Q3 2021 Extendicare Inc Earnings Call
Thank you for standing by this is the conference operator welcome.
Welcome to the extended care, Inc, third quarter Analyst Conference call.
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After the presentation, there will be an opportunity to ask a question.
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I would now like to turn the conference over to Jillian Fountain, Vice President Investor Relations. Please go ahead.
Thanks, operator, and good morning, everyone welcome to extend the Care's third quarter 2021 results conference call with me today are extended Kersey, President and CEO, Michael Greer, as senior Vice President and CFO David Bacon.
Our Q3 results were disseminated yesterday and are available on our website.
A webcast of today's call is also available on our website along with an accompanying slide presentation, which viewers may advance herself.
Replay of the call will be available later this afternoon until November 19.
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 and suggest that you refer to those filings.
With that I'll turn the call over to Michael.
Thank you Jillian and good morning.
Before we review our third quarter results I will highlight our ongoing efforts to ensure the safety of our residents clients and staff as we continue to navigate the COVID-19 pandemic and work to keep the virus out of our homes.
In August we announced the COVID-19 vaccination would become mandatory for all long term care and retirement home staff across Canada.
Those not vaccinated by October 12 were placed on unpaid leave.
Currently all staff working in our long term care homes and retirement communities are vaccinated.
Prior to the implementation of our policy, we have made significant progress on our vaccination campaign and as a result, we were able to implement our policy with minimal disruption to operations.
The high vaccination rates for both residents and staff along with our continued commitment to active symptom screening testing and infection control are effectively limiting the impact of the fourth wave in our homes and communities.
We have also made significant progress in delivering third doses to our residents to further boost their immunity to the virus.
Currently four of our 69 long term care homes and retirement communities are recovering from outbreaks.
There are currently no active cases of COVID-19, among the residents and staff of those homes.
For long term care homes in outbreak are in Alberta, where there continued to be heightened numbers of COVID-19 cases in the community.
Our ongoing vaccination campaign in Parramatta is going well thanks to the positive response of our team members to the program.
Our goal is for vaccination for our home health care team.
To achieve this we support team members by offering educational resources reimbursement of expenses and paid time off for vaccine appointments to remove all barriers to vaccination.
As well vaccination as a condition of employment for all new hires across pyramid.
As of October 28, 92% of pyramid staff have at least one dose of vaccine and more are being vaccinated each week.
Turning to slide four I'll begin our third quarter update by highlighting several important new announcements made in the last month by the government of Ontario that are related to long term care.
On October 6th, Ontario announced the first phase of funding for increased staffing levels as part of its $4 6 billion dollar long term care staffing plan.
Starting in this month the government is providing additional funding to support an initial increase to three hours of direct care per resident day with subsequent increases planned each April 1st until four hours per resident day has reached in 2025.
This means that the additional staff we brought on board during the pandemic will be supported by this new funding on a permanent basis.
Allowing them to deliver the high quality care, our residents need and deserve.
These additional team members are already familiar with our homes and processes and have been an integral part of addressing the challenges brought on during the pandemic.
On the long term care redevelopment front on October 20th the Ontario government announced a new call for applications for new and upgraded long term care beds under the long term care home capital development funding program that was announced in 2020.
We currently have three long term care redevelopment projects under construction and six additional projects with bad license allocations that are at advanced stages of planning and approvals.
We intend to resubmit, our <unk>, our remaining 13 redevelopment projects into this new car for applications by the end of this year.
And then just yesterday, the Ontario government announced its fall economic update and.
And allocated an additional $3 $7 billion in funding starting in 'twenty 'twenty four 'twenty five or the commitment to build 30000 net new beds and.
28000 upgraded long term care beds across the province by 2028.
This brings its total investment in new homes to $6 $4 billion.
On October 28, the Ontario government introduced Bill 37.
They're providing more care protecting seniors and building more beds Act.
In addition to detailing the commitment to increase direct care hours and build new long term care beds. It outlines measures to improve transparency and accountability in the long term care sector.
The proposed legislation strengthened the residents bill of rights and introduces new requirements for annual residents family and caregivers surveys.
It also establishes new compliance and enforcement tools.
We believe that the proposed legislation is an important and positive step toward ensuring seniors get the quality of care they need and deserve.
Our strategy is aligned with the government's key pillars as we continue to focus on our redevelopment agenda and work to implement the increase indirect hours of care.
We believe the enhanced accountability and transparency included in the proposed legislation puts a clear focus on the quality of care accountability and support for caregivers that's required to restore public trust in the sector. After the devastation caused by the pandemic.
We are committed to doing our part to make this happen.
Finally on October 28, the Ontario government extended the $3 per hour pandemic wage premium for frontline P. Sw's until our March 31st of next year.
Extending the wage premium recognizes the ongoing contributions by long term care and home health care frontline team members and supports our efforts to increase staffing capacity, particularly in our home health care segment.
Now, let's turn to the financial highlights on slide five.
With a marked decrease in COVID-19 cases during the quarter.
Our pandemic related spending decreased by approximately $10 million from Q2 levels to $32.4 million.
It was largely offset by provincial funding, which included $5 $1 million related to costs incurred in Q1.
As a result cost exceeded COVID-19 related government funding by only $700000 this quarter and.
An improvement of $8 $8 million over Q2.
While COVID-19 costs are declining we will continue to incur elevated costs as we remain committed to our ongoing efforts to protect residents clients and staff until the threat of the pandemic has passed.
We anticipate further recovery of unfunded pandemic costs retroactive to prior periods.
However, the amount and timing of any recoveries are uncertain and may not cover all of the costs incurred.
Occupancy levels at our long term care homes and retirement communities continue to recover from the lower levels, we experienced at the height of the pandemic with average occupancy in long term care of 360 basis points from Q2.
Our home health care average daily volumes were marginally higher than Q2, despite the seasonal softness we experienced in the summer months.
Lower back office costs and the additional operating day in the quarter contributed to the sequential improvement in NOI margins of 180 basis points from Q2 after adjusting for wage subsidy payments and net COVID-19 costs.
Our S. G P customer base continued to grow in Q3 up five 9% from Q2 and up 11, 4% year over year.
NOI in our other operations segment was down this quarter compared to Q2 and prior year as a result of it investments and growth initiatives to capitalize on future opportunities in this segment.
Yeah.
Moving onto slide six.
We continue to work with the provinces to address the pressing need to replace aging infrastructure with new modern homes to meet the current and future demand for senior services.
In total we have 22 long term care redevelopment projects in Ontario that we are actively advancing with the goal of building more than 4200, new long term care beds.
3285 of which would replace aging class C beds across the province.
Last week, we commenced construction of a new long term care home instead spill near Ottawa.
This new 256 bed home will replace the 240 bed class C home nearby with completion expected in the first quarter of 2024.
This project joined two other homes already under construction in Kingston and Sudbury.
Together. These three projects will replace 684 class C beds with 704, new beds, requiring a net investment of approximately $179 million.
We have a further six projects in advanced stages of approvals in Ontario, with a goal of commencing construction on all six before the end of 2023.
These projects represent an estimated 285 million in additional net investment.
Yeah.
We are currently working to resubmit, our remaining 13 projects by the end of the year in response to the newly announced called for applications by the Ontario government.
We continue to work with our industry partners and the government to address those projects that are facing economic barriers that affect their feasibility under the current capital funding program.
Including Disney economies of small scale in rural areas and very high land acquisition costs in the GTA.
Moving to slide seven and our long term care operations.
Lower rates of COVID-19 in the community and easing of pandemic related restrictions resulted in a decline in costs and an increase in admissions during the quarter.
COVID-19 related costs were $23 2 million in the quarter down 29% from Q2.
As I mentioned earlier $5.1 million of funding received this quarter related to pandemic costs incurred in Q1.
As a result, Covid funding received by the long term care segment in Q3 was in excess of COVID-19 costs by $800000.
Average occupancy across our long term care homes increased to 89% in Q3 up 360 basis points from Q2.
In October the Ontario government extended basic occupancy protection until January 31st next year.
We will not return to full occupancy in homes with word style, three and four bedrooms, which takes a 185 beds out of circulation in Ontario until such time as the homes are redeveloped.
It is not yet clear what impact the removal of these beds will have on funding after January 31.
The initial phase of the Ontario government's long term care staffing plan comes into effect. This month, which provides us with the funding to make permanent the additional staff we added throughout the pandemic.
The increased funding will be provided through the nursing and program flow through envelopes and takes us to three hours of care per resident day with subsequent increments in April of each year.
On October 14th the Saskatchewan Health Authority and extended care announced our intention to transition the delivery of long term care services operated at our five long term care homes in Saskatchewan to the FHA.
We are working collaboratively with them during the transition to keep the focus on the needs of residents families and staff.
Although in terms of the transfer or under negotiation.
Our exit from the five long term care homes in that province is not anticipated to have a material impact on our financial results.
David will address this in more detail in his comments.
Turning to slide eight our pyramid volumes increased slightly last quarter as traditionally slower summer months were offset by a resumption in volume growth in September.
In comparison to the prior year quarter, our average daily volumes were up 11, 4%.
Adjusted NOI margins were nine 7% up from seven 9% in Q2, when COVID-19 related costs and revenues are excluded.
David was to provide more detail on these margin improvements.
Our volume growth continues to be constrained by the staffing challenges facing the industry.
Nursing shortages are increasingly becoming a challenge across the entire health care sector as demographic trends and the stresses of the pandemic caused nurses to leave the profession at a time when demand for their services are on the rise.
We are focusing our attention on recruiting and retention programs for nurses to counter these market dynamics.
We are encouraged by the progress of our P. S. W College partnerships and in House H SW training programs.
And the first nine months of this year more than 470, new caregivers graduated from these programs and joined our frontline pyramid team.
We remain on track to achieve our target of 600 graduates in 2020 one.
In addition, more than 460 P. S. W. Students are getting experience in our long term care homes.
They are currently enrolled in various federal and provincial programs aimed at expanding the workforce in the long term care sector and we intend to offer these students employment upon graduation.
We continue to encourage our employees who have been on pandemic related leave to return to work.
The extension of the $3 per hour pandemic wage premium for P. S. W's in Ontario may encourage more employees to return to active duty, particularly in home health care.
Lastly, I want to mention the recent home health care rate increases.
Subsequent to the end of the third quarter, we received notice that home health care rates in Ontario, and Alberta have increased retroactive to April one 2021.
Ontario rates have increased by approximately one 9% and Alberta rate increased by 1%.
These rate changes and the retroactive amount will be included in our Q4 2021 results.
I'll now turn it over to David Bacon, our Chief Financial Officer to provide further insight into our consolidated and segmented financial results for the third quarter.
David.
Thanks, Michael.
I will 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.
Turning to slide 10, 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 adjusted EBITDA on slide 19 in the presentation.
We continue to receive funding support under various provincial programs and as Michael has said, we received $5 1 million this quarter from the Ontario government to cover a portion of the unfunded COVID-19 costs and LTC incurred in Q1.
As a result, the net impact of our unfunded COVID-19 costs on our consolidated adjusted EBITDA was 700000 for the quarter.
And the after tax impact on our <unk> was approximately 500000.
We expect continued volatility in our results at least through the first quarter of 2022 until the effects of the pandemic are behind us.
Year to date Q3, 2021, we have incurred cumulative unfunded COVID-19 costs of $31 3 million at the consolidated adjusted EBITA level. When you exclude the $18 8 million received in Q1 of this year that related to costs incurred in 2020.
We do have some visibility into the level of Covid prevention and containment funding for the fourth quarter in Q1 of 2022 in both Alberta and Ontario.
However, the quantum and timing of our actual costs and any further recovery of unfunded COVID-19 costs incurred to date are uncertain and the amount of any additional COVID-19 funding may not cover all the costs we've incurred to date.
Our consolidated revenue in the third quarter increased by four 5% or $13 3 million to $310 1 million from the third quarter of 2020.
This increase was driven primarily by an 11, 4% increase in home health care volumes.
Increased COVID-19 related funding the $3 million.
Long term care funding enhancements and lower group purchasing volumes related to slowing demand for pandemic supplies.
Due to pyramids receipt of $50 8 million in the Canadian in the Canada emergency wage subsidy in Q3 of last year.
Our quarterly consolidated net operating income was down $44 4 million to $31 6 million and represented 10, 2% of revenue compared to 25, 6% in Q3 2020.
Excluding the wage subsidy consolidated NOI grew by $6 4 million to $31 6 million with an NOI margin of 10, 2% up from eight 5% in Q3 2020.
Improvements in home health care operations, and a reduction in net COVID-19 costs were partly offset by increased cost of resident care lower preferred accommodation revenue in our long term care operations and a decline in NOI of our other operations.
Our consolidated adjusted EBITDA decreased $44 5 million from Q3, 2020 to $19 3 million due to the factors impacting NOI noted above.
Administrative costs were flat year over year with the impact of higher it costs and insurance claims offset by lower COVID-19 administrative costs.
Turning now to our individual business segments on slide 11.
Our long term care operations saw revenue grow by $4 7 million or two 6% to $189 $5 million in Q3.
Largely driven by increased Covid funding of $2 9 million as well as other funding enhancements and the timing of flow through funding.
This was partially offset by lower preferred accommodation revenue that is not covered by the basic occupancy accommodation funding protection in Ontario.
Yeah.
NOI increased by $3 4 million or 26, 5% from the same period last year to $16 4 million and.
And represented nine 4% of revenue.
Largely due to a reduction in unfunded COVID-19 costs of $7 4 million on a year over year basis.
This was partially offset by higher labor and operating costs and lower preferred accommodation revenue.
The successful impact of the vaccines and easing of restrictions as community case counts declined, particularly in Ontario have continued to permit increased admissions and this quarter, our occupancy increased 360 basis points from Q2, 'twenty, 1% to 89%.
While we are encouraged by the improvements in occupancy levels, we anticipate that a small number of our Ontario long term homes may not return to levels above 97% before the occupancy protection expires at the end of January of 2022.
Our occupancy.
Occupancy at the end of Q3 of our arterial long term care homes adjusted to exclude the award style beds. We have taken out of service was 94, 6% and we await more specific details regarding the ongoing funding related to the ward style three and four bedrooms. After the current basic occupancy.
Reduction expires.
Sure.
As mentioned the ongoing volatility over the next couple of quarters as it pertains to the level of COVID-19 costs incurred and related funding recoveries is largely driven by our Ontario LTC operations.
However, the initial phase of the Ontario long term care staffing plan that commences. This month will help to alleviate some COVID-19 cost pressures by funding. The staff we added during the pandemic through enhancements to the nursing and program envelope.
Were any funding not spent on resident care has returned to the government.
We estimate the LTC staffing plan will provide incremental flow through funding towards direct care hours of between $40 million to $45 million in 2022.
As Michael discussed we are transitioning the operations and potentially the ownership of our five long term care homes in Saskatchewan to the Saskatchewan Health Authority in 2022.
The transfer is not anticipated to have a material adverse impact on the business results of operations or financial condition of the company.
The Saskatchewan long term care homes contributed $42 $6 million in revenue and had an NOI loss of $1 3 million, an estimated negative impact on <unk> of $1 5 million for the nine months ended September 32021.
From a balance sheet perspective, the net book value of the assets related to our Saskatchewan long term care homes is $5 4 million and we currently have $3 2 million in outstanding mortgage financing remaining on these homes that matures in January of 2022.
Turning next to our home health care segment.
Revenue grew $8 8 million or nine 4% to $102 million in Q3, driven by an 11, 4% increase in average daily volume year over year.
Excluding the wage subsidy received in Q3.
<unk> NOI grew by 4 million to $8 7 million with an NOI margin of eight 5% up from five 1% in Q3 of 2020.
This improvement reflects growth in volumes lower workers' compensation costs and improve back office efficiencies.
Partially offset by an increase in the unfunded net COVID-19 costs impairment.
On a sequential basis, excluding the impact of the wage subsidy and the impacts of that COVID-19 costs.
AOI margin in Q3 was nine 7% up from seven 9% in Q2 and up from seven 3% in Q1.
Our average daily volumes were up 0.3% in Q2 impacted by the traditional lower volumes in the summer months.
Back office efficiencies continue to drive NOI margin improvements.
Our NOI.
This quarter also benefited from a nonrecurring workers' compensation rebate rebate and the impact of an additional operating day as compared to Q2 of 2021.
Excluding these two factors the Q3 margin would've been approximately nine 1%.
Yeah.
As Michael mentioned earlier, the Ontario, and Alberta governments implemented rate increases retroactive to April one of 2021, which will be recorded in Q4 of 2021.
We estimate that the annualized impact on revenue from these rate increases to be in the range of $6 million to $7 million.
Turning now to our retirement operations on slide 13 incur.
Increased occupancy levels and care services came with higher labor and promotional cost leading to a slight year over year decline in financial performance.
Q3 revenue was up slightly by 100000, driven by improvements in our lease up properties, while NOI declined 200000 to $3 million.
Representing 24, 8% of revenue.
Throughout the pandemic, our stabilized average occupancy has remained above 90% and was 92% for the nine months ended September 30th.
During Q2, it averaged 89, 8% down 210 basis points from Q3 of 2020.
But ended Q3 at 93%.
Up 80 basis points from the as at June 32021 occupancy.
In terms of the retirement portfolio overall average occupancy grew by 130 basis points from Q3, 2020 and sequentially from Q2 of this year driven by lease up improvements offset by a modest decline in our stabilized communities.
The easing of restrictions has allowed occupancy in our lease up communities to end the quarter at 79, 7% up 670 basis points from Q2 of 2021 and.
And we anticipate continued improvements as long as community infection rates remained low.
With respect to Covid.
Turning now to our other business segment on slide 14.
Our assist contract services and SGP group purchasing services revenue declined four 3% largely due to lower group purchasing volumes associated with a decline in the demand and price for pandemic supplies.
We increased our spending on business development and other growth initiatives this quarter, which has led to a year over year decline in NOI and NOI margins in our third quarter.
Year to date, our NOI margin and our other operations segment is 56, 6%, which was in line with our segment's historical margins prior to Covid.
The underlying demand for our services remains strong and SGP now supports over 88003rd party residents an increase of 11, 4% from Q3, 2020 and up five 9% from our second quarter.
Okay.
Finally, turning to our overall financial position at the end of Q3, our consolidated cash on hand remains strong at $132 million was $73 million in undrawn credit facilities, and approximately $96 million in undrawn construction financing facilities for our Sudbury and Kingston long term care projects.
We are currently in the process of negotiating construction financing for our new long term care redevelopment project in Statesville and expect this to be completed in Q4 on similar terms as the submarine Kingstone financing.
With that ill pass the call back to Michael for his closing remarks.
Yes.
Thank you David.
I think our team members for their efforts and their dedication to help keep the virus out of our homes.
The high vaccination rate, we achieved even before the announcement of our mandatory policy is a testament to the outstanding commitment of our care team members to our residents clients and their families.
Our primary focus continues to be on meeting the needs of our residents clients and team members.
We are extremely encouraged by our progress to date and the success of the booster vaccine campaign to provide a further level of protection in our homes.
Enhanced staffing levels regular testing in 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 and we are building for the next 50.
Demand for high quality seniors care continues to increase as the aging demographic strains our health system.
We are committed to addressing the pressing need to replace aging infrastructure and expand long term care capacity through our redevelopment program.
We are also continuing to invest in our people to provide seniors with the high quality care, they need and deserve.
Thank you for your continued interest and support.
With that we'd be happy to take any questions you might have.
Operator.
Thank you Bill.
Now begin the question and answer session.
The question queue, you May press star one telephone keypad.
Jarrod told acknowledging articles.
If youre using a speakerphone please pick up your handset for passing any keys.
To withdraw your question Please press star.
<unk>.
We will pause for a moment as callers join the queue.
The first question comes from Jonathan Culture with TD Securities.
Please go ahead.
Thanks, Good afternoon.
First question just on the.
I guess the occupancy on a long term care in Ontario, you're you're pretty close to 97% I guess, it's a couple of homes that may.
They prevent you from getting there in January yes, give us a little bit of Colorado.
Why.
Why that would be.
I think it's Jonathan I think it's.
Matter just a time.
Some of the homes, where.
More affected than others by the pandemic and its taking them longer to recover.
The vast majority of our homes R. R.
Already back at at.
More traditional occupancy levels.
And so where we're just thinking its a matter of time, we may we may be in a situation of full occupancy by the end of January.
But there's just a few homes that are a little bit slower, but there's no reason for us to believe that they won't get to full occupancy in due time.
Okay.
Excluding the 185 beds.
97%.
Yes, I mean, we yes.
Yeah, we don't intend ever to to have more than two residents per room.
And as it happens the homes that are already under construction.
Yeah.
Having a significant number of those three and four bedrooms, we prioritize those for replacement.
So that that'll be a time limited time limited issue, but.
But we haven't heard yet from the government on their plan to.
Handle that from a funding perspective, so we're just not sure how they'll be handled.
Okay.
And then the funding for the nursing that's coming in.
That started in October.
It should be like how should we expect that to play play out for your margins and long term care should we do you think they get back close to 2019 levels in 2022.
Or were there other costs in there that I might not cover.
Yes, Jonathan it's.
I think there are a few things.
On that so I think.
When you think of the margins I think two things we do there is a lot of moving parts currently at the moment as you can appreciate so as we're working through.
Rolling out and reacting to the new four hours of care program and not getting phased in.
There has been quite a bit of disruption in the labor side, which has led to some of the increased cost we've seen with staffing and agency Houston over time, but we hope that that does regulate and get back to more normal levels and then also obviously on a higher <unk>.
Level with the additional nursing flow through funding.
We have seen some escalation in some of our other operating costs things like insurance and utilities that are harder to control. So in part we need to rely on sort of inflationary rate increases to help us mitigate that going forward, but it is we have seen some increase obviously in those costs.
But so overall hard to predict exactly sort of what it shakes out, but we do think we're going to trend back towards those levels, but there are some some headwinds on some cost items that aren't necessarily part of the the four hours of care.
The other thing I think there'll be important for us all to.
<unk>.
Understand as well, obviously with with the four hours of care fund.
<unk> funding coming in that is all flow through so from a margin percentage point of view, we are going to see a change in our in the margin percentage profile as that phases in over the next four years, but.
That should not have an impact on sort of NOI dollars per bed in sort of absolute dollars, but that's not sort of insignificant impact from a margin percentage point of view. So so theres a lot of moving parts, but theres elements I think like on the labor side, we feel will stabilize with the flow through but there is some some cost input Ella.
<unk> that have had some inflation pressures in the last few a few quarters.
Okay Fair enough and then last question just I guess more <unk>.
High level staffing it's bit of an issue in the Caribbean business for a long time.
Do you think the increase to four hours of care and long term care and the demand.
That sector will like how does how does that impact.
Or does it impact pyramid.
In terms of getting stuff.
Well its good question, Jonathan I think there is.
A balancing act between the increased need for caregivers.
The changes in compensation that are happening in the sector.
And the increase in supply.
New workers through the various government programs that have been announced we've.
We've seen some pretty large increases in enrollments.
In in programs for <unk> and nurses.
Happening across the country.
We've also seen the introduction of our funding and programs for on the job training.
Which is underpinning some of our efforts to to grow our own workers.
And and so the answer to your question is in the in the balance between.
The increased needs.
And the increased supply of <unk>.
Workers. The other thing that is a dynamic here that that.
It is very hard to get any kind of real current data on is.
The fact that we have.
Appended on immigration.
To bring significant numbers of care workers into Canada in the past.
And of course that was shut off for 18 months or so.
And Theres a variety of initiatives now to increase that and to help.
People with credentials from outside Canada, two to qualify in Canada.
So.
I would say that theres, a pretty big demand for workers.
Underway, but theres also some pretty significant efforts to increase supply.
So.
Right now I would say that that my confidence on this is a bit different.
For P S w's versus nurses on the P. S. W front, which is probably 80% of our workforce.
From a caregiver perspective, I'm very confident on that front I think the programs that we're running combined with the programs that that are happening with various colleges.
Will will more than offset the increase in demand for.
For those for those workers.
And we're also seeing that the continuation of the $3.
Premium pay.
At least in Ontario until March.
I am very confident on the P. S. W front.
And.
In both home care and long term care and nursing front.
It's I think going to be a greater challenge because it takes longer to train nurses than <unk>.
So while there is a vigorous response to the nursing shortage. It will take some years for that to have an effect.
And that's where immigration is the big variable that that.
We'll probably mean.
The difference between.
You know a a mild shortage and a more severe kind of shortage. So hard to predict how that's going to play out but that is that is a relatively small proportion of our staff.
That's that.
It's impacted there.
Okay. That's a helpful answer I'll turn it back thanks.
The next question comes from Scott <unk> with CIBC.
Please go ahead.
Good morning, gentlemen.
I've got it correct.
Hi.
Question on the impact and timing of the recent Supreme Court pay equity decision.
What do you think that's going to do.
Labor cost.
So Scott, it's it's hard to predict.
The.
This is a complex issue that that really goes back over a decade.
And it's something we're working with other long term care operators unions and the government to to to try to work our way through.
But I will I will say, there's a couple of things too.
When looking at this issue one is that it's an industry wide.
FX effects the hull.
Long term care industry and in fact.
Probably has knock on effects in other sectors of the health system as well and second is the fact that pay equity adjustments historically have been funded by government.
So that's really as a sector wide issue to sort out.
And.
I think it's going to take some time for us to resolve it.
So it.
Alright, it sounds like it will be addressed but there could be a lag with with other.
Other reimbursements.
Sir.
It's hard to it's hard to predict I mean I.
I would expect that we would have.
Our solution would be would be comprehensive so.
It'll be an industry wide solution, then and any adjustments to funding would be timely I don't see this as something akin to COVID-19, where with with Covid, we incur the costs and then we file a claim I think in this case it'll be more like the flow through funding that we've had for <unk>.
<unk> premiums were the timing of the reimbursement and the timing of the cost is actually quite closely matched.
Got you, thanks, and just for modeling purposes, when do you expect.
To remove for beds in Saskatchewan, the 649 beds.
Yeah, Scott I think it's hard to say.
Exactly on the timing of that.
It is going to happen in 2022 is we are trying to focus on having that done.
Sometime before.
At the end of Q3, but there it is difficult to predict the exact timing at.
At the moment, so we'll give more updates as time goes on in future calls and hopefully be able to get some more specific timing around that Scott is the negotiations advanced.
Okay, great, Thanks, Michael and David I'll turn it over.
Thanks.
The next question comes from Josh <unk> with Brian Chin Bank.
Please go ahead.
Good afternoon.
Hi, Ashwin.
Firstly on the.
Occupancy protection.
So the government has not told you yet.
The ward beds, but.
Hugh.
You are saying that.
They will be removed is that correct.
From the calculation.
Yeah, I think there's two pieces of the picture here.
And I'll be clear that.
There is no nothing explicit in sort of an official.
Official, but we do anticipate for purposes of.
The actual occupancy calculation in terms of achieving the 97% that we do believe the government intends to remove the three and four bed wards out of that calculation and that does go hand in hand, with our as we've stated intent not to fill those beds again.
So that's what we believe will happen on that but it isn't official and what the other piece of the equation is just what funding, though will continue related to those beds.
So we're still waiting for clarity after January in terms of the dollars still attaching to those beds, but the test will we believe remove those beds from the calculation.
Okay.
On the point to the retirement home sector.
500 beats a sequential decline in margin.
How much of that was because of labor inflation.
It's a component I don't have that broken out, but there is a component of that.
In there.
But again I think I think part of that decline is in our lease up properties. As you can appreciate is the lease up occupancy it does improve.
The cost side of the equation in terms of adding staffing to support.
More residents moving in isn't necessarily linear so you can have some step ups in unevenness in sort of the cost side and staffing component as you're as you're leasing up. So so there is some some inflation in labor costs for sure as we are seeing across.
Across our LTC as well.
But some of it does relate to just sort of the unevenness. When you are in lease up and there are a lot of our.
<unk> growth is coming from the lease up properties.
Okay.
Okay.
And then moving to the home care sectors.
The recent.
Wage increase or a rate increase.
When was the last time Goldman did the government get similar increase in the box.
And how much it's been.
Yes, it's been quite some time.
Im looking looking around the room to it's been a few years.
I would say five or six years since there has been a true.
Rate increase theres been a number of elements as you can if you recall.
Where rates have increased to absorb incremental costs. There was the bill $1 48.
Wage increases that came through a couple of years ago. So.
In terms of.
Across the board rate increases is the first time in a number of years that we've had.
So why is the industry not pushing for like.
At this time.
Our regular rate review.
How your LTC.
LTC payment.
It gets reviewed every year.
Yeah. She may you may want to just take a look at the release from the.
The homecare, Ontario.
<unk> yesterday.
In response to the fall economic statement.
And Ontario.
It.
It does just that.
Okay.
Do that.
And then moving to the Saskatchewan issue what was the contribution of those find homes and like a more normalized state.
2019.
Yes, I think in our in our.
In the MD&A, you'll see that sort of a more normalized level was about $1 million one point like if you go back to two.
2020, and beyond you're talking it you were looking at.
About $1 million a year of NOI in 2020.
And back to 19.
We don't have that number handy, but it's a bit higher than that but I still think ultimately youre talking about.
$1 million or less on <unk>, which would be about a penny of ASF.
Yeah.
Okay.
And what would it be done enough market value of those properties I know your you know of course.
Oh.
Your what you're carrying on the balance sheet.
Market value.
Yes.
Yes, I think yes.
So I would say that that.
We don't disclose that I mean, we are into a negotiation now with FHA.
There's different ways to value those properties given given the.
The age of the properties and the underlying land, but I would say that the value is in excess of our book value, but there is.
Negotiation under discussion here, that's going to go on with the province over the next few months.
To settle that.
Okay and just one last question if I may.
Given you know.
The wage inflation, we are seeing and.
You know the Saskatchewan properties going away.
Has the board.
Considering the current distribution level recently.
Any color would be great.
Yes, I mean, we always look at our distribution level, Josh I think it's something we are always cognizant of.
We're comfortable with the current level.
Thank.
The FHA going away as you can see was didn't really contribute much from a cash flow perspective, <unk> perspective, so I think that that moving away.
Not have much impact on our thinking around distribution levels.
But we're comfortable that I think we're in a good liquidity position I think the way that we're focused on the redevelopment.
Program and the capital for that just by design the way the program works with with the grants coming in at the end of construction that we can cycle through to the next.
Projects I think overall, we're comfortable with the current level were up.
Okay. That's it for me thank you.
The next question comes from Macau, <unk> with National Bank financial.
Please go ahead.
Hi, good afternoon.
And everyone.
I doubt it.
I just wanted to go back to your comment on nursing, you've made you've made reference to.
Key challenges in particular that being but.
Running our home health care to be.
Let me start again.
You've made reference to the challenges.
That you're having finding adequate nursing staff for home health care.
This environment.
Should we be similarly concerned about it in long term care and can you just remind us what the complements of nursing as a percentage of SaaS and long term care versus home health care.
Yeah there are.
Pretty similar Tao.
I don't know those numbers off the top of my head, but but it's.
It's definitely a majority of.
Of our staff, our Rps w's with with support from nurses in both both of our segments.
So.
I think we're going to face.
More challenges.
On the nursing side as I said earlier.
I think that may require some.
Some policy changes and some shifts in the types of duties.
Different different individuals.
We've responded by adding a lot more in house training capabilities I've been talking about that now for a couple of years, but part of the reason for that is to insulate ourselves from some of those shortages.
And to allow <unk> to pick up more of the slack.
So.
I think this is a sector wide issue that debt.
Well, we will have sector wide solutions.
And.
Our efforts to create a pipeline of.
New <unk> values.
It has been really what underpinned.
Our 11% plus year over year increases in our home care operations.
And.
We're committed to continuing that in the long term.
And are there any differences in those vacancies in the turnover rate between the Chi.
For nursing specifically.
It's significantly less a mantra terrorists are going to weigh more in home health care.
No I would say they are there they are quite similar.
Okay.
The thing about it is that these these labor markets are very regional in their nature.
So in some parts of the country.
It's it's.
It's quite easy to be fully staffed and then in other parts.
We can have significant challenges recruiting people.
As you can imagine.
Large municipalities, it's easier to find people than it is.
And smaller than some of the smaller towns and rural areas.
So it is it is quite regional and its and its.
And its behavior.
Can you talk about you just did.
<unk>.
Fair to say.
I'm a bit more manageable.
For everyone.
What's your sort of sense and what are you doing your sort of debt.
Page on employee satisfaction right now an employee wellbeing and what are you sort of sharing right now and do you have any concerns coming out of those other assignments.
Yes.
I've spent a fair bit of time, the last couple of months visiting our homes visiting our home care offices.
And.
I think the staff.
Our feeling.
Very supported.
And very positive about the.
About the future I mean that the pandemic was very difficult for everybody.
I think I think we're all still contending with the trauma of the of the pandemic, but the fact is that the response, particularly in the province of Ontario to that to that very negative event has been very positive by way of support everything from salaries to new.
New facilities too.
Two adding staff so that workloads are more manageable I think the factors feeling more supported right now than it has in 20 years.
So I think people are optimistic about the future.
And I can only point to to our groundbreaking in statesville in the last week in October.
We add a lot of our staff there they were very excited to see us break ground on a new new home very excited about what that means for the future. We had some of our residents there as well they were very excited about it.
So.
My view is is that the mood is.
Is improving pretty dramatically.
Okay.
Yeah.
On the retirement side you had mentioned.
And current poll promotional costs in.
Had crept into the P&L this quarter.
Where these like was.
Was it just a case of like sort of restarting the marketing engine a bit from where you had been in the past and so you had a little bit of extra cost cutting going on.
You're making like direct promotions to drive.
To drive occupancy was it you know your offering.
Rebates or incentives to do so.
To drive occupancy.
Yes, I think.
It's more of the more of the getting going again.
Say versus.
Anything new or different.
So we've.
There is some incentives to drive people coming in but it's more of a restarting I think we're very.
Comfortable with sort of the level there.
We're protecting the kind of revenue per door averages, but there is some incentive activity and mostly to kick start some of the.
Get us back on and keep going on the trajectory that as I said earlier, we still have.
Homes in lease up and Thats, where a lot of our activities getting driven from.
Okay and.
I think you said there was 185 beds that are out of that.
You sort of don't intend to put back into service with.
In the three and four bed wards.
There is no agreement reached with the government given idea of like what the what the impact of that of just losing funding on those $185 would be.
Yes.
Yes.
There's not there's not an exact number I think there is going to be some funding towards them I don't know whether its going to be.
What is going to look like between flow through versus OE funding, so, but I mean again, it's a 185 beds out of 5100, and Ontario, and 8000 all of long term care. So.
It's really not a material impact from our point of view.
Okay.
Thanks, very much gentlemen.
This concludes our question and answer session I.
I would like to turn the conference back over to Jillian fountain for any closing remarks.
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