Sienna Senior Living Inc. (SIA) Earnings Call Transcript

Good morning, everyone, and welcome to Sienna Senior Living's Q3 2025 conference call. Nitin Jain, our President and Chief Executive Officer, is hosting today's call alongside David Hung, Chief Financial Officer and Executive Vice President, Investments of Sienna Senior Living. I'd like to remind you that some of the statements or information we discuss today are forward-looking, and actual results may differ materially. The company does not commit to updating any forward-looking statement or information. For additional detail, please see the forward-looking information and risk factors section in the company's public filings, including its most recent MD&A and AIF. A more fulsome discussion of the company's results is also available in its MD&A and financial statements for the period, which are posted on SEDAR Plus and can be found on the company's website, siennaliving.ca. This call is being recorded, and a replay will be made available. Instructions for accessing the call are posted on the company's website, and the details are provided in the company's news release. Slides accompanying the host's remarks have been posted on the company website under Events and Presentations. With that, I'll now turn the call over to Mr. Jain. Please go ahead, Mr. Jain.

Thank you, Sarah. Good morning, everyone, and thanks for being with us today. The third quarter laid the groundwork for a strong close to this year. Positive momentum exists throughout every area of our company. We posted robust operational results in both of our business lines, finished two development projects in Ontario successfully, and kept expanding through acquisitions. We remain on track to make 2025 a year that signals the next stage in Sienna's growth journey. Both operating platforms turned in strong results during the third quarter. Same property NOI rose 13.2% in the retirement segment and 6.7% in long-term care. The main drivers behind the double-digit gain in the retirement segment were a solid rise in occupancy and growth in rental rates, along with higher care revenue. Average same property occupancy climbed 230 basis points year-over-year and reached 94.1% in the third quarter. After the quarter ended, monthly occupancy rose to 94.7% in October, which puts us well on our way toward hitting a 95% target by the end of this year. Our results also reflect growth in care revenue. We increasingly bring our clinical care expertise to our retirement platform, which lets residents remain with us longer as their care needs evolve.

Other key factors fueling the retirement segment's solid results include our strong sales infrastructure and targeted marketing efforts. Incoming calls to our call center are still elevated, and property tours have risen considerably quarter after quarter throughout this year. For Q3, our leads rose 37% versus a year earlier, matching the prior-year period, and we're likewise heartened by how our National Open House turned out in October. That event produced a far bigger double-digit lift in fresh leads than the one we held back in July. On top of that, we stay sharply focused on hospital outreach and keep outstanding ties with healthcare and business partners across the communities where we operate. We expect all these efforts to fuel rising lead generation and future move-ins. Alongside the solid same property results and the retirement segment, we're happy with how our optimization work paid off at five of our properties. In Q3, occupancy across the optimization portfolio climbed 970 basis points year-over-year and helped drive NOI growth above 40%. Our steps to position these assets better in their local markets are plainly producing results. As for long-term care operations, our fully occupied homes with expanding waitlists, strong revenue from private accommodations, and yearly increases in government funding each contributed to the strength of our results.

Government-funded long-term care operations bring substantial value to our business—they offer stability and remain largely shielded from market swings or economic uncertainty. Over the next several quarters, contributions from redevelopment projects we've recently opened will also begin showing up. Turning to slide six, we opened our redeveloped long-term care community in North Bay during September, and then a campus of care in Brantford in October. Projects of this scale are complicated, demand deep expertise and dependable partners, and we take particular pride in having completed them on schedule and within budget. Each of our long-term care redevelopments, once fully stabilized, should lift Sienna's AFFO per share by roughly 3%. Given lengthy waitlists, we anticipate the homes reaching full occupancy within 60 days of opening. We also remain on track to finish our next redevelopment project in Keswick in 2027. Regarding our development pipeline, the funding improvements the Ontario government announced this summer encourage us. Enhancements for projects in the Greater Toronto Area matter especially to us, since more than 80% of our remaining redevelopment pipeline actually sits in the GTA. Thanks to these improvements, we anticipate beginning construction on one to two projects next year.

We've likewise been quite busy on the acquisitions side since the start of the year. Most of the properties we bought in 2025 are under 10 years old and sit in strategic locations within major urban centres. In the third quarter, we expanded our presence in the Greater Toronto Area by adding the 133-suite retirement residence and 192-bed long-term care home we had announced earlier. After the quarter closed, we also signed two more acquisition agreements in Ontario. Last week, we entered a purchase agreement for Highgate on Lexington, a 216-suite retirement residence located in Waterloo. We'll be acquiring that property in this attractive market for roughly CAD 93.3 million. Highgate also comes with a 4.7-acre development site zoned for either a retirement residence or residential condominium. Two days ago, we signed a purchase agreement for La Salle Park, a 123-suite retirement residence in Burlington, which is a suburb of the Greater Toronto Area. Initially we'll acquire a 78.2% interest in that property for about CAD 67.2 million, then an additional 10.9% in January 2026, with the final 10.9% coming in five years. This marks our third high-quality acquisition this year in the Greater Toronto Area, where we already hold a significant presence and keep building scale.

All together, through acquisitions and developments, we added more than CAD 800 million of assets to our platform during 2025, and our pipeline remains very strong. Investing in our team members. As our operations grow and scale, putting investment into our team members is essential to Sienna's success. With more than 15,000 employees, we understand how important programs are that focus on learning and development, leadership skills, recognition, and rewards — all of them designed to attract and retain our highly engaged workforce. The positive effect of these initiatives shows up in our latest employee engagement survey, which was completed in September. Participation hit an all-time high of 86%, and the team member engagement score went up for the fifth consecutive time. We are extremely proud of this achievement, which is vital to Sienna's continued success. Time Magazine also recognized our investment in our team members, naming Sienna one of Canada's best companies in 2025. With that, I'll hand it over to David for an update on our financial results.

Thank you, Nitin, and good morning to all of you. I'll begin with slide 10, where we cover the financial results. As our MD&A disclosure specifies, my remarks will reference operating results while excluding one-time items. During Q3 2025, revenue calculated on a proportionate basis rose 16.4% compared with the prior year, reaching CAD 261.7 million. That gain stemmed mainly from higher occupancy and rental rates, together with greater care revenue within the retirement segment. Further boosting the increase were contributions from our long-term care platform, among them elevated flow-through funding for direct care, greater private accommodation revenue, and extra revenue stemming from acquisitions closed in 2025. Same property NOI grew 9.7% to CAD 46.4 million in Q3 2025, which includes a 13.2% rise in our retirement segment and a 6.7% rise in the long-term care segment. Within the retirement segment, same property NOI was up CAD 2.6 million in Q3 2025 relative to last year, chiefly driven by better occupancy and rate growth. Those gains, along with producing higher care revenue and keeping a tight focus on operating expenses, underpinned a year-over-year 220 basis point lift in our same property operating margin. Beyond that, our asset optimization initiatives are advancing well, and those initiatives encompass five assets within the company's retirement portfolio.

For Q3, NOI across the optimization portfolio rose more than 40% versus a year earlier, and average margin was up roughly 540 basis points against the same stretch in 2024. Within long-term care, NOI rose by CAD 1.5 million. The year-over-year gain was driven by homes that are fully occupied with expanding waitlists, along with steady gains in private occupancy. In Q3 2025, operating funds from operations climbed 33.3% to CAD 31.8 million versus last year, largely on higher NOI. Adjusted funds from operations rose 36.1% to CAD 27.7 million versus last year. That gain came mostly from higher FFO, partly offset by more maintenance capital expenditures. Per share, FFO and AFFO were up 9.6% and 12%, respectively, in Q3 2025. Our AFFO payout ratio for Q3 2025 stood at 78.7%, versus 91.3% in Q3 2024. That marked improvement underscores Sienna's strong operating results and the success of our efforts to deploy the capital we raised to fund growth. Over the next several quarters, we also anticipate seeing the impact of recently finished redevelopment projects show up in our AFFO. Once each redevelopment is fully operational, it is expected to add, on average, CAD 4.7 million to Sienna's annual AFFO.

Each of those projects adds roughly 3% to AFFO per share. Beyond that, they will strengthen our balance sheet and raise the quality of our asset pool even further. During the third quarter, we kept our financial position and balance sheet strong. We closed the quarter with CAD 464 million in liquidity and CAD 1.3 billion in unencumbered assets. On August 21st, we issued CAD 175 million of unsecured debentures carrying an interest rate of 4.112% in order to fund our growth initiatives. Demand for the debenture was substantial, and the offering ended up multiple times oversubscribed. As for Sienna's debt maturities coming up, including the CAD 175 million Series B unsecured debenture maturing in Q1 2026, we have several attractive financing options open to us. With that, I'll hand the call back to Nitin for his closing remarks.

Thank you, David. The results clearly show how disciplined we've been about improving how we operate. That, together with what we've achieved in expanding through acquisitions and developments, strengthens how we feel about what lies ahead for Sienna, in the near term as well as over the coming years. We remain on track to finish the year with same property occupancy of 95% in the retirement segment, ahead of our original Q1 2026 target. Consistent with how strongly we've performed so far this year, we also revised upward our same property NOI growth targets. Within our retirement segment, we expect same property NOI to rise between 13%-14% year-over-year, and in long-term care, we foresee year-over-year NOI growth of 4% or 5% across our same property portfolio. Our company stands at the start of an exceptional growth phase. Supply should stay constrained for the foreseeable future, while demand and operating fundamentals keep getting stronger. Given our expanding scale and the backing of our highly engaged team members, we believe a tremendous opportunity exists for us to deliver sustained growth for many, many years to come. On behalf of our whole team and our board of directors, I thank our shareholders and everyone on this call for your continued support.

Sarah, we can take questions now.

Thank you. To ask a question, please press star one on your telephone keypad. Should you wish to withdraw your question, just press star one once more. Please make sure your phone is not on mute when called upon. Thank you. Your first question comes from Jonathan Kelcher with TD Cowen. Your line is open.

Thanks. Good morning. First question, just about operations, on the retirement side, it seems like you're kind of knocking it out of the park a bit here at reaching 95%. Once you sort of hit that target, what should we think about going forward when it comes to rent growth?

Thanks, Jonathan, and good morning. We’re expecting rental growth in the 4%-5% range, which comes from a combination of annual escalations. On top of that, there would be some chance to, in fact, revisit market rents when you’re operating at those high occupancy levels. Even though margin wasn’t what your question was about, we’ve said previously that once you reach the higher margin, a lot of that revenue will keep flowing through to the bottom line. NOI growth—rental revenue will be one component of it, but multiple other levers will also drive that NOI growth.

All right, understood. Moving on to the second point, regarding acquisitions, I wonder if you could provide a bit more detail on La Salle Park, specifically about that remaining 22%. Has the pricing already been fixed? And do you expect substantial room for rent growth at that property? For a retirement asset, the 5.7% cap rate seems somewhat low relative to what you have typically been acquiring.

Yes. No, thank you for asking, Jonathan. Regarding how the deal is structured, we're acquiring 78% right now for CAD 67.2 million. Another 11% gets purchased in Q1 of 2026, and the price will be identical to what we're paying today. At 100%, the value comes to CAD 86 million. Five years out, it would be priced at fair market value as of then, and there will be certain predetermined metrics guiding how we compute that. On rental rate growth, I'd say it should look a lot like what Nitin described. We're seeing an opportunity for rental rate growth of 4%-5% in that market. Much of that should also flow down to the bottom line and widen the margins at that property.

All right, thank you. I’ll hand it back now.

Our following question is from Himanshu Gupta at Scotiabank. Your line is open.

Thanks, and good morning. Starting with long-term care: what drove the NOI increase there? I realize your guidance has been roughly 2% growth, yet we've seen 4%-5% so far this year. Is there also a margin expansion story in LTC?

Yes, it comes down to a few things, Himanshu. First, all three provinces — Ontario, Alberta, and BC — are providing increased funding, and that has come in slightly above the rise in our costs. Second, there's the preferred revenue piece. We've been generating growth by filling our beds with residents paying private accommodation rates. And then a small part relates to the Nicola acquisition. We purchased that earlier this year, so it's adding modestly to long-term care NOI growth.

All right, all right, that's fair. I'll stay with LTC, but regarding the developments, Brantford and North Bay are finished at this point. At what stage do you begin getting construction funding, and when does that start showing up in the financials? I'd imagine it breaks down between interest income and the contribution to AFFO.

Correct. The CFS money begins once a building is open. For Northern Heights, we opened the doors and welcomed our first residents on September 7th. CFS began flowing on September 7th. Oakwood Commons, located in Brantford, opened in October, and that is when CFS would begin flowing there. We have actually already started to see a small amount of CFS coming through in Q3. We will see the full impact of that, at least for Northern Heights, in Q4, and then Brantford would be Q1. As for how the CFS breaks down, we have in fact disclosed that in our MD&A. Of the CAD 3.3 million, roughly CAD 2.2 million would be interest income, and the remaining approximately CAD 1.1 million would be an add-back to our AFFO.

Understood. All right, that's quite useful. My final question concerns the retirement home segment. I mean, Nitin, you clearly referenced rental growth of roughly 4%-5%. And looking at the cost side, same property expenses, I believe they rose about 3%-4% in 2025 to this point. Is that a reasonable run rate for expenses in Q4 and afterward?

Yes, I’d say that’s a reasonable assumption—what you just mentioned regarding rental growth and expense growth. One point that comes up most often in discussions is the idea of how a larger portion of that flows through to the bottom line. The second piece is that once homes are stabilized, first, we rely on very few incentives. Incentives represent roughly 1%–2% of revenue for us, but being able to eliminate them certainly provides a benefit. In addition, on the expense side, when resident counts in a home stay consistent, you’re able to be much more consistent with scheduling and similar items, and that helps bring costs down as well. As a baseline, Himanshu, the assumptions you described are not unreasonable, though we do see a chance to actually push them lower on the expense side.

All right, that's very useful. Perhaps just one final question. Regarding occupancy at the retirement homes, I believe you said third-quarter leads rose by something like double digits, if I heard that right. So it doesn't seem as though occupancy will plateau at around 95%. Is that a reasonable assumption, considering how leads are coming in, and that you still have further room to push it higher?

Yes, that's a reasonable way to look at it. Of our 44 homes, about 25% are near 100%, or at 100% already. The rest, you could say, sit at 95%–98%. Seeing occupancy that high really isn't unusual. On a portfolio basis, though, how much of it can be sustained is still an open question. The notion that it shouldn't level off at 95% strikes me as reasonable. What's still unclear is whether it climbs to 98 or the next figure turns out to be 96% — but as an industry, I think that's something we have yet to see.

Alright. Great. Thanks, everyone, and I’ll hand it back over. Thanks a lot.

I appreciate it.

Seram Srinivas from Cormark Securities has the next question. Your line is open.

Thanks, Alberta. Morning, Nitin and David. Regarding those redevelopments the two of you finished, what's the right way for us to think about stabilization timing? I realize residents have been moving in, so should we figure on roughly 12 months, at which point occupancy sits at 98% or 99%?

Thank you. Something that people don't fully grasp is just how effectively our long-term care redevelopment performs, particularly once government funding kicks in. David noted that on September 7 we opened the property in North Bay. From day one you receive full funding, and the government expects you to be fully leased up in 60 days, and in North Bay we reached full lease-up in 60 days. Brantford opened in October, and we get full funding from day one, and it would be fully leased up in 60 days. As a matter of fact, there is no lease-up in long-term care. In Brantford, we also have a campus of care with a retirement home attached to it, and that is leasing quite well too.

Nitin, as far as Brantford goes, that location combines retirement and LTC. How is the funding structured there? Does the government have a stronger incentive to actually fund projects of this type?

Public money goes exclusively toward long-term care, and a full mechanism exists so that your capital spending gets allocated correctly to long-term care alone. Your operating costs are likewise allocated properly to long-term care only. We own quite a few other campuses, and a handful of other players also have campuses. This is a well-established area within the industry.

Understood. Perhaps I'll make my final question about acquisitions. Clearly, you folks have been quite active in both the retirement and LTC segments. Looking at the headlines today, we see plenty of infrastructure funds or private players examining these types of assets. As you compete in the market at present, are you noticing far more private funds entering, or what does the competition look like?

Sure. Senior living is a pretty competitive area. Knowing how to run these properties is one of the main things that sets us apart. This isn’t purely a rental operation. Running them is complicated. The fact that we have 15,000 employees — that might equal all the real estate companies put together, just given the type of work we do. One advantage we have is truly grasping how complex the operations are and pulling synergies from that. This business is also heavily relationship-driven. Even though we’re all rivals, much of the sector has existed for a long time. Relationships matter here. Typically, when a seller comes along — whether it’s a generational sale or they built it and now want to sell — they want assurance they’re selling to people they know can close on a timely basis. Since so many team members and residents are involved, they want to be sure it lands in the right hands. All of that comes into play. Rather than me claiming we’ve been quite successful, you can simply look at our numbers.

We've done pretty well at securing those acquisitions and completing the deals.

Absolutely, 100%. I understand completely. Apologies — I suppose I have one final question. You clearly noted that these are businesses with heavy operational demands, and labor costs are a very significant piece of that. Looking ahead to 2026, do you anticipate any bottlenecks on that front, and what difficulties could arise when it comes to sourcing talent?

Seram, is this from the standpoint of labor you're referring to?

That's right.

From a labor standpoint, I'd say the industry overall has improved. Immigration was a big help. Five years ago we made a significant shift around the whole notion of, "If you look after your team, they'll look after your customer, and residents and the business will look after themselves." Simple as that sounds, the results for us have been tremendous. Over the past two years, turnover has fallen by 60%. We're hiring far fewer people. Staff are staying much longer. In retirement homes, that benefits us beyond the labor side — it helps us drive occupancy. Residents feel comfortable, they refer us more. In long-term care, it's driving fewer compliance issues and fewer quality issues. Residents are happy. We're seeing huge improvements on the labor front. Apart from a few very hard-to-fill areas, we actually have no vacancies across our portfolio.

That's really helpful context. Thanks. I'll hand it back over.

I appreciate it.

Our following question is from Giuliano Thornhill at National Bank Capital Markets. Your line is open.

Morning, everyone. Hey, folks. I'm curious — what drove that significant jump in occupancy across your same property portfolio during August?

Thank you, Giuliano. We've been at this, and our strategy hasn't changed. We operate in a very, very local way. Our ties to the hospitals, our ties to other healthcare providers, watermark — every one of those matters. Frankly, it isn't rocket science. What you want is a set of processes in place, and you want to be sure they get executed. Rather than inventing new programs, our approach is to stay disciplined about what we already have and to execute those things well, consistently. That holds true for our call center. It holds true for the way we follow up on leads. It holds true for the sales cycle. We're already seeing solid results from this, and we fully expect that to keep going.

All right, regarding that retirement piece — does it stick to a particular region at all, or is it tied to just a handful of properties, or would you say it's fairly widespread?