Sienna Senior Living Inc. (SIA) Earnings Call Transcript

This is the 26 conference call. Nitin Jain, President and Chief Executive Officer, and David Hung, Chief Financial Officer and Executive Vice President, Investment of Sienna Senior Living, Inc., are hosting today's call. Please note that some statements or information discussed today are forward-looking, and actual results might differ materially. The company does not commit to updating any forward-looking statement or information. For more information, please refer to the forward-looking information and risk factor sections in the company's public filings, including its most recent MD&A and AIF. A more fulsome discussion of the company's results can also be found in its MD&A and financial statements for the period, which are posted on SEDAR+ and available on the company's website, siennaliving.ca. Today's call is being recorded, and a replay will be available. <<operator_script>> Slides accompanying the host remarks have been posted by the company on its website under events and presentations. I'll now hand it over to Mr. Jain. Please go ahead, Mr. Jain.

Thank you, and good morning to all of you for being with us today. Sienna's second quarter shows the ongoing gains we've made throughout our operations, along with the payoff from a diversification strategy. We posted robust organic growth for a 14th straight quarter, as both our long-term care and retirement operations recorded double-digit growth. In addition, we closed on the purchase of two retirement residences in the quarter, kept a solid balance sheet and investment credit rating, and entered a strategic partnership aimed at speeding up our long-term care redevelopments. All of this comes at an attractive moment for Canadian senior living. The sector is still exceptionally strong, powered by rapidly rising demand from an aging population and constrained supply. Turning to slide 5, in the second quarter, same property NOI rose 15.2% in the retirement segment and 22.6% in the long-term care. The main forces behind those strong retirement segment results were increases in occupancy and rate. Along with higher care revenue, same property occupancy climbed 150 basis points year over year, reaching 94.1% in the second quarter. Combined with growing scale and operating efficiencies, that produced a 200 basis point margin expansion in our same property portfolio. On a quarter-over-quarter basis, occupancy came in slightly lower than in the first quarter, reflecting a modest uptick in move-out activity.

After the second quarter closed, occupancy rose to 94.5% in July. Strong leads keep coming from our proven sales platform and targeted marketing efforts. The latest annual open house made that clear — it drew over 500 attendees and produced growth in qualified leads and deposits. Hospital outreach remains a priority for us, along with excellent ties to healthcare partners in the local communities we serve. Higher care revenue stood out as a major factor driving the solid results of retirement operations. That stems from our Aspira Wellness Program, thanks to more efficient processes, better staffing models, and consistent care offerings. Launched last year, the program has delivered roughly a 37% year-over-year rise in care revenue. Turning to Sienna's long-term care operations, homes that are fully occupied with expanding wait lists, elevated revenue from private accommodations, and increases in government funding each contributed to the strength of the results. Contributions from acquisitions and developments are also bolstering our strong second-quarter performance. Sienna's long-term care operations bring meaningful value to our business and offer stability, since they are largely shielded from market volatility or economic uncertainty.

Having wrapped up our first long-term care redevelopments in North Bay and Brantford during the past year, we're continuing to push our redevelopment pipeline forward, especially in the Greater Toronto Area. At two GTA projects, we anticipate breaking ground in early 2027 — among them a 448-bed long-term care community located at Sienna's Glen Rouge site in Toronto, along with the 256-bed redevelopment at a Streetsville community in Mississauga that was announced recently. Both of these projects form part of Sienna's 1,600-bed redevelopment pipeline, and over 80% of that pipeline sits in the GTA. We've been actively hunting for land, and thanks to recent site acquisitions in Brampton and Toronto, we now hold land for most of the projects in our pipeline. On the acquisitions side, we also remain active: two retirement residences were acquired for $100 million, with that deal finalized during the quarter, and we have a purchase agreement under contract for a newly built long-term care property worth $68 million. By bringing in modern, high-quality assets in attractive markets, these acquisitions further raise the quality of Sienna's platform. Sienna's acquisition pipeline stays strong, as we keep pursuing opportunities that align with our diversified growth strategy. In addition to acquisitions and redevelopments, we remain focused on generating value from our existing portfolio through asset optimization, strategic renovations, and enhancements spanning the retirement and long-term care platforms.

For our retirement segment, the focus is on bringing our residences in line with what the market wants, broadening our services and clinical care offerings so we can better support residents as their care needs evolve. That lets people remain in our retirement residences for a longer period, and it has already produced meaningful results — in financial performance as well as resident satisfaction. Over in long-term care, we keep strengthening our operations so the resident experience improves. We're also heartened by the Ontario government's recent launch of a renovation program for long-term care homes. Under that program, capital funding is provided to renovate existing long-term care homes or to convert vacant buildings into long-term care homes. It hands us extra options for upgrading our portfolio, and right now we are assessing possible opportunities to take part in the program. Turning to slide 9, in July, Sienna was once again named one of Canada's best companies by TIME magazine. It is a genuine honor to receive this recognition for a second consecutive year. Our ranking also rose this year, and we secured a spot among the top 125 companies recognized in Canada. Our considerable growth contributed to earning this recognition, but above all, it reflects the passion of our 15,500 team members, who care for approximately 14,000 residents each and every day.

You can see that impact in action through the 2026 impact report we released today, which illustrates the ways they are improving life for thousands of residents, backing families, and making communities stronger throughout Canada. The high level of engagement among Sienna team members, turnover at a record low, and a culture driven by purpose sit at the core of what we have achieved and will remain among the company's biggest competitive edges as we carry out our growth strategy. On that note, I'll hand things over to David, who will walk you through our financial results.

Thank you, Nitin, and good morning to everyone. I'll begin with slide 11, covering our financial results. For 2026, revenue on a proportionate basis rose 13.6% year-over-year, reaching $288.2 million. That gain came mostly from acquisitions, growth in occupancy and rental rates, and higher care revenue within the retirement segment. Further contributions to the increase came from our long-term care platform, which included greater flow-through funding for direct care, higher private accommodation revenues, $2.1 million in retroactive funding, plus acquisitions and developments finished during the past year. Same property NOI rose 19.4% to $57.6 million in Q2 2026, which includes a 15.2% rise in our retirement segment and 22.6% in long-term care. Within the retirement segment, same property NOI grew by $3.2 million in Q2 2026 versus last year, mainly driven by better occupancy, rate growth, and higher care revenues. Together with our disciplined attention to operating expenses, the operating margin improved 200 basis points year-over-year. In long-term care, same property NOI was up by $6.1 million. Greater care revenue from private occupancy, increases in government funding, and retroactive funding were the primary drivers of that strong year-over-year growth. Our Q2 results in the long-term care segment include retroactive items in both comparative periods.

If you set aside those retroactive items for both years, same property NOI rose 13.5%. In Q2 2026, operating funds from operations climbed 35% to $39.6 million versus last year, driven mostly by greater NOI, partly offset by increased income tax and interest expenses. Adjusted funds from operations rose 44.9% to $34.9 million versus last year. That gain came largely from higher OFFO and construction funding income tied to redevelopments finished last year. Per share, OFFO and AFFO each grew in Q2 2026, by 16.4% and 24.4% respectively. Sienna's Q2 2026 AFFO payout ratio dropped to 72.3%, down from 89.5% in Q2 2025. That progress reflects Sienna's robust operating results, the contributions of our completed redevelopments and accretive acquisitions, along with disciplined, progressive allocation of capital toward growth initiatives. We closed Q2 2026 in a strong financial position, with roughly $604 million in liquidity and close to $1.6 billion of unencumbered assets. Net debt to adjusted gross book value sits at a conservative approximately 35%, and our weighted average cost of debt stays low at 3.9%. Year over year, we also lifted Sienna's debt service coverage ratio further, to 2.7x from 2.4x in Q2 2025.

Sienna is facing roughly $180 million in debt maturities over the coming 12 months. With our ability to tap a wide range of capital sources, plus Morningstar DBRS having recently reaffirmed our BBB credit rating with stable trends, we feel confident about refinancing maturing debt on extractive terms. Turning to equity, during Q2 we issued $98 million in shares through our existing $150 million at-the-market equity distribution program, which gives us the liquidity needed to support continued growth via acquisitions and developments. As we carry out our growth strategy, we'll remain disciplined in how we raise and allocate capital, always keeping a strong balance sheet as the priority. With that, I'll hand the call back to Nitin for his closing remarks.

Thank you, David. With the second half of 2026 now underway, we feel confident about hitting our growth goals. We're reaffirming the 2026 target of above 10% same property NOI growth for our retirement segment. For long-term care, we're lifting our same property NOI growth target to the mid to high single digits. On platform growth, we think our capacity to operate and invest across the entire continuum of care communities is what sets Sienna apart and provides a broad range of growth opportunities — from private pay independent living to government-funded long-term care, from acquisitions to redevelopments, and from funding growth with Sienna's equity to third-party joint venture capital. With that in mind, we're excited about our new joint venture partnerships with Fiera Infrastructure. Fiera Infrastructure is a global infrastructure investment manager and a wholly owned subsidiary of Fiera Capital, a leading Canadian investment management firm with over $160 billion of assets under management. Given the significant capital requirements for long-term care redevelopments, the joint venture — under which both Sienna and Fiera will hold a 50% ownership interest in selective redevelopments projects — will let us execute more projects over a short period of time and diversify our development risk.

To start with, the joint venture has set its sights on $625 million worth of redevelopment projects, and the first two being looked at are Glen Rouge and Streetsville. This is happening while Canadian senior living is doing exceptionally well, and we feel Sienna is ideally positioned to benefit both over the near and long term. On behalf of our entire 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 are open for questions.

<<operator_script>> The first question is from Sairam Srinivas at Cormark Securities.

I just want to touch on the Fiera JV — congratulations on that. Could you speak to how broad that JV is when it comes to scale, particularly given that the two projects you're thinking about adding in would likely represent roughly 55% of the capacity there?

Yes, good morning, Sairam. What we intend to do is, you know, avoid having a heavy concentration with any single partner. You know, working with them has been enjoyable for us up to now. The thought is: let's try out the joint venture up to a certain amount. And as time goes by, there's a chance for both sides to put more into it. So that's what I'd treat as the starting point. And as we take on projects jointly and grow more at ease, you know, more projects can be added to it.

That's great. And Nitin, regarding when these projects will actually happen — if you compare how you guys were thinking about timing, say, last year for GTA redevelopments with now, given the new policy that has come out, how does the revised timing compare with what you expected earlier?

Are you asking about how the current projects are getting underway, or the overall pipeline more broadly?

Regarding the overall pipeline — absolutely, the overall figure.

Honestly, until last year there was no redevelopment initiative that actually worked for GTA, and then that initiative launched last year, which we're very grateful for. But quietly, we already owned land and were making plans to move these projects forward, since you need a minimum of 24 months of zoning and drawing work before a site is shovel ready. So we'd been working quietly to advance those projects, betting that a GTA program would eventually arrive. So if anything, I'd say that has made us more confident in our capacity to deliver in GTA — we recently acquired the final two land parcels that, for our current C homes, quite honestly cover every home we need to redevelop. So we picked up land in Brampton, and we also picked up another sizable land parcel in the Toronto area. So on GTA development we're well covered. So my expectation is that this program will run roughly the next 5 to 7 years.

Thanks, Nitin. One final question from me concerns the fresh funding policy announced not long ago. Given that you can likely see considerably more parties becoming keen on putting additional properties into the LTC pipeline, do you expect increased M&A activity in the space at this point?

The new funding initiative has now been around for four or five years, and it has enabled development. The GTA program launched last year, and that clearly opens up possibilities in the GTA. What remains unchanged is that this is a complicated project with steep barriers to entry. In most instances, government wants an experienced operator, since the complexity has only increased. Far more people are employed in each of the homes. When care hours in Ontario, for instance, rose from 2.8 to 4, that means you now have roughly 35%, 40% more staff in every home. So a 160-bed home could easily contain a couple of hundred people. So capital is certainly more interested in this space, which is very welcome, and Fiera is one of them, and we look forward to a good partnership, but what has not changed is the barriers to entry and the complexity of operations. That is why having scale and the capability to operate remains key for us.

So I guess, if we just look at that June 2026 announcement that just came out, would you basically say the same standards that were applied before would also apply here — where you'd really need experienced operators to come in, rather than other interested parties?

Sairam, is this regarding the renovation program that was announced recently?

Yes. Oh, thanks. That refurbishment initiative, in most instances, is relevant only to properties currently rated as C homes. It presents a chance in situations where you can't secure land for on-site redevelopment, which tends to be complicated. That said, in certain cases it could genuinely be worthwhile. So we wouldn't expect it to produce any meaningful shifts, apart from enabling home upgrades in places where there's no chance to purchase extra land.

Great. Thanks, Nitin, and thanks, David. I'll hand it back over.

Jonathan Kelcher from TD Cowen has the next question on the line.

I just want to make sure I understand the last point about renovating existing C homes—that new program. Right now, don't you have all the land you need in Toronto to redo your C properties?

We just picked up a couple of properties in the GTA, and buying there used to be really tough since we were constantly up against multi-res and a handful of other segments — but thanks to the downturn in those areas, we've managed to find land. Let me give you one illustration. There's a property on St. George Street — that's the actual name, St. George — sitting immediately beside U of T. In theory, you could relocate that home somewhere 15, 20 kilometers off. The truth, though, is that it caters to a quite particular group of people, and the need is significant. A program of that kind fits perfectly in a spot like this, where you're landlocked and acquiring land anywhere near the location is extremely hard, yet you're able to renovate that 50-year-old building and make it affordable enough to serve for the coming 25, 30 years. So it would suit quite narrow situations along those lines, Jonathan. That's what the intent would be. We don't genuinely anticipate thousands of extra beds coming out of it. My sense is it will apply to a limited set of specific homes. And as things stand right now, it would function as a pilot program.

All right, that’s very clear. So for the LTC portfolio, margins improved—even after excluding the one-time items, margins rose quite well compared with a year earlier. I take it that’s partly due to reduced staff turnover and less agency staffing. Could you perhaps quantify the savings you realized from those two?

Yes, so I'd split the rise in LTC NOI into a few pieces. The savings on staff and agency would definitely have added a couple of percentage points to the year-over-year NOI growth. I'd point to a couple of other items as well. First, there's the higher government funding. Much like what happened in Ontario a couple of years back with catch-up funding, we're now seeing the same in Alberta and BC. As we reported, Alberta raised its funding by 7.25%, and that was to make up for several years when the increases ran a little lower. BC did the same thing. One of the health authorities we operate in raised its accommodation funding by 20% after many years without an increase. So that's a factor behind why our NOI went up. The second one involves redevelopments. We're seeing the full accretive NOI impact from opening our North Bay and Brantford buildings. Beyond having some additional beds, we also bring in more preferred accommodation revenues, and our overall maintenance and operating costs per bed are lower.

The second factor that drove results this quarter involved private revenue. Within the long-term care portfolio, we hold roughly 200 beds designated for private pay long-term care. As a result, we have managed to raise the market rates charged for those beds in BC.

Alright, that helps. Still, when it comes to staffing levels, how sustainable would you say a 20% turnover rate is?

Hi, Jonathan. Good morning. I mean, we've never found ourselves in a situation where turnover sits at 20%. My background is in hospitality, where you'd more typically expect turnover near 100%. I mean, some of that lower turnover comes from broad macro conditions—you know, a lot of organizations aren't hiring right now. A large number of PSWs and nurses graduated over the past year, so that has clearly worked in our favor. We still think some of what we did at Sienna—whether that's a shared ownership program or our efforts on cultural alignment—contributes a great deal too. So I think predicting is difficult: can we hold at 20% over the next, you know, the next 5 or 10 years? Macro factors would certainly come into play. But internally, we'll keep doing the things we're already doing to bring that turnover down. And to your question, I think those things are very hard to quantify. Maybe I'll just offer this—typically, when you bring on a staff member, on average you're training that person for a week, correct? So rather than hiring—when you've got 15,000 team members and turnover runs at 50%, you're hiring 7,500 people.

At 20%, you're bringing on 3,000 people, so that's 4,500 fewer hires and one week less of training. That's the first thing. Second, when team members stay in their roles longer, you get a lot more efficiency. Families are happy and residents are happy, since those team members understand what our residents and families need and want. And finally, it lets our team members grow inside the company. So again, when we look at recruitment costs and filling roles, we're seeing more and more internal promotions. I mean, just in the first half of this year, we had 80 promotions into management from frontline roles, or from management into bigger roles, including senior leadership within Sienna, which again means significant savings in recruitment, but even bigger savings because people already know the culture and fit more easily within Sienna's platform.

All right, that helps. And then just one final thing: when you talk about the full-year increase in long-term care same-property NOI, is that leaving out one-time items?

Yes, it does. One-time items are left out.

Alright, thank you. I'll hand it back over.

The following question is from Lorne Kalmar at Desjardins.

I'd like to return to the joint venture we just announced. Nitin, I believe you mentioned the program would take roughly 5 to 7 years, which seems fairly in line with what you had said before. I was hoping to understand better how the creation of this joint venture changes the timing of project starts compared with what was expected before it was formed.

Lorne, the joint venture wouldn’t alter when projects begin. The projects are going to start at the times they are meant to start. What it lets us do is take on additional projects. So from the outset we’ve been pretty clear that we don’t want to have much more than about 10% of our assets under development. Some of you correctly noted that $375 million across these two projects would represent approximately 10% of our asset value, roughly $3.5 billion or thereabouts. So what it enabled us to do is begin work on further projects that we would otherwise not have been able to pursue. So in the past, you know, absent capital partners, we would either use other creative structures or find some way, you know, to space them out somewhat more. What it enables us to do is actively source land and actively work on adding more projects. So in essence it has doubled our capacity for redevelopment.

So you don't really anticipate launching additional developments any earlier as such. It sort of just provides a backstop that lets you, I suppose, carry out — or the confidence, I guess, to carry out — a greater number of projects than previously. Is that a fair way to look at it?

I'd say it's a mix of factors. So with Streetsville and Glen Rouge — the project that's already been announced plus the one currently being built, which is in Keswick — those will remain on schedule. And, you know, all of them are proceeding on an expedited basis. Keswick will be completed next year, while the other two will get underway early next year. Absent a capital partner, the likely effect is that you probably wouldn't consider launching any further projects next year or the year after. Given our position in the pipeline, there's a strong chance we could add more projects next year, or announce them next year and start construction in 2028. So again, it has doubled how quickly we can add projects to the pipeline.

Right, that's more or less the point I was trying to make. Very helpful. And I suppose I'll keep building on what my peers have asked here, but regarding same property NOI growth in LTC, do you think it can remain elevated through 2027, or is this more of a 2026 phenomenon, after which we return to low single-digit same property NOI growth?

What I'd say is that in our medium-term outlook or projection, long-term care is stable and predictable, and eventually it should moderate back into the low single digits. Whether that happens by the end of 2026 or in 2027, we've yet to see. Governments are still responding to the need for long-term care, and that's like what we've seen in BC and Alberta, where they've done these catch-up funding amounts. So eventually it will moderate back into low single digits, though whether it's 2027 is a little hard to say at this point.

Alright, I suppose that's a nice issue to be dealing with. And then perhaps just one final thing, before I let you all go, regarding the retirement side, are you seeing any significant pickup in market rents right now?

Market rents and yearly rent bumps have stayed fairly steady. So our aim isn't to jack rents up by 20% and get everybody angry. We'd prefer steady growth across the coming 5, 10 years rather than one huge jump in a single year and a lot of frustrated residents. So the same pace we've had in the past is what we keep seeing. At 95% occupancy, once again, you get the chance to set market rates consistently. So we really aren't seeing any shifts compared with what we've observed over the last two or three years. The one difference is that care-focused revenue is coming in much more heavily — not only have we clarified our programs and made them more standardized and more operationally efficient, but residents are asking for more care. And through our strategic renovations, with quite a few projects currently underway, we're adding more care services to our retirement homes.

All right, I really appreciate it.

Brad Sturges from Raymond James has the next question on the line.

I just wanted to return to the creation of the new joint venture with Fiera and get a clearer picture of how it works. My understanding is that Sienna will serve as development manager throughout construction. Will you be collecting development fees as that proceeds, or how should we think about that kind of income stream during the construction process?

Absolutely. Morning, Brad. As developers, we'd be collecting development fees. We'd also be providing loans against our land and the work completed to date, since a lot of these projects are fairly advanced, at fair market value. On top of that, we'll be managing these assets. Because of the terms and conditions of our joint venture, all those fees would of course be confidential, but they would be entirely at market. So whatever a third-party appraiser would assume as the market development fee when appraising a construction project, you can assume the same fee would apply in our case, and the same holds true for the management fee. So it really is a third-party, arm's-length, market-based fee structure.

Great. Now, regarding how we should think about the cash side or the deal's structure — I believe that when construction begins, Fiera acquires 50%. At that moment, would Sienna actually get cash in, or does it simply lower the amount of cash you have to put out during the construction phase?

When the partnership first starts out, Sienna and Fiera would each put in the same amount. And again, picking up on what Nitin said, for Sienna part of what we put in will be the fair value of land, while Fiera would put in cash. After that point, what we expect is to secure financing at the project level to fund the remainder of the project.