Sienna Senior Living Inc.

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 Company announced a quarterly dividend of CAD 0.936 per common share, payable on August 31, 2020.

Q2FY20 Financial Highlights: SIA announced its quarterly results, wherein the Company posted revenue of CAD 162.922 million, slightly lower than CAD 165.957 million in the previous corresponding period (pcp). The quarter was marked by lower occupancy rate, and the group reported lower NOI at CAD 31.891 million as compared to CAD 39.929 million in pcp. The Company reported a higher operating expense of CAD 131.031 million as compared to CAD 126.028 million in pcp. LTC– average occupancy, during the quarter stood at 92.6% as compared to 98.3% in pcp. Adjusted Funds from Operations stood lower at CAD 16.623 million as compared to CAD 24.428 million in pcp. The Company generated a net loss of CAD 6.778 million in Q2FY20 as compared to a net profit of CAD 2.23 million in pcp. The decline was primarily attributable to higher expense related to pandemic coupled with non-recurring restructuring costs, a lower occupancy rate and a decrease from fair value adjustments on interest rate swap contracts, partially offset by annual rental rate improvement from retirement, lower income taxes and mark-to-market adjustments on share- based compensation.

Q2FY20 Financial Highlights (Source: Company Reports)

Risks: The company is subjected to interest rate risk on the mortgage, and interest rate volatility might hinder the company’s earnings. Due to the rise of COVID 19, the company might witness a decline in the occupancy levels. Further, the group has higher debt component in its balance sheet, which might put balance sheet at risk.

Valuation Methodology: EV to EBITDA Based (Illustrative)

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

Stock Recommendation: The stock corrected ~43% so far this year amid volatility in the equity market. The Business provides shelter to the aged population in lieu of fees, and the demand is correlated with the gaining population of the Country. We believe, the Business is immune to the economic cycle and the current hiccups are temporary in nature. The Company reported a decline in profitability due to higher operating costs related to the measures taken to ensure safety. The Company hired 900 full-time and 1,000 part-time staff members during March to July 2020, in order to provide additional safety to the resident, resulting in a spike in the staff costs, which would further act as a drag for the margin. To ensure ample liquidity to support the working capital needs, the Company has increased its liquidity to CAD 240.5 million from CAD 144.0 million in December 2019, which is likely to help the group in navigating through the challenging time. Further, the Company continued to pay the dividend amid the challenging time, which shows the financial flexibility. At the last traded price, the stock was offering a dividend yield of 8.9%, which is attractive amid the prevailing low-interest-rate environment in the economy. We have valued the stock using EV/EBITDA value-based relative valuation method and have arrived at a target upside of double-digit (in percentage terms). For the said purposes, we have considered peers like Chartwell Retirement Residences, Boardwalk Real Estate Investment Trust and Extendicare Inc etc. Hence, considering the aforesaid facts and current price movement, we recommend a ‘Speculative Buy’ rating on the stock at the closing market price of CAD 10.46 on August 19, 2020.

Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Extendicare Inc.

Extendicare Inc (TSX: EXE) is a leading provider of care and services for seniors across Canada and operates across 122 long-term care homes and retirement communities and offered ~9.2 million hours of home health care services on a yearly basis. The group operates under the Extendicare, Esprit Lifestyle, ParaMed, Extendicare Assist, and SGP Purchasing Partner Network brands.

The Management announced a quarterly dividend of CAD 0.04 per common share, payable on August 17, 2020.

Q2FY20 Financial Highlights: EXE released its quarterly results, wherein the Company posted revenue of CAD 281.9 million, representing a growth of 4.7% on y-o-y basis. The growth was driven by COVID-19 funding, LTC funding enhancements coupled with improvement across the in retirement living and other operations, which was partially offset by a 20.7% decline in home health care ADV. The Company posted Adjusted EBITDA of CAD 8.2 million, reflecting a decrease from CAD 25.152 million, primarily attributable to excess costs related to COVID 19, lower NOI from home health care and higher administrative expenses. NOI stood at CAD 19.9 million, down CAD 13.5 million in the previous corresponding period (pcp) while NOI margin took a hit and reduced to 7.1%, as compared to 12.4% in pcp, primarily due to as a result of increased costs associated with COVID-19 and pandemic pay programs. Net loss stood at CAD 3.659 million, as compared to a profit of CAD 8.325 million in pcp. The Company posted an average occupancy at 93.5%, down 400 bps from Q2FY19 and 350 bps dip from the previous quarter, primarily attributed to a reduced admission on account of COVID-19. 

Q2FY20 Financial Snapshot (Source: Company Reports)

Risks: On account of COVID 19 pandemic, the group witnessed a lower admission in the recent past which has taken a toll on the average occupancy rate. Continuation of such a trend might affect financial performance.

Valuation Methodology: EV to EBITDA Based (Illustrative)

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

Stock Recommendation: The EXE stock corrected ~35% and 36% in the last six months and one year, respectively due to a lower admission due to the increased risk of COVID 19 pandemic. The company is one of the leading names within its segment and has terrific presence across the Canada region. In the recent past, the company witnessed a steady improvement in ParaMed’s business volumes, coupled with a higher ADV for the four weeks ending August 9, 2020 to 22,422, increased 10.0% from Q2FY20, which is encouraging. Restrictions in Ontario have been lifted with the retirement living segments, and EXE resumed in-person tours for prospective residents, which is a key positive. Extendicare maintained its strong financial flexibility and liquidity in Q2 2020, with cash and cash equivalents on hand of CAD 122.0 million and access to a further CAD 71.9 million in undrawn demand credit facilities as at June 30, 2020. In addition, the company has CAD 14.1 million of restricted cash held by its captive insurance company that is anticipated to be released in Q3 2020. The group continued to pay dividend amid challenging time, which is encouraging from an income investor point of view. At the last traded price, the stock was offering a dividend yield of ~8.36%, which is lucrative considering the current interest rate scenario. We have valued the stock using the EV to EBITDA based relative valuation approach and arrived at a target price, which suggests a lower double-digit upside potential (in % terms). For the said purpose, we have considered peers Sienna Senior Living Inc, Morguard Real Estate Investment Trust and RioCan Real Estate Investment Trust etc. Though the business model is resilient and prospect looks attractive, the company has a higher debt component in its balance sheet, which might pose a challenge. The group’s long term debt to capital ratio stood at 65.7%, which is higher than the industry median of 27%. Hence, considering the aforesaid facts, we recommend a ‘Speculative Buy’ rating on the stock at the closing market price of CAD 5.59 on August 19, 2020.

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

*Please be aware dividends are variable and not guaranteed.

Disclaimer

The advice given by Kalkine Canada Advisory Services Inc. and provided on this website is general information only and it does not take into account your investment objectives, financial situation and the particular needs of any particular person. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. The website www.kalkine.ca is published by Kalkine Canada Advisory Services Inc. The link to our Terms & Conditions has been provided please go through them. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations later.