Ladies and gentlemen, welcome to Ciena Senior Living Inc. Q1 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 sections in the company's public filings, including its most recent MD and A for more information. You will also find a more fulsome discussion of the company's results and its MD and A and financial statements for the period, which are posted on 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 assessing 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's remarks on the company's website under Events and Presentation. With that, I will now turn the call to Ms. Cormack. Please go ahead, Ms. Cormack.
Thank you, Julie. Good morning, everyone, and thank you joining us on our Q1 call this morning. In the Q1 of 2019, our team continued to focus on operations and on integration of the acquisitions from 2018. Our Q1 results highlight the benefits of running a more balanced, larger scale platform. Q1 2019 net operating income grew by 20.1% year over year compared to Q1 2018, which was driven by growth from accretive acquisitions in addition to strong organic growth.
Same property net operating income increased by 7.3% in our retirement portfolio and by 4.3% in long term care. Diluted OFFO per share increased by 4.2% year over year to $0.32 in Q1 2019. This includes a mark to market adjustment of share based compensation reflecting Sienna's share price growth. We have continued to strengthen our balance sheet and ended the quarter with a debt to gross book value of 47.8%, a reduction of 250 basis points year over year. Retirement net operating income is now 46 percent of the overall business.
We are well along the way to meet or exceed our strategic goal of a 50 percent private paid, 50 percent funded portfolio. Q1 twenty nineteen occupancy and the retirement same property portfolio declined by 1% year over year to 91.6% as a result of higher resident attrition rates and softer occupancy in the acquisition portfolio. Now turning to Slide 8. At an average occupancy of 98.2%, the long term care portfolio remains virtually at full occupancy with waiting lists for each of our long term care homes. Same property net operating income grew by 4.3% in the quarter.
This was largely as a result of the timing of expenses. Resident and family satisfaction continues to be a priority at Sienna, and we are very proud of the contributions of our 12,000 dedicated team members who create a great resident experience and who have enabled Ciena to outperform national and provincial averages on publicly reported quality indicators. We remain focused on Sienna's people strategy and are investing in new ways of attracting, recruiting and retaining talent. We recently launched a new Careers website to enhance the user experience and to support recruitment of key physicians across the company. As part of our commitment to the team member experience and a great culture, we are launching a new team engagement survey and platform to monitor and measure engagement on an ongoing basis.
We are also investing in point of care technology and in electronic record keeping to improve the workflow for nurses and for personal support workers. With the flu season largely behind us, we are ramping up our marketing campaign to increase awareness and to invite prospective residents to experience a Sienna retirement resident in their local community. Turning to Slide 10, fundamentals in the Canadian senior living sector remain strong. According to stats Canada, the average growth rate of the seniors population aged 75 plus will double in the next 20 years, with a compound annual growth rate at approximately 3.9%. The sector's key challenge is to match the rapidly growing demand for seniors residences with supply.
While we have seen some levels of temporary oversupply in certain markets such as Ottawa and the Durham region, we believe that our geographic diversity and industry leading platform positions us well as the market adjusts to the growing supply and demand. With the Ontario government overhauling the healthcare system aimed at providing better access and reducing hallway medicine, we have been engaging Ontario health teams. These health teams should ultimately improve the experience for seniors and their families who are navigating the transition between hospital and other parts of the system, including retirement residences and long term care homes. I will now turn the call over to Nitin to discuss our financial results.
Thank you, Lois, and good morning, everyone. I will start on Slide 12. Net operating income for the quarter grew by 20.1% or $6,500,000 compared to the same period last year, with a total NOI of $38,900,000 This increase was largely a result of organic growth, accretive acquisitions and timing of Good Friday, which fell in Q1 last year and in Q2 this year. The Retirement division generated same property NOI of $11,800,000 an increase of 7.3% over the prior year. This was driven by a combination of market rate adjustments, annual rate increases and reduced variable expenses, partially offset occupancy.
Sienna same property long term care NOI for the quarter increased by 4.3% to 21,000,000 dollars largely because of a $500,000 timing impact on Good Friday. Excluding the Good Friday timing impact, same property long term care NOI delivered stable 1.9% growth over the prior year period. Diluted OFFO per share increased by 4.2 percent to $0.32 Excluding the impact of mark to market stock compensation, OFFO per share would be $0.34 per share. This growth was driven by income from accretive acquisitions completed at the end of Q1 2018 and strong organic growth, partially offset by incremental interest expense for the acquired properties. Diluted AFFO per share was $0.353 up 2.6% year over year.
This increase was driven by higher OFFO and excluding the impact of mark to market stock based compensation, AFFO per share would be $0.37 Now moving to our financial position on Slide 14. We continue to strengthen our balance sheet. At the end of Q1 2019, Ciena's debt to gross book value was 47.8%, a reduction of 250 basis points from Q1 2018. Sienna's debt to EBITDA declined to 7.1 times in the quarter compared to 8.2 times in Q1 twenty eighteen. Our interest coverage ratio remained high at 3.8 times, unchanged from Q1 2018, and the average debt term increased by 4 months year over year to 4.4 years in Q1 2019, highlighting our refinancing initiatives over the past 4 quarters.
We intend to optimize our capital structure by effectively managing our upcoming debt maturities and by maintaining a healthy level of liquidity and a favorable credit rating. In March, DBRS confirmed our A low credit rating with stable outlook for the company's $322,000,000 Series B debenture. Cianus ended the Q1 with approximately $137,000,000 of undrawn credit lines and cash, which we can use to further drive the company's strategy. With that, I'll turn the call back to Lois.
Thank you, Nitin. We made significant strides in executing our growth strategy of building a balanced portfolio of high quality retirement and stable long term care strategic and disciplined in our approach to growing the business. Our continued focus is on high quality and accretive acquisitions in key markets in Canada, as well as strategic development that complement our existing platform. We remain optimistic about our future development opportunities and are on track to complete the expansion of Island Park by mid 2019. As part of our commitment to a strong operating platform, we are constantly working to improve the residents' experience and are making further enhancements to services and care, responding to the changing needs and preferences of our residents.
Looking ahead, we expect the long term care portfolio to deliver strong growth consistent with 2018. And with respect to the retirement portfolio, we expect moderate single digit growth going forward. We believe the outlook for Sienna is strong and we expect to continue the progress that we have made on our strategic priorities. Thank you for your participation on the call today and we will now be pleased to answer any questions.
And your first question comes from the line Jonathan Kelcher with TD Securities.
Thanks. Good morning. First question, just on the acquisition occupancy was down a little bit in Q1. Have you started to see an improvement
Thank you. To date, our occupancy is pretty much in line with what we reported at the end of Q1. And it was largely it was again, we always expect this, as you know, in the winter months, there's the flu season, so we have a higher level of attrition. Our residents aren't out doing tours and moving in, in the winter months. So we usually expect this.
And then in addition, there was a softer occupancy in the acquisition portfolio.
But it seems to me like the acquisition portfolio performed a little bit worse than the stabilized portfolio. Is that fair to say?
Yes, that's fair to say. And that's a result of when we acquired this portfolio, we knew that it would take a full year to integrate. And so we're well on track with that. And so we expected that as well as some attrition as we stabilize onto our platform.
Okay. And then just secondly on the, I guess the MD and A and you talked a little bit about it in your remarks, you're enhancing your website. Is that well, first of all, is it just internal or is it just for internal employees or is it more broad based than that?
It's both. To date, we've enhanced the career section of the website, which is for primarily for external potential candidates. And in Q2, shortly, we're launching a revised Ciena website for the public facing website, which will be a significant enhancement from what we have today.
Okay. Are you going to promote the Ciena name more? Is there any sort of change in your strategy on that front?
No, I wouldn't say that. I mean, we believe that this is a local business and we have always promoted the name of the community locally. So each of our residences have its own unique name, and that's how it's known in the community rather than by Sienna. And we will continue to do that to focus on the local communities with our marketing campaigns and so on. What the website does is it really drives potential prospects to the sites, to the property level.
Okay, thanks. I'll turn it back.
Thank you. And your next question comes from the line of Chris Couprie with CIBC.
Good morning. A couple of questions. Just in terms of your outlook, when you talk about moderate organic growth in the retirement home business, so 7% for the balance of the year?
Chris, for good morning, Chris. For us, in that 7.3%, there's around 0.9% or 1% impact because of Good Friday. So you removed that. And there might be partially other timing changes in it because our margin is a bit higher in Q1 and we don't believe that's a good run rate for that margin. So I would say when we say moderate single digits, we are more closer to 5% than we would
to 7%. Okay. That's great. In terms of developments, I think you had a few redevelopments that you were looking to, I think it was Keswick and North Bay potentially, that you were looking to I think kick off maybe this year. Any update there?
And then in your most recent slide deck you call out some excess land for future expansion. Just curious as to how many units you think you might be able to add there and what will it take to kick off these expansions?
Well, I guess on the redevelopment, we do have 3 projects which have received preliminary approval. Right now, we're just waiting for some changes to the program and our association is working with government on any potential changes to the program as a result of the recent provincial budget announcement. So right now, those are we wouldn't see anything happening in 2019 with those projects in terms of getting started. It would be more like 2020 as things line up in terms of approvals and the program metrics. And in terms of expansion of current sites, we do have opportunity there and we're just exploring all of our opportunities.
We have about 3 or 4 sites have potential for intensification. And so we're looking at the markets in each and where which ones make the most sense and the timing. And again, there we would expect if any, that would be in 2020.
Okay. Okay, I'll get back in line. Thanks.
Thank you, Chris.
And your next question comes from Matt Logan with RBC Capital Markets.
Thank you and good morning.
Hello, Matt.
Just following up on the provincial budget. Can you talk about the impact to your business and any thoughts on the Ministry's efforts to increase long term care beds?
Well, in the provincial budget, there was a re commitment to redevelopment of the older C Class beds as well as the addition of 15,000 new long term care beds. So that was all good news. We're just waiting, I think, for details, as I mentioned, through our associations working with the ministry to determine what the details of those programs are going to be in terms of the metrics as well as the approval processes. But
I guess suffice it to say there's a little more commitment in terms of providing increased levels of construction funding, particularly given where construction costs have trended over the last few years?
Yes, we're just again, that's the detail that our association is working through with the ministry. We're optimistic that certainly government seems intent on increasing capacity to make more capacity for seniors given the current wait list of about 30,000 seniors and the hallway medicine challenges in the province.
And with the government looking to kind of increase supply, would you ever consider partnering with other REITs that might have excess
density? Sorry, what do you mean that?
In terms of we've got a number of retail REITs who have excess land and are looking to intensify their sites. Would you ever consider maybe building on some of that land or forming JVs with other businesses?
We would certainly do that to redevelop our current sites. We'd say that our focus really is on redeveloping of the current beds that we have, the 2,200 beds, C Class beds that we have to redevelop. That really is our focus and we would just add additional beds to those projects to make them work. So we would definitely be interested in JVs and opportunities where there's effort to do that.
Makes sense to me. In terms of staffing, I've got, I guess, 2 questions. And 1, is it too early to discuss the impact of any of your recruiting and IT changes? And 2, how do you see the impact of demographics on Sienna's ability to retain talent over the next, call it, 5 to 10 years?
Yes. Staffing is definitely a challenge sector wide. So I mean, we've been working hard at this for several years now on learning and development and a number of programs to recruit and retain staff. So we're always we're just constantly working and advancing what we do in this regard. A lot of what we do is focus on our culture and team member engagement.
And the information technology we're implementing in our sites is really to improve the workflow and quality of work life for employees. And that's an ongoing initiative that we've had in place and expect to be making further improvements in mobile technology by the end of this year.
That's great color. I appreciate it guys. That's all for me. Thank you.
Thank you.
Your next question comes from Brendon Abrams with Canaccord Genuity.
Hi, good morning. Hi. Just with respect to the retirement operations, it seems like rate growth helped offset any occupancy losses during the quarter. I'm just wondering if you could provide any color in terms of what type of rate growth you're seeing on a percentage basis. And I'm not sure if you would differentiate between existing and tenants or residents?
Yes, we do. I mean, rate growth for existing tenants is usually around 3% on the annual increases. On turnover, it depends on the property. And where we have full occupancy, we would get higher than that on turnover. And in communities like Ottawa that are under supplied, we wouldn't be getting any significant uptake on turnover.
Okay. So when you say on average across your portfolio, new tenants would be above that 3% threshold in terms
of On outreach, yes.
Okay. And I don't believe you segmented out in the MD and A, I could be wrong. But in terms of the retirement portfolios, are you seeing any material differences in fundamentals or between your BC and your Ontario properties?
I mean, we know hi, Brendan. Good morning. We do not segment BC and Ontario because I think by itself the segments are smaller. So one could have a pretty material difference. I mean just overall market fundamentals in both BC and Ontario, the vacancy rate in BC is much lower.
So there was a CBRE report which talked about a vacancy rate of around 3% roughly. So depending on where our properties are, if we have direct competition, then obviously our vacancy rate might be a little bit bigger than that, but otherwise we see similar results. And in Ontario, the vacancy rate is close to 10 percent. And that again, unless we have a couple of markets which are in a bit of an oversupply, which Lewis has talked about before, for example, Ottawa. And again, our results would be similar to what we see as overall trends from CBRE.
Right. Okay. And I think in that same CBRE report, maybe your referencing, it seems like transaction volumes across the sector are a lot lower than past years, perhaps just due to limited availability of product. Is that what you're seeing out there as well?
I think the pipeline continues to be strong. We don't have specific targets on an annual basis to grow. For example, between Q1 of 2018 12 months prior, we grew by close to $500,000,000 So for us, it's not that every year we have to do a certain amount. So our first focus is make sure that Maple portfolio that we bought last year is well integrated and that is on track. So that is really our first focus, but we'll keep a continued look.
So I think the opportunity is still out there. We don't see a huge change in the number of
Your next question comes from Troy MacLean of BMO Capital Markets.
Just wondering if you're seeing any indication of a slowdown in building in either Ottawa or Durham like projects getting canceled or delayed? Or it still seems like the shovels that are gone on the ground, the projects are going to finish?
We don't see any slowdown in those markets. In fact, there's still new products coming into Ottawa, Kanata area all the time. There's a couple of new ones that are going to open within the next year or so.
Would you are any of these projects built by developers who you think would sell and would you add in these markets or you're happy with what you have?
I think we're pretty happy with what we have in the Ottawa market. We only have one in Durham region and we have no plans to add capacity there at the present time.
In your comments, you mentioned changing or adding to the service and care for the retirement homes. And I was just wondering, would these be something that you'd charge more for? Or is it really just more efficiently serve residents? And would there be any margin impact?
No, there wouldn't be any margin impact at all. I think it's really just constantly enhancing the services that we provide around the residents' preferences and needs change. As I mentioned earlier, it is a local business. So we find difference in preferences in BC than Ontario. So we're constantly kind of revising menus and leisure activities and programs to meet residents' needs.
So we have a huge focus on that. As well as in some communities that residents have a need for more care and where we have the ability to designate some care units, we will be doing that, just clustering care and that sort of thing. So just driving some internal efficiencies as well as improving the resident experience. That's kind of an ongoing focus.
And does your size give you an advantage versus maybe some of the homes that are getting rebuilt by maybe smaller operators? Does that give you an advantage you think that will you'll be able to win over time even in the crowded market?
I think so. I mean, larger communities are more efficient to operate. There's no question about that. But having said, operate. There's no question about that.
But having said that, we also have some smaller communities and you can develop a very unique approach to a niche resident population in those communities as well.
And then just on the 15,000 new LTC beds the Ontario government's talked about, do you think they'll give those out to kind of enhance returns on redevelopment projects and make all the projects as efficient as possible, get the right number? Like you said, I know a lot of the some of the B Homes are smaller, like a less below the efficient size.
Do you think I know you
probably there's probably not the details out there, but do you expect that to happen?
We definitely do. In fact, that's what we've seen. And any beds that have been awarded to date, the priority seems to be going to projects, the C class projects to make them work and to make the right economic size because they tend to have to be in multiples of 32. So that's definitely the direction we've seen to date and that we would expect to continue.
And then if that were to play out, do you think you could increase your B and C redevelopment program maybe a little quicker than what you have outlined previously?
Potentially, I think it really all depends sort of in what details we're able to ascertain post the provincial budget that are being worked through now.
Thank you. I appreciate the color. I'll turn it back.
Thank you, Troy.
And your next question comes from Tal Woolley of National Bank Finance.
Hi, good morning.
Good morning.
Good morning, Chau.
The Ontario Long Term Care Association put up their regular sort of annual update and they did speak to on the labor side trying to utilize more RPNs in place of RNs and maybe coming up with a new class of employee that could substitute for the PSWs. Is that something you're supportive of? Do you think that that's a healthy solution that's that could work going forward?
Yes. I guess, what we we are supportive of that and we would say that in fact we have in some of our properties we're already using CareAids and we wouldn't say that aid can do things like port provide the direct care where the care aide can do things like quartering and bed making and that sort of thing. And that's a great model. That certainly is something we're supportive of and advocating for. And RPNs are just a tremendous addition to the team.
And again, they wouldn't replace RNs because both have a very valuable role. So we're just looking for, I think, some more, I guess, less rigidity in terms of the how the compliance regulations are interpreted and applied so that we can use RPMs more effectively. Nurses give our nurses give every day, both RNs, RPNs and personal support workers.
Got you. And the one thing that also came out of the budget, it was sort of a glancing reference to transitional care and the government being supportive of looking more into that. Do you have any further details maybe on what sort of would come under that umbrella?
We don't have a lot, but this is something we have done in the past where we do transitional care in retirement homes. And this kind of frees up seniors who would otherwise be in a hospital that don't necessarily need to be there, but aren't able to go home. So, it's something that we're very interested in doing more of. And we have been meeting with some of the hospitals in where we have retirement homes close by and having those discussions to see whether we can get involved in those pilot projects.
Okay. And then
just lastly, on the same property NOI growth in the retirement business, you talked about on the rent side, you're seeing sort of 3% 8% to 3% kind of growth. But a lot of that extra incremental upside has been on cost containment. Is there like as we think about how that same property pool will evolve going forward, like is there any sort of limit we should be concerned about? Like you can't cut costs to 0. So is there like sort of a threshold at which you think we shouldn't expect that that same cost containment can come through?
Sorry, is that your stuff specific to retirement?
Yes, I was just thinking on the retirement side, It would look to me if you're talking about 7% this quarter and roughly or 5% going forward that you're getting about 3% on the rent side and then the balance is coming from levering the operating costs. And sometimes there's only so much you can kind of do on the cost side. I'm just wondering how much more work you think you can do on the cost side?
Well, the way we do the cost side is there's a variable expenses. We're able to make some efficiencies when occupancy is lower. So in the winter months for this quarter with resident attrition and some softer occupancy, we're able to make some improvements in the variable expenses, which we do. On the other side, it's not just the in place rent, but I mentioned earlier, with turnover, there's greater than the 3% increase. So it's a combination on the revenue side.
And on the expense side, it really is just being as efficient as we are, being cost conscious and disciplined cost management, as well as managing the variable expenses when we have softer occupancy.
Got it. Okay. Thank you very much.
Thank you.
Your next question comes from the line of Pammi Bir with Scotia Capital.
Thanks. Good morning. Just coming back to the acquisition portfolio and
one of the
questions earlier. In terms of the year over year occupancy drop, was most of that market related, perhaps from new supply or really just a function of the integration process?
I would say in the Ottawa market, it's supply because is a few properties in that market. And as well as on the integration, just friction with integration in terms of getting everything onto our platform, some higher resident attrition rates with resident acuity. That's really it in a nutshell.
Got it. Okay. And then just with the integration, I guess, getting closer to, I guess, the final stages of that portfolio, can you comment on maybe what you're seeing in the acquisition market and perhaps areas where you'd like to actually raise your exposure?
I think as Nitin said, there's always opportunities. We're very disciplined and we look at every opportunity that comes out. We would like to grow across Canada, particularly further in the Western provinces.
Anything in Quebec that's of interest at this stage or?
Not at this stage, we haven't seen anything that would make sense for Sienna.
Great. Thanks very much. I'll turn it back.
Thank you.
Your next question comes from the line of Yash Sankpal with Laurentian Bank.
Good morning.
Hello?
Hello, Yash.
Hi, Yash. Good morning.
Yes. I just want to focus on the retirement home margins one more time. So looks like the margins were up in the quarter because you got rid of some variable costs. And if that is
It was also Good Friday, Yash.
Right. So what I'm trying to understand is what would be a sustainable NOI margin for your retirement home portfolio after you have integrated the Bay Bridge portfolio?
So, Yash, I think every quarter to quarter, our margin could change. So even if you look at a same store portfolio or same property portfolio I'm looking for
an annual number like roughly
Yes. So the annual number, for example, for Q4 2018, which is published is, we finished the margin at around 44 in the high 44s, 44.9 I think is the margin number compared to the 46.2 that we just in Q1. And as Lois mentioned, part of it is because of timing of Good Friday. So I would say that's probably is a good way of thinking on margin for us is the annual number that we did last year.
All right. And in terms of retirement home occupancy, where do you expect given what you see right now in the market or in your portfolio, where do you your year end occupancy to be?
I think year end we would end
Is it
a little
bit lower?
No, I think year end we would end where we did at the end of 2018.
Okay.
And that was yes, that was 91.6 where we ended 2018. So similar numbers. So today, we are at 90.4 percent as an average occupancy. So again, we expect some uptick in occupancy between now and end of the year.
Got it. Okay. And just one more question on your debt refinancing. What is the average rate you're seeing for your maturity financing?
Right. So we have around $90,000,000 of debt coming due this year at different times and the average rate for this $90,000,000 is close to 4.5%. So we do expect us to be able to refinance, roll over via multiple scenarios that we're looking at, at these rates or similar. And again, there is so many options available depending on what property type it is. For example, CMHC rates could be very favorable.
There is obviously a challenge with loan to value data clients. And then there's an opportunity of doing something like a revolver, what we have already, which slowing rate, but also gives us a lot of flexibility. So again, high level, we would say that we expect to refinance them at similar rates or better.
All right. That's good. Thank you very much.
Thank you.
And your next question comes from Chris Couprie with CIBC.
Hi, guys. Just two quick ones. In terms of the Ottawa and Durham assets that you guys called out, how would you characterize occupancy in these assets in this quarter versus a year ago? And then how long do you think it might take for those properties to restabilize? And then my second question is just on circling back on the Ontario budget.
The ministry called out a commitment to upgrade 15,000 older long term care beds. I believe the previous government had used a comment on that difference comment on that difference?
Sorry, Chris. What was your reference to the 15 were you talking about older long term care beds or day 1?
Yes, older.
Older. Well, there is 30,000 older BC class beds in the province today.
Yes.
So that is the number of beds. I think the government referenced 15,000. They probably that was probably in reference to a certain period of time. Okay. And then with respect to Ottawa, we would say it is softer there.
Now having said that, we have more properties now that with the acquisition that we did. But we would say that the occupancy in Ottawa is softer than it was a year ago. And we would expect stabilized occupancy in that market to be probably never more than 85%.
And what about Durham?
Durham, again, we just have one property there and it's we would see that sort of as a very temporary kind of adjustment. So expect to be that to stabilize within a year or so.
So relative to stabilized levels in Ottawa, how are your assets performing?
Well, in the rest of Ontario, it would be more consistent with well, you heard what I think CMHC and CBRE are guiding at 90%.
Okay. That's all right. I'll take that off line. Thanks.
Okay. Thank you, Chris.
And I am showing no further questions at this time. I would now like to turn the conference back to Lois.
Well, thank you everyone for joining our call this morning for your support of Ciena. And we look forward to seeing all of you at our AGM on May 22nd. Thank you, and have a great day.
Ladies and gentlemen, this concludes today's conference. Thank you for your participation. Have a wonderful day. You may all disconnect.