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

Chris Cooper - CIBC. Jonathan Kelcher - TD Securities Pammi Bir - Scotia Capital Brendon Abrams - Canaccord Genuity Yash Sankpal - Laurentian Bank Michael Smith - RBC Capital Markets Troy MacLean - BMO Capital Markets

Ladies and gentlemen, welcome to Sienna Senior Living Incorporated Third Quarter 2018 Conference Call. Today's call is hosted by Lois Cormack, President and Chief Executive Officer; 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 of 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 and it's 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, Amanda. Good morning, everyone. I'm pleased to share the highlights of another strong quarter for Sienna. Total net operating income grew by 31.7 % from Q3 of 2017 with 3.7% coming from same property growth, and 28% from accretive acquisitions. Q3 same property net operating income growth was 4.2% in retirement and 3.5% in long-term care. In the third quarter, Sienna's diluted OFFO per share increased by 4.6% to $0.36. We have continued to strengthen our balance sheet and ended the quarter with debt to gross book value 350 basis points below the third quarter of 2017 at 48.3%. Moving to Slide 8, in terms of retirement operating performance. In our retirement, same property portfolio average Q3 occupancy was 91.8%, down 220 basis points largely due to increased residents' turnover during the quarter. We are very pleased that same property occupancy has strengthened to end the quarter at 93%. Same property net operating income in our retirement portfolio grew by 4.2% in the quarter and 5.3% year-to-date compared to 2017. Strong operating efficiencies compensated for the temporary decline in occupancy. And turning to Slide 9, the long-term care portfolio achieved an average occupancy of 98.7%; same property NOI grew by 3.5% in the quarter and 1.8% year-to-date. The above average increased this quarter is mainly due to the timing of expenses. Moving to Slide 10, we continue to have a high degree of resident satisfaction at 84% for 2018 results. Quality and safety continued to be Sienna's top priorities in long-term care and the latest results from the Canadian Institute for Health Information in October show that the Sienna continues to outperform both provincial and national averages on the majority of publicly reported quality indicators. Most recently Silverthorn Care Community in Mississauga was recognized for their work to reduce avoidable hospital transfers. Sienna This is a tremendous achievement and a prime example of Sienna providing a positive impact on residents and the healthcare system. Moving to Slide 11, we know that having a strong culture helps to recruit and retain the best talent in the sector, and we continue to invest in enhancing the team member experience. We have an excellent feedback on our take the lead on demand learning platform, and we continue to see hundreds of our leaders join monthly education programs to build their leadership skills, and grow their careers with Sienna. Sienna's strong operating platform has been invaluable as we integrate the ten recently acquired retirement residences. We have taken a people focused approach to integration that respects the identity, culture and traditions that residents families and team members value in each of the communities that we serve. In addition, we have completed the integration of all of the support services functions including finance, information technology, payroll and procurement. We are now focused on enhancing the resident experience and integrating all aspects of the Sienna authoring platform including the culinary experience, branding, team education and resident programs. Overall, the portfolio continues to perform as expected. Turning to Slide 12, industry fundamentals and our key markets remain very strong. This is driven by an aging population and higher affluence among many seniors. With the growing demand for senior living, government is increasingly looking to the private sector to meet the fast growing demand. New development and redevelopment of seniors living communities are key components to meet this increased demand. We're really pleased with the direction of the new Ontario government as it relates to the long-term care sector, and we are optimistic about the opportunities to address our phase one development plan. We're hopeful that the recently announced restructuring of the Ontario Ministry of Health will also streamline the development approval process, and reduce administrative burden moving forward. 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 14. Net operating income for the quarter grew by 31.7% or $9.8 million compared to the same period last year for a total NOI of $40.5 million. The retirement division achieved a moderate organic growth generating same property NOI increase of 4.2% over prior year to $8.9 million. This was driven by a combination of market rate adjustments and/or great increases and operational efficiencies, which help to offset lower occupancy results. Year-to-date retirement NOI has grown by 5.3%. Sienna same property long-term care NOI for the third quarter increase by 3.5% to $23 million due to timing of expenses. Year-to-date long-term care same property NOI growth of 1.8% includes a one-time $300,000 rate reduction in product premiums due medical services premiums in BC being phased out and replaced by a new employer health tax effective in 2019. Excluding this year-to-date long-term care NOI growth would be 1.3% which is more indicative of the performance of this business. Similarly reflected in total year-to-date long-term care NOI is a one-time prior year adjusted refund of approximately $1.3 million which we received during the first quarter of this year. Diluted OFFO per share increased by 4.6% to $0.36. This was driven by income from the accretive acquisitions completed since Q3 of 2017, and strong operating results partially offset by higher interest expense on the acquired properties. Year-to-date diluted OFFO per share of $1.04 is up 6.9% compared to the same period in 2017. Diluted AFFO per share decrease by $0.01 from the prior period of $0.37 driven by the timing of maintenance capital expenditure, and year-to-date diluted AFFO per share is $1.11 which is approximately 3% higher than the same period last year. For the full year of 2018, we expect maintenance capital expenditure as a percentage of revenue to be in the range of 1.3% to 1.4%, and as we continue to invest in a property portfolio we anticipate maintenance capital expenditure to stay in the similar range for 2019. Now moving to a financial position on Slide 16, we continue to strengthen our balance sheet at the end of Q3, 2018. Our debt to gross book value finishes 350 basis point below third quarter of 2017 at 48.3%. Sienna's debt to EBITDA declined to 6.9x in the quarter compared to 7x in the prior period. And the company's interest coverage ratio has further strengthened to 4x versus 3.9x in the prior. Sienna ended the third quarter with approximately $115 million undrawn credit lines and cash. During the first nine months of 2018. Sienna has refinanced $183 million in debt at weighted average interest rate of 3.4% and weighted average term of maturity of nine years, through a combination of CMHC and conventional financing. In 2019, we anticipate to refinance $84 million of scheduled maturing debt with an existing weighted average interest rate of 4.4%. We expect the company's overall cost of debt to remain unchanged by the end of 2019. With that I'll turn the call back to Lois.

Thank you, Nitin. Looking ahead, we believe the outlook for Sienna is strong. We expect to continue the program that we have made on our strategic priorities. Growing the company, enhancing our operating platform and maintaining a strong balance sheet. Our focus on these priorities should continue to translate into long-term accretive growth for Sienna shareholders. We expect moderate, single-digit growth from the retirement segment in 2019 through maintaining occupancy and achieving rate increases in accordance with market conditions. In regards to the funded part of the business, we expect consistent performance in 2019 similar to the 2018 performance after excluding the one-time benefit. We are pleased with the progress that we are making on the integration of our 10 recently acquired residences. This is a great portfolio and we continue to expect it to perform as anticipated. On the development front, the expansion of Island Park is expected to be completed mid 2019. Further to that, we are optimistic the new Ontario government's policies will be favorable to advancing our phase one development strategy, which will receive the renewing of over 1,000 older long-term care beds, additionally, we will be adding over 500 new retirement suite to create seniors living campuses. Currently, we have two projects that have reached preliminary approval by the Ministry of Health, and have received 223 additional licenses which will help support the feasibility of phase one project. With another solid quarter of our operating results reflecting the contributions from our 12,000 dedicated team members and an exceptional operating platform, we are poised to end 2018 on a strong note. Thank you for your participation on the call this morning. And we will be pleased to answer your questions.

[Operator Instructions] Our first question comes from the line of Chris Cooper of CIBC. Your line is open.

Good morning. Can you hear me? Hi, how are you doing? I want to just chat a little bit about the retirement assets specifically the acquisition portfolio. Where do you guys think that you can ultimately take occupancy to for that portfolio? And maybe looking --but looking at the history of that portfolio what's kind of being the peak for it? And just you mentioned the integration of the acquisition portfolio coming along, just how far into that process are we? Yes.

Yes. So as I mentioned, the integration of all of the --I guess we would call it the back office support functions have been fully completed. We're now focused really on them --all of the front of the house. As you know, it's an operating business, so it really is getting all of the team members on to Sienna platform and program and offering the residents all of everything that's in the Siena platform. As we have indicated initially that it would take a good year to integrate this platform. Well very much on track for that and in terms of occupancy as some of these properties were in lease out because of recent expansion. And so we expect again around -

Close to 90% in occupancy for this portfolio. I mean that's where it's being trending. So I think our focus is again and just making sure their margins are correct. The front office is integrated well and that's what --and then after that time you'll start to see some uptick in occupancy, but we are on track as we originally anticipated.

So when you think about the organic growth outlook in retirement mid-single digit growth is that for both the same store and the acquisition portfolio?

Yes.

Your next question comes from the line of Jonathan Kelcher of TD Securities. Your line is open.

Thanks, good morning. First, Lois maybe you can expand a little bit on your commentary itself. I think you're happy with the direction of the new government. Do you think that could help accelerate the phase one redevelopment?

Yes. I think so. I mean this we've been very pleased with this government's moved swiftly as you know on rectifying the language in bill 148, and it realigned the ministry so that all of the approvals are now under one branch, it used to be under several branches. They're committed to reducing red tape. So we're really optimistic this program is going to start to pick up speed in terms of approvals and feasibility.

Okay, that's good. And then just on the operation side, the occupancy in the retirement portfolio to dip in Q3 but did recover by the end. Is that recovery carried on into Q4?

And that is I mean our current occupancy is close to where we ended the quarter like our average occupancy would be close to that, Jonathan. So we do expect that where we ended the quarter in Q3 is that what the average would be for Q4.

Okay and then you normally get a little dip near the end of the year right with flu season and less move-ins.

Yes. I mean that's always the keeper theme in Q1 typically. We're well prepared for that with in terms of resident and employee immunization. We start that campaign aggressively kind of late October early November.

Our next question is my line of Pammi Bir of Scotia Capital. Your line is open.

Thanks, good morning. Just based on I guess the discussions with the government, how are you feeling about any, perhaps, additional funding that could improve the overall economics of the long-term care redevelopment program?

Pam, I can't really comment on that Pammi just because we don't know. I mean we don't have visibility into actual policy. All we can comment in terms of the meetings that we've had are very positive and there seems to be a good understanding of the issues, and some really respond --real responsiveness.

So I guess the favorable like, I guess, the comment there is more about, I guess, the timing of the ability to execute on these projects and the approval of the licenses, I guess?

I mean that's part of it Pammi but part of us is to look at the funding as well. So it is both but to Lois' point I think what we can --as investor what we can do is provide input. We don't really have insight into policy at the moment.

Okay, that's helpful. Just with respect to, I guess, the flu season, and maybe it's a little too early, but how are you feeling about that? What sort of indications have you seen it, how it could be shaping up?

Yes. It's really too early. We haven't really seen anything at this point other than we are preparing as always we do, in staff preparations in the fall.

Right. I guess just in terms of new supply across some of your markets, any update there in terms of what you're seeing? Has there been any acceleration or - in specific markets? Or is it still sort of holding in fairly well?

Yes. I would say I mean nothing is always the same Ottawa always over supplied and continues to be so. I think there's continues to be new supply going in there. So that market is a challenge, there is some new supply in the Durham Region area as well. So I'd say those two are probably the major ones at this point.

And then just lastly, how are you feeling about the acquisition environment at this stage? Is there a lot out there? Are you looking at a lot of opportunities? Or there is just or perhaps pricing expectations too far apart?

I think there's always opportunity for us. We're very strategic and disciplined in our approach and as we indicated I think it's-- when we acquired these recent residences within the past year, we really are focused on integration of these properties and getting the most out of it, adding the value that we know we can.

Your next question is from the line of Brendon Abrams of Canaccord Genuity. Your line is open.

Hi, good morning, everyone. Just looking at the revenue maybe I miss it in the opening remarks, it was up about $3 million sequentially, and could you just remind us kind of the driver behind that? Like was it all occupancy and rate driven or whether --were there some one-time items in there?

So, Brad, you're just talking from Q2 to Q3 number?

Correct.

Is that for retirement or overall?

Just overall went from 162 to 165 revenue.

Yes. I think when you look at revenue, you really have to look at by segment Brendon because for long-term care, a lot of the revenue that it would see the pass-through. So it goes directly to expenses, so if there is a change in funding the revenue goes up and expenses go up in the same way. And we don't really make any money off-- most of --all of those envelopes. So really the revenue differential there wouldn't really make a difference. If you look at the retirement revenue, that's where I think you can make a difference in terms of how much the revenue went up. And our expenses went up around half of that and that's where the growth in NOI came in Q3.

Right, okay. And just taking a look at G&A, it seems to picked up a bit; is that what you would expect to be a normalized run rate -

Yes. That's in accordance with our significant growth over the past year.

Our next question is from the line of Yash Sankpal of Laurentian Bank. Your line is open.

Good morning. Just following up on Brandon's question. Would you be able to quantify the one-time revenue bump in the LPC segment this quarter?

What we meant by one-time, Yash, is I think when we just look at revenue and try to make sense of NOI, my point was more around you can't really look at revenue in long-term care and quantify to change in NOI for that. So that was the comment there. There's really no one-time impact in revenues this quarter that we have in the results other than regular funding changes.

I mean the 3.5% NOI growth it does look like -

But that's related to expenses, Yash.

Yes. That's a timing of expenses.

Right. So if you were to adjust for that whatever one-time thing was there, what would it be?

If you look at the year-to-date the 1.8 that's more kind of I guess it better context or better way to think about it because quarter-to-quarter in the funded part it can always be just the timing of revenue and expenses. So I think if you look to the year-to-date that would be more relevant.

Got it. And just one more on your retirement home occupancy. How much of the decline in Q3 was related to new supply versus other things?

It's really all related to not new supply in this case. I mean Ottawa is always over supplied and we have a couple of properties there. And that hasn't changed. It's really as we mentioned in the script, it's really resident turnover. We had a high degree of residence just moving out either to long term care or moving just moving out. So that was really the change in the same property.

And next question is from the line of Michael Smith of RBC Capital Markets. Your line is open.

Thank you and good morning. I have two questions, first, just on the acquisition front. Lois, when do you think you will be in a position, like comfortable that you fully integrated the acquisitions you did earlier this year, and sort of start looking new? And what do you think you would be targeting? And then just secondly, when a resident moves out and are not going to a nursing home, what's the typical reason?

Oh, they go to hospital but normally they - so they would go to hospital like if there's an illness or a fall or some sort of some situation like that typically long-term care and this happens where you have-- if you have residents have lived with you first five or six years there can be some attrition just natural attrition happen. And tends to go in spurts.

Okay.

On the other I guess with the acquisitions, we don't have targets. We're always very selective than we are looking to grow across Canada. Say our integration we had said it would take a year and it will and we're very committed to getting it right. And so we would say Q2, having said that we are always looking at opportunities and developing relationships across the country. So I can't really guide you in terms of a target.

The next questions in the line of Troy MacLean of BMO Capital. Your line is open.

Good morning. It looks like you added them two properties to your managed services business. I was kind of curious about how much EBITDA does a management contract generate?

So that in the past, Troy, we used to have a separate segment for management services and as you might remember it was always small. And each part of it we would be explaining why it changed by 10% because we had $10,000 more than expenses. So we stop to do that it. It is not a material part of our business today. And the same team which supports the management services supports our overall operations as well. So it's very hard to just look at margins for those. And these contracts, we saw Q go up in a quarter or two you could see one or Q going down because there is always you know as contracts come due we would lose some and there's some new that we sign on. So I would say at this point today it's not a material part of a business than we originally had this it was on percent and percent and half initially when you reported separately. And I don't think that it is materially changed since then.

Thanks and then just on the 2019 refinancing. What length of term are you looking to replace the maturing mortgages?

So it's really a mix; so if it's a retirement or if there's a BC residential care because there is a CMHC program for BC residential care that is always is the first option for us to look at because it's very favorable rates. And you can lock in for much longer term close to ten years. So if you look at that as well and we would look at some mortgage financing for five and seven years. And overall when we refinance in 2018 our average term was around nine, and we expect to do the same next year as well. Again, market dependent.

Our next question is from the line of Chris Cooper of CIBC. Your line is open.

Hi, guys. Just a quick follow-up on kind of what Troy was talking about the balance sheet. What - how you are thinking about the balance sheet in the context of the upcoming redevelopment program in terms of where you'd like leverage to sit as you embark on that?

So one of the things Chris as you already know but just for a reminder for everyone like our balance sheet is debt to gross book value not fair market value. So when we say we are at 48.3 on a fair market value basis it would be much lower because a big part of our portfolio was fair valued in 2010 when we did our IPO. So there are, we think, on a fair market value basis we would be in the low 40s roughly. I think for the business we have in the stability of long term care. I think the way the margin is close to 50% so our EBITDA balance sheet is close to 50% debt to equity. I think we are comfortable in that range. So with development, again, our goal is to go around $100 million a year. So we don't see that as a big change in our balance sheet as we do that. And that has been one of the reasons why we want to have a pretty strong balance sheet. So when we get into development then we see a percent or two uptick in debt. It does not really tip us over the 50% range.

Thank you. And at this time there are no further questions. I'd like to turn the conference back over to Ms. Lois Cormack for the closing remarks.

Well, thank you everyone for joining our call this morning. We know it's been a busy quarter for you. So have a good holiday season. Good day.

Ladies and gentlemen, thank you very participation in today's conference. This does conclude the program. You may now disconnect. Everyone have a great day.