TD commentsImpact: NEUTRAL
Sienna reported a solid Q1/22 despite the impact of the Omicron variant on the early part of the quarter.
On the retirement front, January 2022 occupancy of 85.9% was slightly ahead of the pre-pandemic January 2020 level (85.8%). Although the figure trended down modestly in February and March, April came in at 87.1%, marking the highest occupancy figure in 2+ years. Although management maintained its 87-89% occupancy target for year-end, we view this as conservative, particularly given that the portfolio has already reached the low end of the range prior to the commencement of the typically stronger spring/summer leasing season.
Management noted that as homes fill up, it creates a fly-wheel effect on occupancy. Higher occupancy should allow SIA to begin pushing rents but will likely slow the pace of occupancy gains. In April, Sienna launched its Aspira retirement platform, which includes improved programming and higher-quality food menus. Despite the enhanced offerings, management believes it can drive NOI margins 100-200bps higher by year-end, assuming no further waves and does expect to get back to pre-pandemic margin levels (low-40s) over time. We believe occupancy gains will be a key component of this, as those revenues generally fall directly to the bottom-line. Net pandemic expenses of $2mm-$3mm are expected for Q2/22. On the LTC front, the quarter was affected by Omicron.
Occupancy adjusted for beds not in service was 93.9%. Management is confident it can reach the 97% occupancy target for full funding across the majority of its homes, and noted that occupancy began to recover in the second half of the quarter. Management does not expect much in the way of net pandemic expenses for the rest of the year for its Ontario homes, as they should be covered by government funding. Forecasts.
Our AFFO/share estimates declined ~6% in 2022 (lower LTC NOI forecast) and 4% in 2023 (lower margin assumptions in retirement). Our $18.70 NAV/ share estimate is +2%.
TD Investment Conclusion We have lowered our target price to $17.50 (from $18.00), and are maintaining our BUY rating.