will be on Friday, May 13, 2022 at 1 p.m. (ET). The toll-free dial-in number for participants is 1-844-543-5234, conference ID: 6273375. A webcast of the call will be accessible via Sienna’s website at: www.siennaliving.ca/investors/events-presentations. The webcast of the call will be available for replay until May 13, 2023 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, long-term care, and specialized programs and services. Sienna’s approximately 12,000 employees are passionate about helping residents live fully every day. 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 months ended March 31, 2022, 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 include, without limitation, statements with respect to the successful closing of the Acquisition and dispositions, and the timing and financing thereof; the impact of COVID-19 and measures taken to mitigate the impact including the effectiveness of the vaccine, availability of government funding, the availability of various government programs, and financial assistance. 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
