Sienna Senior Living Inc. (TSX: SIA) offers a full range of seniors’ living options, including independent living, assisted living, long-term care, and specialized programs and services. 

The Management announced a monthly dividend of CAD 0.936 per common share, payable on July 30, 2020.

Key Management Updates: 

• During the month of June, the Company elected Mr. Nitin Jain as President and Chief Executive Officer of the Company.
• Stephen Foster has been appointed as Executive Vice President, Long-Term Care and will be focusing on strategic and operational execution for the Company’s long-term care segment.
• Karen Hon was appointed as Chief Financial Officer and Senior Vice President and will look upon the financial management activities, with overall responsibility for financial management and fiscal integrity of the Company.
• David Hung joined as Senior Vice President, Corporate Services and would provide strategic direction and daily operational oversight for Information Technology, the Project Management Office, Real Estate, Enterprise Privacy & Security, Risk Management and Procurement. 

Q1FY20 Financial Highlights: SIA reported a stable set of quarterly numbers and posted revenue of CAD 166.43 million, as compared to CAD 163.66 million in the previous corresponding quarter. The slight improvement in the revenue was aided by the inflationary increases in flow-through funding, partially offset by the lower occupancy rate. Income before net finance charges, transaction costs and provision stood at CAD 14.40 million, improved from CAD 12.62 million in pcp, driven by a slightly improved  revenue coupled by a significantly lower administrative expense and stable depreciation expense, partially offset by a higher operating expense. The surge in the administrative expense was due to higher labor costs and other annual inflationary increases. Net finance charges were significantly higher at CAD 16.78 million versus CAD 11.35 million in pcp primarily due to a fair value loss on interest rate swap contracts. The Company reported a net loss of CAD 2.49 million, as compared to a net profit of CAD 442 million. AFFO stood at CAD 25.58 million, increased from CAD 23.38 million in pcp due to the increase in operating funds from operations (OFFO), partially offset by the timing of maintenance capital expenditures.

Q1FY20 Income Statement Highlights (Source: Company Reports)

Risk: Due to the COVID-19 outbreak, the group might witness a lower occupancy rate, which could impact financial performance.

Valuation Methodology: EV/ EBITDA Based Relative Valuation (Illustrative)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: The stock of SIA corrected ~50% so far this year due to the ongoing weakness in the equity markets. The business model is resilient in nature and is directly correlated with the ageing population. We believe, the sectoral weakness is temporary in nature, and the occupancy rate would stabilize in the coming days as the situation normalizes. The group is likely to witness higher expenditure in the near term to support the cost of managing COVID-19; out of these expenses, some might be covered by the government funding. The company was witnessing a slowdown in occupancy rate while rent collection remained stable is past three months. The company is focusing on liquidity preservation and delaying new expansion projects. Furthermore, the stock offers a lucrative dividend yield of ~10.32%, which is lucrative, considering the current interest environment. However, dividend seems a bit inflated owing to the recent price correction. We have valued the stock using EV to EBITDA based relative valuation approach and considered peers like Chartwell Retirement Residences, Boardwalk Real Estate Investment Trust, etc., and arrived at a target price offering double-digit upside potential (in % terms). The company has a long term debt to capital ratio of 46.6%, which is higher than the industry average of 29.2%. Higher debt servicing cost might pose a challenge in the near to medium term. Hence, considering the aforementioned factors, we recommend a ‘Speculative Buy’ rating on the stock at the closing price of CAD 9.04 as on July 7, 2020.

SIA Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

*Please be aware that dividends are variable and not guaranteed.

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