Q2 2021 Extendicare Inc Earnings Call
Thank you for standing by this is the conference operator, welcome to the extent of care, Inc. Second quarter 2021 Analyst Conference call.
As a reminder, all participants are in a listen only mode and the core.
Conference is being recorded.
After the presentation, there will be and opportunity to ask questions.
And the question can you give me the press Star then 1 on your telephone keypad.
Should you need assistance during the conference call you May signal, an operator by pressing star and zero I would now like to turn the conference over to the Jillian Fountain, Vice President Investor Relations. Please go ahead.
Thank you operator, and good morning, everyone and welcome to extend the care second quarter 2021 results conference call with me today or extend the cares president and CEO, Michael <unk>, and senior Vice President and CFO David Bacon.
Our Q2 results were 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 made that's yourself of.
A replay of the call will be available later this afternoon and till August 20th 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 and our public filings with the securities regulators and suggest that you refer to those.
Islands.
With that I'll turn the call over to Michael.
Thank you Jillian and good morning, everyone.
Before we get to our second quarter results.
We'll provide an update on our activities related to the pandemic.
Thanks to the outstanding commitment of our team to protect themselves and those we care for our ongoing vaccination campaign has been very successful.
High rates of resident and stop vaccination of allowed us to welcome families and visitors back into our homes.
And none of our long term care homes or retirement communities are currently and outbreak.
As of August 5th more than 90% of our long term care and retirement residents were fully vaccinated.
86% of our long term care staff, 80% of our retirement staff and 86% of our pyramid staff have received at least 1 dose.
As a result of our extensive education and awareness campaign, along with the provision of paid time off and expenses to get to of vaccination clinic more of our staff are stepping up to be vaccinated each week.
To complement our vaccination program, we are maintaining elevated staffing and all of our homes.
The address the continued need for screening testing and infection control protocols.
Surveillance testing continues to play an important role and keeping our homes and communities safe now with the particular focus and those who are not yet fully vaccinated.
And our ongoing efforts to address the significant staffing challenges facing the industry. We've made significant progress expanding college partnerships and clinical preceptorships to ensure a strong pipeline of new P. S. W's.
And the first half of 2021 we hired more than 300, new caregivers in Parramatta and from the in House H S. W. Training programs, we launched last year.
We are also participating and various new federal and provincial programs aimed at expanding the seniors care workforce and the long term care sector.
Currently we have more than 250 students enrolled and extended care internships, and we plan to offer employment to them upon graduation.
While we are encouraged by the progress this quarter on vaccinations and prevention of outbreaks and our homes, we remain vigilant and our ongoing efforts to protect our residents clients and staff from COVID-19.
The experience of other countries demonstrates that the risk of our fourth wave and Canada driven by the Delta variant is very real.
We will continue our campaign to drive vaccination rates higher.
And we will test unvaccinated staff and visitors in an effort to prevent the virus from re entering our homes.
With that let's turn to the second quarter highlights starting on slide 4.
As the severity of the pandemic receded the magnitude of its impact on our operations has moderated significantly across the company.
With the dramatic decrease and COVID-19, outbreaks and Q2, 2021 or pandemic related spending decreased to $42.8 million.
Down from $58.1 million and Q1.
However, our cost and the most recent quarter exceeded COVID-19 related government funding by $9.5 million.
We did not receive any funding related to prior period COVID-19 costs in the quarter.
We do anticipate that we will receive further funding for net COVID-19 costs from the first half in future quarters.
Restrictions eased in the latter half of Q2 and as a result occupancy levels at our long term care homes and retirement communities improved.
This positive dynamic continued into the summer.
We are very pleased with the continuing recovery of our home health care operations with our average daily volumes, increasing 3.7% from Q1.
Existing the quarter in line with pre pandemic levels.
With the increase in volumes and our continued focus on back office efficiency, our home health care of NOI margins widened another 60 basis points this quarter.
As you can see on slide 5 we continue to advance our long term care of redevelopment program to replace aging infrastructure with new modern homes decided designed to provide improved functionality safety and comfort for our residents.
During the second quarter, we commenced construction of a new long term care home located and Kingston.
With the completion targeted for the first quarter of 2020.3.
This new 192 bed home will replace and expand an existing 150 bed class C home.
The new Kingston project together with our Sudbury project that commenced in Q4 of last year.
And will replace 384 class C beds with 448, new beds, and an estimated investment of $120 million.
Yeah.
And May 2021 we successfully closed $95.9 million and construction financing to support these first 2 projects.
This bolstered our strong liquidity position and more importantly demonstrate support for the sector and the new Ontario capital funding program.
We continue to advance a further 20 applications with the Ministry of long term care to replace the mate remainder of our C class homes in Ontario.
Not all of these projects are feasible under the current capital funding program.
We can continue to work with our industry partners and the government to address the shortcomings in the current program, which relate primarily to small projects and high costs and urban areas.
In addition to Sudbury, and Kingston, which are already underway, we have 7 projects and advanced stages of approvals with the Ontario Ministry on which we hope to begin construction before the end of 2020.3.
Moving to slide 6 and our long term care operations.
The reduction and outbreaks and easing of pandemic related restrictions resulted in a drop in COVID-19 related costs and an increase of admissions during the second quarter.
The COVID-19 related costs were $32.7 million and Q2 down 32% from Q1.
Though these costs continue to exceed related funding.
As I mentioned before we anticipate receiving additional government funds to cover the shortfall in future quarters.
Occupancy levels at our long term care homes increased to 85, 4% and Q2.
250 basis points from Q1 this year.
And as lengthy wait lists for long term care in many of the communities, where we operate we expect average occupancy levels to continue to increase as long as rates of COVID-19, and the community remained low.
We will not return to full occupancy and homes with word style 3 or 4 bedrooms.
We have limited admissions to a maximum of 2 residents per room and all of our homes.
We expect funding and Ontario to continue at the current level for these words style rooms.
And August 2021, when the current base, Inc. Occupancy protection funding expires.
However, north no formal announcement has been made to that effect as yet.
While we are seeing steady occupancy improvements it is likely that not all of our Ontario long term care homes will return to levels above 90, 597% before the end of August.
As a result, we may experience some reduction and funding for those few homes that do not achieve the required occupancy threshold.
We continue our recruiting efforts to add frontline caregivers to our long term care homes to support ongoing Covid prevention measures and the recovery of our long term care occupancy levels.
Increased staffing also positions us well to respond to the Ontario governments plan to provide funding for 4 hours of care per resident day.
The sector is awaiting further details about the new staffing plan, which we anticipate will come later this year.
Turning to slide 7 and our pyramid volumes have returned to pre pandemic levels up 24% from the worst hit pandemic quarter in Q2 of 2020.
Despite this recovery, we are still not keeping up with the demand.
Due to ongoing workforce capacity constraints, particularly in nursing.
Our Q2 average daily volumes were 25264 of.
Up 3.7% from the prior quarter.
Our NOI margins adjusted for pandemic related items continued to improve this quarter up 60 basis points to 7.9%.
And when compared to Q1 of this year.
The investments made and our cloud based systems and our continued focus on improving back office efficiency position us to support future volume growth without increasing overhead costs enable enabling further margin improvement as volumes increase.
Okay.
Our pace of volume growth will continue to be moderated by the staffing challenges facing the industry.
As I mentioned earlier, we are gratified by the progress of our P. S. W College partnerships and in House H S. W training programs.
And we continue to focus on encouraging employees, who have been on pandemic related leave to return to work.
And now I'll turn to David Bacon, our Chief financial officer to provide insight into our consolidated and segmented final financial results for the second quarter.
Thanks, Michael I'll start by providing an overview of our consolidated results for the quarter, followed by some financial highlights of our individual business segments and our liquidity position.
As Michael mentioned and Q2, we began to see of recovery and our L. T C occupancy and of returned to pre pandemic average daily volumes and margin improvements and our home health care segment.
Stabilized average occupancy and our retirement segment continued above 90% and Q2 with an uptick and our lease up occupancy.
And our other operations segment experienced 11, 1% growth and third party resident and served by our SGP group purchasing operations in the second quarter compared to the prior year.
Turning now to slide 9 and our consolidated results.
As in prior quarters. We have included a detailed schedule of the impact of COVID-19 on our revenues operating expenses, NOI and EBITDA and slide 18.
And Q2, our net COVID-19 related cost this quarter resulted in a net reduction and adjusted EBITDA of $9.5 million.
We continue to receive funding support under various provincial programs. However, until the effects of the pandemic are fully behind US. We expect continued volatility and our results as the quantum and timing of the funding is not always known and the period the costs are incurred.
Our consolidated revenue and the second quarter increased by 9% or $25.5 million from Q2.2020 to 307.4 million.
This increase was driven primarily by of 24% increase and home health care volumes and increased COVID-19 related funding of $6.1 million year over year.
The consolidated NOI was up $11.3 million to $31.3 million and represented 10, 2% of revenue as compared to 7.1% and Q2.2020.
This increase includes $7.7 million and Canadian emergency wage subsidy payments received by pyramid.
Excluding the pyramid wage subsidy consolidated NOI increased by $3.6 million to $2$3.6 million and represents and NOI margin of 7.7% up from 7.1% and Q2.2020.
The increase was due primarily to improved volumes and back office efficiencies and home health care and the reduction in net COVID-19 costs, partly offset by increased cost of resident care and lower preferred accommodation revenue and our long term care operations.
Reported consolidated adjusted EBITDA increased $9.7 million from Q2, 2020 to $17.8 million due to the impact of the pyramid wage subsidy and the underlying improvement and NOI.
Partially offset by increased administrative costs due to higher wages and staffing.
Costs and professional fees.
Reported <unk> improved by $5.1 million from Q2, 2020 to $8.1 million due to the improvement and adjusted EBITDA higher share based compensation, partially offset by higher current income taxes related to the pyramid wage subsidy and increased maintenance capital expenditures.
Our quarterly results continue to experience volatility with the impact of Covid expenses and related funding.
The estimated basic <unk> per share impact this quarter of our net COVID-19 costs. After tax was <unk> 7 million or <unk> <unk> of loss per share.
The impact of the pyramid wage subsidy on our <unk>. This quarter was $5.7 million after tax or <unk> <unk> per share.
Okay.
Turning now to our individual business segments.
Our long term care operations and the second quarter saw revenue grow by $8.7 million or for 9% to of $187.2 million largely driven by increased COVID-19 funding of $7.9 million, partially offset by the timing of flow through funding and lower preferred accommodation revenue that is not covered by <unk>.
Basic accommodation funding protection.
And Q2, our long term care of NOI declined by $1.3 million or 12% from the same period last year to $9.8 million largely due to increased cost of resident care and lower preferred accommodation revenue, partially offset by a reduction and unfunded COVID-19 costs of $1.4 million on a year over year base.
<unk>.
Excluding the net COVID-19 costs, our LTC NOI margin was 10, 5% this quarter.
Overall occupancy and the quarter was down to 85, 4% and Q2.2021 from 93, 5% and Q2.2020.
However, average occupancy improved 250 basis points from Q1.2021, as we have seen the successful impact of the vaccines drive significant reductions and COVID-19 outbreaks and the beginning of easing of restrictions on long term care homes.
Our LTC revenue has largely been protected with basic occupancy protection funding from the Ontario government and similar support and Alberta.
As Michael mentioned earlier, while we are seeing a recovery and occupancy and our LTC segment, we may experience a reduction and funding for some of our Ontario LTC homes for the pace of our occupancy recovery may lag the elimination of the basic occupancy support as of the end of August.
Turning next to our home health care segment revenue grew $15.6 million or 18, 3% and Q2, driven by a 24% increase and average daily volume year over year, partially offset by a decline and COVID-19 related funding of $1.8 million.
NOI and Q2 increased by $12.6 million to $14 million, representing 13, 9% of revenue, reflecting the wage subsidy of $7.7 million growth and volumes and back office efficiencies and part offset by an increase and net COVID-19 costs.
Excluding the impact of the wage subsidy of net COVID-19 costs. The NOI margin in Q2 was 7.9% up sequentially from 7.3% and Q1 of 2021.
Given the recovery and our pyramid volumes, we do not anticipate qualifying for further wage subsidy beyond this quarter.
Yeah.
Turning now to our retirement operations.
And Q2 revenue NOI and NOI margin were up slightly NOI increased 5.2% to $3.7 million as a result of improved occupancy levels of our lease up communities higher ancillary services and rental rates and lower year over year estimated net COVID-19 costs, partially offset.
By increased labor and promotional costs.
Throughout the pandemic, our stabilized average occupancy has remained above 90% and averaged 92% and Q2 down 130 basis points from Q2.2020.
The average overall occupancy of our portfolio was in line with Q2, 2020 and increased sequentially by 30 basis points to $84.4 per cent from Q1 of this year driven by improvements and our lease up communities offset by a modest decline and our stabilized communities.
Yeah.
Our lease up communities ended the quarter of 73% average occupancy up 350 basis points from March 31.21.
The resumption of in person tours and easing of restrictions and the latter half of the second quarter has increased the level of activity and our retirement segment, and we anticipate improvements and our occupancy and the second half of 2021, if progress on vaccinations and the broader community continues.
Turning to our final business segment, our assist contract services and SGP group purchasing services delivered revenue growth of just under 10% largely driven by customer growth and SGP.
Investments this quarter and the business to support our growth initiatives as well as the gradual resumption of pre COVID-19 activities contributed the higher business development expenses this quarter, resulting in the year over year decline and NOI and NOI margins more in line with pre pandemic levels. The.
Leigh and demand for our services remains strong and SGP now supports over 83000, and 503rd party residents and increase of 11, 1% from Q2, 2020 and up 3% from Q1.2021.
Yeah.
Finally, turning to the last slide and our financial position at the end of Q2, our consolidated cash on hand was $133 million was $73 million and Undrawn credit facilities and no scheduled debt maturities until the first quarter of 2022 as.
And as Michael mentioned earlier, we closed $95.9 million and construction financing for our Sudbury and Kingston long term care redevelopment projects that are underway further strengthening our liquidity position.
With that I'll pass the call back to Michael for his closing remarks. Thank.
Thank you David.
We are extremely encouraged by our progress this quarter made possible by our successful staff and resident and vaccination program and the outstanding efforts and dedication of our team.
Our primary focus continues to be on protecting our residents clients and team members.
Enhanced staffing levels regular testing and ongoing prevention measures will remain in place until the pandemic is firmly behind us.
Extended care has been delivering services across the seniors care continuum for more than 50 years.
We are committed to investing and our future with the construction of new homes deployment of new technology and training and recruiting of our people.
Taken together these will underpin our growth and enhance our capabilities to support residents clients and their families.
Thank you for your continued interest and support.
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 1 on your telephone keypad.
For a total acknowledging your request.
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To withdraw your question. Please press Star then 2.
Our first question is from Jonathan <unk> with TD Securities. Please go ahead.
Thanks, Good morning.
Okay.
First question Jonathan.
Just on the the.
Other Canadian operations and I. Thank you.
You touched on it a little bit David and your your commentary.
So the the margins were down versus Q1, and I guess versus last year as it did you say business development or increased business development.
Yes, there is the.
In the current quarter, we've seen a bit of a return of activity. So our business development sales folks are back on the road doing some travel we've hired some additional staff business development staff and in.
And eastern Canada.
And to focus on growing growth there, where those are smaller markets for us. So we're seeing.
And increase with the costs there I mean, the bad the bed growth will come but there is there is an increase there.
I do think we have said in the past you know our overall margins in that segment of our sort of mid fifties. So I think we did enjoy a bit of of higher.
Margin.
Prior to this quarter as we had increased management fees and our assistance side of the business because of Covid funding flowing through our managed contract businesses as.
And as well as a lower level of activity just in terms of our the sales business development side. So I think the combination of of the the the Covid funding.
Maybe slowing down and are within our customers as well as the increased business activity. So I think I think the margins a bit of a bit lumpy and the last couple of quarters, but I do think that longer term mid fifties number that we've spoken about in the past is still a good number.
Okay.
Helpful and.
Just on the funding recoveries for for long term care is there any indication from the government of of how much you guys. So we'll eventually get back from prior periods.
What I can say there is if you recall in Q1.
And in Ontario are our shortfall for Ontario was about $18 million, which we did receive and Q1.
So they've given us no indication at the moment that theyre going to change that approach. So our net COVID-19 costs are in Ontario and Q1.
We're a boat $18.4 million so assuming that they continue what they did.
Sort of catching us up for the for the net costs and 2020, we did thats kind of the level, we'd be expecting for for the first quarter that that closes off their fiscal year, where you know starting in Q2, we're into a new fiscal year with the government.
So still room again, no indication that theyre going to change the approach, but we don't have that formally communicated yet and in terms of exactly how the than the new funding. Your money is going to come as it relates to sort of sort of catching up on that COVID-19 costs.
Okay, and how quickly how quickly does it come from well I guess as soon as the analysis that you guys can book it as revenue.
The quarter right, so anywhere up to September 30 of the vehicle booked for Q3.
Yeah, I think I I'd like to think it's not going to lag more than 2 quarters.
So we're hopeful that it's Q3.
I think by the time, we had the true up and and for for last year. It came.
It came.
Sort of early spring.
And the for us about 3 or 4 months after after year and so.
And we're hoping that it's it's a Q3 while of clarity by the end of Q3 on net.
Okay and then your.
Current like currently with no outbreaks.
How much extra or are you spending on a monthly basis for a quarterly basis, assuming assuming the low grades just your elevated staffing levels.
Yeah, I mean, it's.
And I hesitate to say what a normal run rate is because we've every month has been different since the pandemic, but I think we were and where the most of our spending is long term care, we were 9.5 million and Q2 unfunded.
We did see of 15 million dropped and our gross costs.
So I do think that where we're at.
Approaching something that's gonna be.
And the.
$20 million ish range, but again I really hesitate to 2.2 to talk about what we think it's going to be because of anything could change and a moment's notice right. So some of it.
<unk> seen a dramatic drop in the quarter of 15 million, but as Michael mentioned in his comments to me and we're still still need to be cautious here right and keep our staffing levels up I mean, the funding we do think the GAAP should be narrowing between what we are being funded and our costs for the back half of the year once and and then there's the catch up element.
That we just spoke about so.
I'm not so much or what the costs are.
Going to be but I think I think the GAAP between funding and costs should should should regulate itself and be quite smaller much more smaller than it has been unless of course there's of.
And uptick in the fourth wave.
Okay. Thanks, I'll turn it back.
The next question is from Penny Berger of with RBC capital markets. Please go ahead.
Alright, thanks, and good afternoon.
With respect to your comments on maybe getting back to the 97% of occupancy for for long term care.
And specifically out of few homes.
Really just the timing issue or and maybe you get through Q4, and instead of Q3 or is there something else that might impede the recovery.
Yeah.
Jaime it's it's it really is the timing issue. It's a question of weather.
And the occupancy will recover by the deadline or take a little bit longer, but we don't have much.
Doubt about the demand.
In long term care across the province.
And that it will ultimately fill up all the available beds, just a matter of how long it'll take us to get there. So.
So we have you know we have a handful of of homes were just looking at the trend line.
We don't think we'll get there by the end of of August, but we will certainly get there and the subsequent months. So it's it's you know relatively short period of time that the.
The debt, we would be exposed to and occupancy based claw back.
Alright, and so it's just.
No nothing specific.
No real issues with the most of those.
Of those properties.
Just maybe switching gears to pyramid.
And nice to see the I guess the continued recovery of volumes. There can you just comment on how volumes have trended.
The quarter and and any thoughts on at what point do you think.
You may be able to secure sufficient staffing to meet the demand.
Well closing the demand GAAP.
Is is is it.
The dynamic situation, because we're seeing the the demand itself steadily increasing over time, so even as we.
Grow our capacity, we're seeing growth and the.
And the referrals that we're receiving our referral rates today are higher than they were pre pandemic, so where we are.
And where we're chasing the the demand curve.
We are as you know ramping up our training programs to and an effort to.
To meet demand.
And there's a big big unknown.
Of the people that are still on leave.
And that the went on leave at the beginning of the pandemic, we still have.
You know upwards of about 800 people that are on leave within pyramid.
Very difficult to predict when they might come back.
And.
And what numbers they they might come back some of the may not come back so.
So there's there's there's still some.
And pandemic related dynamics, there that that are hard to predict.
And the nursing side.
And which is you know the smaller component of our of our home care are we are you know we are seeing significant.
The competition for for nurses in the in the community because we're seeing expansions and hospitals expansions and staffing for long term care and then of course, the demand and home care So registered staff.
You know in the and the nursing profession and there are.
Our and of high high demand situation and I think.
And that's been exacerbated by.
Some of the.
Limits on immigration.
That that have resulted from the pandemic as well because we generally and this country don't graduate and now for nurses to meet demand we depend on and.
And on immigration to fill some of that so of course, we're now we're now receiving some.
You know some some impact of the pandemic in terms of the the the lack of immigration that's occurred over the last period of time.
So all of that said pardon me, it's pretty hard to predict.
And we're really we're really monitoring it month by month and ratcheting up our efforts.
And recruiting and training in particular.
Got it.
That's good color and then maybe just thinking about it another way.
And.
And this might be harder to answer, but do you have of sensus and how much of an increase in staffing and the person.
<unk> wise or even just the absolute numbers that you would need.
Satisfy even just the current volumes that you are receiving.
Yes.
1000, and I don't know what the number is but.
I don't know if you have any color on that.
Yeah, it's it's.
It's it's a bit difficult just because of the dynamic nature of it.
And if we were <unk>.
Accepting more referrals, we would probably get more referrals.
So it's it's it's not something that we have.
You know are really strong.
The really strong grasp of it but that all of that said.
I would say somewhere in the 752000 and.
Staff, we could probably put to work overnight, if if we were able to to hire them.
Thanks, very much Michael that's very helpful. Thanks.
Yeah.
The next question is from Tal Woolley with National Bank Financial. Please go ahead.
Hi, good afternoon.
I doubt.
Just sticking with the Paramount of the labor the labor question for a second.
Like how do you <unk>.
Measured productivity labor productivity, what's the sort of the preferred metric and you look at.
Well first of all of it it's important to understand the model.
The the.
The the model is that is really a piece of work model. So our staff are paid by the number of visits that they do.
So we do measure the number of hours that each person.
Dies on a you know does on a weekly basis, that's that's really important to our staff from an income perspective.
But it's.
It's not.
And it's not a.
From a frontline perspective, our contribution margins are quite stable because of that.
And that that dynamic in terms of the way of our people are paid.
And I guess, then on that model and what kind of makes it hard to.
Look I guess like a mode of trying to understand and it sounds like basically the scale up this business like if.
If the more bodies question, it's not a question of like improving the productivity per <unk>.
For Labour unit.
Well it actually.
Actually.
And with with our scheduling system, we've been able to increase the number of hours of service provided by each 1 of our individual.
The caregivers by about 10% since we've put in the new the new system.
And that doesn't translate into any any.
Change and contribution margin, but of course very important to our caregivers from the perspective their efficiency their income and of course from a retention perspective that was that was a pretty important dynamic for us.
Okay.
And then I'm, just wondering like with the with the bounce back in and volume to like.
Do you of any sense of whether like some of this.
Mike not disappear in a way and I get that theres more than more than you can service right now, but I'm just wondering if there's been like maybe of consumer preference shift just because people don't necessarily ear of people have it had to be for.
People have not wanted to necessarily be going out to the doctor's office going out too.
Rehab facility or whatever and so.
If given the choice to have the those services brought to the are happily taking that right now, but maybe that shifts back of the other way as things start to normalize.
No that that's not really a driver of of of home care services.
Home care is more driven by the.
And the age demographic.
By the prevalence of chronic disease, and the community and by hospital activity and hospital discharges.
So theres very little individual preference in terms of driving volte.
Volumes of of of home care that are out of the sort that we provide.
I think that might be a little bit different.
And in the private pay market, but but in terms of the services that we provide preference really isn't the driver of this.
Got it okay.
Just for the long term care redevelopment projects Youre quoting like redevelopment.
Our redevelopment yields of the Blake.
8% of the projects you've got on the go.
That's the gross yield on that facility does it cause that yield account for the shuttering of the facility of it.
And it's replacing.
No that's that's the new project.
I mean, there's the.
Of these redevelopment projects are.
Both both of the ones that are there are brand new Greenfield constructions will be the.
A quick cutover.
And in the AR from the old home to the new home.
And then that's based and then the outlook is based on our kind of of the equivalent of the stabilized NOI outlook for for the new home similar to what you we.
Do you know how we've looked at retirement.
But then I guess my question is on the redevelopment yield shouldn't you be quota and the incremental NOI over the prior facility that was and the market.
Because of episodes of well.
Yeah.
Yeah, we're not I mean, it's very hard to do that.
Yeah, we need to look at the new project discretely, because the old project has.
And in most cases of the homes that we're closing are smaller so we've got incremental new beds coming in as well as and a change and mix between preferred.
As well so that we're looking at the 100 per cent of the costs of building that new home against the 100 per cent of what the new stabilized NOI is going to look like on that home.
So that's how we measure our projects.
Okay.
But then I guess just like when we're thinking about it that wish we should remember that like all of those beds are not net new core.
Correct.
Yes, correct.
And.
Alright, and then.
I guess really since we are short long term debt lots of and care about and and on.
Terrio.
Like is it are they are they really going to let these sites go down or will you know like to me I would think like maybe 1 of the things to do with debt. If you have the demand you would sit there and say like Hey, now that you've moved the facility rebuild to go and.
Redevelop the old 1 again.
To bring it up the standard like.
Is that and not an easier way of adding beds overtime.
It's a good question tell but but the fact is that those homes are so old and so sub standard.
And from you know even from the perspective of just the number of square feet gross square feet per resident they're about half the size of new new facilities. So there's really no opportunity to even renovate them in a meaningful way. So they will be torn down and Theres no question about that now whether we do.
Suppose of that property or perhaps redevelop that location for a brand new net new property well that will depend on what.
What what kind of volume and the government is commissioning at the time that we make that decision.
So there may be there may be new net new homes that we haven't contemplated in our pipeline that debt.
The government wants at that particular time, we'll certainly look at that.
And your year like development costs don't include any disposition proceeds either.
On some of these sites of the whole foods right, Yeah, I've got it correct.
Okay and then.
Now that we're sort of inching our way back towards.
Normal fee.
Just going back for the retirement business like this is a capital intensive business you guys are it's kind of a smaller business for you.
His retirement is still core to the you know the extent of care group of businesses long term because it does feel like we might get a little bit of a little bit of consolidation going on in the sector over the next couple of years.
Well until I think that debt and just looking at this.
Over the over the last 10 years, there was a long long and long term care development.
And really across the country.
And we're now and in catch up mode.
Trying to.
Deal with replacing the aging stock of long term care and of course the.
The the demand for for long term care is pretty extensive so we've talked about that quite a bit so over the last 10 years, we spent.
Time and energy focused on.
And on the private pay side and building building of a small retirement portfolio I think today now the with with all of the activity and long term care.
We're pretty focused on that will have a lot of projects on the go on that.
That side of the business I think as long as that continues.
We'll be very focused our development resources and team will be very focused on and building long term care.
And.
So I think I think are any expansion and retirement will take.
Take take second priority to to the long term care of agenda.
But I guess, let me for the question a different way of his retirement.
And the essential to the functioning of extend the care.
As a unit of business I think the I think it's a key part of our portfolio remember that that a lot of homecare services are provided in retirement settings.
And there is there's.
And advantage of the experience of running retirement homes.
Of that the the potential synergies there.
So we see it as a very valued part of our our business mix.
Okay, and then just lastly on the extent of care of assist and SGP.
And with all of the.
Sort of volatility and the long term care right now.
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Should we expect like that sort of segment to continue to kind of like should we expect a little bit more volatility on that side going forward because I just noticed like and your presentation and you said like the EAA beds were down a bit.
And then SGP client by clients, we're continuing to sort of grow nicely like just wondering how we should think about that going forward.
Yes, I think.
And I don't think theres going to be.
Much volatility I mean again its relatively smaller segment. So smaller changes do do look more volatile there, but I think the STP growth will continue.
We as I said, we've added the the reason we've added business development resources there because we do think there is an opportunity there.
So we do expect that to continue there's a lot of lot of demand.
For our services and products that we that we provide through through SGP assist has been.
I'd say its been and a bit of a lull certainly with COVID-19 and not a lot of people, making management changes and decisions and their portfolios.
I do think there is some opportunity in that segment as we as we get out of Covid, where perhaps smaller mid size operators.
After they've they've kind of come through Covid may reassess their their desire to continue to manage their real estate and so I do think there is an opportunity also think there is an opportunity.
2 to manage retirement as well potentially so and other sort of tie in to Michael's earlier comments about where retirement fits into our portfolio.
So I don't think there'll be as much volatility there.
Really I think there's no I wouldn't read too much into kind of the lumpiness and the last couple of quarters, but I do think there is there's good growth prospects, there and those sort of mid 50 margins, which is what we've talked about before is really how to think about that business.
Okay. That's great. Thanks, very much for everybody.
Once again, if you have a question. Please press Star then 1.
The next question is from the Ash, Thank Paul with Laurentian Bank. Please go ahead.
Good afternoon.
Hi Ash.
So you.
Partly answered this question, but I want to try 1 more time.
Would you be able to quantify the cost you're incurring at each facility because of the extra safety measures you're taking.
The 5 pushing for higher 10 push at the higher than what you what the typical operating cost was before the pandemic.
Yeah, Yeah, I mean, it's.
It's been very volatile as you can appreciate right.
So.
If you think about.
Even just this quarter our costs are down $15 million from Q1, and it really is quite hard to talk about anything being normal at this point, we've had such volatility.
You know I think if you think ahead to the cost structure.
And where the sector is waiting for example for the for hours of care and that to begin if you start thinking about that.
That increase I mean that represents about a 25% increase and the kick in the care envelope.
So and of that phases in over 2 or 3 years, we think the cost structure again funded through flow through envelope and mind you, but the cost structure is going to change on the carrier side, 8% to 10% of year over the next 3 years.
We're at a point right now, where we're maintaining enhanced staffing levels for COVID-19 and for prevention and the protocol testing et cetera.
We're running our staffing at about 110% of our normal level, and we think that dovetails nicely to what could be the first wave of moving to for hours of care. So.
And trying to quote a specific number or what our run rate is going to be is very hard but we are we are conscious of the fact that we're waiting for the for hours of care and we're hoping that.
Some of the elevated costs, we were incurring today around the COVID-19 actually sort of naturally dovetail into the first step of moving to for hours of care and that would be as I said about a 25% increase and the nursing and program envelope.
Today.
Okay, Yeah, I think and just if I again, yeah. So if I can just add something to what David said I just want to reiterate something he said earlier, which is important.
Our total COVID-19 extra costs in 2020, we're fully funded and Ontario.
So.
Despite some of the timing differences.
Indications are that debt most of our COVID-19 costs, if not all of our likely to continue to be fully funded.
So I think that's that's the other sort of element here too.
To take into account and as David said.
We'll be moving into a different era of higher staffing because of the governments for hours of current funding announcement and.
And so.
We can't be sure, but there is.
Reasonable expectation that we will seamlessly roll into that new funding program.
The 2.
To be able to absorb the additional staff, we see those extra staff as being a head start.
And the challenge of staffing up to meet meeting that that new requirement. So.
And subject to timing differences.
And and subject to.
Learning what the implementation rules are which haven't been shared yet.
We do think that these costs will be fully funded.
Okay.
Alright.
Okay.
Just wanted to think about these new facilities that you're in and.
And building and no development yields that you're talking about.
Based on your knowledge of appraisals, so by either mortgage lenders are private transactions.
Where do you think the newly built facilities trade at this point.
Yes.
Well I think I mean.
What we see and the Martin and there hasn't been a lot of activity right and in terms of trades and and long term care.
And there's been some smaller trades with older homes that trade more on a per bed basis versus the cap factor I think most of the industry.
Guidance out there now from fraying of the Cushman and CBRE is that are the sort of leaders that followed the segment would have.
Long term care, a class type new beds, and the and the depending on the market and the 7 and 7 and a quarter although.
And that's pretty robust out there I mean, but if the market was tested with some other a bed homes, perhaps the youre dropping and certain markets maybe on the long term care could even be a bit tighter, but probably in the 7.7 and a quarter is what we what the those the track it and the other industry sort of view of it is but again.
It hasnt been tested there hasn't been much trading going on at the moment, but that's the best sort of view of the market we have.
Okay. That's good.
The long term care and award.
Do you think the government would and would allow.
And now more than 2 residents for.
All of them now.
Going forward I don't I don't I don't think so.
It's hard to predict the ash, but I don't think so.
I think we've we've seen the the impact of those rooms on me.
And making it very difficult to manage outbreaks of COVID-19, or really any other types of outbreaks.
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And I don't I don't expect that to be.
And.
To be something that our debt we revert back.
That said.
I mean be aware of that for an extended care.
This is a very small number of beds right across across our our our whole operation, it's less and 300 beds.
Okay.
And if let's say that turns out to be true.
What would be your effective occupancy rate and your.
Buildings and full like would it be 95% 93%.
Yeah Yeah.
Pink.
We would expect I mean again, we don't know, but and this is the occupancy we do expect or anticipate.
The 3 and for bad Boardrooms would be removed from the calculation. So I don't I'm not I don't suspect they will they'll keep measuring us against that 97% target requirement for for for occupancy and still include the 3 and for beds and the denominator.
So that's our anticipation that when they do clarify how things will be measured post August we expect those to be excluded so the bill almost go into advance and and sort of come out of all of the calculations and statistics, but we don't know that for sure, but that's what we expect will happen.
Yes.
Okay. That's it for me thank you.
Alright.
Okay.
This concludes the question and answer session I'd like to turn the conference back over to Julien Thompson for any closing remarks.
Thank you operator that concludes our call for today.
The presentation is available on our website as are the call and numbers for an archived recording. Thank you everyone for joining US today. Please don't hesitate to give us the call. If you of any further questions.
Goodbye.
Yes.
This concludes today's conference call you may disconnect. Your lines. Thank you for participating and have a pleasant day.
Yeah.
Yes.
Okay.
Okay.
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Okay.
And.
Yeah.
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