Sienna Senior Living Inc.

Ladies and gentlemen, welcome to the CNA Senior Living Incorporated Q1 2022 conference call. Today's call is hosted by Nitin Jain, President and Chief Executive Officer, and David Hung, Chief Financial Officer of CNA Senior Living Incorporated. Please be aware that certain statements or information discussed today are forward-looking and actual results could differ materially. The company does not undertake to update any forward-looking statement or information. Please refer to the forward-looking information and risk factor sections 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 in the CDAR and can be found on the company's website, cianaliving.ca. Today's call is being recorded and a replay will be available. Instructions for accessing the call are 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 over to Mr. Jain. Please go ahead, Mr. Jain.

Mr. Thank you, Tanya. Good morning, everyone, and thank you for joining us on our call today. At the end of April, Statistics Canada published the results of the 2021 National Census. This shows that seniors over the age of 85 make up one of Canada's fastest-growing demographics. The census also indicates that the number of people over 85 is expected to triple over the next 25 years and that Canadian seniors are becoming wealthier and staying healthier, more active, and involved for longer. Today, over one in four seniors in the 85-plus age bracket already lives in a senior living setting or a hospital, and this number is only going to increase as Canada's population is getting older. This unprecedented demographic shift and changes in senior needs and desires has been at the core of many of our recent initiatives, including our transformations to a platform. In April, we launched a new website for our retirement platform, Aspira, and in recent weeks, we started the rollout of the signature programs under the Aspira brand. We grounded in the belief that our residents desire and deserve choice, personalization, and connections to the local community. This is reflected in our programs, Nourish by Aspera, Active by Aspera, and Explore by Aspera. While Nourish by Aspera focuses on culinary experience and more choices, Active by Aspera offers an expanded range of fitness classes, and Explore by Aspera aims to help residents connect with others, pick up a new hobby, or continue learning. One of the initiatives under this signature program is Masters Academy. an educational program that is taught by experts on a variety of topics, including history, religion, health, science, and lifestyle interests. Our new retirement brand, Espira, is designed to differentiate our company and support resident satisfaction, lead generation, and occupancy growth across the platform. Average same-property occupancy in our retirement portfolio increased by 90 basis points to 85.5% in the first quarter, compared to Q4 2021. In April, average occupancy reached 87.1%, its highest level in over two years. Since May of last year, monthly average same-property occupancy has increased by 830 basis points. Our retirement portfolio benefited from numerous marketing and sales initiatives, including an intense focus on outreach to our community partners in addition to pent-up demand. We are also very focused on creating demand by attracting seniors who are currently living at home and who are not actively considering retirement living. This resulted in a 58% increase in resident movements year-over-year in the first quarter. Rent deposits also remained high throughout Q1 and increased by 51% year-over-year, and leaves are up 94%. For the balance of 2022, we forecast continued occupancy improvements in our retirement portfolio. Moving to long-term care, in our long-term care communities, admissions of new residents slowed during the first week of 2022 as a result of renewed restrictions and the high transmission rate of Omicron. However, occupancy started to improve towards the end of the quarter. Safe property occupancy was 93.8% in Q1 2022, excluding approximately 500 beds that are unavailable largely because of third and fourth beds in a room. Starting in February 2022, occupancy targets have been reinstated in Ontario. This means that homes require a 97% occupancy rate to receive full funding. Given the long waiting list for long-term care beds in Ontario and British Columbia, we anticipate to meet the required occupancy targets of the vast majority of our care communities for full funding in 2022. We have continued to develop new long-term care platforms similar to the enhancements we are making at our retirement operations. Our aim is to elevate our resident experience with respect to dining, recreation, and community-focused interactions, in addition to improving their move-in experience. During Q1, we entered into an agreement to acquire a 50% ownership interest in an 11-property portfolio in Ontario and Saskatchewan from Extended Care. We have received all necessary regulatory approvals and are set to finalize the acquisition of this $308 million portfolio in the coming days. We are excited to welcome the residents and over 800 team members in Ontario and Saskatchewan to our growing platform. We are acting as the manager of the portfolio, which is deepening an already well-established relationship with Sabra, as we are currently managing eight of the Sabra wholly-owned properties in Canada. The acquisition has an approximate 6% unlevered yield in the first year following closing and is expected to be accretive to Sienna's OFFO and AFO per share. In addition to this portfolio acquisition, we entered into an agreement to acquire a $72 million retirement residence in Saskatchewan in joint venture with Sabra, which is expected to close later this quarter. We also entered into an agreement to acquire a $26 million campus of care in Barrie, Ontario, which is expected to close in Q4 2022. With these acquisitions, we expect to capitalize on the growing demand for quality senior living in each community. In Ontario, the assets are strategically located around the Greater Toronto Area and the Niagara to London Corridor. Now moving to our focus on Saskatchewan. Our acquisitions will also give us image and scale in the Saskatchewan market, one of the fastest growing markets in Canada. Saskatchewan's real GDP is expected to grow substantially as a result of the strength of the energy and agriculture sectors. In addition, the province's job market is exceptionally robust and the housing market remains strong. With respect to the retirement sector, Saskatchewan has a high capture rate, and despite considerable new supply coming to market over the past decade, average rental rates have consistently increased by approximately 3.3% annually from 2009 to 2021. Our development momentum is continuing with construction start scheduled for two of our long-term care developments later this year. Early site works have started in Brantford, where we will replace the current 122 long-term care beds with 160 new beds and add 147 retirement residents to create an integrated campus of care. We also expect to start construction in Keswick later this year, where we will be replacing the current 60 long-term care beds with a 160-bed home. These projects are part of Siena's $600 million redevelopment plan of our Class B and C long-term care communities. To date, we have received bed licenses allocations from the Ministry of Long-Term Care for 12 of our long-term care communities for a total of 2,600 beds, including approximately 1,800 beds for renewal and over 800 new beds. These allocations cover substantially our entire Class C portfolio. The license allocations bring certain to our redevelopment program. Once the redevelopments are completed, they will elevate the quality of life for residents, and the family members provide additional capacity and a great workplace for our team members. Our redevelopments are also an opportunity to address climate change and significantly reduce the environmental footprint of these homes through energy efficient heating, cooling, lighting, and updated energy efficient windows and fixtures. Our industry is at the cusp of exponential growth and we expect competition for talent to further intensify in the years ahead. As part of a strategic objective, we aim to offer a compelling team member experience and nurture a purpose-driven culture. We are the first Canadian senior living company to offer shares to every eligible full-time and part-time member through the Siena Ownership and Reward Program, SOAR. This program was approved by shareholders at an annual general meeting in April, and we have started to issue shares to our team members. Two days ago, we celebrated this milestone at the TSX with many of our long-serving frontline team members. I was deeply honored to ring the opening bell with Vernicia Wade, a PSW at the Harmony Healthcare Community in Toronto, who has been with us for 47 years. Our team members' incredible dedication and passion inspired us to launch SOAR, and I cannot think of a better group to be recognized as owners of our company. Our talent initiatives also include numerous programs to support our team members' career growth and to bridge the existing labor gap in our sector. Programs include government-sponsored education programs, expedited placements of internationally educated nurses, and increasing recruitment of college and university students. During the first quarter of 2022, approximately 640 students were placed across our residences. As we grow our company, we'll continue our focus on creating a positive experience for our team members and supporting their personal and professional growth. With that, I'll turn it over to David for an update to our operating and financial results.

Thank you, Nitin, and good afternoon, everyone. I will start on slide 15 for financial results. Sector fundamentals continue to strengthen during the first quarter, and demand for quality seniors living is increasing in many of our key markets. In our retirement portfolio, average same-property occupancy continued to improve during Q1, and in our long-term care portfolio, admissions started to accelerate during the second half of the quarter after a slow start in the early weeks of 2022 due to the and the high transmission rate of Omicron. At the same time, intense competition for talent and cost pressures as a result of the ongoing pandemic and decades-high inflation continue to impact our operations. All of these factors are reflected in our financial results. In Q1 2022, revenues increased by 8.1% year-over-year to $174.3 million, largely due increases in retirement. Net operating income decreased by 27% to $32.1 million this quarter compared to last year. The significant decline was largely the result of a retroactive government funding in Q1 2021 for 2020 pandemic expenses. NOI was also impacted by higher staffing, culinary and utility costs, increases in insurance premiums, and this was partially offset by occupancy growth and annual rent rate increases in the retirement segment and annual funding increases and increases in preferred accommodation revenue in the long-term care segment, in addition to a moderation of pandemic costs. Retirement-same property NOI increased by $0.9 million to $13.5 million compared to last year, primarily due to occupancy improvements and annual rental rate increases in line with market conditions. This was partially offset by higher costs for agency staffing, culinary costs, utilities, and insurance premiums. Rent collection levels remained high at approximately 99%, consistent with pre-pandemic levels. Siena's long-term care Sane Property NOI decreased by $11.6 million to $18.1 million compared to last year, primarily due to $15.3 million in retroactive funding recorded in Q1 2021 for pandemic expenses incurred in 2020. Excluding net pandemic expenses and recoveries in both comparative periods, long-term care Sane Property NOI would have increased by $0.1 million to $19.3 Over the past two years, we have seen significant cost pressures, including high agency costs due to staffing shortages, increased insurance premiums in the seniors' living sector, and rising utility costs, in addition to generally high inflation in line with the overall market. We expect that continued occupancy gains, rental rate increases in our retirement portfolio, and an improving operating environment will help mitigate these cost pressures and support We anticipate that pandemic expenses will further moderate as the pandemic subsides, while related government funding gradually decreases. For Q2 2022, we expect incremental net pandemic-related expenses could range from $2 to $3 million, with continued declines in the second half of the year. Moving to slide 16. During Q1 2022, operating funds from operations decreased by 36% to $16.1 million compared to last year, primarily due to lower NOI as a result of pandemic recoveries in 2021 and higher current income tax expense. This was partially offset by lower administrative expenses and lower interest expenses on long-term debt. Q1 OSFO per share decreased by 37% to 23.9%. Adjusted funds for operations decreased by 38% to $16.4 million compared to last year, primarily due to the same reasons as the decrease in OSFO, as well as higher maintenance costs and lower construction funding. ASFO per share was $0.243 in Q1 2022, resulting in an ASFO payout ratio of 96%. Looking at our debt metrics on slide 17, Our debt to gross book value decreased by 450 basis points to 41.5% at the end of Q1 2022 compared to 46% at the end of Q1 2021, mainly as a result of mortgage repayments and the issuance of 5.8 million shares in late March 2022 to fund our acquisitions. The proceeds from this issuance will be deployed to help fund our acquisitions as they close. Debt-adjusted EBITDA increased to 8.7 years in Q1 2022 times in Q1 2022 compared to 4.7 times in Q1 2021 as a result of the retroactive payments received in 2021 relating to 2020. We have limited debt maturities over the next two years, and our debt is well distributed between unsecured debentures, credit facilities, conventional mortgages, and mortgages insured by the Canada Mortgage and Housing Corporation. To execute on our strategic growth plans, we have been active on a number of financing initiatives to raise capital to date in 2022. At the end of March, we completed our first equity offering in four years. Approximately 5.8 million shares were issued at a price of $15 per share for a total of $86.3 million, including the full exercise of the over-allotment of 750,000 shares. The successful completion of this offering was a clear indication of the strong investor interest and confidence placed in our company and our sector. On February 3rd, we secured $150 million acquisition term loan at 145 basis points over the floating VA rate for a 12-month term to finance our acquisitions. In connection with the closing of the 11 property portfolio transaction in the coming days, as well as the closing of the village at Stonebridge later in Q2, we anticipate making a $90 million one-time drawdown on this term loan to finance our acquisitions. We will assume CMHC insured mortgages for two of the acquisition properties for approximately $27 million at Siena's 50% ownership share at a weighted average interest rate of 2.24%. In addition, we have sold two non-core properties in Q1 as part of our capital recycling initiatives, including a retirement residence in British Columbia and a long-term community in Ontario. The net proceeds from these sales will be used to support our growth initiatives. I will now turn the call back to Nitin for his closing remarks. Thank you, David.