TD post cc research Sienna delivered solid Q4/23 results that featured a sizeable beat on OFFO/share
versus us and consensus, a 130bps q/q improvement in SP retirement occupancy
to 88.2%, along with encouraging guidance on the near-term outlook.
On guidance, management expects to deliver high-single-digit SPNOI growth in
the retirement portfolio and low-to-mid-single digit growth in the LTC segment. The
retirement guidance assumes ~150bps of SP occupancy gains to 89% in 2024
(2023: 87.6%), along with 50-100bps of margin expansion (excluding the Elgin Falls
retirement development currently in lease-up). Our forecast is generally in line
with guidance at 150bps of occupancy gains for 2024 and we expect a further
140bps increase in 2025 to 90.4%. On margins, we are at the high-end of
management's guidance with 100bps of margin expansion forecasted for 2024
(+150bps in 2025). Overall, we forecast 6.6%/6.3% SPNOIG in 2024/2025.
On retirement occupancy, management is squarely focused on increasing
occupancy within "high opportunity homes", i.e. homes with below average
occupancy. These homes represent a small number of homes (most homes
are 95%+ occupied) and are generally scattered across the country in markets
where there has been a recent influx of new supply (e.g. Ottawa). Strategies
for increasing occupancy include renovation, marketing strategy changes, and
community outreach.
We expect to hear further details regarding LTC funding in Ontario (both operational
and development funding) with the upcoming provincial budget update in March.
Management noted it is expecting a more significant increase (i.e. higher than
inflation) for accommodation funding with the magnitude of the increase determining
if Sienna hits the upper or lower end of its low-to-mid single digit SPNOI growth
forecast.
Forecasts. Our 2024/25 OFFO/share estimate is +5%/+2% on higher LTC NOI,
lower taxes and interest expense. Our NAV/unit is +3% to $14.90.
TD Investment Conclusion
Sienna continues to demonstrate strong operating capabilities, delivering good
occupancy growth in a challenging environment, and continued improvement on the
cost front. With a well-covered ~7.5% dividend yield, solid balance sheet, and
improving industry fundamentals, we view Sienna as attractively valued.