BMO - post cc - tgt $19 Good Start Amid Favourable Backdrop
Bottom Line:
Sienna delivered a solid start to 2025 punctuated by impressive delivery within its
retirement segment which continues to benefit from both operational initiatives and
attractive industry supply/demand fundamentals. We expect these trends will endure
over the course of 2025/26. Q1/25 also marked another active quarter on the inorganic
front, with SIA announcing the pending acquisition of another retirement home for
$85.25MM. Maintain Outperform recommendation, with our $19 target price +$1
on roll-forward of our NTM NAVPU and a slightly higher target multiple given
ongoing execution.
Key Points
Operating FFO of $0.29/share (excluding one-time/retroactive amounts of
$1.3MM) was broadly in line with BMO/Street at $0.30/$0.29. The main variance
vs. our forecast was slightly lower NOI, though this was primarily driven by assumed
timing on closings of previously announced acquisitions.
Retirement SP-NOI growth outlook tweaked higher. Q1/25 SP-NOI growth was very
strong at +16.7% (an acceleration from 15.3% in Q4/24). With SP-occupancy of 92.5%
+260 bps YoY, SIA now expects full-year 2025 retirement SP-NOI growth to exceed 10%
(vs. ~10% previously), with margin expansion of 100-150 bps relative to 2024 levels of
37.4%. On this front, we see potential upside given Q1/25 SP-NOI margin growth of 210
bps and SIA's continued march to 95% SP-occupancy in early 2026.
SIA announced an agreement to acquire retirement home in Stittsville, ON. At a
total cost of $85.25MM ($496.5K/suite), SIA expects to drive a year-one yield of 6.8%
(post immediate synergies). The property, Hazeldean Gardens, was built in 2018 and
carries current occupancy of 93% across 172 suites (mix of 129 IL, 31 AL, and 12 MC
units). Closing is expected this summer. In total, SIA has announced or closed on circa
$375MM of acquisitions thus far in 2025. The company continues to point to further
opportunities and has previously mentioned a potential pipeline of $150-250MM. With
liquidity of $450MM and the introduction of a $125MM ATM program, we suspect SIA
will remain active on this front. Our outlook includes incremental acquisitions of roughly
$100MM into early 2026 (estimated 6.5% cap rates), with a D/GBV of roughly 44% into
mid-2026.
Two LTC redevelopments nearing completion. Sienna’s Brantford and North Bay LTC
redevelopment projects ($220MM total costs) are set to come online this summer with
targeted 8.0-8.5% development yields. The Keswick LTC redevelopment remains on
track for Q1/27 ($87MM cost).