Desjardins post cc titled “This is just the beginning” This is just the beginning
The Desjardins Takeaway
We expected a positive response from the stock on the back of 1Q reporting given the
strong operational results, which saw SIA increase its 2025 retirement home SP NOI
guidance, plus the announcement of another retirement home acquisition. With the
wind at its back from a fundamental standpoint, the acquisition and development
sides of the business firing on all cylinders and a fortified balance sheet, we expect
earnings growth to accelerate in 2026 and remain elevated for the foreseeable future.
Highlights
LTC. The 2025/26 Ontario LTC funding update is expected to be released with the budget
on May 15. The expectation is for funding to increase in line with inflation, which
corresponds to SIA’s NOI growth outlook.
Retirement. The increase in SIA’s SP NOI outlook reflected an element of conservatism
when guidance was first issued earlier this year. Management noted that in addition to
strong occupancy and rent growth, it is realizing benefits from changes to the platform
—namely, a focus on optimizing how it charges and delivers care services. While at this
point there is no reason to believe the 17% SP NOI growth in 1Q cannot be repeated over
the balance of the year, we believe management is erring on the side of conservatism
with its 10%+ SP NOI guidance. We also expect the optimization program to positively
augment NOI growth, with margins (26%) and occupancy (79.9%) for the five homes
set to trend toward stabilized portfolio levels over the next 12–18 months.
Portfolio growth. Pro forma the acquisition announced yesterday, SIA is on pace to
add ~C$600m of assets in 2025, inclusive of its two development projects, which are
now slated for completion in 3Q25. On the call, management noted that it continues to
have an acquisition pipeline of C$150–250m, including retirement, LTC and campuses of
care. With the implementation of a C$125m ATM and what we view as an underlevered
balance sheet pro forma the announced acquisition activities, we expect SIA to remain
active over the balance of the year. We have C$150m of unannounced acquisitions
closing in 1H26, although this may prove to be conservative.
Valuation
SIA trades at a 2% discount to our NAV (LTA 6% discount). Our C$20.00 target (was C
$18.00) is based on 16.0–16.5x our 2025 OFFOPS (was 14.5–15.0x) and equates to a
15–20% NAV premium.
Recommendation
We reiterate our Buy–Average Risk