some results takeawaysinteresting call a couple of weeks ago. i took away 3 key points, regarding their reticience around providing near-term margin targets, COVID expenses, and development economics. With the secular story around an aging population, the vaccination rollout at all the retirement homes and increasingly higher barriers to entry, i continue to accumulate Sienna. looking out to 2022-2023, not hard to see growing distributions and a lower trading dividend yield, driving upside in the equity price. from 2010 to early 2020, the share price increased from $4 to $18, and paid out about $9 per share in dividends along the way. So total shareholder return was excellent prior to a once in a hundred year global pandemic. Hard to see why SIA can't also deliver above average returns over the next several years, especially with the development economics outlined below. good luck...
NEAR-TERM MARGINS: Not a surprise that they emphasized continued elevated expenses and steered conversation away from margin targets, etc. with all the political fallout from LTC, everybody needs to tow the line and not provide fodder for media/politicians. but with everybody vaccinated, is it likely we have already seen peak Covid expenses? imo, absolutely.
COVID EXPENSES: the 2020 results understate profitability because they failed to include the retroactive funding that ONtario paid in January . note that exchange below between analysts and cfo. this puts into context the payout ratio in q4, which failed to include this reimbursement.
COMPANY: "So in the January funding announcement, Ontario has shared a new funding of $398 million, which helps with the testing requirements as well as COVID related expenses covering staffing PP and all the kinds of costs we have been incurring. And out of that new funding, about 40% of it has been allocated to date. And we've shared that what we have received $6.9 million related to 2020 expenses. And because the funding announcement was only known in January, those are not reflected in our year-end results."
ANALYST: "Got it. And if I look at the total unfunded expenses in 2020, they were around $18 million. And it looks like you have received $7 million already in January. Do you get a sense from the government that you're likely to receive more funding to close the gap between that $12 million left now, $11 million left now, which is not recovered from the last year?"
COMPANY:"What I can only say is that out of that new funding that has been shared there is still about 60% of it to be allocated. We're not sure how that would be allocated. But in addition to that, there was also a funding program that was announced back in the fall in September, whereby every month, we have been getting pandemic funding to support with our ongoing costs as well. And as of late, that monthly allocation has been about $3.2 million, $3.5 million."
DEVELOPMENT PROJECT ECONOMICS: It is clear that more supply is required and newer facilities for older Canadians , given that some of the legacy properties require refurbishing and secular demand will be sustained going forward. the details provided by the CEO on the last lays out the economics of the $600 million they expect to spend, with the equity requirement ultimately at just $70 million of that initial $600million and subsequent to that , the equity becomes self funding thru grants. see exchange below:
COMPANY: "So around 75% for Long Term Care, given the certainty of -- there's really no real risk. So you can borrow a bit more. And there are certain lenders who are very active in this space. We can borrow close to 25-year money for around 3.25%. So we are speaking with a few of them. And the balance, you would fund it from your equity upfront. And after the home or the building is completed, depending on where you're located, you can get around 10% to 17% of that construction amount back as an upfront grant. So whatever equity put in, around half of it could be recovered once the home is open. So for our $600 million program, if you just think of it a high level, if we borrow $450 million, which is the 75%. And out of the balance of the $150 million, we would be close to $70 million upfront over the next 3 years. And then once that program gets going, as building comes online, that equity is self-funded through those grants going forward."