Lois Cormack - President, Chief Executive Officer Nitin Jain - Chief Financial Officer and Chief Investment Officer

Jonathan Kelcher - TD Securities Troy MacLean - BMO Capital Markets Michael Smith - RBC Capital Markets Pammi Bir - Scotiabank Capital

Good day ladies and gentlemen and welcome to Sienna Senior Living Inc's Q2 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 in Risk Factors sections 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 accompany the host's remarks on the company's website under Events & Presentations. With that, I will now turn the call to Ms. Cormack. Please go ahead, Ms. Cormack.

Thank you Brian. Good morning everyone and thank you for joining us on our Q2 call this morning. Starting at slide four with our strategic objectives. Guided by our mission of helping residents to live fully every day, we continue to focus on executing Sienna's strategic priorities, a strong operating platform, a strong balance sheet and growing the company. The Sienna's team has continued to deliver strong operating results in Q2. Sienna's diluted OFFO per share increased by 10% for the quarter over the prior-year period. Same property net operating income grew by 2.8%, which was driven by continued strong growth in our retirement portfolio of 10.1%. We maintained strong occupancy in Sienna's retirement residences, finishing the quarter with overall occupancy of 94.7%. This was up 120 basis points over the second quarter of last year. Additionally, total net operating income for the retirement residences was up 26.7% over the same period of last year. Turning to slide seven. During the quarter, Sienna completed the acquisition of the Rosewood Retirement Residence in Kingston for a purchase price of $9.8 million, which reflected an unlevered yield of 7.25%. The Rosewood is a 68 suite independent and assisted living residences, which was previously managed by Sienna. Subsequent to the quarter, Sienna completed the purchase of rebranded Kawartha Lakes Retirement Residence in Bobcaygeon. Kawartha Lakes is a 94 suite independent and assisted living seniors residence, which was built in 2013. The purchase price of $21 million reflected unlevered yield of 7.1% and was fully financed with the company's credit facilities. These acquisitions add to our high quality retirement portfolio and enable us to be a key provider of seniors living options in markets which we currently operate long term care residences. Now turning to slide eight, our operating platform. Sienna continues to add and refine innovative technology solutions throughout the company which improve our efficiency, our quality of care and services and our ability to grow. Our front line teams are increasingly mobile as we phase-in new point-of-care tablets and software which enhance residents' health records management. Quality is an extremely important part of the residents' experience and we are very proud of the outstanding results that we continue to see in all of our residences. Overall, Sienna continues to outperform provincial and national averages on all publicly reported quality indicators and on regulatory requirements. We have launched Sienna for Seniors. This is a company-wide corporate social responsibility program, which is focused on fundraising, volunteerism and advocacy to support the growing number of marginalized Canadian seniors who need financial and social support and who are living in the community. During Seniors Month in June, our residents and team members hosted unique events and the funds raised will directly benefit seniors in each local community that we serve. I will now turn the call over to Nitin for further details on Sienna's financial results.

Thank you Lois and good morning everyone. I will start on slide 10. Net operating income for the second quarter of 2017 was $29.4 million, which represents an increase of 30.3% or $6.8 million compared to the same period last year. Same property NOI increased by 2.8% or $0.6 million over the same period last year. Sienna's same property long term care NOI for Q2 2017 remained stable over the same period last year. Our retirement division achieved strong organic growth, generating same property NOI of $6.8 million, a growth of 10.1% or $0.6 million over Q2 2016. This was driven by rate increases and occupancy gains. In the second quarter of 2017, diluted operating funds from operations per share was up 10% or $0.03. These increases are attributable to improved NOI contribution from our robust organic growth and accretive acquisitions. Now moving to our financial position on slide 12. Executing on Sienna's debt strategy, at the end of Q2 2017, Sienna's debt to gross book value was 51.5%. This is 200 basis points below second quarter of 2016 metrics. Included in Sienna's debt is approximately $44 million of convertible debentures and on a fully diluted basis the company's debt to gross book value would be 48.4%. Furthermore, debt to EBITDA, which measures the number of years required for current cash flow to repay all indebtedness, decreased to seven times in Q2 2017 versus 7.3 times in Q2 2016. Sienna ended the second quarter with approximately $109 million in undrawn credit lines in cash, which we can use to drive the company's growth through acquisitions and development. With that, I will turn the call back to Lois.

Thank you Nitin. Looking ahead, we believe the outlook for Sienna is very strong and we expect to continue the progress that we have made on our growth strategy. Organically, we anticipate solid results with moderate growth in the retirement portfolio and expect stable performance from the funded part of the business. On the development front, our pipeline is very well positioned to drive growth well into the future. We continue with our Phase 1 plans to redevelop up to 1,000 older long term care beds, creating seniors living campuses. Construction is expected to begin at Island Park Retirement Residence in Campbellford this fall. This project will add additional amenity space and retirement suites. The expansion is expected to cost between $12 million and $13 million and will generate an unlevered return of approximately 10%. The project will be financed through construction financing and funds from operations. With respect to acquisitions, we have successfully executed on three unique investment opportunities in 2017, including a 61% interest in Glenmore Lodge and the acquisition of Kawartha Lakes and Rosewood Retirement Residences. These opportunities have resulted in an increase to Sienna's private pay suite mix by 11% and this brings Sienna's retirement net operating income mix to 28%, further expanding Sienna's geographic footprint by increasing the company's number of suites in British Columbia by 5%. We expect to remain strategic and disciplined in our approach to growing Sienna's portfolio in key markets in Canada and we believe that there are further opportunities for growth. With our focus on our strategic priorities, we are confident that we will continue to deliver earnings growth and long term shareholder value. Thank you for your participation on the call and Nitin and I will be pleased to answer your questions.

[Operator Instructions]. Our first question comes from the line of Jonathan Kelcher from TD Securities. Sir, your line is now open.

Thanks. Good morning.

Good morning Jonathon.

First, just on the expansion at Campbellford. The 12% to $13 million cost, is there anything there for land?

No. There is nothing in it for land, Jonathan.

Okay. Do you have any more properties where you have room for expansion like that on the retirement side?

We do, Jonathan. We have a few. What we do is, we have opportunity to expand on some of our retirement residences and we will do so when we are fully occupied and we believe the market feasibility is there for an expansion.

Okay. And you would target similar type yields?

Yes.

Okay. And then just on the LTC results for Q2, 0.1% growth was a little slow. Was that a function of timing at all on the cost side?

So Jonathan, in our Q1 results long-term care was around 1.6%. What Lois and I have always talked about is, we expect consistent results from long term care versus last year. So I think, Q1 was more around timing. Like the results you see year-to-date around 0.8% is more indicative of this business. And that's what you saw in Q2 and Q2 year-to-date what you should think about going forward as well.

Okay. Fair enough. Have you had a chance to quantify the impact that the increase in minimum wage in Ontario will have on you guys?

Yes. This is a comprehensive piece of legislation and if it's passed, we understand it would be phased in over 2018 and 2019. Because actually most of Sienna's employees are unionized and our collective agreements have already superior sort of wages than what's being proposed as the minimum. So we overall, although we are still analyzing it, we overall but we expect that the financial impact would not be material because it would not pertain to, it would only pertain to a small percentage of our workforce.

Okay. And would it be similar on the retirement side to long term care side? And the reason I am asking that, if it's mostly on the long term care side, do you think the government would come through with funding increases to cover what they are doing on the wage increases?

Yes. We would hope so. I mean, this legislation will probably have more impact on the retirement side if it's passed.

Okay. Thanks. I will turn it back.

[Operator Instructions]. Our next question comes from the line of Troy MacLean from BMO Capital Markets. Sir, your line is now open.

Good morning.

Good morning Troy.

Just curious on your thoughts on the acquisition market. Would you say that it's becoming more competitive versus last year? Or just what are your thoughts on how competitive the market is?

For acquisitions, I think this asset class continues to be highly desirable. There are strong, very strong business fundamentals and that demand, the numbers of seniors is growing exponentially across the country. So I think, the demand is strong and investors are interested in this asset class because of the strong fundamentals. So I would say that I don't think it's changed, it's less competitive. I would say it continues to be a highly sought-after asset class.

Would you say cap rates have continued to compress this year given the fundamentals you just mentioned?

It's hard to say, Troy, whether compressed or stayed the same. Again, I think it's competitive depending on the product and the market that you are going into, whether it's primary or tertiary or so on. I think it just continues to be competitive.

And then just finally, with the new additions on the private pay side and a lot your development is focused on that as well, do you have a portfolio mix where we want to get to, a split between the percentage of your income derived from LTC and a percentage from private pay?

I think what we have always said is, ideally we would like to get to about 40%. It's hard to nail a specific number, but a little around 40% of private pay.

Perfect. That's it for me. I will turn it back. Thank you.

Thank you.

Our next question comes from the line of Michael Smith from RBC Capital Markets. sir, your line is now open.

Thank you and good morning. Lois, in your experience, what's the [indiscernible], let's say because of changes in the minimum wage and maybe a trickle up effect or new union contracts and when the government bumps the funding?

Sorry. Michael, I am not sure that I understood that.

Okay. So if wages go up this year, usually there is a bit of a lag before funding in the LTC actually increases. I am just wondering. I just wanted to get your sense of how long -- what type of lag that would be?

Well, usually annually there is an adjustment in the funding both to the other accommodation and the flow-through envelopes, so that's annually. And collective bargaining goes on all the time. We have a whole range of contracts and they each come up for renewal at different times. So we are constantly negotiating new contracts. And that's all the time that's in process. And then the annual funding rates are announced annually.

Okay. Thank you. And just switching gears, I mean, Lois, you said that when you were talking about acquisitions in the retirement, you said, you believe there is future opportunity for growth. I am just wondering if your pipeline, if you have got maybe you could give some color on your pipeline? And secondly, is there an opportunity to grow in BC that you could see in the balance of the year?

I would just say generally, we are always looking for strategic opportunities. The two that we just did are strategic for us because we currently operate in those markets and we know the markets and the community of each. So that's a tremendous opportunity for us. And that's the sort of thing that we continue to look for. There is further opportunity for consolidation and it's just being rigorous in our approach to looking for value.

I understand you are always looking, but how is your pipeline today?

Sure. I would say, Michael, it's probably no different than what we did last year as well. So we are always looking at a number of opportunities. And to Lois' point, it has to be strategic and financially it has to make sense. So I would say, the difference in our pipeline is no different than what it was last year. So last year, we did one big acquisition and this year we did three smaller ones. But the pipeline hasn't changed substantially for us.

So nothing imminent?

That's correct.

Okay. Thank you.

Our next question comes from the line of Pammi Bir from Scotiabank Capital. Your line is now open.

Thanks. Good morning. Maybe just looking at the retirement home space again, could you maybe just comment on what you are seeing from a new supply perspective in some of your key markets in Ontario and BC? Are you seeing acceleration of new sort of projects in the pipeline? Or is it kind of same as it's been in the last year or so?

Yes, I think as always it's very market specific. There is new product going in some of the areas that we have retirement residences right now. There is one in BC that's going in very close to one of our communities and there's also one in Kingston that's going in soon. So I think, its very market specific and it depends and in each case we are not sure when they are coming on. We know that they are in the works.

And just in terms of some of those projects that are maybe in the immediate vicinity of your assets. I think in the past you have said that sometimes you do see a bit of slippage. In terms of occupancy, is that kind of your thinking as well?

Yes.

Or can you get ahead of that and maybe mitigate some of that potential downside?

No. Usually, I mean, what we see when a new product opens in the immediate area is there is a bit of a blip and it can take a year, up to 18 months before the market again kind of readjusts to the new product. And there is enough demand with the aging demographics. So it's just usually a matter of time, a year to 18 months and then things normalize again.

Okay. And just I missed the first maybe couple of minutes of the call. But any new progress on additional redevelopment projects in the long term care portfolio? I think, you have already moved ahead on one, I think, the one in Stouffville. But curious if there's any other approvals that have been received yet?

There's none that we have received, although we anticipate in the next six months that we will. We are collaborating very closely with the regulatory authorities and hopeful that we will get some approvals in the next few months. Having said that though, we are proceeding at any rate with significant planning for our site planning and so on.

So would you still sort of look at four to six properties per year as sort of the expected pace?

That's probably aggressive. We would look probably at more like getting one a year started.

Sorry, I think, sorry, the 1,000 beds was for the four to six properties in total. So its one.

Yes. But considering that's Phase 1, which we would look out and say a five-year period.

Right. Okay. Thanks very much.

Thank you

[Operator Instructions]. And I am currently showing no further questions and I would now like to turn the call back to Ms. Cormack for any closing remarks.

Well, thank you all for joining our call this morning. We appreciate your support and we hope that you enjoy the rest of your summer. Have a great day.

Ladies and gentlemen, thank you for participating in today's conference. This concludes the program and you may all disconnect. Everyone have a great day.