Lois Cormack - President and CEO Nitin Jain - Executive Vice President and CFO

Pammi Bir - Scotia Capital Jonathan Kelcher - TD Securities Alex Avery - CIBC

Ladies and gentlemen, welcome to Sienna Senior Living Inc.’s Q2 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 factors 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, Donna. Good morning. And thank you for joining us on our call this morning. With me on the call is Nitin Jain, our Chief Financial Officer. I will review the highlights of our Q2 performance and Nitin is going to discuss the financial results in more detail. So starting on slide four, over the past quarter, we have been very pleased with the success of the launch of the company rebranding to Sienna Senior Living. Each community celebrated this milestone with the unveiling of their new name with the events that were enjoyed by residence, families, staff and local community stakeholders. The company has received very positive feedback on the Sienna Senior Living rebranding. This name conveys a sense of work that is consistent with our brand promise and what we aim to do by helping seniors live fully everyday. It’s going to take time for our stakeholders to get use to the new names of each home and we will continue to support the rebranding with both local and company-wide initiatives, including maximizing our online presence. In Q2, we continued to strengthen our operating platform for optimal performance and growth, resulting in strong financial results, continued gains in retirement home occupancy and improvements in the quality of resident care and services. We delivered solid results in the quarter with overall NOI growth of 3.8%, resulting from a 1.1% increase in long-term care same property NOI and a 7% increase in retirement home same property NOI. Now starting with retirement, our retirement home occupancy at the end of the quarter was 88.8%, up 5.8% over Q2 last year. Same property NOI improved by 7% over Q2 last year. The retirement division continues to experience strong, rapid and trial state interest from seniors, which often convert the full residency. This is a testament to the improved quality of life that residents and our retirement communities enjoy. Our experience to-date is that the rebranding of the retirement home and our commitment to the local community has been very well received and we believe with this combined with improvements to our website, local sales and marketing effort, and focus on the unique needs of each residents has really contributed to the strong interest and traffic to most retirement communities. We are benefiting from the rebranding of the company to Sienna Senior Living. Sienna continues to be on track to achieve the expected 90% occupancy by the end of the year at Astoria, Royale Kingston and Peninsula as previously discussed. We are experiencing good uptake in our assisted living services, which is proving to be an important strategy to help us reduce resident attrition when their health needs change. Now moving on to long-term care, in Q2, we had 1.1% increase in same property NOI. Our long-term care occupancy was 98.5% and there is strong demand for private accommodation with 99.7% average occupancy in Q2. We are pleased with the recent announcements that effective July 1, 2015, the premium charge for private accommodation in A Class bed increased to $25 per day, which is up from $23.25 per day from a residence. Our operations team continued to focus on initiatives to improve the quality of the residence care and we are pleased with our progress. At the first quarter of this year, 78% of our quality indicators are performing better than the potential average. This is a 15% improvement from the first quarter of 2014. These great results speak volume to the experience and commitment of our operations team, who have shown to be leaders in the delivery of specialized long-term care services. Now moving to slide nine, as previously discussed, the enhanced long-term care renewal strategy provides Sienna with the opportunity to upgrade our older long-term care home under the recently announced program. For Sienna most projects will require greenfield construction and this presents an opportunity for us to develop senior’s living campuses, providing assisted living and memory care services along with specialized long-term care. It also provides us with the opportunity to maximize the value of our existing site in the GTA. Our team has been working through the feasibility of each project, consulting with our local health network and development experts. And we are currently in the process of working with the Ministry of Health to seek sell approval for certain potential projects all subject to further due diligence. Given the complexity and variable, this development program will be a longer-term project, spending several years with which we believe is a great opportunity for Sienna Senior Living to enrich the quality of our portfolio at incremental NOI in the longer term and enhanced shareholder value. Now, I will turn the call over to Nitin to provide more detail on our financial results.

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 the Investor section of siennaliving.ca. I will start on slide 11. In the second quarter of 2015, Sienna Senior Living generated net operating income of $21 million, which is up $0.8 million or 3.8% versus the same period last year. Our retirement NOI growth was a strong 7% and our long-term care NOI growth was a stable 1.1%. Moving to slide 12, our Q2 2015 results include costs relating to restructuring of $349,000 which impacted NOI of $90,000 and head office administrative expenses by $259,000. These are expected to contribute to operational efficiencies over time. We booked the mark-to-market adjustment for deferred share unit plan of $100,000 to reflect our increased share price. Q2 2015 also included $129,000 of rebranding cost, bringing our second quarter year-to-date rebranding spend to approximately $250,000. We continue to track $500,000 of expenses in 2015 related to rebranding. These items were the major reason for the decline in OFFO and AFFO per share versus Q2 2014 which I will discuss shortly. During the quarter, we finalized our reconciliation with the Ministry of Health and Long-Term Care and have written off the balance of outstanding receivables from year 2007 and 2008 of $536,000, which impacted both revenue and NOI. This write-off substantial closes all of our old receivables with the ministry. In the second quarter of 2015, diluted operating funds from operations per share was down $0.01 or 3.8% over second quarter of 2014. Similarly, diluted adjusted funds from operations per share was down $0.01 or 6.1% for the second quarter of 2015 over the second quarter of 2014. As I mentioned before, the decline in OFFO was principally related to the mark-to-market adjustment of deferred share unit plan to reflect our increased share price, rebranding cost and the restructuring charges. The decline in AFFO is related to the OFFO decline as discussed and increased maintenance capital expenditure of $364,000 over Q2 2014, which is related to timing of spend. We are still tracking to the maintenance capital expenditure guidance provided earlier which is 2014 maintenance capital spend adjusted for inflation. Now moving to strong financial position on slide 14. At the end of second quarter 2015, our debt to gross book value was at 55.4%, which is 200 basis points below our second quarter 2014 metrics. The decline was driven by voluntary repayments to the company’s revolving credit facilities of $6.5 million, monthly payments to the Series B debenture, principal reserve fund and to mortgage liabilities. Subsequent to the quarter, management paid down $403 million on a credit line to reduce interest expenses in the short term and to build liquidity for the medium-to-long term as for our debt strategy. During the quarter, we increased one of the credit lines by $10 million to $20 million to build further liquidity and support our redevelopment and growth strategy. Our interest coverage ratio increased by 20 basis points from 3.1 at the end of Q2 2014 to 3.3 at the end of Q2 2015. And our payout ratio was 67.2% along with retained $4.5 million of cash which we used to pay down debt and to build additional liquidity. With that, I would like to turn it back to Lois.

Thank you, Nitin. Sienna Senior Living is continuing to build shareholder value over the long term with management rigorous focus on key priority. First, we continue to be dedicated to delivering a high-quality resident caring services. This is an operating business and our team is our greatest asset and we have many strategies to continue to develop our team to deliver quality, care and service. Second, we continue to focus on maintaining a strong financial position by gradually reducing debt and building liquidity to support our redevelopment and strategic acquisition strategy. Third, we are focused on acquisition growth and enhancing the value of our portfolio. We continue to look at strategic opportunities for assets that complement our current portfolio and operating platform and are committed to diligent underwriting. Subject to due diligence and regulatory approvals, we are planning to start development on key projects, leveraging the enhanced long-term care renewal strategy for some of our C homes that will benefit over the long-term through conversion of some of the existing sites to have some best use. Four, we continue to make improvements in support services functions to enable our operations team to focus on the resident and family. Currently, some of these initiatives include improving our information system and our online presence. We are well-positioned as a leading provider in the highly regulatory seniors living sector where there is very strong demand for care on services as they age. Thank you for your participation today. Nitin and I will be pleased to answer your questions.

[Operator Instructions] And your first question is from Pammi Bir of Scotia Capital. Please go ahead.

Thanks. Good morning. Just going back to your comments around, I guess, some of the projects that you’re looking for approval on this fall. Can you maybe just provide some color around that? How many are we looking at and what’s the process that you’re thinking about?

Yes. Good morning. So yes, with the development program, the process is that we’re looking -- the Ministry is actually looking for early projects where you own land and licenses with any given land. So we’ve identified a couple that fit that criteria. We are just in the process of submitting the application and doing further due diligence on each of these projects and hope to get approvals on them and begin work sometime in '16. So the development is a great opportunity for us to upgrade the portfolio. We continue to look at each project individually because of this complexity, and we’ve been assigned the project manager from the Ministry, so we are optimistic with the Ministry’s approach to this.

And sorry, how many were those?

You mean how many are we looking at right now, Pammi?

Yes.

In the immediate term or just -- we are looking at a couple.

Okay. And then once, if you receive approvals and you start next year, what’s the timeline in terms of the redevelopment process for one of them or for both of them?

Generally speaking for a new build, a green field it’s about 18 month to two years.

Okay. Can you also maybe provide some color around the implications of the drug benefit reforms? What are sort of the implications there for the long-term care for your facilities?

Yes. So this changes our proposed regulatory change to the Ontario Drug Benefit program, which will impact our pharmacies. If the regulations are approved and going to affect, it would be October 1. Our pharmacy providers currently provide a standing service to our residents and to our clinical staff in our homes. So we are really just at this point working with our pharmacies to ensure that the quality of these services to the residents and our communities are maintained. It’s really too early to determine if there is going to -- what the impact is going to be, the impact is to the pharmacies, and so we are working with them to ensure that the quality of the services is maintained.

But the income of the pharmacies has -- there is none of that flowing through the long-term care homes, are they?

Sorry. No, I mean, this is a change to the way to the dispensing fees that pharmacy got. So whatever -- this impact is on pharmacies. So they have to look at their services that they provide to our homes and we are working to ensure that the quality of that service is maintained. So we have to work through the process.

Okay. And then your commentary around I guess the acquisition environment, can you provide some color there and what are you seeing? Is there anything -- are you seeing some better opportunities that perhaps you could transact on this year?

Yes. So there is always -- there is always opportunities that we’re looking at. We are very committed to looking at opportunities that are strategic in that they are complementary to our existing portfolio and to our operating platform that are accretive over the long term. We are committed to diligent underwriting and adding shareholder values. So we are always looking at opportunities and continue to do so. And we believe there is a good pipeline.

Is there anything in perhaps in any sort of advance stage?

I think Pammi it’s hard to comment on anything specific. As Lois mentioned, we are always looking at deals. We looked at 2014. We’ve continued to do that today. And when we get to that stage, we will obviously let everyone know.

Okay. Thank you.

Thank you. The next question is from Jonathan Kelcher from TD Securities. Please go ahead.

Thanks. Good morning.

Hello, Jonathan.

Just going back to the two projects you mentioned. Is that -- would you just be looking at doing LTC there or would you also be looking at building retirement homes?

Right now for the initial projects, Jonathan, it’s just LTC.

Okay. I’ve assumed you’ve looked at all the C homes that you need to redevelop over the next few years. How many can you make work based on the government’s current program?

Well, that’s a very complex question. I mean, that’s why it’s not easy because most are green fields. So it requires land and we would also like to develop assisted living and memory care with it. So we are looking at -- we’re working now with our development partners and so on, looking at all of the opportunities for locations and land, and there is a number of metrics that go into whether, what makes the program work or not. So we are just lining everything up and confident that over time and all of them will work.

Right. And does the increase to the $25 help?

Yes. That always helps. The preferred accommodation is a very important part of this program and part of our ongoing LTC operations. So that was a great announcement.

And then just on the G&A, if I take where the severance amount this quarter, is that a good run rate, Nitin?

Correct. So I think G&A, you should use 2014 adjusted inflation, plus that branding of $500,000 and I think you will get in the range of what we expect where we would land.

Okay. Thanks, all. I will turn it back.

Thank you.

Thanks.

Thank you. [Operator Instructions] And your next question is from Alex Avery from CIBC. Please go ahead.

Thank you. And Lois, just one further question on the long-term care, the couple projects that you’re looking at. Can you give us a sense of what kind of a dollar value these projects might carry with them? And I guess what kind of a financial return or even how you would look at the financial return on what is largely government funded in the end for these projects?

Sure, Alex. Good morning. I think, Alex, the first question around the dollar figure, I think that’s hard to gave at this point, because we are doing due diligence on couple of them, as Lois talked about. I think in terms of return, our message has just change -- has not changed, so we start with our cost of capital, using our current debt structure, let’s call it 55 debt and 45 equity, and then just adjust it for a risk. Now in the long-term care, the risk is really in the construction portion and that’s why we’re committed to working with development partners and all those business evolve in terms of construction. So take that -- take as much risk out as possible and other than that, there is really not much leased-up risk because there is long bidding list and we have been doing this for quite some time in terms of our patients. So once it covers our cost of capital and gives us a bit more on top, I think we would be happy in terms of return. And regardless of the project that would be one of the criteria as we would be looking at.

And when you say your cost of capital in terms of the 55 debt and 45 equity, are you looking at today’s cost of capital for marginal capital or your in place structure?

Yes. I think that’s especially from debt side that becomes a bit of difficult question where debt rates are today. But we use, for example, 4% interest rate for example and we know it could be CMSC, it could be just regular term financing. So if we use 4% than our current equity views around 9% or 10%. We get to around 6.5%, 7% cost of capital and then we adjust, and then we put a bit of risk on top of that. So if it covers their view, we think we have a reliable project financially. And that’s one of their criteria, the other one is really operationally it doesn’t make sense and it is a right fit with our overall portfolio.

And do you factor in any, I guess, advantage that you will have from, I mean, other than the street finance advantage, but any other advantage that you might have from getting newer properties into your portfolio or is that just sort of intangible benefit?

No. Absolutely. One of the things you factor in, as if we stay where we are today what’s the maintenance capital spend for next 10 years, for some of these older properties. So that definitely gets considered in that calculation. And to your point there are greater operation efficiency than it’s a great for both our employees and our residents.

Okay. And then just turning to the restructuring in the home care group, can you just describe that in a little bit greater detail and perhaps, what the impact would be on financials going forward? Is it wider margin and what kind of magnitude?

Yes. So with home Canada, this business continues to be in a better flocks of few necessary latency reasonable blow. The ministry here is looking at the whole policy environment around Homecare and what the options are. There has been committee structure set up to look at Homecare. First, really what’s happening is that in fact over the last the first two quarter of this year, our CCAC volumes have been eroded slightly. So we are actually have less volume but there is a lot of fixed cost embedded in the service delivering model because of the quality of services required. So there has been margin erosion and as you know we’ve eliminated on an arm’s length and so that that’s impacted that business. So it is continues to be a challenge in what we are doing on naturally is becoming as efficient as we possibly can. And so there were some restructuring charges in that business, and we expect it to level out in the next two quarters.

And what was the reasoning for the decline in volumes in CCAC?

It is just a policy change. They just -- really no major reason as we expected to pick up in the last two quarter. But it is just that sort of happens from quarter-to-quarter some variability in volumes.

Okay. And then just finally in the transaction cost line, there was 200,000 related to it’s income support. I’m assuming that’s related to a prior period?

Correct Alex. So that has to do with the transaction we did in December of 2013 and it came with some income support. And so most of assets have been leased up, so we’ve re-leased that income support and this is one of the way to kind of release that it flows through the transaction cost portion.

Okay. So it is unutilized income support.

Correct.

Okay. That’s great. Thanks guys.

Thank you.

Thank you.

Thank you. There are no further questions registered at this time. I’d like to turn the meeting back over to Ms. Cormack.

Thank you, Donna. Thank you everyone for joining our call today for your time. We hope that you have enjoyed the rest of the summer and we look forward to providing our third quarter results in November. Have a great day.

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