Ladies and gentlemen, welcome to Sienna Senior Living Inc.'s Q2 2019 conference call. Today's call is hosted by Lois Cormack, President and Chief Executive Officer, and Nitin Jain, Chief Financial Officer and Chief Investment Officer of Sienna Senior Living Inc. Please be aware that certain statements or information discussed today are forward-looking and actual results could differ materially. The company does not undertake to update any forward-looking statement or information. Please refer to the forward-looking information and risk factors section in the company's public filings, including its most recent MD&A for more information. You will also find a more fulsome discussion of the company's results in its MD&A and financial statements for the period, which are posted on the SEDAR and can be found on the company's website, siennaliving.ca. Today's call is being recorded and a replay will be available.
Instructions for accessing the call are posted on the company's website, and the details are provided in the company's news release. The company has posted slides which accompany the host remarks on the company's website under events and presentations. With that, I will now turn the call over to Ms. Cormack. Please go ahead, Ms. Cormack.
Thank you, Cherie. Good morning, everyone, and thank you for joining us on our Q2 call this morning. Our Q2 results are reflective of a balanced large-scale platform where retirement provides organic growth and long-term care delivers stable, predictable returns. Sienna's Q2 2019 same property NOI grew by 1.4% year-over-year. On a per share basis, diluted OFFO decreased by CAD 0.018 year-over-year. This was largely due to a year-over-year increase of CAD 775,000 in mark-to-market adjustments to our share-based compensation, or CAD 0.012 per share as a result of Sienna's increasing share price. In the first six months of 2019, Sienna's stock price increased by over 20%. During the quarter, we have continued to strengthen our balance sheet and ended Q2 with debt to gross book value of 46.6%.
This is a reduction of 280 basis points year-over-year. I am pleased that for the second consecutive year, we are increasing our distribution to shareholders with an approximate 2% increase in Sienna's monthly dividend. Turning to slide five. At an average occupancy of 98.3%, our long-term care portfolio remained virtually at full occupancy with waiting lists for each of our residences. Long-term care same property NOI increased by 1.2% in the quarter. Moving to slide six. Average Q2 occupancy in the retirement portfolio declined by 3.2% year-over-year to 88.4%.
There are a number of factors that are contributing to the softness in occupancy, including higher resident attrition rate in the portfolio that we acquired last year, excess supply in the Ottawa market, the continued harmonization of the retirement platform, some disruption associated with property upgrades in the properties that we acquired in 2018, and an extensive renovation at one of our retirement residences in B.C. Despite this softness in occupancy, NOI growth was 1.6% in the retirement portfolio as a result of rental increases and adjustments to operating expenses. Moving to slide seven. We have been focused on a number of initiatives to improve occupancy in our retirement portfolio which include intensified marketing campaigns in every local community we serve to increase awareness and attract prospective residents by profiling homes locally through a variety of channels.
We are also implementing improvements to the sales platform and making ongoing enhancements to our operations and sales teams. In June, we launched a new website designed to support our targeted community campaigns. We are striving to attract and retain an experienced team aligned with the Sienna values. We continue to invest in our people strategy. Recognizing the importance of employee feedback and team member satisfaction, we have recently implemented a new team engagement survey to monitor and measure engagement on a more frequent basis. Turning to slide eight with supply and demand. Fundamentals in the Canadian senior living sector remain strong as the sector continues to scale up to accommodate the growth of the over 75 population. The key challenge is to match the rapidly growing demand for seniors residences with new supply.
While some volatility is expected in the near term as the market is adjusting to new supply, a recent analysis based on data provided by CBRE highlights that by 2023, demand for retirement residences will outpace supply in Sienna's key markets. Our analysis, which is summarized in our MD&A, further indicates that there could be a short-term oversupply in some of Sienna's markets. While this may lead to some occupancy pressures across the retirement sector, we believe that Sienna's geographically diverse and balanced portfolio of retirement and long-term care residences should serve as a competitive advantage. With the majority of Sienna's retirement residences located in markets where future demand is expected to exceed supply, our platform is well-positioned to take advantage of the growing demand. I will now turn the call over to Nitin for further details on Sienna's financial results.
Thank you, Lois. Good morning, everyone. I will start on slide 10. Net operating income for the quarter grew by 1.4%, or CAD 539,000, compared to the same period last year, for a total NOI of CAD 39.9 million. This increase was largely as a result of organic growth now that the acquisitions from 2018 are included in our same property results, offset by softer occupancy in our retirement segment and the timing of expenses. The retirement division generated same property NOI of CAD 17.4 million, an increase of 1.6% over the prior year. This was driven by a combination of market rate adjustments and rate increases, offset by variable expenses and softer occupancy. Sienna same property long-term care NOI for the quarter increased by 1.2% to CAD 22.5 million as a result of inflationary increases. Diluted OFFO per share decreased by 4.8% year-over-year, or CAD 0.018 to CAD 0.356.
This decrease was largely the result of increased mark-to-market adjustments on share-based compensation as a result of Sienna's increasing share price. Diluted AFFO per share was CAD 0.368 in Q2, down CAD 0.032 from the prior year. This was due to lower OFFO, as well as a decrease due to timing of maintenance capital expenditure of CAD 1.9 million in Q2 2019, compared to CAD 1 million in the prior period. We continue to anticipate maintenance capital expenditure in the range of 1.3%-1.4% of revenue for the full year in 2019. As Lois mentioned, we had committed CAD 5 million for capital improvements to make enhancements to the 10 retirement residences acquired last year, and had also set aside CAD 2 million in renovation capital for a retirement property we acquired in B.C. in 2016.
We expect most of the work in connection with these capital improvements to be materially completed by early next year. Now moving to our financial position on slide 12. We continue to strengthen our balance sheet. At the end of Q2 2019, Sienna's debt to gross book value was 46.6%, a reduction of 280 basis points from Q2 2018. Sienna's debt to EBITDA declined to 6.7 times in the quarter, compared to 7.5 times in Q2 2018. Our interest coverage ratio remained high at four times, and our weighted average cost of debt was lowered by 20 basis points year-over-year to 3.7%, highlighting our refinancing initiatives over the past four quarters. We will continue to effectively manage upcoming debt maturities and focus on maintaining a healthy level of liquidity and a favorable credit rating for Sienna's Series B debentures.
We ended the second quarter with approximately CAD 129 million in undrawn credit lines in cash, which can be used to further drive the company's strategy. As a strong vote of confidence on the execution of Sienna's strategy, we are pleased to increase Sienna's monthly dividend by approximately 2%, from CAD 0.0765 per share to CAD 0.0780 per share, or to CAD 0.936 annually going forward. The increase will commence on September 13th, 2019, payable to shareholders of record on August 30th, 2019. With that, I'll turn the call back to Lois.
Thank you, Nitin. For the balance of 2019, we intend to further harmonize our retirement operating platform and focus on initiatives that will position Sienna for continued growth. These initiatives include investing in our team, intensive marketing campaigns, implementing an enhanced sales platform, and making further suite and amenity upgrades in the retirement portfolio. We remain optimistic about future development opportunities. Our focus is developing senior living campuses, which provide a wide range of options and services to seniors in one location. Three such projects in the pipeline, which remain subject to some planning and feasibility studies, have received the 1 level of approval from the Ministry of Health. We also continue to pursue intensification opportunities at existing retirement residences. We are currently finalizing plans for an expansion at our Kingsmere Retirement Residence in Alliston, Ontario.
In July, we welcomed our first residents to the recently completed expansion at Island Park in Campbellford. Looking ahead, we expect the long-term care portfolio to deliver growth consistent with 2018. In the retirement portfolio, we expect occupancy for the next one to two quarters to be comparable to where we ended Q2, resulting in an estimated year-over-year growth range from flat to low single digit for 2019. With an exceptional team, a strong operating platform, a solid balance sheet, and a strategy in place, I am confident in the company's future. Thank you for your participation on our call today, and we will now be pleased to answer your questions.
Thank you. Ladies and gentlemen, if you have a question at this time, please press the star then one key on your touchtone telephone. If your question has been answered or you wish to remove yourself from the queue, please press the pound key. Our first question comes from Brendon Abrams with Canaccord Genuity.
Hi, good morning.
Good morning, Brendon.
Nitin, just to be clear, is the BayBridge portfolio included in same property for this quarter?
Your voice is a little bit light, Brendon, but yes, it is included, and everything is same property because the last transaction we closed was on March 28, 2018. Starting in Q2, everything is same property.
Okay, good. I just wanted to confirm that. On the distribution increase, perhaps you could just provide some color on that. Are you targeting a specific payout ratio, or you just thought the business could support a higher dividend at this time?
Sure. Again, this is a dividend policy we review with our board every quarter, and our objective is to pay a sustainable dividend. Because of our diversified platform, with more than half of our NOI coming from long-term care, for example, in 2018, our long-term care segment generated close to CAD 88 million in NOI, and we paid around CAD 62 million in dividends. Just that business alone covers most of our dividend. Our dividend payout ratio has been on the lower side, around 62.5%, and we do not really target a specific payout ratio. Our focus has been on managing a balance sheet, which, as we shared in our MD&A in our remarks earlier, I believe we have a very strong balance sheet. We have ample capital to grow. We believe it's a good time to put a dividend policy in place.
Okay. Just with respect to occupancy, obviously it's trended down the last few quarters. I don't think you're alone in terms of the industry. In your view, what kind of needs to change here, where we see some stabilization in occupancy levels and it starts to trend upwards again? Is it supply levels moderating? Is it the demand side? In your view, what needs to happen over the next little while to reverse the trends?
I think every market is unique, Brendon. It is a local business, so it very much depends on where you are and what's happening in that community. For example, the Ottawa area is extensively oversupplied, as we've been calling out now for several quarters. With the acquisitions that we did last year all being same property now, we actually have four properties in the Ottawa market in and around, within the periphery of that market, which is oversupplied. That's certainly having an impact on us. That's really just going to take time for that market to settle down, because over the long term, as if you note the CBRE studies, by 2023, there is a growing demand in that market as in every other market. There also continues to be new supply coming into that market.
It really is a function of what's happening at every local level where you are. We're doing a number of things. For us, there were a number of things that caused the softer occupancy that we called out, including some upgrades that we're doing to the properties and renovations and so on. I think it's very dependent on the community, but we know that we've got a good strategy in place, some very solid marketing strategies and local relationships and so on that we believe are the right thing for us.
Okay. That's very helpful. I'll turn it over. Thank you.
Thank you. Our next question comes from Jonathan Kelcher with TD Securities.
Thanks. Good morning. First on that's a good disclosure on the new supply that you put in there. That's very helpful. I think, Lois, you talked short-term, you expect some oversupply. By 2023, it looks like the supply is only 50% of estimated demand. Just first, before I ask that one, on the disclosure, is that new supply that's in the ground?
That's supply. CBRE did this for us. We were interested, clearly, in the markets that we're in. This is new supply that we're aware of today that's known to be somewhere between planning and near opening. That's what's known today.
Okay. Then you talked about oversupply near-term. Do you have any sense when that turns?
Well, again, it's very local. In some communities, there won't be excess supply because we may, for example, be the only operator in that area. There's no issue. In others, like for example, Durham, where we know there's short-term pressure because of excess supply. We're just kind of waiting to see what happens. We know that in South Surrey, there's a couple of new developments coming on within the next year. Again, they're very unique. It also depends not only what's coming on when, but what it is and whether it will compete with our product or not. We're just kind of keeping our eye on that market as well.
Okay. You talked about having lower labor costs, relative to your lower occupancy. How much can you control that?
Well, as you know, a large percentage of the costs are fixed.
Yes.
When occupancy does drop, we're able to reduce some of our operating expenses, particularly around dining room service, and depending on how many residents would be receiving assisted living and care services. We're able to reduce some variable expenses when there is a drop in occupancy. We manage that very closely to make sure that we're still delivering great service to our residents.
Just for Nitin, the taxes were lower this quarter on new, I guess, legislation. What do you expect for current taxes over the balance of this year?
Jonathan, previously we guided, before this Accelerated Investment Incentive came around, we guided around CAD 8 million-CAD 9 million of cash taxes for 2019, and our current forecast would be between CAD 7 million-CAD 8 million.
Okay, thanks. I'll turn it back.
Thank you.
Thank you. Our next question comes from Chris Couprie with CIBC.
Good morning. Just wanted to follow up on the supply disclosure. When you're looking at the supply under construction, what's the kind of catchment area that you're looking at here in terms of relative to where your properties are? For example, in Ottawa, I think you only have one property that's in Ottawa proper. I'm just wanting to kind of get an understanding of how the classifications work.
Well, typically, the way it works is supply normally comes within, if it's in an urban area, it's within sort of a 10-kilometer radius. If it's in kind of a tertiary market, it would be a larger area, usually, again, drawing on, if it's in a town, for example, like Campbellford, we tend to draw from all of Campbellford and a little bit beyond. It really depends on the nature of the community and whether it's primary or tertiary. What we can say, specific to the Ottawa area, is that there's just excess supply, not only in Ottawa proper, but the whole surrounding area like Orleans and outside of Ottawa. Moving into Kemptville and Beaumont and all of those areas, there's a lot of supply.
Okay. Your classifications don't necessarily correspond with CMHC's.
Not necessarily. Again, we know what the movement is to each of our residences, and we map by postal code, so we know where our residents are coming from and what percentage come from there. The other function is, when families move to an area, and this is often the case in areas like Canada, when families move in, their parents will follow shortly after, maybe moving from Toronto or some other area.
Okay. Switching gears. I'm not sure if you called out and I missed it. What is the impact of Good Friday on this quarter compared to the prior year?
Yeah. For retirement, it's pretty small, less than CAD 100,000. Now just to clarify, year to date, there is no impact, right? Because we-
Sure
Q1 and Q2 got reversed. In long-term care, the impact would be a bit bigger, close to CAD 400,000.
Okay, great. Thanks. Just maybe thinking about the acquisition outlook. Obviously, there was a large portfolio that traded earlier this year. Can you maybe just talk about what you're seeing, how the pipeline looks, especially given occupancy pressures in certain geographies?
Yeah, we would say that there's always opportunity for acquisition. Vendor expectations are high. We're always looking for It has to be strategic for Sienna, where we know that we can add value and it fits with our investment criteria. We can say there's nothing imminent, but we can't really comment beyond that.
Okay, thanks. I'll turn it back.
Thank you.
Thank you. Our next question comes from Pammi Bir with RBC Capital Markets.
Thanks, and good morning. Just maybe coming back to the new supply discussion. Do you have a sense of what that new supply is as a % of the existing inventory in those markets?
I think what we can comment on is, Pammi, where does it impact us? There is not a very good data source in Canada which tracks everything. I think that the disclosure we provided is probably as good information as we have at this time. There are properties that we have or number of suites that we have, and what are the new suites coming in, which would have an impact on us.
Yeah. Again, it would depend on each local community. How many are opening over what period of time and in which community, because it really is a very local business.
Yeah, I know. I understand. I was just thinking about, for example, again, if Ottawa is that particular market or Central Ontario where there's 1,300 suites, that catchment area, I was just curious if you had a sense of what the actual inventory in that market was, including your own inventory. Is it 5%? Is it 10% that's being planned in that particular market?
Yeah. It's a good question. We just really don't have a good line of sight on that at present.
Okay. Just, if you think about the same property in a wider region, do you have a sense of what that looks like, the same property NOI growth between B.C. and Ontario?
This is something we don't disclose just because both sides of the business, if you split them, are pretty small, and small numbers could have a pretty big impact on a % basis. BC would have higher same property growth versus Ontario.
Okay. Just to maybe clarify, Ontario is still positive, though, right? I would think.
Yeah. I think when you look at Ontario, you kind of have to look at excluding the Ottawa region because, as we have been talking about for the past few quarters, that market is oversupplied. If you exclude the Ottawa region, for sure it would be positive.
Okay. If you look a little further ahead into 2020, how are you feeling about the outlook for the retirement home segment, organically, in terms of NOI?
We think it's going to take a few quarters to stabilize and get our occupancy where we want it. Again, we have to always call out the exception of the Ottawa market, because we don't see a lot changing in that, probably in the medium term. Overall, we would expect to stabilize into low single digit in 2020.
Okay. That's helpful. Just maybe lastly, some of the other projects that you cited, the three long-term care projects and Kingsmere. What's the sort of magnitude of investment that we should be thinking about on these four projects?
For Kingsmere, the Island Park project, we said that the cost of that is around CAD 14 million roughly, and we expect to earn double-digit development yield on it. The Kingsmere one would be similar. A similar kind of investment, call it CAD 14 million-CAD 16 million. We don't have the right numbers at the moment. For the three campus projects, again, they're subject to quite a bit of feasibility still left to go. Call it roughly 500 long-term care suites, another 220 retirement suites or so. Call it close to CAD 200 million-CAD 250 million of investment over the next three years, if they're financially feasible.
Okay. I think you've talked about the returns on the long-term care projects in the past. Are you still comfortable with that range? I guess, until you've done your feasibility studies, is that sort of the ballpark we should be thinking?
Yeah. Well, we've received preliminary approval, but there's still work to do with government on the funding program for this.
Right.
Every operator's in the same boat with this. We're still working with the new government on a program to get these projects moving, and that make it feasible for all operators.
I think the only thing we'll add, Pammi, just on the previous question of the investment. Based on construction financing and the amount of cash we would generate on annual basis, we can do that development on our balance sheet. That is our current intent.
Great. Thanks very much.
Thank you.
Thank you. Our next question comes from Troy MacLean with BMO Capital Markets.
Good morning. For the new properties being built, the new supply you're seeing, are the operators getting aggressive on rents in order to fill the buildings, or are they setting their rental rates near where existing market is?
It depends, Troy. I think every operator's a bit different. I was in London earlier this week, and there was a new supply that had gone into that market, and they were undercutting going in. Some do this, where they'll open and they just reduce their rent very low until they fill, and then they try and increase it over time to market. Others don't. Others go in with the pricing that they want and maybe do sort of one-time incentives. What often happens is, it's older product in a market that may have to look at their strategy if they're being impacted.
Would you say, kind of quarter-over-quarter, you're seeing more operators do that, or is it just the ones that usually do that are the ones doing it now, but there's no change from the larger operators?
I think it really depends market by market, what the dynamic is and whether it's a primary or tertiary market, and how much supply is in that market. Depends on kind of what the operator does. I think there are some operators that tend to have a strategy that go in lower, and others don't, or kind of the reverse, where they stick to what they want.
The lower occupancy, that hasn't had an impact on the annual lift you get from your existing tenants, correct?
Right. It has no impact on the current tenants. That's correct.
Just my final question is around acquisitions. Given the amount of supply, would you buy a property and lease up now, maybe if you got maybe a break on appraised value, or would you only look to buy stabilized properties right now?
Well, I think it depends what it is and where it is. We look at a lot of things when we look at an acquisition, so it would depend.
I have one more question. Just given the challenges in Ottawa, you own four properties there. Is that a market where you'd look to add over time? Or just how quick people are to add supply in that market, you're probably happy with the exposure you have and wouldn't want to increase that.
Yeah, I think we're happy with what we have.
Thank you for the commentary.
That's it for me.
Thanks, Lois. I'll turn it back.
Okay. Thank you, Troy.
Thank you. Our next question comes from Tal Woolley with National Bank.
Hi, good morning. Just wanted to start off on long-term care. With respect to any further sort of government announcements or updates, do you have a sense of when we might sort of get further clarification on sort of the preliminary guidelines and the thoughts they had around the long-term care sector?
It's a good question. They have just reorganized with a new minister for long-term care, which we like. Directionally, we think that's good because there's a lot in the long-term care file, as you know. I think that's good. They've also announced a new deputy. We expect that they're getting briefed. We've had really good access. We've been able to meet with a number of MPPs and ministry officials. We don't know. We can never predict policy or timing, we do like directionally some of the policy directions of this government and putting the new leadership in place, or the additional leadership, I would say. We don't have a sense of timing.
Okay. Maybe just to go back on pricing strategy and retirement. 2023 is four years away. I'm just wondering, you've talked about some of the other strategies some of your competitors might be employing in the market. Given that it is sort of a four to five-year horizon to when you think that the markets will come back in balance for you, do you consider alternative sort of pricing strategies right now? Do you just sort of try and hang on to where market is, and if it causes vacancy, you live with it?
Oh, no. Every property is unique, we do a number of things. If you're asking, do we reduce rent? No, we don't do that. What we do is we would reduce if there's a market, we just did this recently, where we were able to create a number of suites which were more independent, there were seniors that wanted a more independent lifestyle. We were able to change the service package to create a very independent lifestyle number of suites. In other areas, we would do one-time incentives and campaigns like that. We don't really ever kind of do an adjustment to rent unless there's also a corresponding change in service level.
Okay. Just on balance sheet and capital return to shareholders. It's been 18 months since your last big portfolio acquisition in retirement, and I know you've got to think about future long-term care redevelopment and what that might bring. That does seem to be proceeding quite slowly. How do you think about managing the balance sheet, maybe enhancing the dividend again, just given how your net CapEx this year is basically zero, right? I'm wondering how you're sort of thinking about this as this rolls out, because it does seem to be taking some time for these capital needs to come to you.
For us, we have always kind of looked at it, even though it's quite well connected on what you can acquire in your balance sheet, but we kind of always looked at it differently. We haven't acquired things just because we had capital available. Both equity and debt have been available to us for quite some time. I think one of the reasons for that is that usually we have a good use of proceeds when we do that, or we are shoring up our balance sheet in either case. I think capital is not a constraint, or that's not how we really think of acquisitions. I think it'll be more if it's putting proceeds to a development, if it's an acquisition, I think that's where we will go raise capital.
Sorry. Maybe I'll ask the question a different way. If it takes some time for you to see more long-term care redevelopment projects get approved and start moving ahead, in the retirement market, you're not really finding the assets you want. Do you think the board, yourself sort of reconsider what your capital return policy is then?
For example, as long-term care is taking a bit of time, what we have done is invested in development in both Island Park. We're looking at Kingsmere. Alongside, we have talked previously that we are also looking at standalone retirement residence. It has to be market specific, we don't want to be in a place where there's oversupply. I wouldn't limit ourselves to just acquisition and LTC development, just the fact that we had one expansion project completed, one we are in final stages, and we are also looking at opportunities for standalone retirement. I think there is multiple ways for us to invest capital. Again, if that changes, as we talked about before, dividend policy is something we review with our board on a quarterly basis, and we will continue to do that.
Okay, that's great. Thank you very much.
Thank you.
Thank you. Again, ladies and gentlemen, if you have a question at this time, please press the star and one key on your touchtone telephone. Our next question comes from Mario Saric with Scotiabank.
Hi, good morning. I have more of a higher-level question, just touching on the relationship between, let's say, more traditional residential, rental, and retirement homes from a supply perspective. I guess new supply growth in the senior space isn't a new phenomenon, but it is relatively new in the purpose-built multi-family rental space. When we look at provinces like Ontario that are pushing for more multi-res rental, particularly in urban transit-oriented locations, I'm just curious to hear, how do you think the appetite or the increased appetite for multi-family rental construction may impact retirement home supply trajectory, if at all? Just curious to hear whether you think the two are in direct competition or if there's any tension between the two.
I think one of the things we talked about, there is new supply, but the rising cost of construction and supply of land is an issue because a lot of times the alternate use for where you might be building a retirement home could be a multi-residential. That product, when it's trading at four cap, has very different economics. I think that pressure is a good thing because it does limit oversupply in certain areas as the multi-res demand is pretty strong. In our view, it's helpful. Secondly, a lot of times when you look at especially new standalone retirement residences, a lot of times it could be in conjunction alongside with a residential development as well, because that goes along quite well. We think there's synergy in one sense, and in the second sense, it does help reduce some of the oversupply.
Got it. Have there been any examples, I guess, within your portfolio or close to your portfolio where a development that was planned to be a retirement home or a seniors home converted to a multi-res?
Sorry. Not sure we're following the question.
I'm just wondering if there's been any examples within your geographic areas where the ultimate use of a development turned from a retirement home into a multi-res development?
Oh, yeah. We're seeing that. I think with the rising construction costs, that a lot of planned projects are being reevaluated, and there's several in the last couple of years that either haven't gone ahead or the developer operator has looked at other options. Some of them, we're not really sure where they landed, whether they just didn't proceed at all, or whether they're still looking at other opportunities for seniors apartments or something else.
Got it. Okay, maybe just tying it back to one of Jonathan's earlier questions in the CBRE study with the 2023 projections. The developments that are reflected in that, is there enough progress in them that they're committed as retirement homes?
It's a mix. Some of them could be opening within the next six months or couple of months, and others are just currently planned, have sites, and they're going through zoning. It's a real mix. Again, that's over a period of time as well. It's not really clear what the breakdown is. As Nitin said earlier, there's really not a good database to give you insight into that.
Got it. I'm just trying to get a sense of whether there could be some downside to those new supply numbers going forward for a variety of reasons, and one of which could be increased multi-family supply.
Yeah.
Okay. Thank you.
Thank you.
Thank you. Our next question comes from Yash Sankpal with Laurentian Bank.
Morning.
Hello, Yash.
If we separated the 10 property, the acquisition portfolio, what would we see in terms of occupancy changes between the existing portfolio and the acquisition portfolio?
I think, Yash, this is not how we look at our business. Internally, we have property-level occupancy. I think once you get on that path, it gets a bit of a disclosure challenge because you're now explaining 5, 10 basis points and CAD 20,000 making a difference here or there. I think what we talked previously is if you remove the Ottawa properties, our same property NOI would be positive. I think that would probably as much disclosure as we want to get further breakdown from retirement. The softness would be both in the properties that we acquired last year and our portfolio.
That's fine. Okay. If we look at the rental growth, it still appears strong. I was just wondering, in the markets that are not seeing a lot of new supply, how is the rental growth progressing there?
The annual rental growth is around, let's say, 3%, which is a mixture of accommodation and care services. Usually, that doesn't have a lot of dependency on occupancy. I think where there would be differences when someone moves out and a new person is coming in, if it's an oversupplied market, obviously the market rate would be pretty similar to what you might be charging your current residents. In areas where we are at near full occupancy, we do have few of those properties as well, you would have a bit more pricing power there. It is very location specific.
Have you noticed any difference in terms of what you were able to charge in, say, 2017, 2018 versus in 2019 in those markets which are not seeing new supply?
You're just talking about-
Nitin said, I think on average, 3% per year would be the average increase. Is there something else you're getting at, Yash?
I was just trying to see if the overall market's seeing slower rent growth or for the markets that are not seeing new supply, rent growth is intact.
I think we haven't seen a lot of change in the average, Yash. Like, it is around 3%. Obviously, the markets which are not oversupplied and where we have close to full occupancy, the market rate, there would be a differential between your current resident and market rate. That's where the difference would be. The annual rate increases are similar.
All right. On the Ottawa market, what is the average cap rate in that market right now for a retirement home property, an average property?
If you look at CBRE's recent cap rate release, they don't do it by area. They have a cap rate for Ontario, and I think it's for A class properties, it's 5.5%-6%.
Yeah, I mean, the cap rates haven't really seen any change in Ottawa. Again, every operator or builder, when they build a home, they need a market study to get financing. The reason there is a lot of oversupply in Ottawa, that eventually all of that supply is needed, it's a bit of a short-term thing. People are actively building in that market, and they're building because to them it makes financial sense. There is no change to cap rates, frankly, in any of the markets.
That's interesting. Would you be a seller in that market at this point or a buyer?
I think it'll be property specific. It's in lease up, if it's stabilized. I think there are a lot of factors in it rather than a blanket statement, Yash.
All right. Okay. Thank you.
Thank you.
Thank you. We do have a follow-up question from Pammi Bir with RBC Capital Markets.
Thanks. I just wanted to clarify the comment around new supply. In the MD&A, you describe it as under construction, but the commentary today sounds more, it's like a mix of what's in pre and under construction. Can you just maybe reconcile that?
I think it's more maybe nomenclature from our side, Pammi. I think we don't really have at a property level as to what stage of construction a property could be in. If they have land and they're planning to start construction, it could be included in this.
Yeah
list. It could change.
It's basically projects that are known today that have indicated they're going into senior living, like retirement, and they're looking for either site plan approval or they have the zoning or they have a building up or they're in opening. Like, it could be anywhere along that trajectory. It could take anywhere from zero to five years, depending on where they're at.
Okay. All right.
Could be on.
That helps. Thanks very much.
Ladies and gentlemen, thank you for participating in today's question and answer session. I would now like to turn the call back over to management for any closing remarks.
Well, thank you everyone for joining our call this morning, for your support of Sienna, and we hope that you enjoy the rest of your summer. Thank you and have a good day.
Ladies and gentlemen, thank you for participating in today's conference. This concludes the program. You may all disconnect, and have a wonderful day.