Sienna Senior Living Inc LWSCF

Scotia comments on results

[incomedreamer11]

Q4 Glance: Beat Driven by LTC and G&A Savings; 2024 Guidance Higher on LTC but Lower on RH

OUR TAKE: Positive. We expect SIA stock to outperform the sector tomorrow.

(+) Beat in Q4/23: FFOPS came in at $0.303 in Q4, ~17% ahead of Scotia estimate of $0.259, and 15.6% above consensus estimate of $0.262 (wide range =$0.25-$0.28). This is the fourth straight beat (SIA FFOPU came in ahead of expectations in all four quarters of 2023).

Beat was driven by higher LTC NOI, lower G&A, lower interest expenses, lower taxes and slightly offset by lower RH NOI (Exhibit 3 for variance). No retroactive funding received in Q4/23. FFOPS was up ~25% on y/y basis (solid growth) in Q4/23 and +16.6% in full year 2023.

(+) Double digit SPNOI growth: SP NOI increased by +16.5% in Q4/23 (+10.6% in 2023) and RH SP NOI increased by +11.8% y/y (+8.6% in 2023), while LTC SP NOI increased by +21.1% (+12.4% in 2023).

(=) Avg. same property RH Occupancy improved further 130bp q/q to 88.2% (in line with Scotia): SIA expects RH average occupancy to increase by 150bp y/y in 2024 to 89%, and then work towards stabilized occupancy target of 95% (previously 92.5%).

(+) LTC NOI guidance at low-to-mid single digit % growth in 2024 y/y. SIA mentioned that current occupancy and cost management trends will continue and expect 2024 LTC NOI to grow low-to-mid single digit percentage range compared to 2023. The mid-point implies 3.5% higher than our forecasts.

(-) SIA expects RH NOI margins to improve 50 to 100bp y/y in 2024. Our model implies ~100bp y/y increase which is on the higher end. SIA expects y/y RH SP NOI growth in the high single digit percentage range as a results of rent increases and occupancy growth, which is slightly below than our estimate.

(-) RH NOI margins came in at 35% in Q4/23 vs Scotia estimate of 36.5%. RH NOI was 3.5% below Scotia estimate in Q4/23 mainly due to lower NOI margins.

(=) Meaningful reduction in agency staffing costs and essentially returned to pre-pandemic levels: 60% y/y decrease in agency staffing costs (last q it was down 60% y/y as well).

(=) LTC occupancy decreased 80bp q/q at 97.6%: Sienna LTC total occupancy was 97.6% (up 150bp y/y) vs 98.4% in Q3, above occupancy target of 97%. Note: there is full funding as long as LTC occupancy is above threshold of 97%.

(-) Credit Rating on Unsecured Debentures unchanged at BBB but trends changed to Negative from Stable on Dec 8th, 2023. No major unsecured debenture maturity until Q4/24: Next major debt maturity in Nov. 2024 ($150M unsecured debenture). $100M mortgages expiring in 2024 and $58M mortgages in 2025. Leverage a bit elevated with Debt to Adj. EBITDA at 8.4x as of Q4/23 end vs 8.3x in Q3/23.

(=) RH development in Niagara Falls completed in Q4/23 and lease-up has begun in Jan’24.

(=) Funding changes with respect to 3rd and 4th beds in multi-bed rooms- no new update in this filing: As previously mentioned, effective Apr’23, some funding will stay for a couple of years but some envelope will be phased out gradually. SIA has ~350 3rd and 4th beds in ON and there will be some impact (not quantified so far).

No new information related to funding requirements for LTC development: In December 2022, ministry announced an increase to construction funding subsidy up to $35 per bed per day over 25 years for projects with a construction start by Aug 31, 2023. Subsidies offset the spike in costs/inflation and makes them economical, thus SIA expects to have 480 beds under construction by mid-2024. Total estimated development pipeline of $275M with expected yield of 7.5% to 8.0% (more details in our full note tomorrow).