Q3 2020 Sienna Senior Living Inc Earnings Call
2020 conference call.
Today's call is being hosted by Nissin, JV, President and Chief Executive Officer, and Carrot Hart Chief Financial Officer of Cnf Senior living Inc. Please.
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.
Please refer to the forward looking information and risk factors sections.
The company's public filings, including its most recent mdna and eight I EPS for more information.
You will also find a more fulsome discussion of the company's results and its M.D.
Okay and financial statements for the period, which are posted on SEDAR and can be found on the company's website senior living that 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 new.
And that will be.
The company has posted slides, which can which accompanied the whole his remarks on the company website under the events and presentations with that I will now turn the call to Mr. James. Please go ahead Mr. James Thank.
Thank you Andrew and good morning, everyone.
Thank you for joining us on a few key call. This morning.
Movements on a set of core 19, we have been focused on steering Sienna through this crisis already with the health and well being of our residents and team members being a top priority.
Eight months into the pandemic, we're continuing with our relentless efforts to fight over 19 and to minimize the impact of new outbreak.
Why do we continue to manage through a very difficult environment, we were able to adjust and strengthened our operations and become more knowledgeable and better prepared in a response to the second wave.
We continue to invest in our front line teams and processes strengthen the way to communicate and expanded our leadership team.
In order to further strengthen clinical quality and rather than safety measures across our platform. Our board of directors established a quality committee to focus on the quantity of resident care and resident experience.
This also includes resident and team member satisfaction safety and many other initiatives.
Dr towards improving the.
Many of our Red and his life.
I'm very pleased that Dr., Andrew Moser join Sienna as Chief Medical officer in a role she's focused on leading and implementing all aspects of medical services, improving I'd, rather than quantity platform and building on CNS virtual care capabilities, so that physicians can come to the.
Bed side of our residents by technology, enabling access to broader range of medical expertise.
In addition to Dr. Moser you continue to receive advice from some of Canada's Premier healthcare experts.
Including Joe Mop up the former president and CEO of <unk>.
Sinai health.
Systems Dr.
Dr. Alison we gear, one of Canada's Premier infection prevention and control specialist.
And Mary Jane Dykeman, an expert in healthcare risk management.
We are also in the process of joining seniors quality leap initiative and initiative that helps us to benchmark our quality indicators against Internet.
No standards and that allows us to participate in the sharing of best practices, all with the goal to improve clinical quality and quality of life for our seniors.
Moving to infection prevention and control.
During the third quarter, we continued to make good progress in implementing imports.
On quality and safety measures and to prepare for the second wave.
Our incident management team meets daily to monitor the impact of over 19 at the residences.
Reviews announcements and changes to provincial directors and provides guidance and oversight for implementing changes to applicable policies and procedures.
We enhanced our training and education of team members and have been holding BP training seminars and Webinars many of which are focused on learnings from the first wave and addressing site specific needs.
We also substantially increased our personal protective equipment reserves and centralized our order inventory system.
Through establishing eight regional hubs in Ontario NBC.
Each of our residents has now has 30 days worth of supply and we are grateful for the government's additional supply our personal protective equipment.
We implemented enhanced restrictions for non essential visitors and non essential outings in many of our communities.
Ladies and our government mandated requirements to do everything we could as quoted cases started to write across many of the reasons in September.
Due to leave during the peak of this first wave we entered into hospital management agreements at three of our long term care residences, our hospital partners.
Operator for help us evaluate and implement additional measures processes and protocols.
In September two of the three agreements have concluded.
Over the past months, we enhanced our endemic staffing strategy to support our frontline team members and to ensure continuity of care for our residents.
Our staffing mean.
He needs are met and internally through regionally focused talent acquisition teams and further supported by external agencies, who are specifically focused on shorter term it easy to deploy a qualified team members.
We are very grateful for the continued government support that helps us cover some of the extra ordinary profit.
<unk> expenses so far.
At the end of Q3, the government of Ontario, and also additional funding for long term care up over $500 million increase.
Increasing total funding to over $800 million.
As of September Thirtyth, approximately 327 million has been allocated to the long term care sector.
The government of British Columbia has allocated approximately 187 million in funding for costs in connection with additional screening and staffing infection prevention and control measures and social visitations.
The funding it's crucial to help offset some of the significant costs driven by the pandemic.
Moving to communications marketing and sales initiatives.
We continue to strengthen the way, we communicate with our residents and our team members.
We launched a team members mobile App, which gives us the ability to reach out to thousands of team members in different locations quickly and directly with new information.
We also.
Launched our news centralized call center, which supports our communication and marketing efforts that current and prospective residents and their families.
Over the summer, we intensified our marketing and sales activities across other comment portfolio and connected with thousands of prospective residents.
We made significant.
Also in investments with respect to a digital presence with a goal to drive online traffic to our website and social media sites and ultimately increase the number of leads as we saw the positive outcomes during the third quarter.
In addition, we designed our sales incentive program, which successfully converted potential leads.
The resident move ins by the end of Q3.
And we started our winter Staycation campaign for shorter term stays in a retirement residences or the winter months.
Our marketing and sales efforts resulted in a significant increase in deposits and move ins from prospective residents in our retirement portfolio.
Okay.
Average monthly occupancy was 81.7% in September up 60 basis points from August increase by another 100 basis points to 82.7% in October.
This positive occupancy trend over the past two months was a result of our intensified marketing and sales campaign ahead of the.
The second way.
The time and occupancy was 81.9% at the end of October and we expect that the second wave will negatively impact occupancy in the coming months.
Ren collection levels remained high at over 99%.
Comparing year over year occupancy rates.
The average same property occupancy in a retirement portfolio declined to 81.4% in the quarter from 86.9% in the same period last year.
This was primarily related to a decline in new residents moving in due to the impact of the pandemic, including access restrictions.
In a long term care portfolio.
Average occupancy declined to 87.4% in the third quarter from 98.2% in the same period last year.
Long term care residences are fully funded for vacancies if new residents cannot be admitted due to an outbreak.
In addition, we currently receive full funding if you lost rooms due to capacity limited.
In terms of two beds per tool.
This funding protection the pilot does not compensate us for the loss of premiums we received for preferred accommodations for private and semi private rooms, if they're vacant.
The impact of the pandemic is reflected in our financial results, which include the extraordinary expenses.
Due to the pandemic in excess of government funding.
We have made investments in additional staffing personal protective equipment property infrastructure entered into management agreements with hospitals and added additional senior healthcare expertise to navigate the impact of over 19.
As a result, CNS AFFO payout ratio in.
Managed to 110% in the third quarter versus last year, excluding the net pandemic expenses the payout ratio would have been 75%.
While we expect a continued increase level of expenses in the foreseeable future. We are confident that we will steer cnf through the second wave of the pandemic.
And beyond.
We have taken many actions to strengthen our operations invested in a frontline teams and processes and maintain a sharp solid financial position with a triple B credit rating.
In addition, our liquidity remains healthy at $210 million as of the end of the third quarter.
These are all indicators for CNS strong fundamental.
Settles in the long term demand for senior housing expected to remain resilient.
There is no doubt the seniors living sector has been deeply effective at 419, our recent developments regarding a potential effective vaccine encouraging and overall fundamentals for senior housing remains strong.
With that I'll turn it over to Karen.
Thank you Lynn and good morning, everyone.
Glenn mentioned, yet I have taken extensive precaution to manage the impact of COVID-19 and prepare for the second wave the pandemic.
This impact is reflected in our results and key metric going forward our results will depend on certain.
Development, including the duration extent depend dynamic.
I will start on slide 11 on our Q3 financial results.
Revenue decreased marginally by 3.7% year over year to $166.9 million in Q3, 2020 compared to Q3 2019.
Our same property net operating income of $28.9 million in Q3, 2020 decreased by 11.3 million over the prior year, mainly related to net pandemic expenses of $7.2 million.
Long term care same property NOI increased by $8.4 million to $14.9 million year over year.
Okay and retirement same property NOI decreased by $3 million to $13.9 million.
Excluding net pandemic expenses same property NOI decreased by 4.1 million largely due to lower occupancy, partially offset by rental rate increases in a retirement portfolio.
And lower preferred accommodation.
Revenues in our long term care, Ontario portfolio because of vacancies in private and semi private rooms.
It was further impacted by annual inflationary increases in labor costs, and higher property expenses, partly due to timing and seasonality.
We continue to ensure an increased level of expenses system.
What the costs of fighting dependent Nick and minimizing the impact of outbreaks.
As outlined in detail in our Mdna there are various programs and financial assistance provided by the government to support pandemic related expenses.
It is important to note that there may be timing differences between the time of incurring these six.
Senses and the funding of such expenses.
During the quarter, we recorded net pandemic expenses of 9.7 million related to managing COVID-19, a decrease of 8.5% compared to the second quarter $10.6 million we.
We maintained higher stocking levels and accelerated recruitment and retention.
Team members as we entered the second wave towards the end of the quarter.
We also incurred management fees for a hospital partner support.
This was partially offset by lower per unit cost for PPD and additional funding received from the governments for pandemic related expenses.
And we overcome cobot nineties.
Related to incremental expenses and its overall impact from the pandemic are expected to subside and we expect this will lead to improvement in the company's operational and financial performance.
Turning to slide 13 please.
Three or what the FFO per share was 20.3 cents a decrease of 16.1.
And as compared to the prior year.
Excluding net pandemic expenses or what the FFO per share would have decreased by 5.4 cents compared to the prior year. The decrease was mainly due to softer retirement occupancy and mark to market adjustments in share based compensation, partially offset by annual rental rate increases in retirement.
And lower current income taxes.
Q3, AFFO per share was 21.2 cents, a decrease of 15.6 cents compared to the prior year.
Excluding that pandemic expenses AFFO per share would have decreased by 5.5 cents compared to the prior year.
Moving on to our balance.
Sheikh.
The sequent to the end of Q3 on October 2nd we successfully completed 275 million upper debt financings, which significantly reduced near term debt maturities and improved our long term debt ladder.
These financings, which reflected the confidence.
At least in our company included 175 million in unsecured debentures carrying a coupon rate of 3.45% and maturing in February 22006, and a 100 million term credit facility carrying a floating bankers acceptance rate plus 225 basis points.
The proceeds.
It's from these financings were mainly used to repay existing debt, including the full redemption of our series B Security ventures, which were due in February 2021.
With the successful financing the weighted average term to maturity of our debt has been extended to 4.9 years on a pro forma basis from four years at the.
The end of Q3.
In terms of our debt and liquidity CNN maintained a strong financial position.
We were we assigned a triple B credit rating from <unk> with a stable trend by DBRS in September.
Ended the third quarter with over 210 million in liquids.
And further increase our unencumbered asset pool to over 840 million subsequent to our financings on October 2nd.
Our debt is well distributed between unsecured debentures conventional mortgages CMHC insured mortgages and credit facility.
Looking at our debt metrics.
Next on slide 16, our debt to gross book value increased by 80 basis points to 47.3% year over year, mainly due to a 107 million drawdown from our credit facility of which 40 million have been invested in short term investments to provide us with financial flexibility.
Subsequent to the coal.
For the quarter, we repaid 30 million of our credit facility.
We decreased our weighted average cost of debt for full 40 basis points to 3.3% year over year, primarily due to increasing our mix of floating rate debt.
Excluding the impact of net pandemic expenses debt to adjusted EBITDA increased.
7.2 times in Q3 from 6.6 times in the prior year and our interest coverage ratio decreased to 3.6 times in Q3 from four times in the prior year.
We expect an increased level of expenses for some time and given the ongoing uncertainty surrounding the impact and duration of Cobiz 90.
We have withdrawn our 2020 guidance earlier this year.
In the meantime, we remain committed to providing periodic updates on the impact of the pandemic honored business operations and financial results.
I will now turn the call back commitments for his closing remarks.
Thank you Karen you have taken many actions.
For the past must review and strengthen our company's foundation.
Initiate it just hasn't helped us adjust and how to say it operations to maintain a strong financial position and made us more knowledgeable and better prepared in our response to the second wave.
Good I look forward to help strengthen the future to long term care and improve our portfolio for the development of wonderful.
Homes.
We have started to evaluate how the government onto there's new long term care development program could benefit CNS properties and we have submitted our applications for the program.
In our view the new long term care development program would make many projects financially feasible.
Three of our current development projects are at an advanced stage.
Just planning and approval.
Our development plans also to the redevelopment of CNS Ultimate care communities in Toronto into a new standard of 20 bed long term care campus in partnership at Scarborough Health Network.
Yeah, Bill will discuss this would provide integrated care for the local community and.
261, new beds. In addition to the redevelopment of the existing 159 beds.
Since the beginning of March we have taken many actions we have further increased our core focus on quality and safety and strengthened the company's protocols and procedures.
We have added over 800 frontline team members.
Yes.
On October 20 tour volunteered and long term care over 19 Commission issued recommendations in relation to increase staffing stronger healthcare sector partnerships and improved infection prevention and control measures.
We were able to share our own experience and observations during the first wave of depend dynamic with the commission.
As a result of these recommendations the government of Ontario announced that they would increase the hours of direct care for each long term care residents to an average of four hours per day.
This change is expected to be phased in over the next four to five years and we are encouraged by these recent announcements which are expected to help shape and strengthened belong to the future.
Each of long term care.
As we look beyond the pandemic overall sector fundamentals remain strong and aging population long waiting list for long term care and a slowdown in future supply of retirement residences on all expected to support our sectors outlook going forward.
Im incredibly grateful for our team.
Almost 13000, what how things Cnf two the first wave of the pandemic.
The compassion and resilience and is not doing everything they can to prevent the spread to not residences during the second wave.
Thank you for your participation on the call today would be up fleets to now answer any questions that you may have.
Thanks.
Thank you ladies and gentlemen, if you have a question at this time. Please press Star then one on your telephone. If your question has been answered or you wish to remove yourself from queue. Please press the pound key.
And our first question comes from the line of Jonathan Culture with TD Securities.
Thanks, Good morning.
First question just on the increase in occupancy in the retirement portfolio.
Have you have you been adjusting rental rates to drive daughter, and so it was sort of incentives have you been in using if any.
Hi, Thank you Jonathan and good morning, our focus has never been to adjust I rental rates you know first of all that's not a good thing to do long term and unlike hotels, where people don't talk to each other at another time in home you know residents talk to each other and it's not a good feeling when someone new coming in is paying substantially different.
Lower rates than someone who has been there for some time, usually what we use in line with other with other peers would be one time incentive or how is that moving in that.
That would be that has been our focus rather than adjusting or loading rental rates, we would adjust rental rates in markets for example of business.
Supply coming in or we are reacting to some other factors, but as a common practice or adjusting rental rates is not what you follow.
Okay. That's.
That's good and then secondly, just on need the government funding do you think you've received all that you will.
Bill for Q3, or do you think you might still I get some of those expenses covered and secondly, some of your your peers have applied for the sous program is that something that you guys are looking at.
Sure. So I can answer the first one I'm Karen can take the second part of the question.
We do anticipate future government funding just to use long onto long term care of their majority for funding is.
We got around nine and a half million dollars in Q3, our expenses are much higher just because a few one time items, such as possible to management fee and others.
So we do expect future funding, we don't really think it'll cover past expenses, but you know our goal would be to narrow the gap between what you're spending versus what you're getting as we better understand where and how we need to deploy resources and Kevin can answer the second part of your question Hi, Jonathan So with respect to.
Illegible for that program.
And the amount however were not significant based on our occupancy changes and as we know the Q itself program is continuing into June 2021, So we expect to continue to evaluate eligibility and apply Corning.
<unk>.
Okay. Thanks, I'll turn it back thank you.
Thank you.
Your next question comes from the line of Brendan Abrams with Canaccord.
Hi, good morning.
Just wanted to focus on the net.
And make expenses.
Came in just under $10 million for the quarter just wondering.
You know, how we should be thinking about this maybe moving into 2021.
For modeling purposes.
And as well maybe a second part of the question.
You know they sleep.
And beyond Coven, 19, or that pandemic, you know how much of these.
Let's call. It net expenses do you think you know could become potentially structural parts of the business.
Thank you Brendan I would just say on the on the current run rate.
<unk>.
I'm going to be a focus is to keep our residents and team member safe.
The magnitude of expenses, you know differ greatly from property to property.
Depending on the level of outbreaks and when there is an outbreak tense and its significant along really all your forecast is out the window because you're doing everything.
I can't even showed you get additional style you know you might be pointing to more personal protective equipment, adding additional staff as needed.
So you.
You know it is very difficult to forecast that because we don't really have much prediction on how and when outbreaks would happen.
Having said that we continue to advocate.
Good for better funding.
And we always talked about having a conservative balance sheet than having strong liquidity, which we have been putting to work during the second wave.
So it's a it is difficult to give us a projection piled on your second question. We continue to believe that majority of these expenses because they relate to additional staffing.
For example, you would have a additional staffing to screening.
Hi, good dining room might be open longer into retirement homes, because you know there's only one person sitting on the table or you might be serving meals in the room. So the residents in both retirement and long term care that adds additional staffing so.
So we truly do continue to believe.
That most of these expenses would go away once out dependent except size and given the recent news on kind of the Pfizer vaccine. We do believe that up you know that potentially could happen sooner rather than later.
Right, Okay, Yeah, no that's a.
That's very helpful and then just maybe.
You need the some of the development initiatives.
The one at halt at Mont and the three others you.
We are advancing maybe can you just give us a sense of how we should think about or how you're thinking about.
Whether it's development yields are.
I'll now return on investment et cetera, like how how does that.
How does that look and then the second part of the question is just in terms of funding the the upfront capital costs over time, you know is there potential to bring in partners would you fund this primarily through construction loans. So.
So maybe just.
Or some color on no returns and then the funding aspect of it.
Sure. So let me give you. An example of the three projects. We have been we have announced previously which is brand forward not to pay and Keswick there roughly around 160 bed, new additional long term care beds.
And in some cases.
So we might decide to add retirement, which we are reviewing at this moment.
If it's 160 long term care beds other cost as I close to 45 million give or take.
And our board would do to put construction financing currently their construction financing available for close to 70 that to 85%. So there's.
Sitting range there. So if you look at the difference you're really looking at around $10 million of project of equity on even lose sight of financing, but as I mentioned, you can get a even a bit higher and the new redevelopment program. There is an off premise grant you get a once the construction is complete so that could further.
He was your equity requirement upfront.
So our goal would be to really funded through a construction loan and using some of our equity.
You know or do you think are and when I say by mean equity I mean retained cash flow you're not looking to go into market up.
For something like this and we look at developing meals and flow abuse both sleep.
Objects you know we are we think we can get to develop and deliver on 8% now.
The autumn one project is a bit different in that case, we are working backwards Scarbro health network.
We believe that would be a great partnership and we believe the first one in Ontario between a hospital.
And a private company.
So that we are still in early stages of reviewing that the funding is different.
Because it's in Scarborough that the new government program it goes by location.
It's too early for me to reflect on the yields there but to your point, we are partnering in that project.
Okay, that's great.
Now I'll turn it over thank you. Thank you.
Thank you and our next question comes from the line of Himanshu Group with Scotia Bank.
Funny.
Just a follow up on the sand demagogue expenses in the EPS She segment on Thunderx exposed $4 million.
Q3.
What was the amount of onetime items in the Q3 number.
Did you take the launch of the beat in Q4.
Hi, nice to during the quarter, we incurred 2 million a hospital partner management team.
No we really appreciate it or expertise.
For three of our long term care residences and as was mentioned two of those agreements have concluded in September. So we would view those as one time expenses.
And looking at the amount.
The amount of unfunded endemic expenses again, maybe touched on it it.
Really.
Staying with the de stocking is.
We have to be conscientious of no. We are in the second wave. So during the quarter as we were out gradually adjusting stocking to keep cost started to.
Rise again.
Even though during the summer or cases were low and then we actually reach achieved.
The Xerox of resident Cage for about five weeks.
So when the second wave hit US again, we make sure that we did everything possible to be ready for the second wave to ensure that we have adequate staffing and at the same time accelerated recruiting and retention of our frontline team members and so that.
Let your.
You hire pandemic labor expenses included in our results. It's also a bit of note our CNS pandemic pain.
That is included in Q3 and that program has ended during the quarter.
Sure. So barring these onetime expenses looks like around $2 billion. So can you.
You know the unfunded level of expenses in Q4 could be very similar to Q3 as of today.
Up on.
Fortunately my answer we don't really have any guidance on that because first we don't know what the government would fund we can only make a guess and secondly, we can make some adjustments.
And it's a home is not an outbreak what we would be spending but when it goes into an outbreak depending on the severity of it being relocated and depending on how what happens with staffing. It is very difficult to forecast that so unfortunately, we don't really have any guidance for you for Q4.
Sure that's fair enough.
And just your bigger picture I mean, it sounds like government is providing the level of expenses to get to rebound dynamic.
But I think the level of care that you provide the expenses are much higher so is there a way you can adjust your LTC operations. So that you incur expenses, which are in line with the government and in fact with them. It is often the.
Okay operators to be.
Yeah. That's an interesting question again thats not a hobby look at it you know I have no.
Government is obviously doing whatever they can to help it is a global pandemic and everyone is getting impacted so we understand we would have to bear some of the pain effect rather than just the government only.
And our focus has not been to see what we're not starting with this and how much you have to spend let's come in line with that what we are starting with this is what we need to do to ensure everyone is safe and healthy.
The funding would be what it would be again, that's on not the long term Bibles strategy. So if it continues on for two or three years we.
Have to look at it but you know we all believe that especially given the recent vaccine announcement that this is not a long term taking this could be you know a short to medium term call it or next to six to nine months.
Now before a vaccine is commercially available.
So at this stage, we did not really are.
This is not to.
Expand what we are getting our our focus is to spend what we need to spend but to do it in a in a disciplined manner and hopefully those things will start to converge what be absolutely and versus what fees again.
Yes, absolutely thats, you'll give it sounds.
Just switching over to the Diamond home occupancy just a follow up there is obviously no occupancy up two months in the rule, what led to outperformance year and it sounds like you know.
In your previous onto you said, you know you're not to lighting much incentives is it just seems program or something else, which led to the outperformance.
And then I don't know early August we really started to focus weve, even even from a management team perspective, we kind of talked about you know who is working on the crisis and who is working on the strategy for the company because I think if you all work on crisis will wake up off of a pandemic can have a company, which is not really focus on strategy. So.
And the first wave of our Ontario retirement, a portfolio order timing in general was not impacted significantly back over 19, and the team had started to focus keenly on ensuring we are driving the right marketing campaign spending what we need to spend from a digital perspective and to ensure that you are calling all the previous.
Leads that we had because we believed there the pent up demand as people were not able to visit and that happened to be true we had significant uptick in people taking tours when restrictions are lifted and that's really what drove our our occupancy and in August and September are you know.
Middle of August and early September.
We were quite optimistic that this is just the start of something great where we can build on it I would say based on what has happened we will now call. It.
Refueling our tank so we know people would believe.
As they as they get fatal.
Hitler they might have to move into long term care hospitals, which we cannot stop so we kind of got ready by having as many people as we can add to our portfolio and we will continue to do that.
Once the second wave subsides are comes down a bit the reality is our virtual tours continues to be quite soon.
Prom and in some locations, which are not hot spots, where we are to safely able to do so we continue to have to import some tours, including has late.
Late last week and again only do it in places, which are not an outbreak which are not in hot region. So again, we continue to be cautious.
Cautiously optimistic in the fourth.
Our stuff or off at a time in occupancy and if it wasn't for the second wave we would be.
Even be comfortable sharing a bit more in terms of forecasting others, but just not at this point.
Got it and I think you mentioned about the winter shortens, James or Staycation, how much did that contribute.
Welcome to see growth in the month of October or do you think they will now be affected in the month of November.
Actually what we have is some 40 furnish suites for some of those my prospects, who cannot travel south as many people do it every year.
It's really going to the fourth quarter and are already.
First quarter, we will see some results it's too early to predict that.
Got it okay. So just last question for me.
On Ben to one made too is that very similar in design.
To the production you have in the British Columbia or is it a bit different and then I'm, assuming it will be retrospective well that cover.
Anything and everything from March and onwards.
So again, our understanding is after 2008 will provide a degree of civil liability protection that is similar to what our existing B C and the bill frankly recognizes the.
Circumstances over 19, and protect those who responded.
Add to this crisis in good faith, and our understanding is that it would be retroactive to March.
And does that mean that you know, though you know couple of lawsuits that you have and of course, we've got some be covered under that bill as well.
Well again, we don't really comment on on a lawsuit say that.
Too early to repeat them anyways, and again that is something when they become a bit more.
And you know I based on the advice from insurance companies and lawyers, we can provide for the information, but it's too early to comment on it.
Got it okay and okay. Thank you so much.
Thank you.
[noise].
Thank you. Your next question comes from the line of Hanmi Berger with RBC capital markets.
Thanks, and good morning.
Nice to see the increase in deposits in Q3, although occupancy did slip in October.
What can you share with us.
Terms of.
Maybe deposits or lease commitments, thus far that have come through in Q4.
Thank you hi, good morning Patty.
As I mentioned, you know even as late as last week, we continue to see new virtual tour some inputs some tours.
We ever had.
You know a good sense of deposits even in the first half of this month. So far so things have not slowed down to zero, which is a very positive obviously they are not in a stage what they would be otherwise in a high level our deposits. So far for the month of October around you know call. It three four for 75%.
No what you would've seen the year before and hopefully we'll see something similar in November. The challenge is really how do you stop the move outs, because you know what as people get to stay alert and have a certain stage they will start moving into hospitals.
Our into long term care there it is possible to move into long term care. So I.
Again I.
But we see good traction I hope you have not.
You know our department have not gone down to zero, we definitely see some positive traction what is hard to predict at this point is how many people will move out.
Yeah. Thank you for that things didn't then I'm just in terms of the advisors or that you still have.
On Board do you expect that you know these costs and I guess this advisory group will continue into next year and just curious on on perhaps the implications for us from a junaid perspective.
Sure one of the advisors was Dr., Andrew Moser, and we did hired a full time, so she would be working with us full time and.
I'll be very excited that though you know the rig or she would bring to a medical practices and others well on overall company. The rest of the health care like advisers that I've mentioned that a majority of the cost has already been spent there would be some going forward next year, but we do not see a significant impact of those costs.
I thought I saw the GE and it costs would be more around crisis management or you know a commission legal work so against that so it's hard to predict depending on the next stages of of those things.
<unk>.
So I guess in terms of the I think it was <unk> million or $2.6 million or do they cost.
Costs in a pandemic related costs in Germany in Q3.
I think last quarter, you talked about maybe $3 million for the back half the year. So it seems like the majority of that has essentially been.
Spent maybe a little bit more to go.
We do expect some pandemic cost do continue on I just.
I think it's hard panic and give you an insight on what it might look like because I know what about vitale of you would be wrong, because again, we don't really have a view of what it could be.
Fair enough, but to quantify at this point yeah.
Yep understood I guess, just in terms of the potential long term long term care and.
In scar in Scarborough when would that project be completed if it were to proceed.
That project is still and already stages like the no likelihood of us announcing shovels in the ground up much higher for the other three projects that we talked about because in many cases.
You know now and all in all in all three of those cases, it's greenfield nothing exist on that site be in some cases, even f. site plan approval, we have quite a bit of design work done. So they would be much ahead and they could be in ground, depending on you know fuel far the priorities in the next 12 to 18 months discard.
For one is still you know we we started working on that last couple of months. So it's still in early stages, there's quite a bit of work to be done there. So it's hard for me to provide you any timing for the Scarbro project.
And just on the three projects can you just remind us again sort of what how much spending you expect to incur I guess over the next couple.
<unk>.
I'm sure. So each project is around $45 million or so so you know our goal is to start you know maybe to potentially in the next 18 months and then the one after that so we expect at any given time close to $100 million of development on our books when things ramp up because it would not.
Be zero to 100, and a day it will be you know a few months before it gets to that point and you know there's a very clear line of sight, the good visibility into construction financing 75% to 90%.
What is available for it so we would that's what we would be doing in the balance call. It you know tend to 25 million.
And will take some time to get to the 25 millimetres, we would funded to our retained cash flow.
Thanks, very much and I will now turn it back thank you.
Thank you.
Next question comes from the line of Tyler only with National Bank financial.
Hi, good morning.
Good morning.
Just in terms of managing I'd be outbreaks or are you finding now but like.
From an operational perspective like the.
But.
I'll now turn it over the right way to phrase, but basically about like your.
Thing more efficient.
Controlling like are you seeing an improvement sort of and how these are being managed in the home versus.
Versus where you were sort of up to start.
Hi, Good morning, Tony I think the key themes, which are different than the second wave had been the first way of us, but the first one is.
Universal.
Dennis can you didn't come till April I know, everyone is wearing a mask and ensuring the weddings. The rest of the personal protective equipment that it has also readily available now so that is the first one the.
The second one is a single sites because in all all of residences in Ontario, especially even ahead of.
The mountain directive I'd be stopped all visitors into long term care into Ontario. So.
So that is obviously helped and the third one is universal testing where people are getting tested every two weeks. So that has been in our view while not the three key factors of why I know a number of outbreaks might be lost.
Having said so what does it do.
But they're not as more people are getting tested.
So it's a combination of that and things are not being shut down. So you know I think in Ontario, So far give 10 days or more than thousand cases.
And to run any long term care source or retirement community you need people you need team members and they you know would go home and come back to work.
Different this is how covert would get into most of the places and there's really no way around it because even with a two week testing you know they would have some delay in that so that you know it is different in the sense that the those three factors, but also.
People are dealing with the reality of of the economy and.
[noise] setting it down completely so yeah, that's that's what they're struggling with and where we're seeing significant outbreaks.
It would be in the DTA area, which had one of the highest you know count of Corbett cases in in Canada. So that's the reality, what we're dealing with and a big part of it really is is.
His luck you know about two properties could be at the same place.
With the same quality standards and one could hardly people who somehow got in touch with coal, but then the other property no. One said it is very hard to predict that.
Okay that's understood.
Just going back to the.
Development, you know you'd mentioned a these projects are about 160 bed for about 45 million bucks about but around what translates to roughly 200.
80000 give or take per bed is that like in an ever more thinking about as more of these announcements go forward about but a reasonable sort.
A number for us to think about what we're trying to budget and our head how how much these things might cost.
I would say anywhere.
Anyone site anywhere from two to six to 300, I'm, just giving those numbers out just as a midpoint. So from 260 300 per bed is what we are seeing now obviously construction cost.
Is probably the only thing which never slows down so they just continued inflation in it. So you don't take it for the number ends up as a point in time that those are the kind of cost that we are seeing.
Okay, and then just on the redevelopment of these properties like.
Maybe we can use alpha one of the things that.
Apple So assuming you get the Green light to proceed with the new campus.
Does the existing facility looking back on a run.
All the way through or does that Guy you know.
Is that capacity get taken off line I guess like what I'm trying to figure out is like you know as we are.
The whole system works through the.
Redevelopment phase like the capacity of the system going to get even more acute because we're going to have to start taking beds offline but.
Not because they are in three or four bed work, but also just because were redeveloping facilities.
So I.
I'd I'd development program is really two different kinds of development than I think I would just bucket. These three <unk>.
<unk> developments in North Bay have Branford in Keswick separately, then to one in Scarborough. So the cost estimate I gave you were for those three properties and all of those cases their greenfield so they're not on existing.
Site, where the current long term care all patients are so building. These Neil would have no impact on current operations for the three projects. The fourth one which is all come off in Scarborough in that case, it would be actually demolishing the condensate and building on top of it and part of the challenge is to ensure howdy.
I'll do residents and team members get impacted and that's that as part of my due diligence at this stage and how do we ensure that you know there's a place for those residents and employment potential employment for this team members. So that is the work. We are doing so that that is that is it not quite a bit different than and that is driven by the reality off and not really many GTS.
<unk> sites being available there's some the government recently came out with three different sites and interviewing them. If they could be an option. So that those are kind of the things. We are working on at the current time, but the two way different kind of projects in Scarborough horses. Another three.
And has there been any conversation about.
How to handle the license expertise for the older beds, but the government because obviously, they're not going to get through all of the.
Prior to when the older licenses expire and I know the licenses can be a bit of an overhang in terms of funding financing.
For sure I know Rx Association has continued dialogue in terms of license expires because.
It would be very difficult to rebuild all the 30000 beds in the province by 2025, I think I think it will not be feasible to do that frankly, so again Thats, where our association actively continue to do work.
With the government and I do think there is an understanding when this 2025 was announced I think it was around three or four years back or if I'm not wrong actually five years back and that has not been much development because the previous redevelopment program did not really work at all I think they were close to 600 beds built in the last five years.
After this new program is going to be feasible, but what.
Well, it's difficult to do in 10 years I'm not sure how would be achieved in and for now. So we do expect something to change in that but it's hard for us to predict public policy.
Okay.
And then just finally occupancy moves between supply.
For an October like was there anything unique or.
You know in terms of the way like we expect thing a lot of occupancy.
Last summer so October it just seems like.
As a fairly meaningful over version versus trend versus what some of your peers are reporting.
I would say a lot of the elbow grease.
<unk> you know two people really focused on making sure that the but that team that they're doing everything they can ah we looked at our team structure a bit we looked at how people were like our sales team or was incentivized. So I I wish I could tell you it was some cooling.
Cool new campaign aide wasn't.
That it was really a team working all out to ensure that was happening and had a singular focus on it.
Sure, we do that from a sales and marketing perspective, and falling up on all the leads we have had in the past. So that is something we are very proud off and you know we feel we can do more off itself, but obviously the the second wave is going with them.
Temper, our enthusiasm as it comes to that.
Okay.
And then I think that is it for me I'll leave it there. Thank you very much.
Thank you.
Our next question comes from the line of yes. Thanks Whit.
Lauren 10 capital Laurentian Bank.
Good morning.
Good morning.
Hi.
I understand this correctly you have in your long term homes you have vacancy even in your private suites is that right.
The write off long term care is running at around 87% occupancy because in many areas.
I mean as that has not changed in terms of lens really control when people move into long term care homes and given the if home is an outbreak or if it's in a hawk region. The number of move ins are.
Quite muted so.
So that will be running at 87% occupancy across the portfolio, which includes a home. So yes, we would have vacancy in a private beds as well.
Okay. So.
If a home as an outbreak the Goldman colors the.
Occupancy, but it doesn't pay you any premium.
Premium accommodation.
Premium far feeding them accommodation is that right.
That's right. So the government is covering for full occupancy until the end.
However, what we have.
The the coal pay from residents on that premiums for semi in semi private that has those have a portion of those have become vacant.
Commissions of softer in a brick.
Okay.
I just want to focus on the.
4 million.
Hi drop excluding the pandemic expenses.
So how much of that would you.
You too.
The premium that you are not consuming.
Well anything down would be great.
Yes, so with Chairside <unk> locker for revenue.
And it is about 600000 for the quarter and that is not included in our net pandemic expenses net pandemic expenses really represents the incremental expenses, we have incurred to manage the pandemic net of related government funding.
Hi, I just wanted to get a breakdown.
The $40 million you talked about but that is excluding net randomly expenses and a drop of $40 million.
All right, so you're referring to the long term care.
Yes.
Yes, so I know included in that isn't a pandemic expenses and.
Beyond that we have again the loss in preferred revenue and then we also have incurred additional property expenses.
The.
Utilities was seasonally higher we have like yours, a very warm summer and early start to that as well.
Deferred maintenance expenses from the first half of the year, where the pandemic was restricting access and so much of that work is now heavier on the.
Quarter and expecting to be such.
For the remainder of the year as well.
Okay.
Shifting gears I'm, just just want to get some idea.
How much incremental cost to you in kind of in a property.
On a home goes into outbreak gentle.
I think the hi, good morning, yes. It is it is it.
The difficult question to answer because outbreaks a mark on similar equal to have an outbreak. There few team members were tested positive and they are at home isolating and Theres No resident which has tested positive and in that case youre cost.
Cost might be limited in other scenario you could have significant.
In residence and team members both tested positive. So now you're looking to bring agency staff you are adding up more staffing than you need before because you.
Do you want to make sure that people are checking on your on the residents more often.
All the regular thing to shut down such as eating in the dining room or others. So it.
It is very difficult to bid is not really one formula which applies if it's an outbreak what happens. It really is a case by case scenario and it would look very different in at a time and a horse of long term care and it also look very different diverse long term care homes that are able to see building. So it is there's really no one cost structure, which works.
Can you give us a range the reason I'm asking is on.
I'm trying to understand how like if a company like CNN is facing this.
What what what happens to a small mom and pop up.
Oh no deficit it isn't outbreak.
That is correct. It is a it is a province wide.
Issue or a country wide issue in our view and you're right we had.
This could have significant pressure because there is it really.
The three things, which would drive what happens.
So the majority of it if it's not a 180% up it is block 50.
15.
On the last 20 years.
At this location and maybe a little bit off your prep work because that is really the you know.
If someone walks into your home with over 19.
It is very difficult to find that out even though with two weeks testing. So we completely agree my but you know it is a difficult time for everyone, including the smaller owners and operators whether there.
For sensible.
Our profit our charity and the same applies to us.
Okay.
And.
Oh the.
Net bundling expenses you incurred in Q2 did you let it go and you'll see them in Q3.
Hello.
Again it just you know we got additional funding in Q3, but you know we incurred more expensive than Q3. So you can look at it as a sum up it is for recovery of Q2, but essentially you're spending more than that.
Well, if we go out so again, we do not anticipate our previous expenses to be covered that in the future again, our goal would be to ensure that we.
We're spending money in a disciplined manner, so they start to converge.
If it wasn't for the second way, we could see a path for that conversion, but during the second wave again, the focus is not on the costs. The focus to ensure that we are keeping people safe. So again, it's hard to predict that for the for the.
The next quarter.
No I'm not going to forecast it but I'm just trying to understand so for example, you have incurred $20 million of non so net revenue.
<unk> expenses. So should we is it fair to assume that it's like.
It's gone out of your pocket.
Yes that could that would be a fair assessment that I'm not sure how much of it would be recovered some of it could be you know it with a new funding program, but we do anticipate a good amount of it might be ours. Some of it is related to DNA, which we know would not be funded some of it is related to for example, there was a pandemic pay which apply to.
To frontline workers and the first wave, but we did something additional for our management team for the total homes as well because there was equally hard.
You know a lot of them were working.
Working 24 seven in those homes. So we understand that would not be funded and that we are okay with that so.
Again major I.
I think a good chunk profit, we do not anticipate funding backwards.
Of the 20 million.
Okay and.
Moving onto yours.
Distribution payout ratio.
I'm sure the board and management.
You are regularly discussing this.
Sure. So just want to understand at what point would.
Would you be forced to consider the caught like do you guys have any internal.
Internal metrics that you track Uh huh.
How should we think about it.
It really comes down to our output with with liquidity and the strength of our balance sheet you know.
And in August for example, then we had zero cases and get but we had a big refinancing risk you were looking at it in a certain way when the refinancing risk is gone you're looking at now it in a different way, but now you have a bit more expensive and to just for context, you know our payout ratio is more than 100%, but just we pay dividend.
Around 6 million a month, but our liquidity is 210 million. So again, what we might be funding might be half a million or a million dollars over.
The 100% payout ratio and as we talked previously our focus has never been on our payout ratio. Our focus is to ensure whats the I do we have enough fleet.
Liquidity. So this is something we'll continue to monitor and again given that there is a potential vaccine in the horizon and this could be a six to nine month thing.
Again, our goal would be to.
Keep the way things they are but review them on a on a consistent basis.
That's it for me thank you.
Q.
Thank you.
And our next question comes from the line of Joanne Chan with BMO capital markets.
Hi, Hi, good morning.
Most of my questions have been answered, but maybe just a really quick one just looked like things up.
Have you noticed any change I guess in terms of the competitive environment.
From the summer and to now given the touted the.
The environment has changed in terms of the number of cases are you seeing things getting.
A little bit more competitive now as we enter into kind of November December.
Hi, Hi, Joanne Miniseq competitive you mean for the retirement I resin, yes, sorry, yeah, that's correct sorry.
It's the competition is so our local in not in all of our communities. So again, we haven't everyone is running at a much lower occupancy so that the instead of the competition I think.
The focus really has been doing.
To ensure that it is reaching out to people in a proactive manner understand their individual needs what they might be looking for so really no significant change in competition and again well.
Overall as a sector, we don't really see lot of price cutting because it's not the right.
Message for the comp residents and it's not to the sustainable long term. So it really is the focus is.
What is the right fit for each different resident of prospective residents. So really no change in competition from our viewpoint.
Okay got it and maybe this one but a much more longer term question.
In the.
Just given the cost pressures that we're seeing with this dynamic and your discussions with government.
If it's early to tell whether to see whether going forward, there's going to be a permanent change in terms of the cost structure.
Within the long term care business.
Okay.
But sure.
The recent announcement of increasing the direct care hours to four hours and the care has always been funded by the government and the operator of any kind of as profit not for profit our municipal do not make any money off it. So we do anticipate as up those.
Those care hours go up that they would be.
Additional funding for it so we don't really see a big and which is a positive thing to actually increase the number of care hours. So we do not see a significant change in the overall cost structure for this business and the positive is that develop and and the new development program is not financially feasible and we would.
Theres some development there so that would be again in our view positive.
Okay I got.
Got it that's it for me.
Oh.
Thank you.
Thank you.
And I'm showing no further questions. So with that I will turn the call back over to knits in jail.
For any further remarks.
Thank you everyone for your time, and we look forward to speaking to in our next quarterly call. Thank you.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating and you may now disconnect.
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