DBRS Morningstar Assigns Provisional Rating of BBB, Stable Trend, to Sienna Senior Living Inc.

DBRS Limited (DBRS Morningstar) assigned a provisional rating of BBB with a Stable trend to the Senior Unsecured Debentures to be potentially issued by Sienna Senior Living Inc. (Sienna). The rating is based on Sienna’s position as a leading provider of seniors housing across the continuum of care in Canada, a high-quality portfolio of retirement and long-term-care (LTC) properties, stable and predictable LTC funding and a strong track record of adhering to strict LTC regulatory requirements. The rating is constrained by Sienna’s geographic concentration in the Province of Ontario (rated AA (low) with a Stable trend by DBRS Morningstar) and the Province of British Columbia (rated AA (high) with a Stable trend by DBRS Morningstar) and the competitive nature of retirement residence markets (excluding LTC).

Given Canada’s aging population, the demand for seniors housing remains strong. Sienna is well positioned to benefit from these trends given its portfolio of high-quality residences, strong operating track record and increasing brand recognition. The portfolio comprises a large proportion of LTC beds, accounting for 68% of total bed/suites as at Q2 2019. Owing to the stable, predictable funding framework for LTC, this provides stability to Sienna’s cash flows.

The Stable trend reflects DBRS Morningstar’s expectation that Sienna’s earnings profile will continue to improve as a result of modest same-property revenue growth and cost-control initiatives. Occupancy in the LTC segment is consistently high and expected to remain so, while Sienna has experienced some deterioration in retirement occupancy levels due to competitive pressures in certain local markets. DBRS Morningstar expects retirement occupancy to stabilize around current levels as additional supply gets absorbed. The Stable trend also incorporates DBRS Morningstar’s expectation that Sienna’s key financial risk assessment metrics, as measured by debt-to-EBITDA and EBITDA interest coverage, are expected to remain within an acceptable range for the assigned rating on a segmented basis.

RATING DRIVERS
Although unlikely in the near term, a negative rating action could arise if Sienna’s key financial metrics deteriorate significantly on a sustained basis. A positive rating action is not contemplated for the foreseeable future but could arise from a material and sustained improvement in key financial metrics and a material improvement in size and scale resulting in improved market position and geographic diversification.

Notes:
The principal methodologies are Rating Companies in the Canadian Long-Term Care Industry, Rating Entities in the Real Estate Industry and DBRS Criteria: Rating Corporate Holding Companies and Their Subsidiaries, which can be found on dbrs.com under Methodologies & Criteria.

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link under Related Documents or by contacting us at info@dbrs.com.

The rated entity or its related entities did participate in the rating process for this rating action. DBRS Morningstar had access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

The full report providing additional analytical detail is available by clicking on the link under Related Documents below or by contacting us at info@dbrs.com.

For more information on this credit or on this industry, visit www.dbrs.com or contact us at info@dbrs.com.

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