Investors in Sienna Senior Living Inc. have made a big profit over the past year as the seniors' care company diversifies into the higher-margin retirement housing industry. However, analysts expect its growth to be more muted in the months ahead.
Shares of Markham, Ont.-based Sienna, which recently changed its name from Leisureworld Senior Care Corp., are trading near record highs and have climbed about 25 per cent over the past year.
Since going public in 2010, the company has moved away from providing only long-term care (LTC) into offering retirement living, through a handful of acquisitions. Today, it's the largest owner and operator of long-term care facilities in Ontario, with 35 LTC homes (about 5,700 beds), as well as 10 retirement residences in Ontario and British Columbia (about 1,065 suites).
For Sienna, it's now a case of proving to investors that it can build on its new direction.
"Sienna has strong prospects for continued internal growth, and the track record to date has been one of strong execution," said CIBC World Markets analyst Alex Avery. "We're following the story closely, and expect management to continue to build on its strong track record."
Mr. Avery has a target of $15.50 on the stock and is one of six analysts with a "hold" or equivalent rating, while three say "buy," according to Thomson Reuters. The analyst consensus price target over the next year is $15.64, in line with where the stock is currently trading.
The stock hit a record high of $16.16 last month, after Sienna reported a jump in net operating income (NOI) – a key measure in the industry – and higher occupancy rates at its more profitable retirement homes. Prices that can be charged for the retirement residences are more flexible compared to the government-regulated LTC facilities. About two-thirds of its NOI comes from the LTC side of the business, and just over one-fifth from retirement residences. The other 5 per cent is from home care and management services Sienna also offers.
The changing business model, as well as Sienna's rich dividend – which yields about 6 per cent – has attracted investors.
BMO Nesbitt Burns analyst Troy MacLean has an "outperform" (similar to "buy") on the stock and recently increased his target to $16.50, in part because of the lower 70-per-cent payout ratio. He also likes the steady income and "limited economic sensitivity."
"Sienna's largest business segment is Ontario LTC, which benefits from necessity-based demand and restricted supply," Mr. MacLean said in a note. There are about 78,000 LTC beds in Ontario, and a waiting list of more than 20,000 people, according to Ontario Association of Non-profit Homes and Services for Seniors.
Now that Sienna has finished rebranding, Mr. MacLean expects it to focus on more acquisitions.
Sienna chief executive Lois Cormack said the company is well established in the long-term care business and is focusing on buying retirement residences in Canada, particularly Ontario and B.C. where they already have properties. She said Sienna hasn't set any specific acquisition growth targets.
"We don't want to be desperate to buy," Ms. Cormack said. "We don't believe in growth for the sake of growth."
Greg Newman, director of wealth management and associate portfolio manager at the Newman Group at ScotiaMcLeod, holds Sienna for its rich dividend, and as a play on the growing retirement population. However, he doesn't plan to buy more stock in the near future, believing it's fairly priced.
He sees Chartwell Seniors Housing Real Estate Investment Trust as a better buy right now after a recent market pullback. Chartwell has a larger concentration of retirement homes, at about 80 per cent of the business, compared to 20 per cent LTC homes.
"Both fit into the demographic theme and I think investors can make money on both over time," said Mr. Newman. "Everything unfolds at different speeds and I would say that Sienna has got a little bit ahead of itself."