CIBC commentsSIA reported a small Q3/23 beat, bolstered by class-leading occupancy, continued focus on operating efficiencies, and a reduction in agency staffing to pre-pandemic levels. While cost management has remained a focus, Sienna faces a near-term headwind with a substantial portion of total debt maturing through 2024 (at face rates we do not expect to see again within our forecast period). We continue to favour greater exposure to retirement residence housing at this point in the cycle. While LTC operations remain both stable and reliable, they generally don’t possess the same torque, given effectively full capacity and lower (and government controlled) rental rate growth.
Concurrent with Q3/23 reporting, we are lowering our NAV estimate to $14.50 (previously $15.00). Accordingly, we are decreasing our price target to $12.50 (prior $13.00), maintaining a modest discount to our forward NAV estimate. SIA remains Neutral rated. Included with the quarter are our inaugural 2025 estimates.
Key Points
Q3/23 Results: Reported FFO of $0.275/share was below our estimate of $0.29 and narrowly beat consensus of $0.27. On a Y/Y basis, FFO increased ~12%, driven by higher NOI and lower G&A, partially offset by higher current income taxes and higher interest expense. NOI on a stabilized sameproperty basis increased 7.0%, driven by an ~8% increase in the retirement portfolio and an SPNOI increase of ~6% in the LTC segment.
Long-term Care: Average LTC occupancy was 98.4% (+250 bps Y/Y), and has now surpassed the threshold for full funding. This excludes the unavailable 3rd and 4th beds that will not be reopened. SPNOI increased ~6% in the LTC portfolio and contributed ~531% of total NOI. Increases in annual funding, higher preferred accommodation revenues, and a reduction in the usage of agency staff drove growth. Management expects current trends to continue, resulting in LTC NOI growth in the mid-to-high single digits for the full year.
Retirement Residence: Average same-property occupancy in the retirement segment decreased 60 bps Y/Y to 86.9%. SPNOI increased ~8% Y/Y and, excluding net pandemic and incremental agency expenses, SPNOI would have increased ~5%. This was primarily driven by annual rental rate increases in line with market conditions and care and ancillary revenue, slightly offset by higher labour costs. Net pandemic and incremental agency expenses for the quarter decreased ~55% Y/Y. SIA expects annual rental rates to increase in line with inflation and lead indicators to continue to strengthen, as qualified leads have increased ~30% Y/Y. Indeed, during the quarter, marketing and sales initiatives resulted in 444 resident move-ins within the same property retirement portfolio, offset by 393 resident moveouts (many of which were transferred to long-term care).