Sienna Senior Living Inc.

Ladies and gentlemen, welcome to CNA Senior Living Inc's Q1 2021 conference call. Today's call is hosted by Nitin Jain, President and Chief Executive Officer, and Karen Han, Chief Financial Officer of CNA 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 Factors section and the company's public filings, including its most recent MD&A and AIF, for more information. You will also find more fulsome discussion of the company's results in its MD&A and financial statements for the period, which are posted on CDAR and can be found on the company's website at cnliving.ca. Today's call is being recorded, and a replay will be available. Instructions for accessing the call are posted on the company's website, and the details are provided in the company's news release. The company has posted slides which accompany the host remarks on the company's website under events and presentations. With that, I'll turn the call over to Mr. Jain. Please go ahead, Mr. Jain.

Thank you, Kevin. Good morning, everyone, and thank you for joining us on our first quarter's call for 2021. For over a year, we have taken critical steps to fight the pandemic while providing the best quality of care for our seniors. I would like to express my deepest gratitude to all of our team members who have made a remarkable difference by prioritizing the health and well-being of our residents and their colleagues. While COVID-19 continues to have a profound impact here in Canada, the third wave has largely spared our senior living sector. The early vaccinations provided crucial protection for residents and team members. We are incredibly thankful that our sector was made a priority for the vaccination rollout and I encourage all Canadians who have not yet received vaccine to get it as soon as they can. To date, approximately 95% of our residents and approximately 74% of our team members have received their first dose of the vaccine. We address vaccination hesitancy by ensuring our residents and team members are well informed we engaged our in-house medical experts, Dr. Moser and Dr. McGeer, to provide additional information through webinars, answer questions about the COVID-19 vaccines. These and other efforts supported the substantial increase in vaccination rates across our long-term care and retirement platforms. During the first quarter, the number of residences with COVID-19 cases and the severity of outbreaks have declined substantially and remained low subsequent to Q1. As of yesterday, we have no active COVID-19 cases across any of our residences in British Columbia, and 10 residences in Ontario have active COVID-19 cases, with only three active resident cases across our portfolio. This marks a significant improvement and represents a 99% decline since the beginning of 2021. Moving to slide six, the higher vaccination rates helped us in returning to a more stable operating environment. While our COVID-19 infrastructure remains strongly in place and includes active screening, on-site rapid testing, elevated staffing levels, and a robust supply of personal protective equipment, certain government mandated restrictions have recently eased as a result of improving conditions. Most notably, the Ontario and BC governments have started to lift restrictions with respect to self-isolation requirements for newly admitted residents. In addition, Communal dining and recreation activities in residences with high immunization rates are resuming, and physical distancing rules are being relaxed, which is so very important for a resident's health and mental well-being. In Ontario, fully immunized frontline staff are able to work at more than one location, again, to safely support additional staffing capacity across the healthcare sector. In April, we welcomed Jennifer Anderson into our leadership team to help Sienna's long-term care operations. Jennifer is a highly experienced operator known for her focused approach to improving customer and team member experience and optimizing operational performance in her previous roles as Chief of Operations and Service Excellence Officer at WSIB Workplace Safety and Insurance Board. Now moving to our occupancy numbers. Our marketing and sales teams have been working on numerous initiatives to support occupancy including redesigned sales incentive programs, enhanced outreach, and investments in online lead generation. In addition, team members in our enhanced call center with longer operating hours made an average of 1,500 to over 2,000 outbound calls each week to prospective residents and their families. All these efforts resulted in an increase in leads and deposits in Q1 and helped support occupancy. Deposits in Q1 have increased by 10% compared to Q1 of 2020 and nearly 20% compared to the previous quarter. In our retirement portfolio, average same property occupancy was 78.1% in Q1. The decrease was primarily related to a decline in new residents moving in due to the impact of the pandemic, including access restrictions. Subsequent to Q1, monthly average same property occupancy improved modestly from 77.7% in March to 77.9% in April, reflecting the numerous marketing and sales initiatives offset by the impact of the third wave of COVID-19. Occupancy remains particularly impacted at residences located in COVID-19 hotspots, and we expect continued occupancy pressures until mid-2021. Based on our assumption that restrictions that retirement residences will continue to ease, we forecast gradual occupancy improvements during the second half of the year, supported by anticipated pent-up demand and our continued investments in our sales and marketing initiatives. In a long-term care portfolio, average occupancy declined to 80.3% in the first quarter from 97.9% in the same period last year due to access restrictions and capacity limitations in three- and four-bed ward rooms. Long-term care remains an essential needs service and the demand for long-term care beds continue to grow while a waiting list of over 38,000 in Ontario alone. Wave 3 has put tremendous pressure on hospitals and we are assisting these health partners through the safe admission of seniors to available beds in our residences. As admissions accelerate, we expect to reach the required occupancy targets over the next few months. The Government of Ontario extended its Occupancy Protection Funding for vacancies until August 31, 2021. Excluding the impact of net pandemic expenses or recoveries, we expect the financial performance of the long-term care portfolio in 2021 to be slightly below 2020. Our internal forecasts are based on the impact of new and prolonged access restrictions during the third wave of the pandemic on preferred accommodation revenues, which are not covered by the government's occupancy protection funding and our additional investments to elevate resident experience. While we expect a continued increased level of expenses in the near future, The positive impact of early vaccinations in seniors living, the increasing vaccination rates among the general population, and the return to a more stable operating environment all give us renewed optimism. Moving to slide eight. Staffing remained challenging during the first quarter of 2021, as qualified staff is in high demand by sector peers, hospitals, and other care providers. As part of our ongoing talent acquisition strategy to attract and retain our highly engaged and seasoned team, we continue to collaborate with educational and government institutions and intensify our social media campaigns. We have also increased our focus on team member mental health, including managing stress, gaining resilience, and avoiding burnout. We offer a variety of facilitated and self-paced programs in addition to providing resource materials and access to employee assistance programs. Our team members have gone through extraordinary lengths during the pandemic and many have made enormous sacrifices for prioritizing the health and well-being of residents and their colleagues. For some of them, this meant moving out of their family homes and into temporary accommodations for extended periods to keep residents safe, sacrificing time with their families, often at the cost of their own mental, physical, and emotional health. Our team members are true heroes whose selfless actions had a tremendous impact on our residents' lives during the pandemic. Last year, we helped launch the CARES Funds, which provides one-time financial grants to eligible employees of long-term care and retirement operators in Canada who are facing extraordinary circumstances amid the COVID-19 crisis. Since May of last year, the Fund helped approximately 800 frontline staff with over 2.4 million in emergency financial assistance. To continue our support for this important initiative, Ciena has made an additional 100,000 contributions to the CARE funds this week, which brings Ciena's corporate and board of directors contribution to approximately 700,000. Moving to our focus on diversity and inclusion, attracting and retaining a talented and diverse team at all levels of organization remains a key objective. Diversity and inclusion have always been an important part of Ciena, and a diverse leadership team is a reflection of our overall workforce. Today, 54% of our leadership team, including five of our 10 executive officers, and one third of our independent board members are female. In addition, approximately 30% of our leadership team, including three out of our 10 executive officers, identify as black, indigenous, or people of color. We are very grateful for the continued government support that helps us cover some of the extraordinary pandemic expenses. With the exception of funding related to accommodation, all government funding is flow-through funding, which means it has to be spent entirely on resident care. Any amounts that are not spent directly on resident care or pandemic expenses have to be returned to the government. We believe that government assistance programs will help address systematic issues our sector has been facing for many years. These issues were highlighted in two recently published reports. In April, Ontario's Auditor General issued a report which included findings on pandemic readiness and response in long-term care. This report was followed by the final report of the Ontario's Long-Term Care COVID-19 Commission, an independent commission investigating the pandemic in Ontario's long-term care system. We were able to share our experience and observations during the pandemic with the Commission, whose recommendations to the Ontario government are expected to help shape and strengthen the future of long-term care. Recommendations include the need for additional staffing, enhanced IPAC training, continued prioritization of personal protective equipment, stronger medical leadership, enhanced collaboration with healthcare partners, and the urgent need to redevelop and expand homes to meet a growing societal need. The Ontario government has already started to implement a number of the recommended improvements, including additional staffing. And at Ciena, we have also taken numerous steps recommended by the Commission, including stronger medical leadership, increased focus on family communication, and enhanced IPAC training. As a mission-driven company that puts the well-being and safety of a resident first, we are well-positioned and equipped to support the future of senior living. Now moving to a development program, our development plans include over $600 million in capital investment to redevelop our Ontario long-term care portfolio over the next five to seven years. Two projects are slated to start later this year, beginning with a 160-bed long-term care home in North Bay, which will be replacing the existing 148 older C-class beds. The capital investment for this development is expected to be approximately $52 to $55 million, with an expected development yield of approximately 8%. Our second project will be announced shortly. We are also making good progress on our joint venture development project of a new retirement residence in Niagara Falls with construction scheduled to start later this quarter. Ciena has a 70% ownership in this 150-suite Greenfield joint venture development with Reitman Senior Housing. which is expected to achieve a development yield of approximately 7.5%. The total budgeted development cost for this project is approximately $49 to $51 million. Our development and redevelopment plans will focus on sustainability as we adopt environmental friendly designs and install energy efficient features and equipment, all with the goal to significantly reduce the environmental footprint of these homes. In addition, these new residences will support our enhanced infection prevention and control measures and will significantly improve resident and team member experience. With that, I'll turn the call over to Karen for a financial update.

Thank you, Nitin, and good morning, everyone. I will start on slide 14. Our Q1 2021 financial results continue to be impacted by the pandemic as we continue to incur an increased level of expenses to support the cost of fighting the pandemic and minimizing the impact of outbreaks. There are various programs and financial assistance provided by the government to support pandemic-related expenses. It is important to note that there can be timing differences between the time of incurring these expenses and the funding of such expenses. In addition, any amounts that are not spent directly on resident care or pandemic expenses have to be returned to the government. In Q1 2021, we recorded a $9.9 million recovery of pandemic expenses. This was mainly due to the retroactive government funding of $15.3 million to recover some of our 2020 pandemic expenses incurred in excess of available funding in long-term care. which is reflected in our first quarter's results. Excluding this retroactive funding, the company's total net pandemic expenses for Q1 would have been $5.4 million, representing an improvement of $2.3 million compared to last quarter. Moving to our Q1 financial results on slide 15, our revenue decreased by 2.7% year-over-year to $161.2 million this quarter. Consolidated net operating income increased to $44.3 million this quarter compared to last year. This was largely the result of the $15.3 million in retroactive funding I mentioned earlier, which led to a net pandemic recovery in the quarter. Excluding this net pandemic recovery, our consolidated NOIs decreased by 9.2% to $33.2 million this quarter. Retirement same property NOI increased by $3 million to $12.8 million in Q1 compared to last year. Excluding net pandemic expenses, retirement same property NOI for Q1 increased by $2.3 million, mainly due to lower occupancy, partially offset by annual rental rate increases in line with market conditions. Rent collection levels remain high at approximately 99%, consistent with pre-pandemic levels. Long-term care same property NOI increased by 10.7 million year over year. Excluding the net recovery of pandemic expenses, long-term care NOI for Q1 decreased by 1.1 million to 19.5 million compared to last year, largely as a result of lower revenues from preferred accommodation. Moving to slide 16, Q1 OFFO per share was 37.8 cents, an increase of 1.3 cents compared to the prior year. Excluding net pandemic recovery, OSFO per share for the quarter would have decreased to 26.9 cents year-over-year, and Q1 ASFO per share was 39.4 cents, an increase of 1.2 cents compared to the prior year. Excluding net pandemic recovery, ASFO per share for the quarter would have decreased to 29.2 cents year-over-year. CNS ASFO payout ratio was 59% in the first quarter, excluding the net pandemic recovery, the payout ratio would have been 80%. Looking at our debt metrics in slide 17, our debt to growth book value decreased by 90 basis points to 46% year-over-year, mainly as a result of the repayment of credit facilities. We lowered our weighted average cost of debt by 30 basis points to 3.3% year-over-year, primarily due to increasing our mix of floating rate debt, and we increased coverage ratio for interest to 4.7 times. Excluding the net pandemic recovery this quarter, interest coverage ratio would have been 3.5 times. Debt to adjusted EBITDA was 6.2 years in Q1 2021. Excluding the net pandemic recovery, debt to adjusted EBITDA would have been 8.4 years. In terms of our balance sheet, CNL continues to maintain a strong financial position and an investment-grade credit rating. and ended the first quarter with $213 million in liquidity and an unencumbered asset pool of $840 million. Our debt is well distributed between unsecured debentures, conventional mortgages, CMHB-insured mortgages, and credit facilities. As mentioned, we expect an increased level of expense for some time, which will continue to affect some of CNF's key performance indicators, in particular with respect to the company's operating performance. With that, I will turn the call back to Netanyahu for his closing remarks.