Sienna Senior Living (SIA-T) and California-based Sabra Health Care REIT have formed a joint venture to acquire 11 Extendicare retirement living residences in Ontario and Saskatchewan for $307.5 million.
The transaction means Extendicare is exiting the retirement living segment and will focus on its long-term care and home health care business lines.

The transaction comprises a modern portfolio of 1,048 private-pay suites with an average age of six years.

Sienna and Sabra will be 50-50 partners in the venture.

“Today’s announcement marks an important acquisition by Sienna and supports our outlook for the company going forward,” said Nitin Jain, president and chief executive officer of Sienna, in the announcement Wednesday morning.

“Sienna has invested significant resources during the COVID-19 pandemic to ensure the safety and well-being of our residents and staff.

“As a result of the tireless commitment to resident safety and quality of life from our entire team, the market responded through industry-leading increases in retirement occupancy for Sienna in Q3 and Q4 2021, putting the company in a position to once again invest in strategic growth and value-creation initiatives.”

The portfolio Sienna, Sabra are acquiring

Occupancy is about 90 per cent, Sienna said, with the exception of one facility which is in lease-up.

Seven of the residences are in Ontario and four in Saskatchewan, which will be a new market for Sienna.

“We are excited to enter into the Saskatchewan market and expand our Ontario footprint, welcome new team members and residents, and integrate high-quality assets within the Sienna platform, and we look forward to the enhanced quality and growth prospects they will bring to our retirement business,” Jain said in the announcement.

“In addition, our strategic joint venture with Sabra through this transaction is expected to be an additional source of future growth for the company.”

They are located in growing Ontario and Saskatchewan communities. All the facilities were built or expanded since 2010.

Excess land at four of the properties represents future development potential of 233 suites. Sienna and Sabra also intend to spend about $5 million on capital upgrades at the facilities.

The properties are:

(IL – Independent living; AL – Assisted living; MC – Memory Care)

Financing of the acquisition

Sienna expects the properties to generate an approximate six per cent unlevered yield in the first 12 months following closing of the transaction, which is expected in Q2 2022 if all approvals are granted.

The acquisition is being financed through a $150-million acquisition term loan which Sienna will refinance post-closing; proceeds from the previously announced sales of two Sienna properties; and draws on the company’s existing credit facilities.

Following the closing of the transactions, Sienna’s debt to gross book value ratio on a pro forma basis is expected to increase from 46 per cent as of Sept. 30, 2021 to approximately 48 per cent.

Sienna also anticipates expanding the venture with Sabra through “new growth initiatives in Canada.” Sienna will manage this portfolio and receive a management fee as part of the agreement.

Sienna is already the manager for eight other Sabra-owned retirement facilities in Canada.

Extendicare’s new focus

For its part, the transaction represents a new focus for Extendicare.

“With today’s announcement, we are repositioning Extendicare to focus on growth in our long-term care and home health care segments where we can leverage our deep expertise and scale to drive improved performance and high-quality care for seniors across Canada,” said president and CEO Dr. Michael Guerriere in a separate release.

“Proceeds from the sale will provide the flexibility to allocate capital strategically, including priority investments in our people, technology and our long-term care redevelopment program.

“We are pleased with the value we will realize on our retirement living investment.”

Extendicare expects to receive about $115 million in net proceeds from the dispositions.

TD Securities Inc. is acting as exclusive financial advisor to Sienna and Torys LLP is acting as legal advisor to Sienna in connection with the acquisition.

CBRE Capital Markets is acting as financial advisor to Extendicare and Bennett Jones LLP is acting as legal advisor to Extendicare in connection with the Transaction.

About Sienna Senior Living, Extendicare

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

The firm employs approximately 12,000 people.

Extendicare provides care and services for seniors across Canada under the Extendicare, Esprit Lifestyle, ParaMed, Extendicare Assist and SGP Purchasing Partner Network brands.

It operates or provides contract services to a network of 120 long-term care homes and retirement communities (69 owned/51 contract services), provides approximately nine million hours of home health care services annually and provides group purchasing services to third parties representing approximately 88,400 senior residents across Canada.

Extendicare employs more than 23,500.