Sienna Senior Living Inc.

Ladies and gentlemen, welcome to the Siena Senior Living Inc.' 's Q4 2022 conference call. Today's call is hosted by Nitin Jain, President and Chief Executive Officer, and David Hung, Chief Financial Officer of Siena 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 risk factors 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 CDAR, and can be found on the company's website, cnliving.ca. Today's call is being recorded, and a replay will be available. Instructions for assessing 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 remark, on the company's website under Events and Presentations. With that, I will now turn the call over to Mr. James. Please go ahead, Mr. James.

Good afternoon, everyone, and thank you for joining us on our call today. Long-term fundamentals in Canadian senior living remain strong despite an uncertain economic environment and a challenging labor market. Our Q4 financial results are a reflection of the growth potential embedded in our business as well as the current economic challenges. Continued occupancy and rate increases in the retirement segment offset some of the significant cost increases across both our business lines and funding shortfalls in the long-term care segment. Despite these challenges, we believe that having a balanced portfolio in which our retirement and long-term care operations each make a significant contribution to the overall net operating income, adds to the financial strength of our business, and helps us achieve sustainable long-term growth. With respect to our operating results, average same property occupancy in our retirement portfolio grew for the sixth consecutive quarter to 88.6% in Q4, which is up 440 basis points year-over-year and 20 basis points compared to the third quarter in 2022. Average occupancy in our acquisition portfolio was approximately 85.3%, which is an improvement of 310 basis points since we acquired the 12 assets in May of 2022. Going forward, we'll continue to capitalize on the growing demand for seniors living and expect further occupancy improvements. In 2023, we forecast average occupancy for the full year to achieve 90% in our same property portfolio and to exceed 87% in our acquisition portfolio. We continue to leverage our Aspera brand and signage program to generate strong interest in our residences. Qualified leads have increased by approximately 29% year-over-year in the fourth quarter. Moving to slide six, in the long-term care communities, resident admissions progressed steadily throughout 2022, with average occupancy reaching 96.3% in the fourth quarter. Demand for long-term care beds is higher than ever, with the rapid increase of Canadian seniors. The 85-plus cohort is expected to triple over the next 25 years. This will put further pressure on the already long waiting list for long-term care beds and on Canada's hospital systems. At the same time, labor shortages, high inflation, and funding gaps are impacting our operations. Together with other sector participants and associations, we have been working with the government to address this situation and feel confident that we'll find a solution to ensure the long-term viability of this sector. Elevating the quality of life and well-being of our residents is at the center of what we do. We are very pleased that Ciena maintained the highest achievement status of Aspire to Excellence in Ontario, which is awarded by CARF, and also received an award of exemplary standing from Accreditation Canada for our communities in British Columbia. These are strong indicators that our team has demonstrated excellence in the quality of care they provide. A national shortage of healthcare workers continue to put immense pressure on our sector. Although a number of important government initiatives are underway, we expect staffing shortages to remain for some time. In 2023, we'll continue to strengthen team engagement and retention by offering a compelling team member experience and by creating a purpose-driven culture. We'll also continue to improve our onboarding process, invest in team member training and development, and intensify recruitment campaigns. Our initiatives to improve team member satisfaction and engagement have been reflected in a recent engagement survey. Approximately 85% of our team members feel that they are able to do meaningful work every day. This is the second consecutive quarter year of improvement in our employee engagement score. Recently, we have implemented a centralized call-out and shift scheduling system to meet our staffing needs on a real-time basis. The system provides greater flexibility and a more seamless process to fill staffing gaps. It also helps with tighter controls on overtime, allows team members to optimize their schedules, and ultimately reduces our reliance on external agency staffing. To further reduce the impact of agency and agency-related costs, we are finalizing an RFP process to reduce the number of agencies we use from nearly 100 to less than 20. At the same time, we are strengthening our contract terms, such as enforcing a minimum fill rate threshold and surcharges, while reducing agency rates by an average of 10%. Moving to our focus on development, last year the feasibility of a long-term care redevelopment plans was challenged as a result of rising construction costs and rapidly increasing interest rates. Together with other participants in the seniors living sector, we have been working with Ontario government to address this situation. We're very pleased that in late 2022, the government announced a significant time increase to its long-term care construction funding. As a result, we expect to have a total of 480 beds under construction by mid-2023, including projects in North Bay, Keswick, and Brantford. The project in Brantford consists of 160 long-term care beds and 147 retirement suites as part of Campus of Care. The campus will have an estimated total development cost of approximately $140 million and a projected development yield of approximately 7.5%. In addition, CN has over 1,000 beds in the planning stages in the Greater Toronto Area. We'll continue to advocate for funding that is aligned with inflation so that we can move forward with our redevelopment plans and improve long-term care in Ontario. We are also approaching the finish line for a joint venture development for Eichmann Senior Housing of a 150-suite retirement residence in Niagara Falls, which we expect to complete by the end of this year. The estimated total capital investments for this project is approximately $55 million. With that, I'll turn it over to David for an update on our operating and financial results.

Thank you, Nitin, and good afternoon, everyone. I will start on slide 11 for financial results. In Q4 2022, total adjusted revenues increased by 10.9% year-over-year to $193.2 million. This increase was largely due to occupancy and rental rate growth and additional revenue from the 12 properties we acquired in Q2 in our retirement segments. as well as flow-through funding for increased direct resident care and higher preferred accommodation revenues from increased occupancy in our long-term care segment, partly offset by occupancy clawbacks in homes where we did not reach the required 97% occupancy target. Total net operating income decreased by 2.8% to $32.5 million this quarter compared to Q4 2021. Our LTC segment decreased by $2.9 million year-over-year mainly due to higher operating costs and the impact of the sale of a long-term care community in Q1 2022. NOI in our retirement segment increased by $1.9 million, mainly as a result of same property NOI growth and additional NOI from our 12 new retirement properties offset by higher operating costs. Ciena's LTC same property NOI decreased by 11.3% to $16.4 million in Q4 2022 compared to last year, primarily due to higher operating costs, in particular with respect to labour as well as occupancy clawbacks. This was partly offset by an increase in preferred accommodation revenues as a result of higher occupancy compared to Q4 2021. We expect cost pressures to remain for some time at our long-term care operations and forecast that our 2023 NOI for the full year in the LTC segment will remain at a similar level compared to 2022. Last year, the Ministry of Long-Term Care advised that it will not reopen the third and fourth beds in ward rooms and has signaled that it intends to introduce phased-in revisions to the funding for these beds. Changes which could impact 350 of the three and four beds at Siena were expected to begin in January 2023 but have been delayed until at least the end of March. In addition, we expect continued unfunded pandemic expenses up between $2 to $3 million in Q1 2023 for our long-term care segment, largely as a result of incremental labor costs. Retirement-same property NOI increased by 5% in Q4 2022 to $14.7 million compared to the last year, primarily due to occupancy improvements and annual rates increases. This was partly offset by higher costs for labor and food, as well as increased maintenance and property taxes. In 2023, we expect NOI growth in our retirement portfolio to be supported by occupancy improvements and rate increases of approximately 5%. These factors will contribute to revenue growth while cost pressures will remain for some time, in particular with respect to staffing shortages as well as high overall inflation. Considering all factors, we expect the operating margin in our retirement segment in Q1 2023 to be similar to the full year margin of 35.7% in 2022. And we further expect the 2023 operating margin to improve by approximately 150 to 200 basis points for the full year. Moving to slide 12, during Q4 2022, Operating funds from operations decreased by 3.1% to $17.7 million compared to last year, primarily due to lower NOI and higher interest expenses. Q4 OFFO per share decreased by 10.7% to $0.243, primarily due to additional shares issued in March 2022 to finance the company's growth initiatives. Adjusted funds from operations increased by 4.5% to $17.3 million compared to last year, The increase was due to the timing of maintenance costs partly offset by lower OFFO. ASFO per share decreased by 4% to 23.7 cents in Q4 2022. The ASFO payout ratio was 98.7% for the quarter and 99.3% for the full year. In addition, we recorded restructuring costs of $6.6 million in connection with the permanent closure of a long-term care community in 2023. Looking at our debt metrics on slide 13, our debt to gross book value decreased by 80 basis points to 43.9% at the end of 2022 compared to 44.7% at the end of 2021, mainly due to mortgage repayments with proceeds from property dispositions earlier in the year. Debt to adjusted EBITDA increased to 8.9 times in 2022 compared to 7.9 times in 2021. and interest coverage ratio decreased to 3.3 times in 2022 compared to 3.7 times in 2021. On December 9, 2022, DBRS confirmed Ciena's issuer rating and senior unsecured debenture rating of BBB with stable trends. These ratings underscore the resiliency and strength of our business and are a reflection of our strong balance sheet. We ended 2022 with approximately $287 million of liquidity, an increase of $61 million compared to 2021. We also had nearly $1.2 billion of unencumbered assets, which represents a year-over-year increase of approximately $80 million. I will now turn the call back to Nitin for his closing remarks.