Lois Cormack - President & CEO Nitin Jain - EVP & CFO

Jonathan Kelcher - TD Securities Troy McLean - BMO Capital Markets Alex Avery - CIBC Michael Smith - RBC Capital Markets Pammi Bir - Scotia Capital

Ladies and gentlemen, welcome to Sienna Senior Living Inc's Q1 2017 Conference Call. Today's call is hosted by Lois Cormack, President and CEO; and Nitin Jain, Chief Financial Officer and Chief Investment Officer of Sienna Senior Living Inc. Please be aware that certain statements or information discussed today are forward-looking. And actual results could differ materially. The company does not undertake to update any forward-looking statements or information. Please refer to the forward-looking information and risk factors section in the company's public filings, including its most recent MD&A for more information. You will also find a more fulsome discussion of the company's results in its MD&A and financial statements for the period, which are posted on SEDAR and can be found on the company's website, siennaliving.ca. Today's call is being recorded and a replay will be available. Instructions for accessing the call are posted on the company's website, and the details are provided in the company's news release. The company has posted slides which accompanies the host's remarks on the company's website under Events and Presentations. With that, I will now turn the call to Ms. Cormack, please go ahead Ms. Cormack.

Thank you, Julie. Good morning and thank you for joining us on our Q1 call today. Guided by our mission of helping residents live fully every day, we continue to focus on executing Sienna’s strategic priorities: strengthening our operating platform; building our brand recognition; maintaining a strong balance sheet; and growing the company. Our team delivered strong operating results in Q1. Sienna's diluted OFFO per share increased by 3.8% for the quarter over the prior year period. Same-property net operating income grew by 4% overall which was supported by retirement growth of 10.2% and long term care of 1.6%. Moving to Slide 6, we maintained strong occupancy and Sienna’s retirement residences, finishing the quarter with overall occupancy of 93.8%. This is up 230 basis points over the first quarter of last year. Additionally, total net operating income for retirement was up 25.2% over the same period last year. Now moving on to our financial position. We were very pleased to have DBRS confirmed a rating of A low or to stable outlook for Sienna’s Series B debentures. Sienna’s debt to gross book value was 52.4% which is 280 basis points below the first quarter of 2016. And Sienna ended the first quarter with approximately $104 million in liquidity. Now going to Slide 8, with respect to growing the portfolio, during the quarter Sienna completed its acquisition of a 61% interest in Glenmore Lodge which is located in Kelowna. It is a 118 suite newly built seniors living residence, 15% of the suites are private pay and the residence opened in February of 2017. Work continues on the development pipeline and we have a number of applications into the ministry of health and long term care seeking approval to redevelop approximately 1000 Class B and C beds into Class A homes over the next few years. We have commenced development of 32 Class C beds in Stouffville with construction starting in Q1 of this year. We are moving ahead with our plan to add over 50 retirement suites and amenity space at Island park retirement residence in Campbellford, Ontario and construction on this project is expected to start later this year. Expansion projects like this are expected to generate meaningful development return and more importantly grow our portfolio with new efficient and best in class residences. Sienna has signed a management agreement with Sabra Health Care REIT to manage nine retirement residences across Canada. Sabra Health Care REIT is a US self-managed real estate investment trust that owns 182 properties which are held for investment purposes across North America as of March 31, 2017, and we are very pleased to partner with this well established US REIT. Now moving on to our operating platform. Sienna continues to make improvements in the use of technology and the associated infrastructure, leveraging cloud based solutions to enhance our users experience and improve system security and scalability. Building Sienna’s culture and recruiting a highly engaged team is one of our key priorities and we have implemented a centralized talent acquisition system to support recruitment for team leadership role as well as making improvements to the recruiting and on-boarding process. Sienna’s marketing strategy continues to build the Sienna brand by sharing positive resident and team member experiences across all of our digital channel. We believe that consumer and employee advocacy have a greater influence on decision making than traditional marketing methods and skills. Moving on to Slide 10, subsequent to the quarter, I am pleased to say that we have entered into an agreement to purchase the Rosewood Retirement Residence which is a 68 suite AL, IL private pay resident in a very good location Kingston. Sienna has managed this residence for some time. I will now turn the call over to Nitin to discuss our financial results.

Thank you, Lois and good morning everyone. I'll start in Slide 12. Net operating income for the first quarter of 2017 was $27.5 million which represents an increase of 28.1% or $6 million compared to the same period last year. Approximately 24% of the growth reflected contributions from the integration of the BC acquisition. Same-property NOI increased by 4% or $0.8 million over the same period last year. Sienna same-property long term care NOI for Q1 2017 generated stable growth of 1.6% over the same period last year of $15.2 million. This was driven by a sustained focus on disciplined cost management and timing of expenses. Our retirement division achieved strong organic growth, generating same property NOI of $6.5 million, a growth of 10.2%, or $0.6 million over Q1 2016. This was driven by rate increases and occupancy gains. These results are at the strength of our operating platform. In the first quarter of 2017 diluted operating funds from operations per share was up 3.8%, or $0.01. This increase is attributable to improved NOI contribution from robust organic growth and accretive acquisitions. Now moving to our financial position on Slide 14. Executing on Sienna’s debt strategy at the end of Q1 2017, Sienna’s debt to gross book value was 52.4%, which is 280 basis points below our first quarter 2016 metrics. Included in Sienna’s debt is approximately $45 million of convertible debentures, and on a fully diluted basis, the company's debt to gross book value would be approximately 49.3%. Furthermore debt to EBITDA which measures the number of years acquired for current cash to repay all indebtedness decreased year over year by 0.4 times to 7.4 times in Q1 2017. Sienna ended the first quarter with approximately $104 million in undrawn credit lines and cash which we can use to further drive the company's growth through acquisition and development. As Lois highlighted earlier, we are very pleased with the acquisition of Sienna’s initial 61% interest in Glenmore Lodge. The transaction was completed during the quarter on March 15. Sienna’s 61% was purchased for $19.5 million which was at a discount to fair market value. The purchase price was financed with cash and the assumption of existing mortgage of $13.2 million which bears an interest rate of 4.7% and matures in August 2032. We are very excited to have ownership in this best-in-class residence and further our expansion in British Columbia. Alongside Sienna’s earlier acquisition of 40% interest in Nicola Lodge, the company has remaining options to purchase up to 100% interest in each of Nicola Lodge and Glenmore Lodge. Yesterday, Sienna announced that we have entered into an agreement a purchase and sale to acquire Rosewood Retirement Residence, a 68 suite private pay residence located in Kingston, Ontario, which is currently among the company's managed homes. The purchase price of $9.8 million subject to customary post-closing adjustments is expected to be financed through the assumption of existing mortgage of approximately $4.6 million with an interest rate of 3.8% and maturing in January 2018. As a management company for Rosewood, we know the residence very low and are pleased to further expand Sienna’s high quality retirement portfolio. With that, I’ll turn the call back to Lois.

Thank you, Nitin. 2017 marks the anniversary of the company's 45th year in business. Over the years we have expanded both organically and through strategic acquisitions to become one of Canada's leading providers of seniors living. Looking ahead, we believe that the outlook for Sienna is very strong and we expect to continue the progress that we have made on our growth strategy of organic development and strategic acquisition. Organically we’re anticipating solid results with moderate growth in retirements and stable performance from the funded part of the business. On the development front, our pipeline is very well positioned to drive growth into the future. We also remain committed to enhancing the resident experience by redeveloping some of Sienna’s older long term care homes, creating seniors living campuses. Over the next five years, we anticipate to be developing up to 1000 class B and C beds. We estimate the total cost of these beds – this project will be in the range of $200 million to $250 million which is expected to be funded through a combination of construction debt and cash flow from operations. With respect to acquisition, we remain strategic and disciplined in our approach to growing the portfolio in Canada and we believe that there are further opportunities for consolidation. With our focus on Sienna’s strategic priorities, we believe that we will continue to deliver earnings growth and long term shareholder value. Thank you for calling in today and we'll be happy to answer questions that you have.

[Operator Instructions] Your first question comes from the line of Jonathan Kelcher with TD Securities.

First, just on the Rosewood acquisition, can you give us a cap rate on that?

Sure. Jonathan, so the cap rate on that is around 7.25%.

And that's what -- it's obviously a managed property for you. How many properties do you guys manage right now for third parties?

So we usually don't disclose the exact number and part of the reason, Jonathan, is that some of these contracts come and go, as we recently talked about we signed a management agreement for managing nine homes with Sabra and two years ago we bought a managed home, we just bought a managed home now and as some contracts expire they go away. So we really haven't got into the exact number of that residences that we manage today.

Well I guess where I was going with the question is, do you see much potential in further acquisitions along those same lines?

Jonathan, what we do right now we manage – again, Nitin says they come and go, we manage for a number of not for profit and long term care. So we don't really see a lot of opportunity here for further acquisitions through the management arrangements.

And then just on the Sabra, that's all their properties in Canada; is that correct?

Yes, I think they might have another one that we -- that isn't part of what we will be managing.

Your next question comes from the line of Troy McLean with BMO Capital Markets.

On the Campbellford addition, how long will it take to build those 50 suites out and get it stabilized?

Building it will take -- it will be about twelve months. On stabilization, right now we have that residence has been fully occupied for about eighteen months. We do actually have a little bit of a wait list. So we expect lease-up to be about eighteen months to two years max.

Would you look at doing others -- like other additions at retirement homes before you get this fully completed or do you want to do this like one at a time or see how it goes with Campbellford first?

We may -- we are looking at it now which other -- where we have excess land where it’s feasible, where there's demand, where we're looking at projects, where we have another opportunity as well.

Could you comment on kind of expected yield on this type of development like adding suites to existing properties?

Sure. Troy, I think just yields in general for long term care when we redevelop we expect yields to be a few hundred basis point over a cost of capital for the time and portion of that campus, probably a hundred to two hundred, and for something which is an add-on I think each one we have a bit different but it'll be -- we think it'll be 200 basis points or maybe a bit on the higher side just because we already have the land, there are some synergies up with the existing building. So in the range of the 200 plus.

And then on the 1000 to 2000 bed class C redevelopment, how long does it typically take to get approval to go ahead with that, from the government?

It varies. I mean right now we're very pleased that the infrastructure is in place, that their offices set up and we believe it's just going to take them a little more time to get through all the machinery in motion and then once the approval starts I think they will probably come quickly but it's likely to be a few more months for the initial approvals just to get started.

And then just one final question, on the Rosewood acquisition; is that property fully stabilized? Is there any occupancy upside?

No, it's been stabilized, historically very strong occupancy in excess of 95% in AL and IL.

And then just one final question, when you're looking at acquisitions, cap rates have moved all over the place. Is your primary target right now Ontario or is it building out BC?

For us acquisitions for retirement home, Troy, it's across Canada for most purposes. I mean Ontario and BC we will do tuck-ins but other provinces we will need a bit of a platform to get into it but we're looking across Canada.

Your next question comes from the line of Alex Avery with CIBC.

Just on the class B and C developments – sorry, I seem to be getting a lot of feedback here –

We can hear you okay Alex. Maybe there's something on the –

Just on the redevelopments, you've highlighted I guess a thousand; can you remind us how many of your long term care beds are B and C?

2200 beds. So this is we view as the start of the phase 1, we have a number of applications in that make the most sense in terms of us having some access to land and relationships and so on. So we put the ones that we believe were the high priority -- The most, I guess, the highest priority for us in terms of opportunity as phase one, and then we would be -- we'd be working on the other simultaneously in terms about applications and timing.

And so just in terms of the government incentives, the capital reimbursement, are all 2200 viable projects at this point or should we expect the second tier of redevelopment projects to be pending further hinges on the reimbursements regime?

I think Alex, for us it's hard to comment on government policies, especially future ones. As Lois mentioned we kind of put together what we think are feasible today based on a lot of factors, funding being one of them. But that's something we'll continue to monitor and obviously bit more funding would definitely help but based on where we are today and feasibility in operations we kind of came up with 1000 beds for now and we'll continue to monitor any other changes in the future.

And then just on the Sabra announcement, is there any color you can provide on the background? Or then I think you've talked in the past about how managing other people's properties provides economies of scale and market intelligence and things like that but is there any anything else in the background that might be of interest to investors?

I don't think -- we know that Sabra Health Care REIT, we know the team there fairly well and they were looking for a solution to manage their Canadian properties. And so we were really delighted to be able to do that and have the opportunity to do it. We think they are a great team and have a good – it will be a good relationship for us.

Is there any term associated with that agreement or is it just open ended?

There is a term associated with it, Alex, because it's confidential arrangement, we don't want to really get into the terms of it. But yeah there's a contractual term to it, with the opportunities to extend.

[Operator Instructions] Your next question comes from the line of Michael Smith with RBC Capital Markets.

Nitin, for the acquisition of the Glenmore Lodge, you mentioned or you've got in your slide to seven cap and you noted that it's below market value. What would the market cap rate be for that property?

When we said discount to fair market value, when we did the BC acquisition last year, Michael, we paid for an option to acquire these properties upfront. And when we acquired these properties they would be discounted to fair market value. So there was a formal around -- that will be a certain discount between fair market value and construction cost .So I would say probably 10 basis points, 15 basis point difference between what we paid versus what the value would be.

And when you acquire the balance it'll be at market though, or the initial purchases are slight discount but when you complete the acquisition or be at market, is that correct?

When that discount applies for more intensive purposes for the first 50%, so Nicola we only bought 40, so we still have a bit less there. And then just Glenmore how it was structured, there are different owners in that. So when we buy the remaining balance, there would be a very slight discount, nothing material in any way.

And just for the Rosewood acquisition, I mean it just looks like a good sized market, it's a full -- if I just had a quick look – it looks like it's fully built out; there's no room for expansion. So what’s your thinking, just the good property in a good market; is that – and it's steady as she goes?

Yeah, I think it's a great location. We know it well. It’s a nice fit with our other assets. We have the number now in Kingston. So it allows us to get some operational efficiencies and to support, each of the communities that we own there are unique and it enables us to kind of refer and build a bit of a continuum among what we own in Kingston.

And for the 1000 beds, B and Cs, that are going to be converted, your properties of that would represent?

Around 4 to 5 properties depending on which beds can work, we have some which are bigger versus others. So call it, maybe four to six properties actually.

4 to 6 properties, and so finalize later -- and now I may have missed this but what kind of returns will you -- are you thinking about on this?

Sure. Michael, so for long term care we expect the returns to be cost of capital plus 50 to 100 basis points for the retirement portion like 100 to 200, and for intensification projects we expect the returns to be a bit on the higher side, so call them 200 basis points or more.

So cost of capital plus 50 to 100 for the LTC, 100 to 200 for retirement and intensification is 200 plus.

That's right.

And what’s your cost of capital?

So changes on a daily basis as you might know. So for us it's always debt neutral, close to 55% debt and 45% equity, so call it between on a daily basis 5.5% and 6.5%.

5.5% to 6% --

I maybe more like 6 to 7, Michael again it's something which depends on what the debt markets are and how our equity is trading.

So 5.5% to 6%, or 6% to 7%?

6% to 7%.

Your next question comes from the line of Pammi Bir with Scotia Capital.

Just really one question to follow up on – if this was answered earlier but you mentioned the 1000 class C and B beds over the next five years. Just trying to get a sense -- so how should we think about the annual spending for those projects, and I guess part of this is going to be contingent on the ministry approval?

I think that's why it's a range Pammi. The range I gave and it would be over that period of time. It's very -- I mean, it takes -- there's not only the ministry approvals but there's site plan approval, municipal approval. So we're just kind of giving you a sense of the requirement over that period of time, the capital requirement and in terms of an annual commitment that would be very difficult at this point to forecast.

You can at least pay 40 million or 50 million or so, whether it’s normal – just from a modeling standpoint, that may not be reflective of how that would actually play –

Yeah I think that's a good way of thinking about it, Pammi, like as Lois mentioned 200 to 250 over five years, so call it $40 million to $50 million a year, 60% in construction but the rest from operating cash flow we generated around $23 million last year, so we can easily do that from just cash flows from operations.

And presumably the costs or the interest costs and all I guess a lot of costs, would they be capitalized during this whole process?

Typical in a construction project you will capitalize the interest costs during the type of construction and that will be the same view we would have as well.

So at this stage the intent is to really just to fund it entirely with debt and free cash flow of the business?

That's correct. End of Q&A

There are no further questions at this time. I will turn the call back over to the presenters.

Thank you .Well thank you everyone for joining our call today. As always we appreciate your ongoing support and know that you're very busy. So have a great day.

This concludes today's conference call. You may now disconnect.