Q4 2020 Extendicare Inc Earnings Call
Okay.
[music].
Thank you for standing by this is the conference operator, welcome to the extended care, Inc. 'twenty 'twenty fourth quarter and year end results conference call.
As a reminder, all participants are in listen only mode on the conference is being recorded.
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I'd now like to turn the conference over to Jillian Fountain, Vice President Investor Relations. Please go ahead.
Thank you operator, and good morning, everyone welcome to extending <unk> fourth quarter and year end 2020 results conference call.
With me today is the standard of care as President and CEO, Michael <unk>, and senior Vice President and CFO David Bacon.
Our fourth quarter and year end 2020 results for disseminated yesterday and are available on our website. The audio webcast of today's call is also available on our website along with an accompanying slide presentation, which viewers may advance itself are we.
He played the call will be available later this afternoon until March 12th the replay numbers and Passcodes have been provided in our press release and an archived recording of this call will also be available on our website.
Before we get started please be reminded that today's call may include forward looking statements such statements involve known and unknown risks and uncertainties that may cause actual results to differ materially from those expressed or implied today, we have identified such factors in our public filings with the securities regulators.
Suggest that you refer to those filings.
With that I'll turn the call over to Michael.
Thank you Jillian and good morning, everyone.
Before we get to our fourth quarter results I'll take a few moments to provide an update on our activities related to the pandemic.
COVID-19 continues to impact our country communities and families.
The immense toll taken by the virus on those in our care their families and our courageous care teams who've been on the front lines throughout the pandemic has been relentless in recent months.
Our staff have continued to work tirelessly to care for and support our residents from clients and I think each of them for their selfless commitment and ongoing effort.
And the second wave of COVID-19 infections drove increased case numbers across Canada in the fourth quarter and into 'twenty and 'twenty. One we saw a dramatic increase in cases, among our residents clients and staff.
Throughout this time, we took every measure possible to protect our communities from these higher infection levels with regular testing increased staffing levels and enhanced infection protocols.
As well, we assembled a team of specialized managers to provide rapid and effective assistance to homes experiencing COVID-19 outbreaks.
We also reached out to regional hospitals and health authorities to solicit help for those homes that were overwhelmed by the virus during the second wave.
Despite the exceptional efforts of our staff and partners community spread of COVID-19. During the second wave resulted in further loss of life.
On our residents and staff.
This tragedy has attracted many families in the communities that we serve and the enormity of their loss will remain with us for many years to come.
We offer our help heartfelt condolences to those who have lost loved ones during the pandemic.
Fortunately with decline in case rates in the community the impact of the second wave in long term care seems to be waning.
As of February 24th eight of our 69 long term care homes and retirement communities remained an outbreak with active cases.
So in all of these homes combined there are only three residents who have an active infection.
We also continue to work closely with our extended care assist clients to help them manage the outbreaks that remain in their homes.
We are also encouraged by two significant developments in our fight against the virus, notably the availability of vaccines and expanded testing protocols.
We've made significant progress in Vaccinating our residents.
As of February 24th approximately 91% of our long term care residents and 33% of our long term care staff had received their first dose of the vaccine.
On approximately 65% of our long term care residents had receive their second dose.
In respect of our retirement communities, 71% of residents and 33% net staff have received their first dose.
Vaccination of home Health care staff has also started this week.
Limited vaccine supply across Canada in recent weeks slowed or stopped vaccinations, but with the new supplies, arriving we're seeing clinics ramping up again.
Fortunately our staff continue to receive priority access.
We are actively removing barriers for staff to get the vaccine, including compensating them for their time and travel expenses incurred to visit a vaccination clinic.
Testing has and will continue to be an integral part of our strategy to prevent COVID-19 from entering our homes.
Following our recent successful pilot of on site antigen testing in a number of Ontario long term care homes. We are in the process of deploying this technology in all of our homes across the country by the end of March.
Point of care testing takes our screening process for the next level.
Providing each of them with the ability to test staff multiple times per week and to test all visitors to our home.
Instant access to test results enhances the speed and efficiency of identifying COVID-19 cases.
Allowing us to send them home to self isolate thus minimizing any chance of exposure to residents and staff.
Governments continue to be very supportive of our COVID-19 prevention efforts.
During the fourth quarter, we received additional funding and our long term care segment from various provinces that offset a portion of our COVID-19 related costs.
Subsequent to year end, the government of Ontario made additional funding announcements to support this sector for COVID-19 costs, some of which related to unfunded costs incurred last year further demonstrating the provinces ongoing commitment to help the sector address the pandemic.
With that let's turn to some fourth quarter highlights starting on slide four.
As with the past few quarters, our results continue to be impacted by COVID-19, with reduced occupancy in our long term care and retirement segments increased net COVID-19 costs and lower volumes in our home health care operations compared to pre pandemic levels.
Our cost of converted day combating the pandemic total close to $75 million in 2020 exceeding related government funding by $31 million.
Pandemic related costs in excess of funding totaled $10 $3 million in Q4, as the higher level of community spread during the second wave led to more outbreaks in our homes driving up COVID-19 costs as compared to Q3.
As we indicated last quarter revenue declines in our home health care segment on a year over year basis qualified our pyramid subsidiary to receive additional funding under the Canadian emergency wage subsidy program for <unk>.
<unk> $44 million this quarter.
In Q4, we invested $6 $1 million in people technology and training in our home health care segment.
While these onetime investments impacted the Q4 results for home health they support our focus on rebuilding our staffing capacity to accelerate the pace of recovery in our pyramid volumes.
David will go into the financial results in more detail later in the call.
Note that the timing of Covid related costs and revenues is likely to cause continued volatility in our results until the pandemic is over.
Turning now to slide five and long term care redevelopment.
The critical shortage of long term care beds and pressing need for replacement of old homes has been highlighted by the COVID-19 pandemic.
Older homes have experienced some of the most significant outbreaks given they're smaller rooms aging ventilation systems and for bad word grill configurations.
Older homes that were situated in regions with high rates of community spread of the virus experienced some of the most challenging outbreaks during the first and second waves of the pandemic.
The Ontario government's announcement of a new capital funding program in the third quarter of 2020 was aimed at addressing both the need to replace these older homes and to increase long term care capacity across the province to address growing waiting lists.
We had advocated for many years along with our sector partners in industry associations for our new capital program to support the redevelopment of these older homes. So it was gratifying to see the new program announced last year.
We were thrilled to break ground on our first project under this new program in Sudbury in Q4.
We anticipate having a total of six long term care redevelopment projects underway by the end of 'twenty 'twenty two.
Representing a total investment of over $400 million.
Okay.
In total we have submitted applications for 'twenty two projects with the Ontario government that would result in the construction of more than 4200 beds.
And.
Of which 3285 would be sea bed replacements, and 900 beds would be net new to our Ontario portfolio.
We continue to work closely with our industry partners and the government to address affordability issues in certain geographic regions and to streamline related approval on licensing processes to be able to complete as many of these projects as possible.
The Sudbury, Hong will have 256 beds and will replace our 230 for bed extended care Falconbridge class C home.
Our total investment for this home is expected to be $62 $3 million.
In addition, we are in the final approval stages for a new 192 bed at home in Kingston, which we plan to start construction next quarter.
That project will replace our existing 150 bed class C home in Kingston.
We are targeting to start construction on a third long term care project before the end of this year.
Moving to slide six and our long term care operations COVID-19 continued to impact our operation in Q4 as occupancy levels continue to decline as a result of admissions restrictions and costs to protect residents and staff exceeded the COVID-19.
Funding that has been announced thus far.
Occupancy levels at our long term care homes declined to 87, 7%.
Down from 97, 8% in the same quarter last year and a further decline from the 90% recorded in Q3 of 2020.
Despite lower occupancy levels, our revenue base was largely preserved as governments continue to recognize the challenges associated with new admissions during the pandemic.
In Ontario, the government has provided basic occupancy protection funding until March 31.
Funding announcements from the Ontario government subsequent to year end included an additional $398 million of Covid related funding for the sector for 2020, and the first quarter of 2021.
In addition, the government indicated their intention to provide additional funding for the balance of 2021 to offset COVID-19 costs.
The timing and quantum of the additional funding is not known at this time.
And a further example of its commitment to the long term care sector. The government of Ontario, released its long term care staffing plan in December 2020, which outlined its intention to increase the hours of direct care to long term care residents to for hours a day per resident.
An estimated 25% increase in the size of the current staff complement.
By 'twenty four 'twenty five.
The plan also includes provisions to fund the education and recruitment programs to hire the caregivers needed to meet the higher care hours commitment.
It also proposes improvements to oversight and guidance for medical outcomes and increase transparency and measurement of performance in this sector.
We fully support the plan and welcome the proposed legislative changes to support this important initiative to provide higher quality care for our residents and their families.
Turning to slide seven our pyramid volumes continue to recover from the impact of COVID-19, as our average daily volumes grew in Q4.
Nevertheless, they remain below pre COVID-19 levels.
Referrals and average daily volumes have improved since the impact of COVID-19 peaked in April of 2020.
Referrals have now recovered to pre Covid levels. However work force capacity limitations have kept our volumes from recovering at the same pace.
Q4 volumes are up five 2% from Q3 levels and we have continued to see further improvements since the year end with our average daily volume for the for weeks ending February 14th up one 6% from Q4.
Recent lockdown measures, particularly prolonged school closures and certain regions impacted the ability of some of our frontline caregivers and our home health care segment to work, which slowed the pace of recovery in our volumes.
To meet the continued growth and demand for home health care services, we are making long term investments in training.
To address the chronic shortage of health care workers.
We made $6 $1 million in strategic investments in people technology and training in our home health care segment in Q4.
These investments included a wage harmonization and enhancement program for non unionized frontline workers, which simplified a multiplicity of wage and travel policies and increased our market competitiveness in certain geographies.
In addition, we made targeted investments in technology and in our new in House in College partnership training programs announced in Q3.
To date. These programs have graduated approximately 300, new caregivers and we expect the capacity of these programs to increase to more than 600 trainees in 2021.
As the pandemic receipts volume growth and margin improvements will result from the transformation investments we've made in recent years.
The home health care market continues to expand at 4% per year driven by aging demographics.
We believe we are well positioned to exceed the growth of the market as we emerge from the pandemic and address the related work force capacity shortage.
Increased volumes and efficiencies derived from our people and technology investments will drive improved margins as we grow.
I will now turn to David Bacon, our Chief financial officer to provide insight into our consolidated and segmented financial results from the fourth quarter.
Net.
Thanks, Michael.
I'll start by providing an overview of our consolidated results for the fourth quarter, followed by some financial highlights of our individual business segments and our liquidity position.
As Michael mentioned, we continue to experience a high level of volatility on our financial results due to the impact of COVID-19 pandemic.
Pandemic costs this quarter were higher than expected due to the magnitude of the second wave deep.
Details of our net COVID-19 costs by business segment are outlined on slide 18 of our presentation.
In Q4, we continued to experience occupancy pressures in our long term care and retirement segments.
Lower volumes in our home health care segment as compared to our pre pandemic levels.
As previously noted pyramid received $40 4 million in Q4 under the federal government's Canada emergency wage subsidy program.
And consistent with Q3, the subsidy is recorded as a reduction of operating expenses of our home health care business.
Consistent with our prior presentations, we exclude certain factors related to our home health care operations when discussing the results for this segment, namely the impact of the wage subsidy in 2020, the BC business that we exited in January of 2020, and the incremental funding from Bill 148, we received in the second quarter of 2019.
On the details of these factors are outlined on slide 19 of our presentation.
Turning now to slide nine.
Our consolidated results for the fourth quarter.
We continue to incur COVID-19 costs in excess of funding, which we estimate totaled approximately $10 3 million in the fourth quarter at the adjusted EBITDA level.
Excluding the factors impacting comparability related to pyramid, but I noted our consolidated revenue in the fourth quarter increased by 10, 9% or $30 1 million to $307 7 million driven by Covid related funding of $32 million to offset in part the $41 $6 million of Covid.
Weighted expenses, we incurred in the quarter.
Revenue also increased as a result of LTC funding enhancements and growth on our retirement living and other operations, partially offset by lower home health care average daily volumes.
Many of long term care for growth through funding and lower preferred accommodation revenue in the long term care operations.
Consolidated NOI declined 53% to $15 4 million compared to Q4 2019, reflecting increased cost of COVID-19 in excess of funding lower volume and the impact of $6 1 million in nonrecurring people technology and training investments in our home health care operations.
On increased cost of resident care and lower preferred accommodation revenue at our LTC operations.
This was partially offset by growth on the retirement living and other operations segment.
Our consolidated NOI margins declined to 5% from 11, 8% in Q4 for 2019.
Excluding the Q4 impact of our estimated net COVID-19 costs of $10 3 million and $6 1 million in one time investments in our home health care segment, our consolidated NOI margins were 11, 3% for the quarter.
Our reported consolidated adjusted EBITDA was up 74, 5% or $17 5 million compared to Q4 2019 due to the impact of the pyramid wage subsidy offset by net COVID-19 costs the declines in volumes in our home health care segment and increased administrative costs.
Yeah.
On a reported <unk> was up 91, 9% or $10 4 million compared to Q4 2019 due to the higher NOI offset by higher maintenance capital expenditures and income taxes in Q4.
Our quarterly results continued to be volatile from the estimated basic <unk> per share impact of some of the more significant items impacting our Q4 results include our net COVID-19 cost of $10 3 million or <unk> <unk> per share our pyramid wage subsidy of $40 4 million or <unk> 33.
Sure and the onetime investment in our home health care segment of $6 1 million or <unk> <unk> per share.
Yes.
Turning now to our individual business segments and on slide 10.
Our long term care operations in the fourth quarter saw revenue grow by $25 5 million or 15, 3% to $192 1 million, which included Covid fundings of $25 6 million, partially offset by lower preferred accommodation revenue due to the impact of Covid.
NOI decreased by $11 3 million or 54, 9% to $9 2 million in NOI margins were down to four 8% from 12, 3% as the estimated costs associated with Covid were $8 7 million in excess of our government funding.
Our Q4 2019 results were impacted by favorable labor labor accrual adjustments of $1 4 million.
Excluding these factors our LTC NOI this quarter was lowered by $1 2 million largely impacted by higher labor costs and lower preferred accommodation revenue.
At our LTC NOI margins in Q4, excluding the impacts of Covid were 10, 8%.
Overall long term care occupancy in the quarter was down to 87, 7% due to the impact of Covid, primarily driven by occupancy decreases in Ontario, where our basic accommodation revenue has been protected to date.
This funding is extremely important during these challenging times it does not compensate for the loss of preferred accommodation premiums.
As Michael mentioned at the beginning of January the Ontario Government announced additional Covid funding to the end of March of 2021.
Portion of which is to cover costs incurred in 2020.
Thus far we have received $6 6 million related to 2020 that will be booked in Q1 of 'twenty one.
Furthermore, this week, the Ontario government announced the extension of the occupancy funding protection through to March 31, 21, and indicated its intention to continue to provide COVID-19 prevention and containment funding support into the government's 2021 'twenty two fiscal year.
We believe these announcements are a positive indication that we will continue to receive additional funding towards our pin debit costs. Both for the net costs incurred in 2020 and into 'twenty one.
However, the quantum and timing is difficult to predict and will result in continued volatility in our financial results in 'twenty one.
Turning to slide 11, and our home health care segment, excluding the impact of wage subsidies in the prior year intact of the BCE contracts on Bill 148 funding NOI declined by $7 5 million to a loss of $1 7 million compared to Q4 for 2019.
<unk> decreased in the quarter largely as a result of the onetime investments totaling $6 1 million that Michael discussed earlier.
Excluding these items NOI declined by $1 4 million compared to Q4 2019, largely due to a five 4% decline in volumes increased workers' compensation and benefits costs and COVID-19 costs in excess of pandemic pay programs of 800000.
Partially offset by lower costs related to the transformation project.
Our NOI margin in Q4, 'twenty one excluding in Q4 of 2020, excluding the onetime investments on our net COVID-19 costs was five 8% an improvement from Q3 'twenty.
Average daily volumes in the fourth quarter were five 4% lower than the same quarter last year, but improved sequentially by five 2% from the third quarter of 2020 and continue to recover subsequent to year end as Michael noted earlier.
Volume recovery in Q4 was impacted by seasonal softness in December and the implementation of further COVID-19 lockdown measures that continue to put pressure on our workforce capacity.
Turning to retirement living operations on Slide 12, we are pleased with the performance of our retirement operations. Despite the impact of Covid on our occupancy levels on costs.
<unk> homes are situated in smaller markets in our stabilized occupancy has performed well averaging 91, 3% in the fourth quarter down 60 basis points from Q3.
Occupancy levels in the fourth quarter were input impacted as in person tours restrictions were reinstated in certain markets in Ontario during the quarter, resulting in stabilized occupancy of 97% as of December 32020.
Subsequent to year end, we have seen some marginal improvement in occupancy levels for the stabilized occupancy up 50 basis points to 91, 2% as of January 31 2021.
Q for NOI increased by 11% to $3 $3 million over the prior year driven by increased occupancy in our lease up communities, which include the opening of our Berry view retirement community from Q4 of 2019.
The positive impact of improved lease up occupancy was partially offset by lower same store occupancy levels and our increased costs associated.
With Covid. Despite the increased cost the improved lease up activity contributed to an NOI margin of 27, 6% up from 26, 4% in Q4 of 2019.
Turning to our final business segment on slide 13 on.
Our assist contract services and SGP group purchasing services continue to perform strongly with this consistent growth in revenue and NOI of over 9% on a cumulative average growth basis over the past eight quarters.
The underlying demand for our services remains strong SGP together with its partners provided cost effective products and services to 79903rd party residents as of January 31, 'twenty one.
NOI from our contract services consulting and group purchasing operations continued to improve in the fourth quarter by 32, 2% two for 6 million over Q4 of 2019, our improved performance year over year was due to growth of 21, 9% in the clients served in our SGP Division.
And lower travel and marketing expenses due to COVID-19 limitations.
Finally, turning to slide 14, we.
We remain in a strong financial position and at year end, our consolidated cash and short term investments on hand were $180 million was $71 million in undrawn credit facilities and no scheduled debt maturities until the first quarter of 2022, we.
We intend to fund the construction of our redevelopment projects with our available liquidity initially and considering adding project level construction finding financing as the timing of further the redevelopments become clearer.
The impact of pyramids wage subsidy received in 2020 positively impacted our debt metrics with interest coverage improving to four seven times and debt to gross book value improving to 45, 9%.
With that I'll pass it to Michael for his closing remarks.
Thank you David.
Our primary focus continues to be on protecting our residents clients and staff.
My sincere thanks to our dedicated care teams for their selfless commitment to those in our care during the past year and to the hospitals and health authorities, who assisted those homes that were overwhelmed by the virus during the second wave.
We are also grateful to provincial governments for their assistance in providing pandemic support.
We are particularly appreciative of the commitments made by the government of Ontario to build a stronger future for the long term care sector with its new capital program to meet the need for new homes, and it's planned to increase hours of direct care for long term care residents into the future.
While hope has arrived in the form of vaccinations for our residents and staff.
And on site antigen testing that provides immediate test results for staff and visitors, we will have to maintain our heightened vigilance to control the virus for some time yet.
Nevertheless, the progress made in staffing treatments onsite testing and widespread vaccination of our residents and staff means we have dramatically reduced the risk to the vulnerable seniors in our care.
With that we'd be happy to take any questions you may have.
Operator.
Thank you we will now begin the question and answer session to join the question queue. You May Press Star then one on your telephone keypad.
<unk> tone acknowledging your request.
If you were using a speakerphone please pick up your handset before pressing any Keith.
To withdraw your question. Please press Star then two.
We will pause for a moment as callers join the queue.
The first question comes from Lorne Kalmar with TD Securities. Please go ahead.
Thanks, very much and good afternoon, everyone.
Hum for.
First question.
I believe our recently the government on Ontario announced that Theyre going to do a program to train up 6000.
S W's, how does that sort of impact your your training program you guys have put in place in and when do you think that the you know.
The level of P. S. W's available gets to the point, where you guys can actually start meeting the demand out there for the service.
Well, we were delighted with the announcement from the government on that on that front.
And Laura on you may have noticed.
A couple of days before that there was a much smaller announcement.
Where the government announced just over $4 million in funding for various programs and day. There were six six programs under that that funding announcement three of them were ours.
So our activities will continue in parallel to the government's activities.
They announced 6000, new P. S w's this.
This year.
Which would be about 10 per home.
And given that we're looking at increasing staffing by about 25% over the next three years, that's a good installment.
But nowhere near everything we're going to need to be able to meet those new commitments. So I.
I think we looked at it as add on.
A really positive development something that will reduce barriers to people coming into the sector.
Ah, we're gonna need everybody pulling in this direction to to.
To move. This ahead. So we are really happy to see it but we're not we're not waiting for.
Outside programs to provide us with the staff that we need that's why we're we're also running our own partnership programs with colleges.
Got it.
Just in terms of timing like when do you guys think you'll get to the point, where you can start towards meeting the demand for the for the referrals and whatnot.
Well, where we're seeing us closing the gap this year.
To a significant extent, but we won't close at all.
So it's really a matter of of.
Continuing to grow our work force and and.
Closing that gap with the referrals.
Been seeing.
Last couple of quarters quarter on quarter over quarter growth of about 5%.
A lot of that is fueled by people coming back to work.
I think we're going to settle into.
Our growth rate that is in our.
In excess of the 4% per year.
That you know that the home health market is growing so we'll be closing the gap, but I think it will take.
It'll take US a couple of years to close that gap entirely as this is our current expectation.
Yeah.
Okay, and and I like I believe last quarter, you guys mentioned that you're getting about 50 folks for D. P. S w's back per week or every two weeks.
Is that still the pace or is it picked up at all.
Well.
It it actually slowed down Lauren over that.
The peak of the second wave I mean, it really peaked through December and January.
And during that time on the schools locked down we.
We saw a pause in people coming back to work.
We were actually quite concerned that we would see.
Our loss of people, we didn't see that thank goodness, we were able to maintain it.
The gains, but but we didn't see.
People coming back during that couple of months period, but now that that the.
The students have gone back to class.
Yeah, we've resumed growing again as we came into into February.
So so it's a little too early to answer that question I think I think through December and January we saw a pause.
And you know.
We will see how things recover now coming into February and March.
But our expectation is that we'll get back to that same pace that we were seeing before.
Okay.
Sticking with the pyramid, I guess being almost two thirds of the way through Q1 any other big onetime costs you guys are expecting in the quarter or was that sort of a Q4 event and now we're sort of back to business as usual obviously with the pandemic is the exception.
Very much back to business as usual.
We don't expect any.
Jordan area expenditures are in it.
On our planned at this point.
Okay, Great and then one last one and I'll turn it back.
Any idea of the shoes.
She was payment you guys would expect to get in either Q1 or Q2.
Yes, Laurence David.
We are.
Truthfully, we're hopefully hoping that we don't have any cues in Q2, because that's a signal that the you know from a volume perspective, the year over year recovery is there.
We'll have some modest amounts on a relative basis in Q1.
For two thirds of the way almost two thirds of the way through so something in the range of six to 9 million Navy for all of Q1, but that is dependent on how volume.
Look in the in the AR and the final sort of month on a bit here of the quarter, but but we're expecting that really to wind itself down as we as we grow our capacity and recover on our volumes.
Okay, great that very helpful as usual I'll turn it back.
The next question comes from Tammy <unk> with RBC capital markets. Please go ahead.
Thanks, and hi, everyone.
Great to see the progress on vaccinations and and the rapid testing that I guess, you'll be rolling out.
And just on that maybe can you perhaps frame the potential costs associated with that and how quickly can that program be rolled out across the portfolio.
Yeah.
Sure. Thanks Tommy.
Ah.
We're planning to have that rolled out to all of our homes by the end of March.
So we're moving quite rapidly to put that in place.
The cost will be a process is it really just the staff costs because the tests are provided.
On a at no cost to us. So it is just the cost of our staff conducting those tests inside the homes and on average will need about two full time equivalents per home to run the program.
But it is important to note that those those are.
Incremental COVID-19 costs that are eligible for government reimbursement.
We have no.
Assurance that all of our costs will be completely covered.
But we do expect.
A significant portion of that that cost will be.
We'll be reimbursed so on on a net basis.
We don't think it's going to impact NOI.
Got it.
I guess just on that point with respect to the vaccinations overall on.
What point do you think you'll have all residents and staff.
Vaccinated is that something that's possible by the end of this quarter. Obviously, there have been some delays with respect to just the supply to vaccines, but I'm just curious how you see that trending.
That's our objective to have all staff and residents.
In long term care and retirement vaccinated by the end of the quarter.
On the.
The home care side has just got started so we were not really in a position to project how long that will take.
At this point.
<unk>.
But certainly on that on the long term care side, we'd like to be.
Substantially through.
First dose for everybody by by the end of the quarter. Some of the second doses for staff will will will go into into Q2.
But as we've seen from the international data, even a single dose is proving to be very protective. So so we're you know we're thinking by the end of the quarter. We will have a fairly good degree of protection in place.
But we're not entirely depending on the vaccine the testing the point of care testing program is really important as well and it's really our our kind of extra vigilant to.
To make sure that.
We're not exposed to.
Variable immunity caused by variance is concern or those kinds of issues. So we're really putting on.
Pushing both of those programs to get to get double protection across all of our homes.
It's great to hear.
I guess.
Along the same lines here I guess thinking about.
The unfunded pandemic expenses, if you can get through the.
The end of Q1 with.
I guess the target of getting most of the vaccination is done.
How do you see the unfunded pandemic cost trending over the next few quarters, because I suspect like some of your peers you know some.
Some of those costs will continue for for some time until perhaps I guess, the general population as adoption and interest.
Any color you can share there would be helpful.
Yeah. So a couple of things to just consider on that.
On that front.
First of all outbreaks drive costs in a major way.
So they drive they drive excess costs they drive additional staff in the form of use of agencies. They drive much higher PPE use which is very costly. So our costs are going to are going to be.
We strongly affected by the number of outbreaks were experiencing.
And that number is is.
Is waning.
Significantly so our costs will will track down.
As you know as the number of outbreaks tracks down.
Now.
We're hopeful that the new protections that we're putting in place are going to keep outbreaks to a minimum so that'll have a positive impact on on costs, but that said our increased vigilance.
<unk> program.
We are maintaining higher staffing levels.
Across all of our homes to be to be ready.
Is going to keep us at a higher cost structure at least through Q2.
And then we will see how things are going.
With respect to pandemic control in the community as well.
The other thing to know is as I talked about the government announcement in December.
About <unk>.
Moving to for hours of care across all of of of long term care and that involves adding about 25% of the staffing complement over a three year period.
So that program is supposed to start as of April one.
So we haven't seen any detailed announcements about how that will be.
Implemented.
But.
You heard the announcement about the 6000, new DSW is being trained.
And the thought is that the government will start to provide some of that so the first tranche of that additional funding to increase the hours of care.
Uh huh.
Starting in the government's new fiscal year in April and we have no assurance that that's the case.
But it may be that some of those increased pandemic costs.
Just turn into higher staffing levels for all of our homes.
And then it becomes funded permanently.
So there's a lot of uncertainty around how that will happen and.
And I expect that that over the next two months and once we see the Ontario <unk>.
<unk> coming down we'll get more clarity on that.
Got it I guess just to that point, presumably the increased.
Labor requirements or direct hours of care.
Would be funded.
I mean, you're not working on any assumption that they would not be funded I have taken.
No absolutely a mandate when they made the announcement of their their strategy in in December. It included an overall projection of the increased funding that would come into the sector.
While they didnt they didnt they didnt.
I announced the details of the funding they did put a price tag on it. So it will definitely be a funded initiative.
And and that that fits with the way that long term care funding is provided because all of the care activities are in the flow through envelopes.
So it would make sense that that that those would be funded activities.
Just one last one for me I guess.
With respect to I guess the class action that was certified in September can you just provide some color on that proceeding in with that.
Would that be covered by build to 18 or.
Because it seemed like that was prior to Covid.
Yeah, it's it's unrelated to Covid.
There was a lapse in.
Sterilization technique for equipment.
And that in the London area that.
That was discovered in and has been remedied.
But as part of that we wrote to all of the people that we treated during that period of time to indicate that there might be a heightened risk of infection.
Infection as a result of that that lapse.
And we wrote to all of our clients.
There have been no examples of any.
Transmission of of any you know any infection as a result of that so the class action is is related to the mental anguish that people experienced on receiving that letter.
Indicating that they may have been exposed.
Two two an infectious agent so.
So that class action as you've mentioned has been certified.
And and we will move forward.
But.
Here, we will certainly.
Defend our actions.
<unk>.
And certainly we erred on the side of transparency in terms of of of making sure everybody knew of the potential exposure.
So we.
We feel that were.
<unk>.
In a very good position on that you know.
On that particular class.
I guess, sorry to just keep going on just the last one on that would that be.
If successful would that be covered by insurance.
Yes.
Okay.
I'll turn it back thanks very much.
Thanks Bonnie.
The next question comes from Tal Woolley with National Bank Financial. Please go ahead.
Hi, good afternoon everybody.
Okay.
Michael I was just wondering if.
You can speak a bit to the Ontario governments Commission I know the recommendation on board.
On April 30th for extended periods appeared before the commission do you have a sense of what other.
Recommendations might be coming out once that reported schools.
[laughter].
If I knew that.
Hi.
I would I would probably be in a different profession.
So not you know not not really certain what what to expect there.
Uh Huh I think the.
Our government has already responded to some of the systemic weaknesses in the sector that have been exposed by the pandemic.
And my view of the government has been very proactive about it.
So I'm not sure what else to expect.
<unk>.
There may be there may be some focus on capacity issues in the sector, because we haven't seen any any comment on that there may be more.
From a regulatory oversight.
Perspective.
But otherwise I'm, just speculating Tao I can't really predict what what they'll come out with.
That's fair I totally I totally understand other.
Just on long term care redevelopment so.
You know if you.
The government start to more aggressively advance these projects.
Get a sense like around the industry, you know theres, obviously, a lot of small players who might be a bit capital constrained coming out of the pandemic do you think we are poised for maybe a little bit more consolidation.
For a sector over the next couple of years.
Yeah, Tal, it's David I think I think I mean that theres, a possibility of that for sure I think that.
Coming out of when we get through Covid and see the pandemic behind us I agree I think there is.
The smaller operators that have come out the other side and certainly lived through the crisis and perhaps changes coming on the regulatory framework.
The capital needed for redevelopment and some other pressures that the smaller players are seeing on on insurance coverages and things like that.
Could lead to that I think that what.
What will be required I think from a from a to really create a consolidation wave will be some additional beds and additional <unk>.
<unk> announcements from the government in terms of the capital funding program right. They have the 20000 beds that are being allocated now and close to fully allocated.
And most of those are spoken for by the existing our existing operators. So I think I think I think there'll be an appetite on behalf of perhaps from smaller operators to exit, but then they'll need to be additional beds committed.
In the in the plan from the government to help sort of put those two things together.
Okay.
Okay.
Yeah.
Class B licenses I think they all expire in 'twenty five.
You know.
Hmm.
I'm wondering if you've heard sort of from the government how they intend to sort of treat those licenses given that it doesn't look likely we're going to get through everything we need to get through the bill talks about them into Microsoft for example, they know that can also affect your ability to get signed up.
Okay.
Yeah.
I think.
I'd point to what they've done.
In the past with expiring licenses Theres still a number of the very old D beds in the system and.
Net expired last year.
And the government issued a number of license extensions to those to those homes.
I think they were for your license extensions.
So they haven't announced anything with respect to the seabed license expiring in in in.
In 2025 at this point, but I think past experience would suggest that they will provide the license extensions necessary to get those homes too to the point of being Redeveloped.
Okay and then just.
Lastly, as we sort of think longer term on the redevelopment of the bed.
Do you have a good number like for what we should be thinking of as our budgeted cost per bed.
Yes.
I think you're on.
Q3, we talked about our Sudbury project, which is a life project that's in construction.
So I mean, that's a good proxy I think 275000 to 300000, a bed is numbers that we see in our numbers and we know some of the other sector players see I think those <unk>.
Now that's a good number to use as you as you contemplate sort of beds overall.
Okay. That's great. Thanks, very much gentlemen.
Thank you.
Once again, if you have a question. Please press Star then one.
The next question comes from Josh Thank Paul with Laurentian Bank. Please go ahead.
And good afternoon.
Yes.
Of the $30 million.
Out of pocket costs, you incurred in 2020.
How much of that do you think.
Oh do you hope you hope would be covered by the latest zone of funding announced by the government.
Yeah, I think Josh as we disclosed on the long term care side I think the unfunded costs on the long term care side about $24 million.
So that's that's sort of the focus and I think in Ontario, We've received $6 6 million after a year and that relates to 2020.
The India announcement that Ontario made it back in January.
They there was a $268 million of that 398 day had earmarked for.
Covid cost dating back to the beginning of the pandemic through to the end of March of 'twenty, one they've allocated about 40% of that yes that that sort of translates to the $6 6 million were talking about.
We expect that they'll they'll allocate the rest.
Hopefully within Q1, so we have some visibility on that so.
So you know.
That that $6 6 million is about 40% I don't have any view of the basis on the on the rest of the the allocation so.
Hard to say, but the but so that would leave us with about $18 million left and there's still potential for for some more to come in to.
To cover that but.
It is difficult to say because there's a lot of moving parts and they are trying to they are changing their allocation basis, a little bit of this additional funding.
But are showing us some indications they are trying to to match the funding and allocations to the actual cost with the sectors incurring. So we just have to wait and see how that plays out through the balance of Q1 into Q2.
Just in broader terms, what what do they look at to allocate those funds do you like how much cost actually incurred on the two they have a formula yeah. No. There's actual cost yes. The whole sector has been required to submit periodic statements.
Statements are there other COVID-19 related costs that they're incurring so they've defined the categories are the ones. We talked about with you real increased staffing infection protocol PPE et cetera. So the whole sector has been reporting are actual costs. The same cost we report on these calls.
That's all been going in on a home by home level to the to the to the to the ministry through the pandemic.
Got it.
Okay.
[noise] now given what you know and.
You know what Youre seeing in the pipeline do you think your long term care operating margins help.
Change structurally.
Yeah.
So yeah.
Yeah, I think that I guess theres two ways due to to answer that.
Uh huh.
First of all on the on the.
In terms of the Covid.
On costs.
And the effect of Covid, we don't see.
Any permanent change in our margins.
Post pandemic, so theres nothing thats changed.
Changed our expectations on that front.
We do think our staffing levels may change as I as I mentioned earlier on.
And but those would be funded.
But that said our redevelopment agenda will.
Have a positive impact on on.
On our margins.
But of course that'll be a.
Much longer term.
Kind of impacted to roll out over and over the course of that multiyear program.
Right, Okay, that's a good segue.
Now.
Of the $400 million of investments you can expect over the next two years by 2022.
How much of that.
Do you how already sufficient equity to fund those projects or do you think you would be amazing.
Time school.
But I think absolutely.
As we look out over the.
The next couple of years.
Six priority projects.
I mean, the cost for those projects will actually be borne out over the next three to four years, we're gonna start construction hopefully of a six by the end of next year, but the one starting later in 2022 will take us into 'twenty three 'twenty for before they're finished.
If you think of the current markets on from a financing and construction financing point of view.
75% loan to value is.
A target and certainly achievable from all the work, we're doing with our lending partners.
So the equity needs. There are say 100 on the $400 million and if you recall in the new capital funding program.
One other key new features of it was to introduce the capital grant that gets paid.
On on completion of the project so.
Those projects the capital grants going to range somewhere between 10% to 17% of the costs. So if you think of us needing 25% upfront through to through the construction period, but then having 10% to 17% of that of the total costs come back.
On our equity needs on a net basis or on that $50 million to $60 million range and we think we've given our current liquidity position. We're in a good position to fund that.
Off the balance sheet.
Okay.
Okay, and just one last do you have any expectation as to how much you actually.
We'll be spending this year on those projects.
Yeah, I think in our MD&A, you'll find that we've got now.
Look about $60 million of growth capital in the current year.
Okay. That's it for me. Thank you. Thank.
Thank you.
Yeah.
This concludes the question and answer session.
I would like to turn the conference back over to Jillian fountain for any closing remarks.
Thank you operator that concludes our call for today. This presentation is available on our website as other calling numbers for archived recording.
Please don't hesitate to give us a call if he has any further questions.
Thank you again, everyone for joining us today and have a good weekend.
Goodbye.
This concludes today's conference call you may disconnect your lines.
For participating and have a pleasant day.
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