Good morning, ladies and gentlemen. Welcome to the Chartwell Retirement Residences Q3 2021 financial results conference call. I would like now to turn the meeting over to the CEO, Vlad Volodarski. Please go ahead.
Thank you, Chris. Good morning, and thank you for joining us today. There is a slide presentation to accompany this conference call available on our website at chartwell.com under the Investor Relations tab. Joining me are Karen Sullivan, President and Chief Operating Officer, Sheri Harris, our Chief Financial Officer, and Jonathan Boulakia, our Chief Investment and Chief Legal Officer. Before we begin, I direct you to the cautionary statements on slide two, because during the call, we may make statements containing forward-looking information and non-GAAP measures. Our MD&A and other securities filings contain information about the assumptions, risks, and uncertainties inherent in such forward-looking statements and details of such non-GAAP measures.
More specifically, I direct you to the added disclosures in our MD&A for the year ended December 31, 2020, under the heading COVID-19 business impacts and related risks for a discussion of risks and uncertainties related to the pandemic. These documents can be found on our website or at sedar.com. Following continuing improvements in our leading indicators, we are now seeing occupancy gradually recovering, led by strong improvements in our Western Canada portfolio. Having visited several of our residences recently, I know that our teams are focused on continuing occupancy recovery and are looking forward to welcoming new residents to their communities. Karen will speak about various initiatives that we're putting in place to help them in this recovery.
While many infection prevention and control protocols introduced during the pandemic remain in place, we continue to invest in residents' and staff safety measures. The pandemic-related expenses have been gradually coming back to more normalized levels. The frequency and severity of COVID-19 outbreaks have declined thanks to high vaccination rates of our residents and staff, and in the community at large. Our mandatory staff vaccination policy has been in place in Ontario and Western Canada since October 12 and will be effective in Quebec on November 15. We serve and care for people who are most vulnerable to this virus, and we see it as our duty to do our best to protect them. At this time, vaccinations are the best defense available, and that is why we are leading the retirement living sector with the implementation of this mandatory vaccination policy across the country.
Our long-term care team has done an excellent job admitting new residents to their homes. Our long-term care portfolio is now at 96.5% occupancy, excluding beds taken out of inventory due to restrictions on admissions in three and four bed wards and beds reserved for isolation. With the completion of our unit offering in August 2021, proceeds of which were partially used to repay our indebtedness, we created balance sheet flexibility to execute on our strategic objectives, including acquisition opportunities should they become available. We continue to maintain significant liquidity of CAD 338.6 million and an unencumbered asset pool valued at over CAD 1 billion. We have now completed construction of two new residences.
The 172-suite Chartwell Guildwood welcomed its first residents in September, and a 122-apartment addition to Chartwell Montgomery Village will have their first move-in in late November. Both residences had strong pre-leasing, with Chartwell Guildwood having 71% of its suites reserved and Montgomery having 38% reservations. I will now turn the call over to Karen to provide her operational update. Karen?
Thanks, Vlad. Turning to slide four, I'm pleased to report that we continue to have only a small number of outbreaks in our retirement residences and long-term care homes across the country, including no outbreaks at this time in our Ontario LTC homes. With respect to the four homes that are currently in outbreak, in two residences, the number of residents and staff affected is very small. With respect to larger outbreaks in two retirement residences in smaller communities in Northern Ontario, the affected residents and staff are either asymptomatic or have relatively mild symptoms.
The change in outcomes in our sector is due to the very high vaccination rates among our residents, 97.5% of residents with at least one dose, as well as Chartwell's mandatory vaccination policy for staff, which is in place in all of our homes and residences across the country. This includes moving forward with our policy in Quebec, where the provincial government recently decided not to proceed with a mandatory vaccination policy for healthcare workers. We believe strongly that this policy is essential in all of our homes to protect the vulnerable populations that we serve. The implementation of this policy has resulted in very few layoffs and terminations, thanks to our dedicated staff across the country committed to keeping their residents safe.
We're also very pleased that our residents, as well as healthcare workers, have been prioritized for the third dose booster shot, with administration completed in our LTC homes in Ontario and well underway in our other platforms. We're also seeing provinces, including B.C., Alberta, and Ontario, prioritize third doses for our employees. The high vaccination rates and improved outcomes have continued to lead to reduced restrictions in our residences across the country, and people are now returning for in-person tours, families are joining us for delicious meals again, and exciting group activities are back on the calendar.
Overall, changes in capacity to access stores, restaurants, gyms, sporting events, et cetera, in the broader communities where we operate are also leading to a new sense of normalcy that will help with overall confidence during the coming weeks, which are traditionally some of our best sales weeks of the year. This, combined with pent-up demand, should result in occupancy improvements in our retirement residences across the country. We are seeing signs of this in terms of improvements in our leading indicators, including a 35% increase in initial contacts and a 55% increase in personalized tours quarter over quarter, and most importantly, an increase of 31% in permanent move-ins, with permanent move-outs down 5% in Q3 2021 compared to Q3 2020. Specifically, we have seen a significant rebound in our Western Canada properties, with Ontario beginning to gain occupancy and Quebec occupancy stabilizing.
Turning to slide five, our always-on multimedia marketing campaign, Think You Know Retirement Living? Think Again, showcases the very best aspects of retirement living, including social connections, leisure experiences, and visits with families and friends. We're also well underway in producing our winter campaign, which has an emphasis on the support and care services that are available in a retirement residence. From connection to staff, to healthy and nutritious meals, as well as housekeeping and maintenance, and care services, we are reinforcing our message towards a needs-based audience for the winter months. Our website, chartwell.com, just received a design makeover to improve the user experience. Based on an analysis of the website data and changing market conditions, a property-oriented design was determined to be the best approach for the next iteration of the website.
Along with making property search the focal point on the homepage, we are also helping website visitors navigate through the property pages more easily. Early analysis shows positive results in generating inquiries and property material downloads. In Q3, we completed our fall sales training sessions with our retirement living consultants across the country with a focus on our sales process, the use of videos as an enhanced sales tool, improvements to our prospect data collection process, and the advantages of our business development strategy. With 11 business development managers now in place across the country focused on building relationships with community influencers, including healthcare professionals, realtors, financial planners, et cetera, we are increasing our referral base. This strategy, along with the rollout of Club Chartwell, our resident referral program, is designed to focus on prospects with the highest closing ratios, specifically those who have been referred by a trusted source.
Finally, turning to slide six, the operations team continues to focus on the Chartwell experience, including returning to in-person training sessions for new staff. Work also continues on our staffing optimization project to maximize full-time positions in our residences and better align staffing levels to occupancy, care, and service levels. Also, with respect to staffing in Q3, we hired additional recruitment resources to assist us to fill frontline and managers vacancies in our homes. Our new Care Assist program in Ontario has led to steady growth in care revenue month-over-month, and we are now augmenting this with access to virtual physician services in all of our residences in Ontario, with plans to introduce both of these programs in Western Canada in 2022. Our expenses continue to decrease as the pandemic restrictions ease and case counts have subsided.
This includes a reduction in costs for PPE and additional pandemic-related staffing. We are also pleased to see the Ontario provincial government make important steps to increase the staffing levels in our long-term care homes, including funding to begin to move to an average of four hours of care per resident per day, which, if passed, will be enshrined in new legislation recently introduced by the government. I would now like to turn it over to Sheri to discuss our financial results.
Thank you, Karen. As shown on slide seven, in Q3 2021, net income was CAD 0.9 million, compared to a net loss of CAD 6.8 million in Q3 2020. For Q3 2021, FFO was CAD 33.9 million or CAD 0.15 per unit, compared to CAD 38 million or CAD 0.17 per unit in Q3 2020. The decrease is primarily due to lower occupancy, sales of non-core properties, and lower interest income, partially offset by lower finance costs and higher management fee revenue. Slide eight summarizes our same-property operating platform results. Our same-property adjusted NOI decreased by CAD 4.2 million or 6.5% in Q3 2021 compared to Q3 2020 as a result of lower occupancy of 78.2% in Q3 2021 compared to 83.2% in Q3 2020.
Same-property retirement occupancy was 76.5% for Q3 2021 compared to 82.4% for Q3 2020, or a decline of 5.9 percentage points, which resulted in lower revenue of approximately CAD 10.3 million compared to Q3 2020. On a sequential quarter basis, our Western Canada platform achieved strong growth with weighted average same-property occupancy increasing 1.9 percentage points from Q2 2021. Our Ontario platform occupancies began to stabilize during the quarter with a small sequential quarter decline. The pace of decline in our Quebec platform slowed. The following additional factors affected our same-property retirement operations results. With a reduction in the number and severity of COVID-19 outbreaks, we have been gradually and safely reducing expenses to levels commensurate with our occupancies and service levels.
Net pandemic expenses were CAD 0.6 million in Q3 2021 compared to net pandemic expenses of CAD 2.9 million in Q3 2020. In Q2 2021, we had net pandemic recoveries of CAD 3.2 million. In Q3 2021, we generated higher revenue from inflationary and market-based rental and service rate increases, including from the provision of additional care and services as residents age in place longer. With fewer departures during the pandemic to long-term care, needs have increased. We also experienced higher utilities and insurance expenses. Our same-property long-term care home occupancy, based on total capacity of licensed beds, was 89% compared to 88.3% in Q3 2020, an increase of 0.7 percentage points due to higher admissions.
For Q3 2021, weighted average occupancy, excluding the beds that are not available due to reduced capacity in three and four bed boardrooms and rooms designated for isolation and cohorting, was 96.5%. Occupancy protection funding provided by the Ontario government will continue until January 31, 2022. For Q3 2021, same-property adjusted long-term care NOI increased CAD 1 million, or 16.7%, due to lower pandemic-related expenses, partially offset by higher utilities and insurance expenses and lower retirement accommodation revenues. Turning to slide nine, you will see our monthly occupancies. The pandemic and related government and health authority restrictions and directives have resulted in decreased occupancy levels due to reduced move-in activity in our retirement residences compared to pre-pandemic levels. Pandemic-related restrictions and directives included restrictions affecting resident move-ins, prospect tours, dining services, group activities, housekeeping, visitation, and both short- and long-term leaves, among others.
With the large-scale successful vaccination program, pandemic-related restrictions in both our residences and in the communities in which we operate continue to ease. Current Public Health Agency of Canada modeling projects that the pandemic-related restrictions can continue to be gradually lifted, and that with public health measures like vaccine passports and masking mandates remaining in place through the fall and winter, hospital capacity is not likely to be exceeded. As a result, we believe there is a low likelihood of pervasive restrictions needing to be broadly reintroduced. As these restrictions have been significantly lifted, we have seen increases in personal tour bookings, lease signings, and permanent move-ins. In August 2021, our occupancy overall increased, led by our Western platform and demand for needs-based move-ins across the country. Our Quebec residences have continued to experience declines in occupancy.
We believe that if pandemic-related restrictions continue to ease, move-ins will continue recovering, and occupancies in our retirement residences will continue to grow in 2022, supported by strong demographic growth, which increases to 5.2% in 2022 for the 75+ cohort in the four provinces in which we operate. Pent-up demand. It is likely that due to the isolation and reduced services available during the pandemic, needs of older adults in the community have increased, and there have been significantly lower construction starts since the onset of the pandemic compared to historical levels, and as such, there will be fewer new retirement residence openings relative to past levels. Looking to our estimates for Q4 occupancies, the West and Ontario continued to grow their occupancies in October, while Quebec occupancy declined. Ontario is expected to remain stable.
The West is moving up in November, with December notices not quite yet offset by leases, and Quebec is expected to increase slightly in December. Our November and December forecasts are based on leases and notices on hand, and as a result, do not include needs-based move-ins that would typically occur mid-month. December is typically our strongest move-in month of the year. For comparison, our estimate of August 2021 on this basis was 76.3% for our same property retirement portfolio, and our actual occupancy for August came in at 76.6%, 30 basis points higher. As you can see on slide 10, our interest coverage ratio was 2.9 x at September 30, 2021. Our debt to gross book value, calculated using the historical cost of our assets, was 48.8% at September 30, 2021.
Our net debt to adjusted EBITDA ratio was 9.6x. Turning to slide 11, at November 11, 2021, liquidity amounted to CAD 338.6 million, which included CAD 86.3 million of cash and cash equivalents and CAD 252.3 million of borrowing capacity on our credit facilities. In addition, our share of cash and cash equivalents held in our equity accounted JVs was CAD 15.4 million. At November 11, 2021, we have CAD 22.2 million of mortgage maturities remaining in 2021, of which CAD 3.5 million are CMHC insured. We have CAD 204.5 million of mortgage maturities in 2022, of which CAD 74.9 million are CMHC insured.
In addition, there are CAD 15.1 million of remaining 2021 mortgage maturities and CAD 10.9 million of 2022 mortgage maturities in our equity accounted JVs. With strong lending relationships and scheduled refinancings of our mortgage maturities in 2021 and 2022 are proceeding in the normal course. Our mortgage maturities remain well staggered, with an average term to maturity of six point five years at September 30, 2021. At September 30, 2021, our unencumbered assets had a value of approximately CAD 1 billion. Our ratio of unencumbered assets to unsecured indebtedness increased to 2.1x at September 30, 2021. We currently have three projects under construction, which are budgeted to require an additional CAD 85.5 million over the next 18 months, as noted on slide 12. We have recommenced construction of the 90-suite addition to Chartwell Ridgepointe Retirement Residence in Kamloops, B.C.
In addition, we regularly invest in capital in our owned portfolio with the goal of growing our property NOI and protecting and maintaining our properties. We expect to continue to be selective in our capital allocations in 2021. Now I'll turn it over to Vlad.
Thank you, Sheri. I believe we're now on the path to recovery. Our sales leading indicators continue to improve, followed by gradual improvements in our occupancies. I am confident that the initiatives Karen's team has been implementing will go a long way in supporting our residences in their quest to deliver exceptional personalized experiences to our residents, which will continue to drive occupancy and cash flow recovery. I know that our residences teams are committed to our vision of making people's lives better, and now more than ever, are excited to welcome new residents and to drive our post-pandemic recovery. The prospect of our sector remain bright. We deliver much needed services and care to Canada's seniors. This need has not gone away. Likely it has been exacerbated by the pandemic, creating a pent-up demand for our services, which will support continuing occupancy recovery.
The growth in population of people over the age of 75 is beginning to accelerate, with 2022 growth projected at 5.2%. This growth will remain robust over the next 20+ years, supporting demand for our services. There continues to be a shortage of LTC beds across the country, and while various governments are taking steps to reduce the shortage, it is unlikely that they will be able to fund new beds to fully satisfy this existing and growing demand. Retirement residences are well positioned to fulfill this void. In the medium term, the slowdown of new construction starts during the pandemic will result in fewer new residents openings in 2022 and 2023, further supporting occupancy recovery and growth. Housing markets remain robust across the country, which makes it easier for our prospective residents to sell their homes and finance their retirement living.
All these factors contribute to my optimism about the future of the senior living sector in general and Chartwell in particular. Most of all, my optimism is fueled by the tremendous dedication, commitment and passion of our employees. To all of you in our residences and corporate offices, for everything you have and continue to do in supporting and serving our residents, their families and each other, for your courage and sacrifice, for your kindness and empathy, for your resilience and tenacity, and for doing the right thing all the time, every time, thank you for everything. We would now be pleased to answer your questions.
Thank you. So we will now take questions from the telephone lines. If you have a question and you're using a speakerphone, please lift your handset before making your selection. If you have a question, please press star one on your device's keypad. When prompted by the system, please clearly state your name to register your question. You may cancel your question at any time by pressing star two. Please press star one at this time if you have a question. There will be a brief pause while participants register for questions. Thank you for your patience. We will take the first question. Please go ahead.
Thanks, good morning.
Morning, Jonathan.
First question. You seem very optimistic on near term occupancy, but if we look at what you guys did in the quarter and just with the outlook that you've given to the end of the year, it is kind of behind what peers are reporting. What do you think that is? Is that maybe a function of you guys holding rate or what do you think it is?
Yeah, we had expected a bit faster occupancy recovery before. We certainly, if you look at the composition of our portfolio compared to peers, it's a bit different in that we are rather heavily weighted in Quebec with a more independent living residents. Those residents we said that the recovery actually there probably will take longer because of the type of restrictions that we put our residents in Quebec through during the pandemic, which was mandated by the government. We are seeing much better improvements in the more needs-driven sectors of our portfolio, and our expectation that that will continue through the coming months.
Okay. If we look ahead to next year, when do you think you sort of cross into overall occupancy growth?
Well, we have been showing gradual occupancy growth. You see our Western Canada platform has been doing pretty well since pretty much July. Our Ontario platform occupancies have stabilized. As you can see, the Quebec continues to come down. Our expectation is that all four or three platforms will revert back to occupancy growth. Now we historically been experiencing, as you know, the slowdown of occupancy in the winter months. Our expectation is that this year it's probably gonna be less than normal because of the pent-up demand that we have, we believe we have in the system.
Okay. Do you think you're into the low-to-mid 80s at some point next year?
Yeah. I mean, it is one of those crystal ball questions, kinda hard to predict.
Yep.
My expectation is that there is pent-up demand. People have not been able to move into senior living for a very long time, particularly the news-driven population, that need hasn't gone away, and if anything, it probably harder for them to stay in their homes now with fewer supports. My expectation is that that will drive the shorter term recovery. As I spoke about in my prepared remarks, mid to long-term recovery factors are very positive from both demographic growth perspective and the slowdown of new home openings.
Okay. Thanks. I'll turn it back.
Thank you. We will take the next question. Please go ahead.
Thank you and good morning.
Morning.
Just on the occupancy discussion in Quebec, how did you mention you have more share of independent living residents there? What is the average age of residents in your Quebec platform? Is it very different compared to Ontario and other regions?
It's not that different. It's a little bit younger. Really, it's a question of the needs when people move in the retirement residences. Pretty much in the rest of the country, those are the people that need assistance with activities of daily living, like meals, housekeeping, medication administration, and things like that. In Quebec, the majority of people move in more for kind of social reasons and have less of a need with activities of daily living.
Got it. You know, sticking to Quebec, based on your sales team feedback, what could be the shape of recovery there? I mean, you think this thing can go on for another six months before you see any recovery there?
Our leading indicators that we spoke about on a few calls now continue to point to an occupancy recovery across the board in all of our platforms. We're seeing good improvements in our initial contacts, personalized tours, and we're getting more leases signed now than we had in the past. That all points to the beginning of occupancy recovery across the board.
Okay. Got it. Just shifting to Ontario platform, you know, December occupancy almost flattish with July. I mean, with so high rate of vaccination, not many COVID case counts, was it in line with your internal expectations? Is it only few markets which is slowing down the recovery in Ontario, or is it across the board?
Yeah. We do have some challenging markets for sure, including a number of homes in the Ottawa area that were challenged even before the pandemic. Some of that is that. As Vlad said, you know, the occupancy recovery hasn't been as quick as we had hoped. We are really pleased with these leading indicators and what they're showing. Also, I would point out in Ontario, where we do have assisted living and memory care units, we are seeing stronger recovery and also more positive month-over-month care revenue. We introduced during the pandemic our new Care Assist program for our residents to purchase additional care services in Ontario, which helps them age in place longer.
We do have less turnover than in the past. All of those things, as well as the host of things I said in my prepared remarks around our marketing campaigns, our website update, our overall sales process and our focus on resident referrals, which are, you know, the of all of the prospects, these are the ones that convert the most. We see this as really positive. Also, Sheri and I both mentioned in our remarks that this is the best part of our year for leasing. That gives us optimism as well.
Got it. Thank you. On similar lines, I mean, you guys have said before that Canada is probably three-four months behind U.S. in terms of the shape of recovery. Do you still believe that?
Himanshu, thanks for the question. You know, the actual stringency measures that were in place in Canada did persist for quite a bit longer than they did in the U.S. I think that has contributed to the delay. The two most stringent provinces would be Ontario and Quebec, which is where our portfolio is weighted to. While Quebec shows up on that stringency index as number two as it related to retirement residences, it was the most stringent in terms of retirement residence specific restrictions.
Got it. Thank you. Probably the last question is on the cost structure. I mean, do you use agency hiring in Quebec more than the rest of the platform? What kind of wage pressure did you see in Quebec during the quarter?
Yes, we have been throughout this pandemic, we had to use agency staffing pretty much everywhere because of various reasons, and we need increased staffing levels in the homes to keep residents safe. Historically, and now, we have been using agencies more in Quebec, particularly in the areas like Quebec City that had even pre-pandemic significant challenges with staffing. We have a project that is ongoing within the company, where we are looking to standardize scheduling, increase the percentage of hours delivered by full-time employees, and provide additional flexibility for people to select their part-time shifts. We expect that as a result of that project, we will be able to reduce the use of agency staff in our homes.
With kind of reduction of government subsidies for people to stay at home, we hope that there's gonna be more people available to work in retirement residences across the country.
Got it. Thank you, guys, and I'll turn it back.
Thanks.
Thank you. We will now take the next question. Please go ahead.
Hi, good morning, everyone.
Hello.
Good morning. Just wondering about the LTC occupancy. Like, it's good to see the occupancy rebounded to the 89% this quarter with higher admissions. I just want to get your opinion on the expectations in terms of the occupancy at end of this year and moving to 2022 on the LTC front.
Well, our occupancy in our long-term care portfolio, if you exclude the isolation beds that we require not to fill and keep for isolation and restrictions on the admission to three and four-bed wards, which took some beds out of inventory. If you exclude those beds, we're actually at 96.5% occupancy, which is stabilized occupancy for the long-term care portfolio. The occupancy protection that the government put in place remains in place until the new year. Our expectation is to continue to run at this full occupancy and unless restrictions on the admissions in three and four-bed wards are lifted, those beds will continue to have to be supported by the government financially, but we will not be accepting residents in those.
All right. Thank you. Just, I guess, switching gears to the capital recycling front. I saw you know, disclose the disposition of the retirement home in Ontario. You know, do you think, do you see the pricing is getting better now? I wonder, do you see more opportunities down the road moving to 2022?
We're actually seeing opportunities for more acquisition and disposition, I suppose. The portfolio or properties that we have sold and have been selling historically are non-core properties for Chartwell. They're usually smaller homes in smaller markets, and this portfolio is no different. We are seeing interesting acquisition opportunities in the marketplace. There's also more competition for those opportunities. There's really no guarantees if we'll be successful in pursuing any of these. It's good to see that there are some opportunities now.
Okay. I guess just to follow up on that. Where do you see the competition? Is it like Canadian entities or it's more U.S. private equity?
Hi, it's Jonathan. We're seeing, I suppose, more competition from U.S. equity shops. We're also seeing, you know, competition in the Canadian market as well. The consistent, increased interest in our sector, which is always a good thing.
Okay, thanks. My last question, I guess, on the financing side. You know, that EBITDA improved quite well to 9.7x. How's the conversation with the rating agency? Like, do you expect to, you know, I guess they list some criteria. Do you guys expect to meet the criteria and, you know, resolve the current trend?
I mean, certainly we are with the recent equity issue that has improved our net debt to EBITDA. We definitely want to see go forward improvements by improving EBITDA, and that will happen with occupancy recovery. I think the combination of those things will result in improvements to that rating. I would say that we need to continue to move the dial on improving EBITDA as well.
All right. Thank you. I'll turn it back.
Thank you. We will now take the next question. Please go ahead.
Tom Callaghan. Thanks, and, good morning. Just with respect to Quebec, have the majority of the restrictions now been lifted or are still some in place?
No, they have been lifted, so they were a little bit behind the other provinces, but now very much in line with the rest of the country.
Okay. Quickly
Tommy, I think you've broken up. We can't hear you.
Chris, are you there?
Yes, I am here. We will go on to the next question. Please go ahead.
Lorne Kalmar. Hi, good morning, everyone.
Morning.
Good morning.
Sheri, when I looked at my forecast versus what you guys reported this last night, on the retirement side, you know, I got the occupancy, you know, roughly where I thought it would be, but the NOI was significantly lower. I'm wondering if you can just sort of walk through between Q1 to Q2 to Q3, like, what some of the changes were there. Because it seems to me like something was off in my forecasting, and I'm just trying to understand what some of the differences were. Because the drop in occupancy between Q1 and Q2 was a lot greater, and there was not as much of an NOI impact.
Yeah. Thanks, Kal. Good morning. We've certainly had the benefit of with the additional measures that we've put in place through the pandemic as a result of the restrictions that were in place that had increased our costs, including additional staffing and PPE. We had benefited from support for a number of those initiatives. In Q2, we would've had recoveries of about CAD 3.2 million in terms of our net pandemic position. In Q3, we would be in a pandemic expense position of CAD 0.6 million. That creates a significant shift over the quarters. We have maintained our staffing levels and expenditures through the pandemic. As a result, as we transition through occupancy recovery, we do expect to get back to pre-pandemic margins in on the other side of the pandemic.
Is it fair to say too that, like, your net pandemic expenses are probably gonna be lower going forward, but we're still probably gonna see a little bit of recovery still over time too.
Yeah, that's a fair statement. Certainly through the months of Q3, we saw our pandemic expenditures start to decline with the lifting of restrictions. We'd also had in Q3, Cal, additional expenses for utilities just because of the seasonality of air conditioning. Cooling in the summer is just more expensive than our shoulder season that's in Q2. That would certainly have impacted the Q2 to Q3 comparison. But we do expect those to come down over time.
Okay. Are you guys getting any, you know, like we didn't have much of a flu season last year. Are you getting any sort of color from public health or anything like that, sort of what maybe to expect this year? Or, you know, the outlook maybe is, you know, hopefully it'd be nice if we didn't really have a significant one again.
That would be very hopeful that that's the case so far, I would tell you, 'cause we look at the trend as the season started, which really flu season starts in September, and we are slightly less than we were last year. That's hopeful. We also have a very significant campaign going on right now to encourage both our residents and our staff to get the flu shot. Our group of residents are always the first ones where there's availability for them. That is also going well.
Okay. Just as, you know, as the marketing machines start to get humming again here, the questions that you're getting from prospective tenants, like, are you having to sort of deal with new requests, new concerns? Like, how, you know, what's sort of the tenor between now, pre-pandemic and post-pandemic?
Yeah. I mean, they would certainly ask and want to understand what the restrictions are. The nice part is in the last you know short while we've been able to talk about how the restrictions have lifted and changed. There's just such a better feel in our homes right now because people are eating in the dining room with you know three of their friends instead of just with one or in their room on occasion during outbreaks, et cetera. You know, I would say the most positive part is that our personalized tours are back, and so people are coming into the homes. You know, there's just such a better feel for that. Of course, they wanna understand if there are those restrictions, and they ask those questions.
Okay. Just the terminology just to make sure I understand exactly, you know, what you're talking about. When you talk about needs-based, like, you're basically saying, like, these are tenants whose, you know, whether their physical ability to remain in-home has been compromised and they, you know, like the family and the tenant have to sort of move quickly to get to find a residence versus more, I would guess, you would say planned tenants. Is that?
Yeah.
Is that kind of the way to think about it?
Yeah. That is the way to think about it. I mean, we get residents moving in in the month that they actually contact us. Those are the most needs-driven. Sometimes they even come out of hospital or you know, maybe they've had some support at home, but people are going back to work. That's changing as well. You know, those are the most needs-based. I would also say that you know, people age sort of slowly over time, and sometimes you know, we encourage people to look into retirement living as early as possible. I would say we're starting to see some of those people who maybe we talked to even pre-pandemic, who have now aged in place and really need our services.
Our Care Assist program, I think, is helping with that because, you know, we always have provided meals and housekeeping, but now, you know, people are focused on having med management and, perhaps, assistance with portering to the dining room, et cetera.
I think for my last one, can you just talk a little bit more about this Care Assist program? And is this something that is differentiable and can competitors sort of follow suit on what you're trying to do there?
Yeah. I mean, we've always sold additional care services. We've just standardized our offerings. We've packaged them in a way that I think is easier for prospects to understand and for us to deliver as well. I, you know, I think it is a differentiator and definitely a focus for our homes, particularly in Ontario, where those third and fourth beds are closed in long-term care. There's a lot of, as we know, pressure on the long-term care system. That was part of our focus in putting that together so that people could stay with us safely and also perhaps in some cases, when it's appropriate, choose us rather than long-term care.
Again, just with respect to the retirement occupancy forecast, to be clear, what you said earlier was that it reflects the leases you have in hand. It does not reflect any needs-based stuff, which clearly is also part of the business. If things go normally, you would, you know, it wouldn't be shocking if you, if you came in ahead of those numbers?
Correct. That is what we would anticipate. We've included leases and notices on hand. As Karen and I have mentioned, you know, our leading indicators are ticking up, and December is always typically a good move-in month for us. I am cautiously optimistic on that front. Our figures at August, we came about 30 basis points ahead of that, but August is a relatively low move-in month typically. Just to give you some indication of where I would see potential upside in that number.
Okay. That's great. Thanks, everybody.
Thank you. Once again, please press star one on your device's keypad if you have a question. We will take the next question. Please go ahead. Tom Callaghan.
Hi, sorry about that. Not sure what happened there. Just maybe coming back to that 30 basis points of perhaps better than expected occupancy tick-up in August, was that mostly from the unanticipated needs-based move-ins, and secondly, has there been the historical sort of pattern or estimate of what you know those needs-based move-ins can you know drive on a monthly basis if you took sort of a long-term average?
You know, it really has a bit of seasonality to it, Tommy. I mean, when we're in a positive leasing season, they go up when it's not, you know, when we're in January and February, which is a little lower, they tend to be a little softer. This is the time of year when they are typically a little bit higher. You know, we won't have visibility to that until we get into December, and we'll just have to see, you know, how that plays out.
Got it. Just with respect to the mandatory staff vaccinations, you know, it seems like there hasn't been any real material impact to date, but, you know, are you expecting perhaps potentially increased reliance on maybe agency staff as a result of that?
No, it was, in the end, a very small number of our frontline staff who did not comply with the policy. There just have not been big ramifications from the vaccination policy. It's been very positive, I think, and also a good selling feature for prospects in our retirement homes to know that the staff are all vaccinated.
We certainly do have initiatives around reducing agency utilization. It's not our preferred approach, but we've become more coordinated and centralized about that. Certainly that's part of how we are bringing our costs down and would expect that to continue through next year. Once, you know, there are a number of initiatives that will, we think, improve that result.
Maybe just as an extension of that, Sheri, what rough percentage of either your labor costs are currently agency based versus what that might have been perhaps pre-pandemic?
We'll have to get back to you, Tommy, on that. We don't have the numbers at our fingertips, but they certainly have been a lot higher during the pandemic than they were pre-pandemic. Again, it also depends on the market. As I mentioned, in Quebec City, we had historically been running higher agency costs because of the staffing challenges that we had there. In terms of specific numbers, we'll have to get back to you.
Okay. Got it. Just maybe, you know, coming back to the margins and, you know, your commentary around, you know, the occupancy pick-up and I guess declining pandemic related costs, what are perhaps some of your initial thoughts as we think about maybe just the next twelve months in terms of what the margin pick-up could be? Just secondly, is it, you know, fair to say that Q3 marked the trough?
I think over time, we would expect to be back to our pre-pandemic levels. Vlad has mentioned we have a typical winter dip, and we have seasonality that I spoke about, you know, earlier around utilities as well, the winter months being, you know, more expensive in terms of heating. That certainly plays into things. We do believe that with, you know, pent-up demand and the improvements that we're seeing in our leading indicators, some of that traditional winter dip will be alleviated. We would look to, you know, occupancies recovering and bringing down our expenses and to be on the other side and returning to pre-pandemic levels of margins.
Got it. Just last one for me. Maybe just coming back to the dispositions, can you just provide some color on the locations, like which markets were those in and perhaps the expected NOI impact?
Yeah. These four homes were not core to our portfolio. They were smaller properties in smaller Ontario communities. We were very grateful for the transition out that our staff has shown great professionalism through. Of course, our focus has been on our residents and making sure that they are in good hands and with a quality operator. The occupancy on the assets sold was in the mid-80s, and the sale price or cap rate on these sales was consistent, I think, with similar properties in similar locations that we're seeing, which is in the mid- to high-6% cap rate. The impact to NOI is not really material due to the size of the assets.
Thanks very much. I'll turn it back. Thank you.
Thank you. We will now take the next question. Please go ahead.
Hi, guys. Sorry, there's a follow-up here. In fact, my question was on the disposition about the cap rate. If I heard it correctly, you mentioned mid- to high-6% cap rate. Was that on normalized NOI or in-place NOI?
That would be on normalized NOI at the high 6% and on in-place in the mid 6%.
Got it. Thank you. Then just one more question. How is the operating cost per occupied suite trending, and has that begun to, you know, trend lower now? You know, question regarding, you know, how variable or fixed is your operating cost. If occupancy were to move 5 points, how will that metric trend from here?
Sure. Thank you, Himanshu. I mean, certainly, you know, as we move forward through increasing our occupancy levels, you know, there will be lower incremental variable costs associated with that than there would have been historically because we have maintained our staffing levels through the pandemic. You know, the additional costs that you would find on the increased occupancy would be food and supplies. You've seen that, you know, we've had lower food costs because of lower occupancies. I would expect that would go up going forward. Hopefully that trends, you know, currently as occupancies have come down, our cost per occupied suite has been going up. We are bringing those excess costs now back down into more normalized levels gradually and safely.
Got it. Thank you. I'll turn it back.
Thank you. There are no further questions registered at this time. I'd like now to turn the meeting back over to Mr. Volodarski.
Thank you, everybody, for joining us today. As always, if you have any further questions, please do not hesitate to give us a call. Goodbye.
Thank you. The conference is now ended. Please disconnect your lines at this time, and thank you for your participation.