Ladies and gentlemen, welcome to Sienna Senior Living Inc.'s third quarter 2026 conference call. Today's call is hosted by Nitin Jain, President and Chief Executive Officer, and David Hung, Chief Financial Officer and Executive Vice President, Investments 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 statements or information. Please refer to the forward-looking information and risk factor section in the company's public filings, including its most recent MD&A and AIF 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 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's remarks on the company website under Events and Presentations. With that, I will now turn the call to Mr. Jain. Please go ahead, Mr. Jain.
Thank you, Ivy. Good morning, everyone, and thank you for joining us today. We have built considerable momentum at Sienna. We just delivered our 15th consecutive quarter of same property growth, added CAD 1.2 billion in assets through acquisitions and developments since the beginning of last year, and we see a long runway for continued growth ahead. The need for seniors housing and care is growing at a fast pace, and we are in a strong position to address this demand. Sienna is expanding across the full range of senior living options. In our retirement segment, we are growing from senior apartments to assisted living and memory care. We are also responding by adding more services and care. In our long-term care segment, we are accelerating our redevelopment program in addition to growing through acquisitions. Throughout this period of growth, we have remained disciplined in managing our balance sheet.
We maintained a conservative level of debt and significant liquidity to ensure that we are in the best possible position to pursue opportunities as they arise. Our third quarter OFFO per share was CAD 0.36, which includes dilutive impact of the ATM shares before we deployed the proceeds during the quarter. The impact of this dilution was approximately CAD 0.02. Our same property NOI increased by 11.6% in our retirement segment and by 6.2% in long-term care. Excluding retroactive funding, we generated double-digit growth in both segments. Key driver of the strong results in the retirement segment were occupancy and rate increases, in addition to higher care revenue. Average same property occupancy was up 20 basis points year-over-year and has reached 94.9% in the third quarter, and further increased to 95.2% in October.
Occupancy growth, together with our growing scale and operational efficiencies, led to a 200 basis point margin expansion in our same property portfolio. Our sales platform, targeting marketing initiatives, and community outreach continue to support strong interest in our residences, alongside improvements to the resident experience. We have strengthened support for our local sales team, which has increased tour activity and shortened sales cycles. In addition, our open houses continue to drive strong results, bringing in prospective residents and generating new leads. Our team members are hosting a portfolio-wide open house across our retirement residences today and tomorrow. Another key driver behind the strong performance of our retirement operations was higher care revenue. This is the result of our Aspira Wellness program with more efficient processes, improved staffing models, and consistent care offerings.
Our enhanced wellness program was launched last year and has led to a nearly 30% increase in care revenue year-over-year in our same property portfolio. As we move forward, we expect our wellness program to remain a key driver of revenue growth. With respect to Sienna's long-term care operations, government funding increases and higher revenue from private accommodations added to the strength of the results. During the quarter, the Alberta government announced a funding increase of 7.2%. This signals the government's strong commitment to stabilizing the long-term care sector and its continued focus on increasing capacity. In addition, our results reflect the benefit of our completed long-term care redevelopments in Ontario. Sienna's long-term care operations add significant value to our business and provide stability given that they are largely insulated from market volatility or economic uncertainty. Moving to slide six.
In 2026, we have completed or have under contract seven acquisitions, representing approximately CAD 430 million of assets, and our pipeline remains strong. Our most recent acquisitions, two retirement residences in Ottawa and Brighton, Ontario, with a combined value of CAD 245 million, are good examples of the quality and scale of transaction we have been able to secure. These deals demonstrate our ability to enter into large transactions despite market volatility as a result of a strong balance sheet and significant liquidity. In addition to our continued growth through acquisitions, we are also investing in our existing residences through renovations. This allows us to respond to the growing needs and changing preferences of seniors by adding more care and service offerings. At the same time, redeveloping our older long-term care homes will replace an aging infrastructure with homes that better support resident care, comfort, and quality of life.
Sienna's recently formed partnership, Fiera Infrastructure, will accelerate this work. Our first two projects under consideration for the joint venture comprise over 700 beds and have an expected construction start in early 2027. Beyond these projects, we now have land for nearly all of our remaining Class C development, which is predominantly located in the Greater Toronto Area. Our continued investment in our team members are reflected in the results of our most recent annual engagement survey. Sienna maintained its high engagement score of 8.0 and achieved record participation of 90%. For an organization with 15,500 team members, the importance of high engagement and strong team culture cannot be overstated. They have resulted in increased retention and record low turnover of less than 15%. As a result, Sienna's reliance on external agency staff is at an all-time low.
Agency staffing costs now account for only about half a percentage point of Sienna's total labor cost. High team member engagement, low turnover, and fewer agency costs are closely linked to resident satisfaction, which also has improved significantly in recent years. We started measuring resident satisfaction by using the Net Promoter Score method in 2023. in both our long-term care segment and retirement segments, Net Promoter Scores now exceed 50 compared to 14 and 25 respectively in 2023. Scores over 50 are considered excellent and reflect a strong willingness among residents to recommend Sienna and Aspira. These results speak to our team members' commitment to Sienna's purpose of cultivating happiness in daily life. With that, I will turn it over to David for an update on our financial results.
Thank you, Nitin, and good morning, everyone. I will start on slide 10 for financial results. In Q3 2026, revenue on a proportionate basis increased by 12.4% year-over-year to CAD 295.7 million. This increase was largely due to rental rate increases, acquisitions, occupancy growth, as well as increased care revenue in the retirement segment. Adding to the increase were the contributions from our long-term care platform, including from acquisitions and developments completed over the past year, higher flow-through funding for direct care, and increased private accommodation revenues. Same property NOI increased by 8.7% to CAD 57.8 million in Q3 2026, including by 11.6% in our retirement segment and by 6.2% in long-term care. In the retirement segment, same property NOI increased by CAD 2.8 million in Q3 2026 compared to last year, largely as a result of improved occupancy, rate growth, and higher care revenues.
Combined with our strict focus on operating expenses, the year-over-year operating margin improved by 200 basis points. In the long-term care segment, same property NOI increased by CAD 1.8 million. Government funding increases, including a 7.2% increase in Alberta, higher revenue from private occupancy, and the contributions from Sienna's completed redevelopments were the key drivers behind the very strong year-over-year growth. Our Q3 results in our long-term care segment include retroactive items. Excluding these retroactive items, same property NOI would have increased by 11.5%. During Q3 2026, operating funds from operations increased by 21.2% to CAD 39.8 million compared to last year, primarily due to higher NOI, partly offset by higher income tax and interest expense. Adjusted funds from operations increased by 25.7% to CAD 36.1 million compared to last year.
The increase was mainly due to higher OFFO and construction funding income we received from the Government of Ontario for redevelopments we completed last year. On a per share basis, OFFO increased by 1.4% in Q3 2026, largely driven by higher OFFO, offset by the temporary dilutive impact of the ATM program. Sienna's Q3 2026 AFFO per share increased by 5.2%, and the AFFO payout ratio was lowered to 72% compared to 75.9% in Q3 2025. These improvements highlight Sienna's strong operating results, the contributions from our completed redevelopments, and accretive acquisitions, offset by the impact of the ATM program. Cash raised in the ATM program was subsequently deployed to fund an acquisition that we announced in Q3. Our recent acquisitions are our newly built high-quality retirement residences in Ontario.
During Q3, we entered into an agreement to acquire Stonemont on the Park, a 305-suite retirement residence in Ottawa, which is nearly fully occupied. We completed the transactions at the end of October for approximately CAD 171 million and financed it with cash on hand. We also entered into a CAD 74 million transaction to acquire Brighton Retirement & Active Living in October. This is a 165-suite retirement residence in Brighton, Ontario, that includes 41 seniors apartments, and we expect to finalize the transaction in Q4. Our solid balance sheet and significant liquidity have put us into a strong position to acquire high-quality assets of scale, such as Stonemont and Brighton. We ended Q3 with approximately CAD 595 million in liquidity and nearly CAD 1.6 billion of unencumbered assets.
At 34.5%, our net debt to adjusted gross book value was lowered by 6.3 percentage points year-over-year, and our weighted average cost of debt remained low at 3.9% at the end of the quarter, unchanged from Q3 2025. year-over-year, we also further improved Sienna's debt service coverage ratio to 2.8x from 2.4x in Q3 2025. Sienna has approximately CAD 160 million of debt coming due in the next 12 months. Given our access to a broad range of capital and Sienna's strong BBB credit rating with stable trends, we are confident in our ability to refinance our expiring debt at attractive terms. With respect to Sienna's equity, we raised CAD 4.9 million of shares under the current CAD 150 million at-the-market equity distribution program during Q3.
The at-the-market program gives us the flexibility to raise capital during the right market conditions, and we deliberately limited the issuance of shares during the third quarter. Yesterday, our board of directors approved the renewal of the ATM program, which allows us to issue another CAD 150 million of shares as we continue to execute our growth strategy. We will remain disciplined in our approach to raising and allocating capital, always with a focus on maintaining a strong balance sheet. With that, I will turn the call back to Nitin for his closing remarks.
Thank you, David. As we approach the end of 2026, we remain confident in our growth outlook and the opportunities ahead. We continue to expect NOI growth in the retirement segment to exceed 10% year-over-year in 2026. This double-digit growth target is the result of occupancy growth, rental rate increases, and higher care revenue. With respect to margin growth, we made an upward adjustment of 50 basis points and expect same-property margin in the retirement segment to grow between 150-200 basis points year-over-year. In long-term care, we increased our 2026 same-property NOI growth target and now expect high single-digit percentage growth. This reflects the segment's strong operating performance and the positive impact of recent government funding announcements. Looking beyond 2026, we see a very long runway for growth. Demand for senior housing and care is expected to rise for the next two decades.
At the same time, supply will remain constrained for longer than expected, with 2026 construction starts remaining below 1% of current inventory. This is an exceptional time in Canadian senior living space, and as a diversified owner and operator, we are particularly well-placed to capitalize on the opportunities ahead. We operate across the full range of senior living, from senior apartments to long-term care. This gives us many options to scale our platform. In our retirement segment, we will continue growth through targeted acquisitions in current and new markets across Canada, including expanding into Quebec. We will also enhance care and service offerings at our current residences and invest in strategic renovations to meet the growing care needs and changing preferences of seniors. With respect to the long-term care segment, we will accelerate our redevelopments of our older Class C homes and also expect to continue growth through acquisitions.
This will position us well to serve a growing number of Canadian seniors in the years ahead, further cementing our platform and creating long-term value for Sienna's shareholders. On behalf of Sienna's leadership team and our board of directors, I want to thank our shareholders and all of you on this call for your continued support. With that, we will take your questions.
Thank you. We will now begin the question-and-answer session. If you have dialed in and would like to ask a question, please press star one on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star one a second time. If you are called upon to ask your question and are listening via speakerphone on your device, please pick up your handset and ensure that your phone is not on mute when asking your questions. Again, it is star one if you would like to join the queue. Our first question comes from the line of Himanshu Gupta with Scotiabank. Your line is open.
Thank you, and good morning. On retirement home occupancy, I mean, same-property occupancy has moved up nicely from June to September. So, what led to this, and what are you seeing in terms of tour activity or lead generation?
Good morning, Himanshu. We continue to see good tour activity. As you mentioned, we have open houses today and tomorrow across our entire Sienna platform, so across the country. Leads continue to stay strong, tours continue to stay strong, and deposits continue to stay strong. We are trending in October, or we finished October at 95.2% occupancy. The question always comes up, what stabilizes? I think it's still hard to answer. I would say it could be anywhere from 95%-96%. Things are trending more to 96%. We have a number of homes, close to 20%, which are close to 50% of our retirement portfolio, which is now close to 100% occupancy. So, we will continue to see this march upwards of occupancy. I think 96% is possible.
Got it. Great to hear that. Just sticking to occupancy, the other piece, growth and optimization, portfolio occupancy is still in that low 80% range. I know there's some renovations involved and work to be done. Do you have any timeline or target by which you bring that occupancy into the 90s or maybe mid-90s?
Yeah, Himanshu, our occupancy is around 83% in the optimization portfolio. This is the portfolio that we see a lot of opportunity for significant renovations and/or changes in service mix. We're actively working on those projects, so we would expect somewhere within the next 12-18 months for occupancy to stabilize within those portfolios after we complete the renovations.
Each year, we reset our growth and optimization portfolio, Himanshu, so I think you could see that maybe the occupancy in this portfolio might be similar, and once they reach optimize, when they're optimized or the renovation is complete, they will move into same property.
Okay, thank you. Last question. On Stonemont acquisition, properties fully occupied, newly built asset, sounds like high-end amenities as well. Is the plan to push rents higher than some of the other portfolio you have? What are you underwriting in terms of pushing rents or rent growth on this property?
Yeah, we see, and Stonemont is a less than two-year property, and usually when you're leasing up, sometimes we see higher incentives, sometimes we see lower rent, and we see both in this case. As residents move, we do see an opportunity to increase rates and with lower incentives. I think the opportunity exists, and those opportunities truly exist when the property is full, which it is now.
And maybe just one quick follow-up. If I look at the pricing, more than CAD 500,000 per suite, is that a good reflection of where the replacement cost is right now for these type of assets?
For that one in particular, given half of that properties are actually senior apartments, it's newly built, and with extensive amenity space. I think the replacement value number can be a bit misleading at times because you build a lot more studios with less amenity space for less money. In this case, we expect this to be 10%-15% below replacement cost given the current construction numbers.
Got it. Fair enough. Thank you so much, and I will turn back. Thank you.
Our next question comes from the line of Lorne Kalmar with Desjardins. Your line is open.
Thanks. Good morning. Just on the margin side, you guys had a pretty nice bump year-over-year despite only 20 basis points of occupancy increase. Just wondering, what do you think is achievable in the near term as occupancy stabilizes in the same property portfolio? Also, what was the key changes, I guess, in your initial assumptions on margins when you put out your outlook versus where we sit today?
Thanks for that question, Lorne. First, I would say that we have increased our margin outlook to 150-200 basis points for 2026. So that is sort of our near-term outlook in terms of margin growth. The increase versus our expectation really comes as a result of our care revenues. Care revenues have been growing at a faster pace than we would have expected. They have been growing 25%-30% in the last several years, and we have seen that continue on in 2026. So the care revenues have contributed towards the higher margin growth within our retirement segment. So that would be different from what we versus our original outlook.
But correct me if I'm wrong, are care revenues typically lower margin than the rest of the business?
Yeah, I would have been surprised, Lorne, if you didn't ask the follow-up question on it. So you're right, they usually are at a lower margin. But one of the things we have seen is when we first launched care, which was I mean, our care is in multiples of where it started five years ago. And for the first few years, we in fact lost money on that care revenue, then we broke even, and now we're making margin. So one of the things we are seeing now is the investment we did last year in optimizing care revenues, having the consistency of our offering, having the right labor model. We are seeing continued increase in that margin for care, but it will stay below what we will find on our accommodation side. But our mix is getting better because that number is getting higher.
Okay. Can you give us a rough idea maybe of what care revenues would represent as a percentage of retirement NOI?
I would probably say as a percentage of revenues, there's two components. There is care that is part of assisted living, and then there is what we would call, let's say, a la carte care. The a la carte care would be around somewhere between 7%-8% of total revenues, if that gives you an idea.
Perfect. That certainly does. Then maybe just last one. Net debt to EBITDA does come down quite a bit. I think you guys now are sub six. What do you view as an optimal target for the business? Just wondering sort of how you balance that with going and issuing stock under the ATM.
Yeah. We've commented on this in previous quarters, and it remains the same. Our target debt to EBITDA would be around 7.5x - 8x over the medium term. This quarter was lower, and we're very happy with it. Part of the lowering of the debt to EBITDA was because we have raised money through the issuance of our ATM. Subsequent to the end of the quarter, we did deploy those proceeds for the acquisition of Stonemont. You should expect that in Q4, that ratio will tick up a little bit. But medium term, we would expect that somewhere in the range of 7.5x - 8x.
Do you expect to stop being as active on the ATM? I'm kind of trying to get my head around sort of you're so far below and issuing shares under the ATM, just sort of trying to reconcile that.
I mean, we have been quite clear. We'll only issue shares under the ATM program first if the market condition is right, second, if we see a near-term opportunity to deploy it at the right pace. Ideally, we would have liked to close both Stonemont and Brighton in Q3, so there was no timing difference. But as we all know, you cannot time those acquisitions perfectly because there are multiple parties involved. But our goal is not to issue stock under ATM and then sit on it. That was not the intent. Whenever we are in market and raising money through ATM program, we have specific deals in sight and specific purpose for it.
Going forward, for example, if we do not find any acquisition opportunities, which is not going to be the case, to David Hung's point, we will happily work on the other side of the balance sheet and making sure that we don't expect to be at 6x debt to EBITDA. So, that number will change to ensure that we're finding the right balance of not over-equitizing our shareholders.
Okay. Thank you so much. I'll turn it back.
Our next question comes from the line of Sairam Srinivas with ATB Cormark Capital Markets. Your line is open.
Thank you, Operator. Good morning, guys. Just looking at the flu season numbers, I know October has seen an early start around this year. Are you seeing an impact of that in terms of the residences, and any commentary around that in terms of how it should impact occupancy going on?
I mean, usually, we saw that last year. We saw the impact of it in early Q1. It is too early to explain whether we will see an impact or not. I mean, we correlate. A lot of times, we get questions on the housing market and would that impact retirement occupancy. We are not seeing a correlation there. It might be because of the level of care we provide, or it could be that supply remains incredibly low and demand is increasing. I think it is hard to predict what we will see in Q1. So far, the numbers we are seeing for leads, for tours, and deposits, in that order, continue to stay high.
Then maybe tying this back to our discussion on care revenue. If you look at this last year, with the flu season coming in and tracking, was there occasions where you could see care revenue increase as the season went on?
I think that will be very hard to predict. I mean, usually residents get assessed twice a year. So, what you are saying might make sense, but I think it will be very hard to track that number.
Fair point. Probably just switching gears to acquisitions. I know you guys said there is a ton of opportunity out there, but obviously with rates going up in the recent couple of weeks, how have you seen the spreads change for you guys? Has there been any impact of that in your acquisition market, or are even competitors kind of seeing that pricing kicking in?
Yeah, it's hard for us to comment what our competitors or peers are doing. I mean, for us, unless we can make money in the short to medium term, we have no interest in investing in any property, regardless of how good it looks from outside. So, we will follow the same process. And you're right, I mean, it needs to reflect the current market conditions. That's why we have the balance sheet that we have, which is liquid. We have a lot of opportunity to grow without issuing stock, if we decide to do that. So, we find ourselves in a good place, and we'll continue to be very disciplined on the kind of properties we would invest in.
Thanks, Nitin. Maybe my last question is on the cadence of Class C redevelopment. I know that's a huge opportunity for you guys. Do you guys have any more clarity on when do you see that pipeline kind of coming through?
We've completed two projects last year. We have one under development, which will complete next year, and then we're starting two projects. I mean, the number two is a bit misleading because these are 700 beds. They're more like four projects, and we expect to start them in Q1. At the same time, within this year, we expect to have land for every single C home that we have. Again, once you buy land, then you get into schematic designs and approval process and others. So, we should see continuous cadence of us launching new long-term care development. That's why we wanted to have the right partner, because we don't want to do all of that on our balance sheet.
That was great, Nitin. Thank you. I'll turn it back.
Thank you.
Our next question comes from the line of Jonathan Kelcher with TD Cowen. Your line is open.
Thanks. Good morning. Just going back to the leverage question. Pro forma, the two acquisitions that are going to close in Q4, roughly what is your debt to EBITDA going to be?
Yeah. If we incorporate all the acquisitions, including Brighton and Ballycliffe, which is both expected to close within the next couple of months, we would be around six and a half times.
Okay. So, you are leaving yourself some acquisition power there then, right?
That would be a fair statement.
Okay. On your margins, I guess a lot of the expansion this year was just the better optimization of the care. As you look out to 2027, I guess the growth won't be quite the 100 -1 50 that you put out as initial guidance this year, but do you still expect to get decent margin expansion next year?
I mean, we haven't given out any 2027 numbers yet, but we expect our long-term care to grow through inflation. I think the numbers we see in retirement, we don't think those are reasonable in the medium term. Sorry, unreasonable in the medium term. So, there is a high chance that our margin will continue to expand beyond where we are at the moment.
Okay. Then just lastly, on the Stonemont and the seniors apartments, how are seniors apartments different than traditional retirement suites for the tenant?
In most cases, they would have, for example, most of them would have a kitchen and would have a full kitchen. Usually the suites are bigger, and that goes into the cost number of it. For example, if you build a retirement home, usually less than 10% of your suites are two-bedroom. In a senior apartment, that number could be double of that because usually people are moving in younger, they usually have a spouse at that stage, and they would look for more space. But from an amenity perspective, usually people will continue to look for large amenities. That would be the key difference. Otherwise, there's no point in being in a senior apartment. You can just live in a regular apartment. So, the use of amenity continues to be a key focus. And once residents move, we do find the whole continuum of care to pull in.
We just at one of our strategic renovation property in Campbellford, we added assisted living there, and the first few residents moved there are our current residents moving from independent living to assisted living. So, not only the amenities are different in senior apartment, but it does create a big funnel for residents to move into independent living and then assisted living or memory care as needed.
Okay. Would any of those apartment suites sort of transition to retirement? Just like people pay a higher, I guess, a higher monthly rent?
I mean, it's-
Or is it separate, basically?
Yeah, it's all one building. You can add more care behind doors. For example, if someone is in an apartment and care can come in many different ways. It could be simple things as medication, or it could be complex thing as physical needs. That's what will determine. If someone can be safely in an apartment, they need support with things that can easily be done behind doors on a separate floor, that will continue to be the case. But if someone's needs significantly changes and if it's dementia-related where there's wandering risk, then they would definitely move to the retirement side. But you can switch the classification at times, but usually our goal would be to leave it the way it is and provide care behind doors as needed.
Okay. Thanks. I'll turn it back.
Thank you.
Our next question comes from the line of Brad Sturges with Raymond James. Your line is open.
Hey, good morning. Going back to the leverage question and just as it relates to acquisitions, it sounds like you've got a bit of cushion or wiggle room between where you're running and where leverage could tick up to for acquisitions. I'm just wondering if you were to go to the 7.5, the 8x , how much capacity would that give you from an acquisition point of view today?
Yeah. We could probably do another CAD 500 million on our balance sheet and still be within the range of 7.5 x- 8x of our debt to EBITDA.
That's great. Just on the Stonemont and Brighton, just looking at your disclosure here, I guess the yields have been removed from the table there. I am just wondering if you give maybe a high-level view in terms of how should we think about retirement going in yields in markets like Ottawa and Brighton?
Yeah, the yields are quite consistent for new product. To your point, I think the markets are important, but the age of the product and the quality of the product is also very important. Both of these would be A-class product. You can expect going in yields of in the 5s and then expect it to grow into the 6s in couple of years, given the synergy with our management platform and the just rental rate growth, our ability to add services, and fixing market rent appropriately.
That's great. Just maybe the last question. Obviously, you have given updated guidance for 2026. If we think about 2027 and as you approach kind of 96% occupied on the retirement side, how should we think about same property NOI growth for next year under that assumption that you can reach 96 and depending on, I guess, other drivers like revenue per occupied suite and OPEX per occupied suite? Is that trending more sustainably in the high single-digit range, or how should we think about that?
That's a great question, Brad, and I think your answer is in the question. I think it's on some stage. There is a real limit of what you can push occupancy to because there's just even properties which are 100%, when one resident leaves, it takes a bit of time to get the next person in, for example, just with suite turn. So, once you are at 95%, 96%, I frankly believe that's a beginning of driving NOI growth. I don't think for us, it's rental rate increases, it's market rent increases, and many of our properties are below market where we see some of them as we do strategic renovations that also upgrade the quality of a product. Using a hotel analogy, you are taking, call it, a residence in and turning into a full Marriott with full services, and those rental rates would be very, very different.
And the last one for us would be care revenue. As we add more care and services, for example, many of our strategic renovations, we are adding more assisted living floors, more memory care. And those have higher rates and higher NOI. So, we see the NOI growth as a long-term phenomena, not just because the occupants will get to 95%, 96%, and the focus will move to more revenue per occupied suite versus just on occupancy.
Okay. I appreciate that. I will turn it back. Thank you.
Thank you.
And our next question comes from the line of Tal Woolley with CIBC Capital Markets. Your line is open.
Hey. Good morning, everybody. Just to be clear, your redeveloped assets still stay in the same property pool, right?
Our redeveloped.
For LTC.
Yes, that's correct.
Okay.
For Q3, both North Bay and Brantford would be part of our same property.
Okay. I guess, historically, we've always sort of thought about long-term care as kind of low single digit, funding dependent. You put up very healthy numbers all year long, so obviously, the impact of some of those assets, I think, are probably driving a reasonable chunk of the growth you're seeing right now. Are you able to kind of roughly quantify, sort of the 11%, how much is from redeveloped assets, how much is from funding increases, and then how much might be from other sources?
Sure. The biggest driver of our increase this quarter has really been around the higher funding in both B.C. and Alberta. In Alberta, as we mentioned, it has announced the second 7.25% funding increase within the year. That is the biggest driver of the increase in our NOI. The second reason would be around private and preferred accommodation. So in B.C., we actually have around 160 private paid long-term care units, where we can actually drive rental rates higher than the inflation. So that would have contributed. The third piece is really around the North Bay and the Brantford redeveloped assets. That would have been a lesser part, but it would have helped drive some of the growth as well.
Okay. Is it fair to say the funding increase is like half of the 11%, would you say? Or is it smaller than that?
Yeah. It would be probably a bit more than half of the, around half of the increase, I'd say, between Alberta and B.C.
Super. That's really helpful, David Hung. I appreciate that. Also, on the long-term care side, you've been able to execute some acquisitions. Can you just talk a little bit about that market? I think we hear folks a lot on the retirement market. I'm just wondering, what's sort of the frequency with which these assets come to market, and is the bidding pool smaller for those assets than for retirement?
I would say we see less assets when they come to market, but also, you're only competing with two or three players, but the pricing is very sticky. It's not a wide range of someone can believe they can create 50 and another person can create 100 in that home. You might have less bidders, but the pricing is very, very tight, and then it comes to how quickly can you execute, how fast is your due diligence, what kind of financing conditions do you have, how quickly can you close, what's your partnership with government look like? If you're a good operator, the chances are you will get a license transfer faster. If you're a new operator or have had challenges, that takes much longer.
When it comes to long-term care acquisitions, we rely a lot on reputation, relationship, and partnership with government, because of a track record and the conditions in our PSA.
Okay. I think, just to go back to, I think it was Lorne's question, just on the care business. Is it fair to say that we should think of that piece of the puzzle as more of a fixed cost business? Like, basically, you have to have the labor contracted to be able to deliver those services, and that the margin really becomes about how well you utilize that labor?
To a point. For example, if you have a nurse, they can provide, let's use a simple example, a medication. They can provide medication to a certain number of residents, and then there's a step-up function after that. After you reach that number, let's just call it 25, the 26th resident, now you're hiring a second nurse, and that'll take some time to optimize that number till you get to 40, 45 residents. That is the reason when you build assisted living and memory care, there's a lot of math goes into what is the optimal size, because at some stage, you are doubling up the team, but you cannot double up the revenue because of the space constraints. It is not a straight line, and it's not all fixed.
There is a good fixed piece, but then the rest would be variable depending on number of residents you serve.
Okay. Our restructuring charge this quarter sounds like it was for the wind-down of a couple facilities. I'm assuming that doesn't really have any future impact that we need to worry about?
That would be correct. That restructuring charge relates to both our Streetsville and our Glen Rouge properties.
Okay. That is great. Thanks very much, guys.
Thank you.
Thank you.
As a reminder, just star one if you would like to ask a question. Our next question comes from the line of Giuliano Thornhill with National Bank Capital Markets. The line is open.
Hey, guys. Good morning, everyone. Just wanted to go to the turnover that you mentioned. I think it was around 15%, which is pretty impressive. What's that compared to the industry or maybe the long-run average that you're used to?
I mean, usually these numbers are not published from an industry perspective, so hard for me to comment on that. I will just use Sienna's number. I mean, in 2019, 2020, our turnover number was close to 50%, which usually was in line with others. I do not know what the numbers would be for others. I do see many have seen a decline in turnover. We believe ours stands out quite significantly from that number.
You said 50%-15%, and I'm just kind of wondering, what's been the Can you quantify the impact or benefit to margins or OPEX from that lower turnover? Just because there is a lot of cost associated to training and there's benefits to resident happiness, as you mentioned earlier.
Yeah, absolutely. I think the last one is a bit hard to measure. We will eventually get there to measure happiness, and we are in fact working on it as part of our work with Ontario Tech. There is multiple aspects to it. I mean, you look at agency cost, and just using numbers even from 2019, we used to spend CAD 20 million a year on agency cost and nearly 67% size of the portfolio. This year, we are tracking to less than CAD 3 million or CAD 4 million for a portfolio which is 30%, 40% bigger. I mean, that is just millions of dollars there. When you even look at retirement margin, and again, hard to parse it out because there are simple things like orientation, you can review that.
But when someone has been working with you for a year and someone who just starts, there is a big difference in their productivity and efficiency, and also how to treat residents, and we see that in resident satisfaction. There is no doubt in our mind if there is a home with 50%, 60% turnover, we would not see the NPS of 45, 50, and that goes into their ability to recommend and drive occupancy. For us, I mean, this is, if we get that piece right, given how operationally sensitive this work is, we believe that the rest of the things will really fall into place.
Great. Just one last question I had was on LTC acquisitions. There has been a few infrastructure funds and PE buyers that have entered the space. I am just wondering if you are seeing that begin to kind of compress yields or maybe increase competition for some of those assets that are actually brought to market.
Absolutely. I mean, there is, whenever there is LTC assets have come into play, there is a fair amount of competition for that. One of the differentiator for us is we are owners and operators, so we do not rely on a third-party operation, and that creates some synergies. We are well-financed, so we are not looking for a financial partner. Depending on what is important to the seller, not only we can compete on value, but we can also compete on the maybe a more confidence path to getting a deal done in a timely basis. And we will continue to do that.
Great. Thank you, guys.
Thank you.
Ladies and gentlemen, that concludes our question and answer session as well as today's call. We thank you for your participation, and you may now disconnect.