Sienna Senior Living Q2 2024 Earnings Report

Sienna Senior Living EPS Results

• Actual EPS: C$0.08
• Consensus EPS: C$0.31
• Beat/Miss: Missed by -C$0.23
• One Year Ago EPS: N/A

Sienna Senior Living Revenue Results

• Actual Revenue: $210.52 million
• Expected Revenue: N/A
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

Sienna Senior Living Announcement Details

• Quarter: Q2 2024
• Date: 8/8/2024
• Time: N/A
• Conference Call Date: Friday, August 9, 2024
• Conference Call Time: 9:00AM ET

Sienna Senior Living (TSE:SIA) (TSX:SIA) offers a full range of senior 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 15,000 employees are passionate about cultivating happiness in daily life.

Sienna Senior Living Q2 2024 Earnings Call Transcript

Key Takeaways

• Sienna reported Q2 2024 revenues up 10.7% year-over-year to CA$219.5 million and same property NOI increased by 18.5% to CA$46.1 million.
• Retirement occupancy rose by 180 bps to 88.6% in Q2 and reached 89% in July—the highest monthly rate in over five years—driven by targeted marketing and sales campaigns.
• Operating funds from operations (OFFO) grew by 21.6% to CA$26.1 million (OFFO per share +21.4% to CA$0.357), while adjusted funds from operations (AFFO) rose 14.6% and the AFFO payout ratio fell to 76.2%, and debt/EBITDA improved from 8.0x to 6.8x.
• The company benefits from strong demographic tailwinds with the 85+ population set to reach ~1 million by 2026 and long-term care waitlists of ~43,000 in Ontario and over 100 days in BC against record-low new supply.
• Sienna’s development pipeline includes two retirement/LTC projects in North Bay and Brantford slated for H2 2025 completion and a Keswick redevelopment (160 beds vs. 60) targeting an 8.5% development yield.

Presentation

[Operator]

Ladies and gentlemen, welcome to Sienna Senior Living Inc.'s Q2 2024 Conference Call. Today's call is hosted by Nitin Jain, President and Chief Executive Officer, and David Hung, Chief Financial Officer of 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 statement or information. Please refer to the forward-looking information and risk factors section of the company's public filings, including in its most recent MD&A and AIF 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.

[Operator]

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 host's remarks on the company's website under Events and Presentations. With that, I will now turn the call over to Mr. Jain. Please go ahead, Mr. Jain.

[Nitin Jain, President and CEO at Sienna Senior Living Inc]

Thank you, Brianna. Good morning, everyone, and thank you for joining us on our call today. Our second quarter demonstrates the strength and tremendous potential of our company. The effectiveness of our strategic initiatives to improve and expand our operations and the favorable demographics of an aging population is evident in our results. But most importantly, our strong performance is a reflection of the commitment of our 12,500 team members. They're the key reason behind our operational strength. For the past 6 quarters, we have consistently achieved year-over-year growth in our operating results across both lines of our businesses. Supporting our long-term care results this quarter are fully occupied homes with higher revenues from preferred accommodations and the increased government funding in Ontario, which offsets high inflation in recent years.

[Nitin Jain, President and CEO at Sienna Senior Living Inc]

On the retirement side, growing demand and limited new supply, combined with our targeting, marketing, and sales campaigns at homes with lower occupancy levels, were key drivers of improved occupancy and rate increases. Further supporting our results are enhancement to our leadership team and ongoing improvements to our operations that are focused on our residents' experience, including dining, engagement, and care. As a result, our total same-property NOI increased by $7.2 million-$46.1 million year-over-year in the second quarter. This is an increase of 18.5%. During the second quarter, we continued to make steady progress towards a goal of stabilized retirement occupancy of 95%. Same-property occupancy grew to 88.6%, which is an improvement of 180 basis points year-over-year since last year.

[Nitin Jain, President and CEO at Sienna Senior Living Inc]

Occupancy continued to strengthen in July and increased to 89%. This is the highest monthly occupancy rate in over 5 years. Our marketing and sales initiatives included new digital and print campaigns. We also continued with our targeted on-site marketing and sales initiatives and focused on community outreach at homes with lower occupancy levels. Our success in driving occupancy, coupled with rate increases, added to the strength of our second quarter results. Moving to slide 6. Further adding to our results are the demographic tailwinds in Canadian Senior Living. We are starting to see the first wave of baby boomers considering retirement living, a trend that will only intensify in the coming years, as the number of seniors over the age of 85 is expected to reach approximately 1 million by 2026, and further grow by 65% over the following 10 years.

[Nitin Jain, President and CEO at Sienna Senior Living Inc]

Waitlists for long-term care beds continue to grow. In Ontario alone, the current waitlist for bed is approximately 43,000, and in British Columbia, the average wait time for a long-term care bed is over 100 days. At the same time, construction starts of new retirement residences remain at all-time lows. These exceptional tailwinds are also starting to resonate with a growing investor base. At Sienna, we have seen a significant increase in investor interest, both from first-time investors and those returning to senior living. Being at the intersection of healthcare, hospitality, and real estate makes our company attractive to a broad range of investors. We believe that maintaining our strategy of owning a diversified portfolio of long-term care communities and retirement residences contributed to our sector-leading stock market performance and investor interest this year.

[Nitin Jain, President and CEO at Sienna Senior Living Inc]

Diversification adds to the financial strength of our business as it allows us to capture higher operating margins in our retirement portfolio while benefiting from stable, government-funded long-term care operations. We are also increasingly leveraging the programs and insights gained at our retirement operations in our long-term care communities and vice versa, all with the goals to better serve our residents and meet their evolving needs. For example, we are always looking for ways to add more hospitality elements to our long-term care operations while expanding care programs at our retirement residences to meet the changing demographics of our residents. We believe that this approach will further help us to distinguish our company as a senior living provider of choice. Moving to slide 8.

[Nitin Jain, President and CEO at Sienna Senior Living Inc]

We are pleased with the development progress we have made over the past year at our two projects under construction in North Bay and Brantford, which we expect to complete in the second half of 2025. With respect to our most recent development, redevelopment in Keswick, work for the new long-term care community is out for tender, and we expect to start construction later this year. The expected development yield for the 160-bed home, which will replace the current 60 beds and add 100 new long-term care beds, is approximately 8.5%. Combined, these developments will support the government's important goal of rebuilding Ontario's older long-term care homes and benefit the fast-growing seniors population. Team member engagement and retention remains a core focus of our initiatives. Our share ownership program is one of many ways we drive alignment.

[Nitin Jain, President and CEO at Sienna Senior Living Inc]

It fosters a deeper sense of ownership and commitment to a shared purpose and values, and creates alignment between our team members and our shareholders. During the second quarter, we issued shares to 1,400 of our new team members, bringing the total number of active participants to nearly 7,000. This is just one of many initiatives that we introduced at Sienna in recent years to ensure we are aligned with our team members. Our signature program, SPARK, which is a version of Dragon's Den, also remained very successful. During the quarter, we announced the winners of the second round of SPARK, which received 175 submissions. The winning idea came from two members in long-term care home in Creemore, Ontario, who came up with a tool that supports team members in reducing resident falls.

[Nitin Jain, President and CEO at Sienna Senior Living Inc]

In a pilot study using this tool, residents' falls were reduced by 68%. We are now planning the rollout of the falls prevention tool across our Long-Term Care platform, and we could not be more proud of Martina, who's an Associate Director of Care, and Taylor, a PSW, and this idea earned them $ 15,000 in the first prize. With that, I will turn it over to David for an update on our results.

[David Hung, CFO at Sienna Senior Living Inc]

Thank you, Nitin, and good morning, everyone. I will start on slide 11 for financial results. In Q2 2024, total adjusted revenues increased by 10.7% year-over-year to $219.5 million. This increase was largely due to rental rate and occupancy growth, as well as increased care revenue in our retirement segment and a government funding increase, higher preferred accommodation revenue, and a WSIB refund, primarily in our long-term care segment. Total same-property net operating income increased by 18.5% in Q2 2024 to $46.1 million, compared to $38.9 million in Q2 2023. NOI in our Long-Term Care segment increased by $5.5 million, largely due to higher revenues, offset by inflationary expense increases. One area where we were able to consistently achieve cost reductions is in agency staffing.

[David Hung, CFO at Sienna Senior Living Inc]

We were able to reduce costs by 1/3 from approximately $6 million in Q2, 2023, to $4 million in Q2, 2024. Minimizing agency staffing remains a key objective for Sienna. In our retirement segment, same-property NOI increased by $1.6 million in Q2, 2024 compared to the last year, primarily as a result of rate growth as well as improved occupancy. Moving to slide 12. During Q2, 2024, operating funds from operations increased by 21.6% to $26.1 million compared to last year, primarily due to higher NOI. OFFO per share increased by 21.4% to $0.357 in Q2, 2024. Adjusted funds from operations increased by 14.6% to $22.4 million compared to last year.

[David Hung, CFO at Sienna Senior Living Inc]

The increase was due to higher OFFO, offset by a decrease in construction funding income and increased maintenance capital expenditures. AFFO per share increased by 14.6% to $0.307 in Q2, 2024. In line with our strong results, we continued to improve Sienna's AFFO payout ratio, lowering it to 76.2% in Q2, 2024. This was an 11.1 percentage point decrease compared to the year prior. With respect to our debt metrics, we have seen notable improvements and further strengthened our balance sheet. We maintained ample liquidity with $297 million at the end of Q2, 2024, and we extended the weighted average term to maturity of our debt to 5.5 years from 5.1 years in Q2, 2023.

[David Hung, CFO at Sienna Senior Living Inc]

Our debt to adjusted EBITDA was 6.8x at the end of Q2 2024, compared to 8x at the end of Q2 2023, and our interest coverage ratio increased to 3.7x in Q2 2024, compared to 3.5x in Q2 2023. We ended Q2 2024 with debt to adjusted gross book value of 43.7% and $1 billion of unencumbered assets. This provides financial flexibility and supports our refinancing initiatives at attractive rates, in particular, as we actively explore opportunities to refinance our upcoming debt expiry in the fourth quarter of 2024. We have the ability to refinance a portion of our expiring debt with proceeds from a new financing or up financing of assets with CMHC insured mortgages at interest rates significantly below those of other financing options.

[David Hung, CFO at Sienna Senior Living Inc]

Our strong financial position will also support our growth initiatives, including the redevelopment of our older long-term care homes. We will continue to prudently manage our capital and staggered construction starts to ensure our debt ratios would remain strong as we support the Ontario government in this important initiative. With that, I will turn the call back to Nitin for his closing remarks.

[Nitin Jain, President and CEO at Sienna Senior Living Inc]

Thank you, David. As a company, we play an important role in bringing residents, team members, families, and our community partners together to make life better for one another. Some of our most impactful initiatives are highlighted on the latest ESG report we published yesterday. The theme of the report is Create Community, which is one of Sienna's core values. Our report includes numerous inspiring examples of team members and residents who exemplify Sienna's purpose and values. Like our team members in British Columbia, who have implemented sector-leading emergency preparedness strategies this year based on their firsthand experience and outstanding efforts during last year's wildfire season. Or the recipient of Sienna's Sparkle Award, which recognizes residents who go above and beyond to cultivate happiness at their communities. One such recipient is Elaine Leibold, the 93-year-old resident council president at a North Bay Long-Term Care Home.

[Nitin Jain, President and CEO at Sienna Senior Living Inc]

Elaine was the first to sign the Legacy Wall at a Northern Heights redevelopment site. Along with team members, she has been a champion of the new home by keeping her fellow residents informed and engaged with the project. As we look into the second half of 2024, we have never felt more confident about Sienna's ability to create value for our stakeholders. As a result of the numerous strategic initiatives we put in place, alongside a generally improving macro environment, we expect the long-term care NOI for the full year of 2024 to grow in the low double-digit % range compared to last year. With respect to our retirement operations, we expect same property NOI to benefit from continued occupancy and rental rate growth, as well as other initiatives to optimize revenue and grow in the high single-digit percentage range.

[Nitin Jain, President and CEO at Sienna Senior Living Inc]

Further adding to our optimistic outlook is the strength of our balance sheet and improving capital markets. Combined, they will continue to support our efforts to add value through capital improvements, redevelopment, and select opportunities to grow our asset base. More than anything, our success depends on our team members and the strong alignment with Sienna's purpose, vision, and values. On behalf of our management team and our Board of Directors, I want to thank all of you for your continued support and commitment. We're now pleased to answer any questions you may have.

[Operator]

We will now open the line for questions. If you have dialed in and would like to ask a question, please press star one on your telephone keypad to raise your hand and join the queue. To withdraw your question, simply press star one again. If you are dialed in and listening via loudspeaker on your device, please pick up your handset and ensure that your phone is not on mute when asking your question. Our first question today comes from Lorne Kalmar with Desjardins. Please go ahead.

[Lorne Kalmar, Analyst at Desjardins]

Thanks. Good morning, and congrats on on another solid quarter. Maybe just on the retirement side, it looked like you guys were able to get the same property margins flat year-over-year, which was a nice improvement versus the prior quarter. Do you expect this trend to kind of continue, or do you think you can start pushing the same property margins even higher in the back half of the year?

[Nitin Jain, President and CEO at Sienna Senior Living Inc]

Thank you, Lorne. You know, our view, we have been focused on same property NOI growth, so that's the outlook that we will provide, which we have provided. But, you know, frankly, it'll come really only from two places, which is occupancy and from margin growth. You know, I think this is, we like the trend which we are in, but, you know, one quarter doesn't really constitute a trend for us. Our focus is to grow margin, and one of the things we're realizing is that, you know, providing more care, obviously, keep residents in homes, but also comes at no margin, in some cases, no margin, and that's what we are resolving for at the moment.

[Nitin Jain, President and CEO at Sienna Senior Living Inc]

We do expect our margin to grow over time, but just, we haven't provided any outlook or timing for it.

[Lorne Kalmar, Analyst at Desjardins]

Okay, fair enough. And then maybe sticking with the same property theme on the LTC front, obviously, you guys increased the guidance range. Was the WSIB payment a big factor there, or was there something else that you know, you weren't seeing at the beginning of the year that you're seeing now that drove the increase?

[David Hung, CFO at Sienna Senior Living Inc]

Yeah, no, thanks for that question, Lorne. So, I mean, the WSIB refund was part of our increase in guidance. But also what increased our guidance was really just the stability of our long-term care operations, the increase in the OA funding, which has given us the confidence to increase our guidance versus the last quarter.

[Lorne Kalmar, Analyst at Desjardins]

Okay. With the OA funding, like, that was, I guess, already known last quarter. So, now that it's been implemented, you're seeing something different? I'm just trying to get a better idea here.

[David Hung, CFO at Sienna Senior Living Inc]

No. I mean, we knew that. We did know that last quarter. I think, in addition to that, just the continued stability within our long-term care operations, the fact that we've also been able to maintain our agency costs well under control, you know, has helped with the increase in our guidance.

[Lorne Kalmar, Analyst at Desjardins]

Okay, perfect. Thank you for that. And then last quick one from me. Obviously, one of your peers was pretty active on the acquisition front. I was wondering if you're seeing anything out there that has sparked your interest.

[Nitin Jain, President and CEO at Sienna Senior Living Inc]

You know, we continue to look for opportunities, and one of the things that is unique about us is that we can acquire both in long-term care and retirement, and including campuses, so it puts us in an enviable position. I think we'll continue to look for opportunities, even though in the last two years we have not made a big announcement. We have nearly $200 million, actually $250 million in active construction and another one shortly. And our development projects are quite unique because the day they open, you know, you get a contract from government, which frankly reduces the cost on our balance sheet from a $80 million project to $25 million.

[Nitin Jain, President and CEO at Sienna Senior Living Inc]

And specifically to acquisitions, I think we'll continue to look for opportunities, and we do expect to grow in the next 12-18 months.

[Lorne Kalmar, Analyst at Desjardins]

Okay, great. Thank you so much for the call. I will turn it back.

[Nitin Jain, President and CEO at Sienna Senior Living Inc]

Thank you.

[Operator]

Our next question comes from Jonathan Kelcher with TD Cowen. Please go ahead.

[Jonathan Kelcher, Analyst at TD Cowen]

Thanks. Good morning. Just going back to the retirement same property, the same property expenses were up 10%, 10% year-over-year, and I think you maybe touched on this a little bit, Nitin, but could you maybe give us a little bit of color on what drove that? Was that simply just more care for in-place residents, or were there elevated marketing to drive occupancy?

[Nitin Jain, President and CEO at Sienna Senior Living Inc]

Yeah, I think both of those things. Exactly, Jonathan. It is more care expenses. It is also more marketing spend. And our. You know, when we look at, even the previous question. Our margin has been a bit all over the place in the last quarter. You know, in Q1, we were at 35.6% last year, and we ended at 34.9%, with an average of 36%. We started lower this quarter. You know, we do know that we have an opportunity to increase margin, and that's the work our team is doing. We have a pretty good insight where the margin can be. We've just not reached to the point where we can give that outlook. But I. You should expect our margin to continue to grow.

[Jonathan Kelcher, Analyst at TD Cowen]

Okay.

[Nitin Jain, President and CEO at Sienna Senior Living Inc]

But we have to do two things. One is making sure we are spending marketing in the right place, and secondly, when we have the expenses for care, that we are charging for it appropriately.

[Jonathan Kelcher, Analyst at TD Cowen]

Fair enough. If I, if I look back pre-pandemic, and I, I know your portfolio is a lot different now, but you, you were in the low to mid-40s. Is that-- if, if you're sort of targeting towards 95% over time and, and not really-- I'm not holding you to any time frame on that, but if, if you get to 95, should we be thinking low to mid-40s? Is that the, the right way to think about it?

[Nitin Jain, President and CEO at Sienna Senior Living Inc]

You know, it is quite a bit out there, in terms of timing. What I would say is, portfolio has changed. So, for example, in 2019, we made it around 45% margin. But at that time, the proportion of care was a bit lower, and care would never have that high a margin. So I don't think we'll get to 44%, but, you know, could it get closer to 40% and a little bit up? Yeah, that is possible. But again, I'm just speculating at this time because we really haven't given out any guidance on it specifically.

[Jonathan Kelcher, Analyst at TD Cowen]

Okay. And then just on the G&A, is Q2 a good run rate, or were there any one-time things in there?

[David Hung, CFO at Sienna Senior Living Inc]

Yeah, no, I think that Q2 would be a relatively good run rate. We did see a little bit of uptick in our stock comp, but generally speaking, I think that would be a good run rate going forward for the rest of the year.

[Jonathan Kelcher, Analyst at TD Cowen]

Okay. Thanks, guys. I'll turn it back.

[Nitin Jain, President and CEO at Sienna Senior Living Inc]

Thank you.

[Operator]

Our next question comes from Himanshu Gupta with Scotiabank. Please go ahead.

[Himanshu Gupta, Analyst at Scotiabank]

Thank you and good morning. So, just on LTC guidance increase to double digits, obviously it includes the benefit of one-time WSIB refund. I mean, is it fair to say that your Q3 and Q4 NOI expectations are unchanged from last quarter?

[David Hung, CFO at Sienna Senior Living Inc]

Yeah, I mean, they generally speaking, they would be relatively unchanged, maybe uptick by a little bit. You know, but our overall guidance, excluding the one-time funding and the retro, would be in the low double-digit range overall.

[Himanshu Gupta, Analyst at Scotiabank]

Okay.

[Nitin Jain, President and CEO at Sienna Senior Living Inc]

I think there are a few things, Himanshu, that changed from Q1. And again, you know, so Jonathan asked the same question, or Lorne, sorry. And so when the last quarter, when we released results, the OA funding just came out. We were just making sure that we are not missing any expenses that relates to it. We had a whole strategy on driving preferred accommodation, which the team has done an exceptional job, so, you know, we did not factor in enough. And the third one, you know, just on the agency one, we made a lot of progress last year, and we just wanted to make sure that progress is sustainable, and the team has proven after four quarters that it is sustainable. So that gave us more comfort in upping our guidance.

[Himanshu Gupta, Analyst at Scotiabank]

Awesome. Okay, thank you. And then just moving to retirement homes, and, you know, thanks for providing the move-ins and move-outs data in Q2. I mean, how does the move-in, move-outs compare to the last year? I mean, is there a theme, any trend? You're seeing higher move-ins or, you know, lower move-outs? Anything, anything to elaborate there?

[Nitin Jain, President and CEO at Sienna Senior Living Inc]

Yeah, so you know, in the past, we have seen a pretty consistent number of move-outs, and really our occupancy has fluctuated because of move-in. This quarter, we saw a little bit lower number of move-outs. You know, so we are cautiously optimistic that we are headed in the right direction. And, you know, I guess no surprise there. The math here is more move-ins than move-outs would drive occupancy. And we are now getting into the fall season, which is usually stronger. So we are expecting that occupancy will grow as we move forward. And the focus for us has been, you know, as we talked about before, you know, rather than just looking at move-in, move-outs in total, is really looking at the homes which have with a lower occupancy.

[Nitin Jain, President and CEO at Sienna Senior Living Inc]

Because since we are close to 89% occupancy, we have many homes in our portfolio which are 95%+, some of them are at 100%. So the ones we are really and the ones which are 95%+, they have good waitlists for kind of rooms that people are looking for. So the data we are focused on is per home, and the homes with lower occupancy, that's where the move-in, move-out are bigger focus, including how many leads we get in a week, how many conversions we have, because that eventually is what will drive occupancy home. And 95% might go to 95.5% or 96%, that would not really make such a difference, versus if something is at 70%, we're going to 85%, 90%, because that's the focus for few homes.

[Himanshu Gupta, Analyst at Scotiabank]

Yeah. Okay, thank you. Are there homes which are like, 80% less occupancy?

[Nitin Jain, President and CEO at Sienna Senior Living Inc]

Yeah, we have a handful of homes, which would be in that range, but I would say a very small handful.

[Himanshu Gupta, Analyst at Scotiabank]

Okay. Okay. Okay, thank you. And then just sticking to retirement home, same-property NOI, I mean, obviously high single-digit growth in 2024. I mean, given your commentary around occupancy gains and margins, do you think it is very repeatable in 2025 as well?

[Nitin Jain, President and CEO at Sienna Senior Living Inc]

We haven't really given any outlook for 2025, but good for you to try, Himanshu, so I think that's something you'll have to make a guess yourself.

[Himanshu Gupta, Analyst at Scotiabank]

Okay, maybe, you know, I'll ask this question, a simpler one. Is there a thumb rule here, you know? As for every 100 basis points of occupancy increase, as we, you know, head towards 95, is there like an NOI margin, it should go up? Or is there a desirable NOI margin?

[David Hung, CFO at Sienna Senior Living Inc]

Yeah, that's a good question, Himanshu. So, broadly speaking, for every one percentage point we go up in occupancy, that would be about $2 million of revenue, and about 75% or 85% of that would be margin. The reason being, you know, it's pretty high margin because the only incremental cost would be some additional food, maybe some, you know, extra housekeeping, laundry staff, et cetera.

[Himanshu Gupta, Analyst at Scotiabank]

That's great color. Thank you, David. Thank you, Nitin. I'll turn you back.

[Nitin Jain, President and CEO at Sienna Senior Living Inc]

Thank you.

[David Hung, CFO at Sienna Senior Living Inc]

Thank you.

[Operator]

Our next question comes from Giuliano Thornhill with National Bank Financial. Please go ahead.

[Giuliano Thornhill, Analyst at Natioal Bank Financial]

Hey, good morning, guys. Maybe just on the marketing spend that you guys mentioned earlier, could you provide some color just on the geography or possibly like suite type that requires this higher investment?

[Nitin Jain, President and CEO at Sienna Senior Living Inc]

Thank you. You know, there's really not—it's not focused on suite type or geography, and we don't really do any national campaigns because our focus is very local. End of the day, retirement, people make a choice very locally. So, you know, it's—no one is moving from Vancouver to Muskoka just because we will have a different brand. So the focus is very, very specific, and the spend is more focused on driving occupancy at the lower occupancy homes. The question was around homes which are around, you know, 80%, 85% lower, and that's where we are spending money to ensure we have the right focus and the right opportunity to drive that occupancy.

[Giuliano Thornhill, Analyst at Natioal Bank Financial]

Then just, do you think, like, the return to kinda pre-COVID activities may have, like, affected demand for some of your properties, or like even the occupancy trends that you've seen, to date?

[Nitin Jain, President and CEO at Sienna Senior Living Inc]

I'm not sure I follow. Can you just maybe expand a bit more?

[Giuliano Thornhill, Analyst at Natioal Bank Financial]

Just with like, the more secondary markets that your sites are located within. Just, I feel like more people are looking to move towards the cities versus away. And have you noticed that within your retirement occupancy?

[Nitin Jain, President and CEO at Sienna Senior Living Inc]

Actually, not at all. But, you know, many of our sites, which are in, you know, smaller markets, continue very well, and the reverse is also true. So I don't think it is specific to, you know, specific areas, because if, you know, the, in a macro level, what remains true is that the demand is, is higher than supply of retirement homes. And only in a couple of markets, the supply is higher, but that'll only get absorbed shortly. So I don't think it's an issue of, of, demand and supply because we think demand is higher. It's more an issue of if there are three retirement homes, they all will be full eventually. The idea is who will get full first.

[Giuliano Thornhill, Analyst at Natioal Bank Financial]

Okay. And then just, last one on the Series A, maturing. Have your plans or intentions maybe changed just now that spreads have come down and the rate path outlooks a little more certain, than before?

[David Hung, CFO at Sienna Senior Living Inc]

Yeah. So I mean, we continue to look at all options right now, you know, because of, you know, our conservative balance sheet. You know, we continue to actively pursue CMHC financing, because that continues to be the lowest rates available, you know, out of our options. But, you know, we would also have other options as well, including, you know, drawing on our unsecured revolver, conventional mortgages, as well as, you know, possibly another issuance of unsecured bonds.

[Giuliano Thornhill, Analyst at Natioal Bank Financial]

All right. Okay. Thank you, guys.

[Operator]

Our next question comes from Dean Wilkinson with CIBC. Please go ahead.

[Dean Wilkinson, Analyst at CIBC]

Thanks. Morning, guys. Most of my questions have been answered. Just as it comes down to sort of these retroactive adjustments and things like that, do you guys have any expectations of more stuff coming in future quarters? Like, do you have any line of sight in terms of, you know, perhaps appeals or things around different payments that may still yet come in?

[Nitin Jain, President and CEO at Sienna Senior Living Inc]

I think the WSIB one, that's a bit unique. But, you know, from a government perspective, they are becoming more common, and different provinces have a different view, where the funding would reflect one thing, but they understand their cost always higher. And I think one of, you know, talked about that in the past, that because the funding was not there, we were punitive, so the fact that the funding has come up, we should not be punitive again. So I do think time to time, we would see these retroactive adjustments because, you know, the last 4 or 5 years were very challenging, and I think different governments took a different approach in how to fix that.

[Nitin Jain, President and CEO at Sienna Senior Living Inc]

I don't think it'll be that unusual for us to, you know, once a year, get some funding correction in one of the provinces.

[Dean Wilkinson, Analyst at CIBC]

Got it. So it's kind of like it was sort of before we even knew what a COVID was. You, you're kind of going back to that situation, I suppose.

[Nitin Jain, President and CEO at Sienna Senior Living Inc]

Yeah, it is.

[Dean Wilkinson, Analyst at CIBC]

Um-

[Nitin Jain, President and CEO at Sienna Senior Living Inc]

I just think not only that, but things have changed in the last four years, where, you know, government is focused on ensuring the sector remains viable. We need to build more homes, and that only happens with the appropriate funding.

[Dean Wilkinson, Analyst at CIBC]

Got it. And then maybe David, I mean, you, you're obviously out talking to lenders and syndicates. Where do you think pricing would come in right now if you were to, say, go to the unsecured market, which there's a tremendous amount of demand on that side for product?

[David Hung, CFO at Sienna Senior Living Inc]

Yeah, no. So you're absolutely right. There has been, you know, a tremendous amount. We've seen a lot of demand. You know, we stay very close to the market right now. You know, rates right now might range, you know, in the 5.25% yield. And they have, you know, come down significantly. A year ago, we might have been looking, you know, closer to 7%. So, both, GOC rates and spreads have come down, quite significantly, and right now it might be around 5.25%.

[Dean Wilkinson, Analyst at CIBC]

Yeah, that, that probably gets lower by the time we get to the back half of the year. That's it for me. Thanks, guys.

[Nitin Jain, President and CEO at Sienna Senior Living Inc]

Thank you.

[David Hung, CFO at Sienna Senior Living Inc]

Thank you.

[Operator]

Our next question comes from Pammi Bir with RBC Capital Markets. Please go ahead.

[Pammi Bir, Analyst at RBC Capital Markets]

Thanks. Good morning. I just wanted to come back to the comment on the, the lower occupied assets. Do you have an estimate of maybe what portion of the portfolio that they currently represent? And, you know, if you had to estimate on average, where is the occupancy in that, in that segment versus, say, the rest of the retirement portfolio?

[Nitin Jain, President and CEO at Sienna Senior Living Inc]

Yeah, I don't have to guess. I have the numbers. We just haven't got into that level of detail, Pammi, before. But just to maybe, build a bit of context, I would say, you know, more than half of our portfolio would be, you know, what we call stabilized, which is 95% plus or right in that range. And then, you know, if you break the portfolio further, you know, the other, 25%, 30% of it would be getting very close to it, or we have line of sight to get to that. And then probably, you know, 8 or 10 sites, which will be anywhere from, some could be as low as 75%, all the way up to 85%. So that would be the, the quantum of it. In some cases, it is external.

[Nitin Jain, President and CEO at Sienna Senior Living Inc]

So, you know, if you're on the [Ottawa] market, your occupancy is lower because there is more supply in that market. In other cases, you know, we have—we had a home which was not performing well, and with the right leadership structure change and occupancy and the right sales and marketing, we saw occupancy change by nearly 1,000 basis points in the last 8 months. So I just think there, out of those 7 or 8 homes, a couple of would be market driven. The other 5 or 6 is frankly, we have to do things differently to drive occupancy, and the team is all over that, to deliver on it.

[Pammi Bir, Analyst at RBC Capital Markets]

Okay. That's very helpful, Nitin, thanks. Maybe just coming back to the comment on retirement margins, and it's kind of tied into what you just said on maybe more, you know, focused strategies on some of these lower occupied assets. But maybe can you comment on the use of incentives? Are you offering really much at this point, or just given how the backdrop sits, and if there are, do you see that maybe burning off and maybe helping margins in the year ahead?

[Nitin Jain, President and CEO at Sienna Senior Living Inc]

You know, our incentive strategy has not really changed. You know, so the common incentive in usual markets is around a month free rent, and I think that incentive is pretty common. We are seeing some, you know, some development projects offering significant incentives, and those eventually come back to haunt you in later years. So, and since we are not a developer or trying to flip our assets, we have no intention of doing that. So, for example, we are leasing up our asset in Niagara Falls, and giving significant incentives would be a good way to drive occupancy. But again, we are not after occupancy, we are about margin dollars, so we have not taken any aggressive approach in that.

[Pammi Bir, Analyst at RBC Capital Markets]

That's great. Thanks very much. I will, I'll turn it back.

[Operator]

We have no further questions at this time. With that, this will conclude today's conference call. Thank you all for your participation. You may now disconnect.

Participants

Executives

• David Hung, CFO
• Nitin Jain, President and CEO

Analysts

• Dean Wilkinson, Analyst at CIBC
• Giuliano Thornhill, Analyst at Natioal Bank Financial
• Himanshu Gupta, Analyst at Scotiabank
• Jonathan Kelcher, Analyst at TD Cowen
• Lorne Kalmar, Analyst at Desjardins
• Pammi Bir, Analyst at RBC Capital Markets