DBRS Limited (DBRS Morningstar) confirmed Sienna Senior Living Inc.'s (Sienna or the Company) Issuer Rating and Senior Unsecured Debentures rating of BBB. All trends are Stable. The rating confirmations are based on Sienna’s position as a leading provider of seniors housing across the continuum of care in Canada, high-quality portfolio of retirement and long-term care (LTC) properties, stable and predictable LTC funding, and strong track record of adhering to strict LTC regulatory requirements. Although the Coronavirus Disease (COVID-19) pandemic has materially affected Sienna's operations and persisted longer than initially expected, its impact on key financial risk assessment metrics is nevertheless expected to be temporary and supports the Stable trends.
As the duration of the coronavirus pandemic has continued longer than was anticipated at the time of the last review in September 2020, this has contributed to a notable decline in EBITDA, driven by greater deterioration in the retirement segment relative to the LTC segment. Importantly, provincial governments (Ontario and British Columbia) continue to provide significant funding support to LTC operators, such that the majority of extraordinary pandemic expenses and lost revenues, due to lower occupancy, are expected to be recovered, albeit with a one- or two-quarter lag. Furthermore, while the ultimate pace of recovery in retirement occupancy remains uncertain, DBRS Morningstar believes that the long-term fundamentals remain intact, as Sienna is well positioned to benefit from strong demand for seniors housing, given its portfolio of high-quality residences.
Supported by the high vaccination rate of residents and staff, along with the gradual relaxation of public health measures, DBRS Morningstar has increased confidence that a gradual recovery in Sienna's key financial metrics is underway. After making adjustments to exclude the net impact of pandemic expenses/recoveries, DBRS Morningstar expects the consolidated debt-to-EBITDA ratio to remain below 8.0 times (x) in 2021 and 2022, compared to 7.4x in 2020. Similarly, the consolidated EBITDA-to-interest ratio is expected to improve to 4.0x or above in 2021 and 2022. All ratios are DBRS Morningstar adjusted.
Although not anticipated, DBRS Morningstar may consider a negative rating action if the pro forma financial risk metrics deteriorate on a sustained basis, with a consolidated debt-to-EBITDA ratio trending toward 8.0x or above and a consolidated EBITDA interest coverage trending toward 3.5x or below (both figures DBRS Morningstar adjusted). DBRS Morningstar cautions that these metrics are cited on a consolidated basis, while DBRS Morningstar assesses Sienna's key financial risk metrics on a segmented basis for LTC and retirement. A positive rating action is unlikely in the near term, given the challenging operating environment and deterioration in financial metrics.
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://www.dbrsmorningstar.com/research/373262.
All figures are in Canadian dollars unless otherwise noted.
The principal methodologies are Rating Companies in the Canadian Long-Term Care Industry (August 18, 2021; https://www.dbrsmorningstar.com/research/383214), Rating Entities in the Real Estate Industry (April 23, 2021; https://www.dbrsmorningstar.com/research/377358), and DBRS Morningstar Criteria: Rating Corporate Holding Companies and Parent/Subsidiary Rating Relationships (November 2, 2020; https://www.dbrsmorningstar.com/research/369167), which can be found on dbrsmorningstar.com under Methodologies & Criteria. Other applicable methodologies include the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (February 3, 2021; https://www.dbrsmorningstar.com/research/373262).
For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/357883.
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 email@example.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.
Generally, the conditions that lead to the assignment of a Negative or Positive trend are resolved within a 12-month period. DBRS Morningstar trends and ratings are under regular surveillance.
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