Lois Cormack - President and Chief Executive Officer Nitin Jain - Executive Vice President and Chief Financial Officer

Jonathan Kelcher - TD Securities Troy MacLean - BMO Yash Sankpal - CIBC Michael Smith - RBC Capital Markets Pammi Bir - Scotia Capital

Good morning, ladies and gentlemen. Welcome to Sienna Senior Living Inc.'s Q3 2015 conference call. Today's call is hosted by Lois Cormack, President and CEO; and Nitin Jain, Executive Vice President and CFO. Please be aware that certain information discussed today is forward-looking. Actual results could differ materially. The company does not undertake any duty to update any forward-looking statements. Please refer to the risk factor section in the company's public filings for more information. Today's call is being recorded and a replay will be available. Instructions for accessing the call are posted on the company's new website siennaliving.ca, and details are provided in the company's news release. The company has posted slides, which accompany the hosts' remarks on the company website under Events & Presentations. With that, I will now turn the call over to Ms. Cormack. Please go ahead, Ms. Cormack.

Thank you, Melanie. Good morning, everyone, and thank you for joining us on our call this morning. I will review the highlights of our Q3 performance and Nitin will discuss the financial results in more detail. I will warn you that Nitin has laryngitis, so if he cuts out, I will augment his remarks. So turning to Slide 4. Over the past quarter, we continued to make excellent progress with our retirement living strategy, showing good results as well as continued stable performance in our long-term care division. We delivered solid results in the quarter with diluted OFFO per share increasing by 4.1%, diluted AFFO per share increasing by 7.3% and overall NOI growth of 4.8%. Now, moving on to retirement. Our retirement home occupancy at the end of the quarter was 92.3%. This is up 7.4% over Q3 of last year. And same-property NOI improved by 13.5% over Q3 of last year. We believe that our strategy for the retirement living portfolio is taking hold, as we had previously committed, and this can be seen in our strong results. Our strategy is developing relationships at the local level in every community that we serve, working closely with our hospitals, community service providers and volunteer organizations. For example, several of our retirement residence participated in Cook for the Cure, raising important fund for the Canadian Breast Cancer Foundation. We continue to invest in our sales and marketing platform, and this allows us to drive more traffic to our retirement residences over the important fall month; and providing the level and type of service that residents require, such as improving our food and beverage option, with a very successful farm-to-table program in some of our retirement residences. Now, moving on to long-term care. The fundamentals of this sector remain very strong and demand continues to increase. By 2025, the over 75 age group in Ontario is expected to increase by 51%. The current provincial wait list is over 23,000 and the province-wide median wait time, as reported by Health Quality Ontario this past month, has significantly increased over the past 10 years. The wait is now 69 days for a senior waiting in a hospital. This is an increase of 51 days. And the wait list is a 116 days for a senior moving from the community to long-term care. This is an increase of 48 days over the past 10 years. In Q3 we had a 2.3% increase in same-property long-term care NOI. Now, moving on Slide 9. We continue to receive positive feedback on the rebranding to Sienna Senior Living. We are building the Sienna brand in its journey that we are implementing with many initiatives to build our brand. We are harmonizing numerous sub-brands and standardizing our promotional materials under Sienna Senior Living. We are enhancing our online presence and making improvements in the residence and family experience from their first interactions with the Sienna retirement residence or care community. This is an exciting journey for our team. We recently had a leadership symposium, which was a great opportunity to continue to build on our culture and our brand from the inside out, grounded by the new value and vision that we established one year ago. Our focus on improving the resident experience is paying off, and we recently received this year's resident and family satisfaction survey result. Resident satisfaction and retirement is up 87%, a 3% increase over last year. And in long-term care, it's 85%, up 5% over last year. In addition, 89% of our publicly reported quality indicators are at or above the provincial average. This represents a 17% improvement over the same period last year. We are proud to have initiated a leadership program in partnership with York University, and many of Sienna's nurse leaders have started this one-year program. These great initiatives are consistent with Sienna's commitment to constantly advancing the quality of care and improving services for seniors. Now, with respect to the redevelopment of our C community, we continue to plan for our entire program, and we're making good progress on planning for the redevelopment. We are working closely with our Local Health Integration Network, our development partners and beginning the predevelopment activity for two initial projects, one retrofit and one greenfield site, where we own land and C beds. Both are subject to regulatory and municipal approvals. Now, given the complexity and variables, this development program is a long-term project, spanning several years, which we believe presents a great opportunity for Sienna Senior Living to enhance the quality of our portfolio, improve the residents accommodations and add incremental NOI. Now, I will turn it over to Nitin to provide more detail on our financial performance.

Thank you, Lois, and good morning, everyone. Before I begin, I would like to note that you'll find a fulsome discussion of our results in our MD&A and financial statements, which are posted on SEDAR and can also be found on our website under siennaliving.ca. In the third quarter of 2015, we generated net operating income of $22.4 million, which is up $1 million or 4.8% versus the same period last year. Our retirement NOI growth was a strong 13.5% and our long-term care NOI growth was 2.3%. The retirement growth was driven by strong occupancy gains as that occupancy increased by 7.4% to 92.3% versus Q3 2014. For the first nine months of the year, we generated NOI of $63.4 million, which is up $2.3 million or 3.6% over the first nine months of 2014. In the third quarter of 2015, diluted OFFO per share was up $0.01 or 4.1% over third quarter 2014. The increase was primarily driven by strong year-over-year performance in both long-term care and retirement. Similarly, diluted AFFO per share increased by $0.024 or 7.3% for the third quarter of 2015 over the third quarter of 2014. The increase was driven by NOI growth as discussed and also due to the timing of maintenance capital expenditure. We are still tracking to the maintenance capital expenditure guidance provided earlier, which is 2014 spend adjusted for inflation. Our Q3 2015 administrative expenses include $300,000 for mark-to-market adjustment for deferred share unit plans to reflect increased share price. Q3 2015 also included $80,000 of rebranding cost, bringing our Q3 year-to-date rebranding cost to approximately $400,000. We continue to track to $500,000 of expenses in 2015 related to rebranding in 2015. At the end of Q3 2015, our debt-to-gross book value was 54.7%, which is 210 basis point below our third quarter 2014 metrics. The decline was driven by voluntary repayments toward the company's revolving credit facilities of $6 million, monthly payments to the Series B Debentures principal reserve fund and to mortgage liabilities. Subsequent to the quarter close, management paid down a further $2 million on our credit lines to reduce interest expenses in the short-term and build liquidity for the medium-to-long term, as per our debt strategy. Our interest coverage ratio increased by 20 basis points from 3.3x at the end of Q3 2014 to 3.6x at the end of Q3 2015. Our strong balance sheet provides us with a great platform to continue our strategy of strategic acquisitions and redevelopment of our C Class beds into A Class. With that, I would like to turn it back to Lois.

Thank you, Nitin. There has been a lot of activity in the seniors' living space this year, and we believe that it is good validation for valuations in this sector. We are in a great business with strong and growing demand. Sienna has a high-quality portfolio of care communities and retirement residences, all in excellent locations, a solid operating platform and a very experienced team, a strong financial position with an A low rate of debenture and excellent growth opportunities through development of seniors' living continuum with long-term care as the anchor through acquisitions and through organic growth, maximizing our existing portfolio. Sienna Senior Living is committed to our diversification strategy and growing our retirement residences, independent living and assisted living portfolio, and committed to creating shareholder value over the longer-term. We thank you for joining us on the call today, and look forward to providing our full year 2015 results in February of '16. We wish you all the very best for a holiday season. Thank you. Melanie, we'll hand it over to you, and we'd be pleased to take questions.

[Operator Instructions] The first question is from Jonathan Kelcher of TD Securities.

First up on the Class C redevelopments. Are you far enough along that you can identify the two properties that you're looking at?

We would rather not, Jonathan, just because we have a lot of work to do at the local level with residents and staff and so on, as well as getting both our subject to regulatory and municipal approvals. So at this point, we'd rather not be specific.

How about how many beds you're looking at?

The one, the greenfield is 160 and retrofit is a retrofit of 31 beds in an existing eight community.

And do you have a development cost estimate for the two projects?

Jonathan, we are in the process of doing that. And I think it's probably a bit premature for us to start giving up some of those estimates. I think what Lois shared is the most probably we can share at this point. And as we know more and we finalize our cost, we'll obviously share that with the community.

Now can you just remind us the process with the government, just to maybe give us an idea of how soon you could maybe be in the ground on this with the real estate capital trend?

So what we've done, we've made application already for a number of projects. The ministry and the LHIN kind of work together to make sure that things line up in accordance with the demand and where the requirements are, and then you get approval. You get regulatory approval through the LHIN and the ministry, and then you work through the normal development cycle. And throughout the process, as you go, you're constantly working with the ministry on approval throughout the process.

So in a best case scenario, when do you think you could start one of these?

The one ideally in the spring and the other one in next fall.

Just turning to your retirement homes, congrats on getting the occupancy up to where it is. And it looks like that portfolio is mostly stabilized, would that be fair to say?

It's close. We had given guidance at the beginning of the year that our goal is to get overall every community at 90% by the end of the year with the exception of Kanata, and we have achieved that goal.

On a stabilized home, what sort of NOI growth would you expect?

Let me get to stable, I think it's more on 2% to 4% is what you should expect, Jonathan, going forward.

The following question is from Troy MacLean of BMO.

Congratulations on moving occupancy as high as you did. Just in aggregate that's 92%. Do you think there is much more room for list to increase that next year?

Well, we expect, as always, in the winter months we typically get some attrition, that it's seasonal. But overall, I mean by the yearend we'll be higher than 92%; we expect, as we lease up Kanata.

And then has the average length of stay, has that expanded or you're just getting better at filling the vacancies as they come up?

Our average length of stay is getting better for sure, as we put more services for seniors in place. But the trend continues, where seniors are coming later. They do require services that we're finding that is very much need based. So that's the trend. Well, we do provide the services to meet the need.

Are you going to expand your assisted living options or are you fine with the mix you have right now?

We're good with the mix that we have right now. We do have some designated assisted living units in some of the communities and in others we just provide the services that are required in the suite.

And then just finally on the new development to greenfield, has the province given you the go ahead that you can move beside, like, do you have much flexibility in terms of where you can put it within the length or has it been not gone that far?

Yes. That's what we're working through.

The following question is from Yash Sankpal of CIBC.

Just on Slide 10, you show the satisfaction index. And just wondering, if you could explain, what caused that change or that improvement from 2014 to 2015, like what all some things you did?

I think there is a number of things that we're doing, just our new vision, mission, values, our commitment to team engagement, we're doing a number of things to develop our team. Number of education programs that we're branding. There is not one, there is a lot of things that we've been doing, focusing on the quality of care and services. And as far as in retirement, we've done a lot of work on the culinary experience. And the food is always a very important indicator of resident's satisfaction. We've done a lot of work in that area, as well as on leisure programming.

And these occupancy gains that you're seeing in your retirement home portfolio. Are you stealing the market share or there is something else?

It's a combination, Yash. As, Lois has talked about the senior demographics are increasing and we're obviously getting a bit more market shares. It's a combination of both of those. And as we talked about our focus is really more on need based as well, so people are finding out when they really need the righter time in home, they are looking at us as a better option.

And can you give us a general idea of how the retrofit program would work. I mean what I'm trying to understand is would you do the renovation work, while the residential are there, like how [multiple speakers].

Those are probably the details that we're working through, Yash, working with the ministry on the details of around how the best most effective way of doing that.

And do you need any local community approval for these projects?

Yes, like regular municipal approval.

No, I mean, if you're going to build something new like do you need approval from local residents around the building, around the property?

I mean that's part of the municipal approval, Yash, when we go through site plan and all of that that will include input from the community if needed.

And just one last question if I may, your dividend, what do you need to see before you consider a dividend increase?

As, Yash, we have always talked about, really our focus is not around the percentage of dividend or what instigate changing the dividend. Our focus is really on cash detention. And we are doing exactly what we said, which is pin down our debt. So we are 210 basis points lower from a year ago and a big part of that's using our cash to pay down the debt, so that really is our focus. And as we talked about redevelopment is a huge opportunity for us and we're committed to doing that and that will have a huge cash requirement as well. So we feel that's a more prudent way of looking at its cash detainment rather than increasing, but at the same time our dividend policy is something our Board looks at on a quarterly basis and figure out what's in the best interest of our shareholders and we go from there.

So in summary, in the near-term there won't be an increase?

No. What I'm saying, Yash, is we look at it every quarter and figure out what's the best strategy for us.

The following question is from Michael Smith of RBC Capital Markets.

I was wondering, if you could talk about how you think about development returns, so what's the internal discussion in terms of what you need to see before you go ahead?

Michael, for us, it's really, when we look at long-term care and retirement, I think the development of those are both different, and as Lois talked about, as we create the continuum of care, they would always be anchored by LTC, that's where we're starting. So for a long-term care, the key risk is really the development portion. And once we find the right development partner and the right construction manager, we kind of takeaway that risk or mitigate the risk as much as possible, because frankly, there is not much of a lease-up risk as we would be moving our residence from a previous home to the newly-developed home. So when we look at return, we're always looking at our debt-to-equity mix, so call it 55-45, 52-48, the numbers are pretty similar. And then just coming over the weighted average cost of capital, and I had a bit of premium to it, because whenever you do, do development, you want a better return rather than just buying a stable asset. So for long-term care it could be anywhere from 100 basis points to 200 basis points over cost of capital.

And when you, like who is -- like, can you describe some of your partners?

Not at this time, Michael. I mean there is a list of them. We're working with both in the construction side and the development side. So I think it's probably too early to name anyone just yet.

I wasn't really looking for a name, but just like, so you've got -- can I just assume these are small private developers in local areas and then you have construction who will partner up with you, is that a fair assessment or?

No. This is a big program for us. We're really looking to team up with very, very experienced firms that know this business, that knows seniors' housing, that have done development construction in seniors' housing.

And so it would be almost like a turnkey kind of a situation where you would -- is that, with fixed price contracts and what have you?

Not necessarily, I mean we know the business well. We've developed a lot of communities over time, so we just want to get the right program for each project and the right team.

So it sounds like you have fewer but larger development partners?

That's a possibility, Michael. Again, I think, as Lois was saying, if it's a retrofit, it might be smaller company. If we're looking at couple of brand new projects, it might be a bigger partner. So I think it is a bit site-specific, so we are working with few of them and I think it's hard to pinpoint, if it's going to be one or if it's going to be few.

And I didn't catch so, for the greenfield development for the 160 units, do you own the land already, I didn't catch that?

Yes.

So where is that? Is this sort of land is just adjacent to one of your properties?

Yes. We have excess land.

And just switching gears to retirement home business, Lois, when you talk about strategic acquisitions, I just wonder if you could just give us a little bit of color, what does that mean in terms of big market, small market, preferences, so between urban markets, and say, some small markets?

We have been comfortable in secondary and tertiary markets. We do well in that space, so we're comfortable there. We really look at profits diligent underwriting. We don't mind underperforming assets. So it's all have to kind of line up with where we are and we are interested in growing across Canada, as you know.

And what about age of?

Again, I wouldn't say there is any one formula, we look at each asset and each opportunity for its own merits and what the opportunities are and what we can do with it.

And what about IL, AL split? Do you have a preference for IL or IG, I should say?

No, we do higher, like we believe that business we're very comfortable with regulation and with care and we do believe that you need to provide AL in order to, because that's what seniors want. They don't want to move twice. The families don't want to move them, once they make that decision. And so we want to provide the level of service that they need to avoid having to move out when they need service. So we're very comfortable doing that in AL, providing AL.

The following question is from Pammi Bir of Scotia Capital.

Just focusing on the retirement home occupancy gains, again, you certainly seem to be okay seeing your peers in the market, but have you changed your approach with respect to incentives at all? And if you could comment on any incentives, that you are offering?

We don't, Pammi. What we do is we look at each community. Our focus is very much based at the community, so we're developing strong leadership teams in each residence. So we've got a great team and we're really just focused on understanding what does senior needs and wants and meeting their needs. So we really do have a very customized approach. We don't do across the board incentives ever, it's very much working with the client. I was in our one of our communities this week, and they had worked with the senior in this family for five years who just moved in this past week. And in other case there was a resident who had just come to a Cook for the Cure event, a family, and the next day they came back and put a deposit in. So there is no one single approach, its many, which we've talked about. It's our team, our branding, our commitment at the local level, our involvement in the community, really trying to drive traffic to our sites and get people to understand what we're doing and it seems to be working.

Would it be fair to say that there is not necessarily one piece to the marketing strategy that maybe you're doing better than others or just have been a really standout?

No, I think it's all the things that we're doing together. There is no one piece. It's delivering really solid operations, driving traffic to the local site and really meeting the needs of the senior when they arrive. And no two are the same, everyone has a different need and its understanding what that need is and trying to meet it at the right time, because not everyone is ready at the right time, but it is need based.

And then, I know you don't provide guidance, but if you've done almost, call it, 3% same property NOI growth this year and I think you commented that retirement homes are perhaps, maybe they stabilize in that 2% to 4% range, how do you feel about replicating the pace that you've done year-to-date, at least for 2016, maybe, if not better?

So may be to answer the question a different way, because as you said, we don't provide guidance. For long term care, our year-to-date NOI performance is on 1.5, and as we always talked about, long-term care is great stable business, and I think you should expect similar performance next year. And retirement, as Lois talked about, we had great growth this year. And as we get into lease-up, that growth will level off, so I think I probably would leave it at there.

And then, Lois, you commented on the valuation being validated by transactions in the market, but how do you feel about acquisitions at this stage? Do you feel more confident about doing deals next year or is it no different than -- no more confident than maybe the past?

Yes. I mean, we're always looking for strategic acquisitions. We're very comfortable and now we've got a great platform, a great team, and have the ability to execute on anything. So yes, we're confident that there will be things, we just have to be due diligent underwriting and make sure that anything we do is going to provide shareholder value.

Are you in sort of any advanced stages or any particular transactions at all?

Pammi, it's hard for us to speculate and talk about specific deals. But as Lois talked about, we're always looking at things. And I'll probably, again, leave it at that.

And then just going back to the redevelopments, have you started the process at all in terms of lining up financing for that, or maybe just some color on the funding other than the construction subsidies?

So the construction subsidy doesn't really kick in until the home is actually open. And as we talked about, we're looking at two homes. One is a retrofit of 31 beds, so the investment there is not going to be that high. And the one we start constricting in, let's say, in fall of next year, again, this is going to be in phases over time. So I think with our liquidity currently maybe around $50 million of undrawn lines within operating and revolver. And using our [ph] retained cash, we feel pretty comfortable we will be able to do that.

There are no further questions registered at this time. I'd like to turn the meeting back over to Ms. Cormack. End of Q&A

Well, thank you, everyone, for joining our call this morning, and again, all the best for a holiday season. Thank you for your support. And have a great day.

Thank you. The conference has now ended. Please disconnect your lines at this time. We thank you for your participation.