Good morning, ladies and gentlemen. Welcome to the Q3 2020 financial results conference call. I would now like to turn the meeting over to Vlad Volodarski. Please go ahead.
Thank you, Anna. 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, Chief Financial Officer, and Jonathan Boulakia, Chief Investment and Chief Legal Officer. Let me remind everyone that during this call, we may make statements containing forward-looking information and non-GAAP measures. I direct you to our MD&A and other securities filings for information about the assumptions, risks, and uncertainties inherent in such forward-looking information and details of such non-GAAP measures. More specifically, I direct you to the added disclosure in our Q3 2020 MD&A under the heading Forward-Looking Information and COVID-19 Risk for discussion of risks and uncertainties introduced by the pandemic. These documents can be found on our website or at SEDAR.com.
As new waves of the pandemic continue throughout Canada, Chartwell people are once again being called upon to step up to protect the most vulnerable segment of our population. Step up they do, day in and day out, from our residences to our regional and corporate support teams and Critical Incident Command. Our people work tirelessly to preserve the safety and well-being of our residents, their families, and support each other. I am grateful to each one of them for their exceptional work in these challenging times. Nothing speaks better to this work as the recognition received from our residents and their families, the heartwarming stories of empathy, care, and love that we receive every day. It is clear that even when restrictions make it difficult to visit with family and friends, because of our staff, our residents are never alone.
I would like to take this opportunity to express my appreciation to the federal government and provincial governments for their support during the pandemic. Particularly, I would like to highlight the efforts of the Ontario government in supporting the long-term care sector in the province, including a commitment to fund the average four hours of care per resident by 2025. As a result of recent improvements made to the long-term care redevelopment program, we have commenced the redevelopment of a 100-bed Chartwell Ballycliffe long-term care residence in Ajax, Ontario. This project has been five years in making, and I want to extend my thanks to our development and operating teams for their tenacity and commitment to make it a reality. Once completed in the spring of 2023, the new residence, built to current design standards, will serve 224 residents, 134 of them in private rooms.
We are seeing a much improved collaboration of retirement and long-term care operators with our healthcare system partners, public health authorities, hospitals, and governments. This is a welcome change from our experience in the spring. Only working together, we can overcome this unprecedented challenge and protect the most vulnerable segment of our population. Our Q3 and year-to-date 2020 results have been significantly impacted by the pandemic, primarily because of occupancy declines and significant additional expenses incurred to keep our residents and staff safe. Unfortunately, these headwinds are expected to continue to impact our results in the short term. Various restrictions and conditions on prospective residents' visits and new residents' move-ins remain in place in many of our markets. With the recent increases in the number of cases in the community, more of our residences are being impacted by COVID-19 outbreaks.
While these outbreaks have not been as severe as the ones we experienced in the spring, they negatively affect our ability to conduct personal live tours and resident move-ins, which in turn continue to negatively impact our occupancies in the short term. To continue to weather the storm while prioritizing resident, family, and employee safety, we are focused on efficiencies and cost controls. We have become even more selective in allocating our capital and deferred some discretionary capital expenditures. We maintain a strong liquidity, which as of November 5th, 2020, amounted to CAD 408 million, including CAD 61.6 million of cash and cash equivalents and CAD 347 million of available borrowing capacity on our credit facilities. We continue to access debt financing on favorable terms, refinancing our maturing debt, and topping up maturities during the term where applicable.
I believe that once the current restrictions ease, the pent-up demand for our services, combined with continuing severe shortage of long-term care beds, will support our occupancy recovery in the medium term. Over the long term, I believe the prospect of our sector remains bright. The growth in the over 75-year-old population is accelerating, particularly in 2022 and 2023, which in turn should drive the demand for our services. I also believe that the pace of new construction starts has slowed down through this pandemic, which should result in fewer new suites coming to market at the time when the demand is expected to pick up, creating strong conditions for further occupancy growth. Our team has tremendous depth of expertise, which now includes operating through a pandemic, a resolve to succeed, and dedication to our purpose of making people's lives better.
Our culture is exceptional, our brand is strong and getting stronger, and our strategy is clear. I believe Chartwell is well positioned to persevere in the current conditions, come out stronger, and succeed in creating lasting value for all our stakeholders. I'm going to turn the call over to Karen to provide a more detailed operational update.
Thanks, Vlad. Turning to slide five, our efforts in Q3 focused on learning from wave one of the pandemic in order to best be prepared for wave two. The fundamental difference this fall compared to last spring is that we know more about the asymptomatic spread of the virus. Testing is improving. PPE is much more readily available, our processes for handling outbreaks and suspected outbreaks have been well established, tested, and standardized. This has allowed our retirement residences and long-term care homes to continue to put the safety of our residents and staff at the forefront while also allowing visitors in our homes as well as new admissions who require our care and services.
This balance takes significant effort from our teams across the country, who have worked tirelessly to adapt to changing provincial directives while caring for our residents physically and emotionally and supporting their families through this difficult time. I could not be more proud of the Chartwell teams in our homes as well as on our operations' Critical Incident Command. The CIC, as we call it, continues to meet daily to assist our residences to interpret and effectively implement directives and guidelines that are now changing not only based on the province but also the city, municipality, or health region within that province. This support continues to include a 24/7 hotline operated with nursing staff to assist our homes with questions and concerns.
With respect to resident safety, we have hired an infection prevention and control, or IPAC, specialist for each of our long-term care homes and reorganized our corporate departments to include an IPAC lead for both the long-term care and retirement platforms. We are also well underway with our typical flu season clinics. In order to ensure that we have an adequate supply of PPE, personal protective equipment, we continue to not only utilize our regular supplier, but we are augmenting this with our own supply chain distribution strategy, which allows us to obtain and distribute PPE as quickly as possible to meet our residents' needs and to get the best price possible as PPE prices stabilize.
Where we have had outbreaks during Wave 2, specifically in our long-term care homes, we have been working very closely with local hospitals, public health, and Ontario Health officials to coordinate infection control practices and staffing strategies, particularly with respect to physicians and nurse practitioners. These partnerships are a vast improvement from the spring when long-term care homes did not get the support required to help our most vulnerable residents. Our partners in the healthcare system have been invaluable. In turn, they have been highly complimentary of our Chartwell teams for their efforts and ability, in particular, to stabilize staffing during an outbreak. This is due to our national recruitment campaign that has resulted in over 1,800 people being hired since March, as well as our strategic relationships with a variety of staffing agencies.
The response to the pandemic is being studied by the Ontario's Long-Term Care COVID-19 Commission, which began meeting with key stakeholders, including Chartwell, in October. A series of interim recommendations has already been published, focusing not only on proactive collaboration with hospitals and public health units, but also funding to increase the supply of PSWs, implementation of the recently released LTC staffing study, and access to point of care and less invasive testing as it becomes available. In response, the provincial government just announced, as Vlad said, their intention to fund LTC homes to provide an average of four hours of care per resident per day by 2024/2025. In addition to the commission, the Ontario government has also announced funding to continue to assist LTC homes with operating pressures, occupancy protection, minor capital repairs and renovations, IPAC resources, and an eight-week supply of PPE per home.
Turning to slide six, we continue to focus on sales initiatives in our retirement residences, including personalized tours in our Quebec, B.C., and Alberta homes, as well as in our Ontario homes that are not in alert or high alert status. We are also offering personalized virtual tours in all of our properties. Our new approach to selling was the focus of our sales training this fall, which was done virtually with our 180-member sales force. In addition, we rolled out our new referral strategy and an updated Winter Stay program. With respect to marketing, we are continuing our multimedia campaign called Life is Better, Together. The campaign focuses on the importance of social engagement while maintaining enhanced safety standards. This campaign is running on TV, social media, print ads, direct mail, and radio throughout November. Turning to slide seven.
Throughout this pandemic, we have been guided by and have benefited from our focus on our unique value proposition, the Chartwell Experience. Our service vision statement is to deliver an exceptional resident experience that is personalized, memorable, and feels like home, where family and friends feel welcome and respected. To this end, we have adapted some of our strategies, such as modifying our Welcome to Chartwell programs and making changes to some of the curriculum in our customer experience training for our frontline staff.
We've also introduced new programs and initiatives, including developing a 14-day Transition Together program to assist residents who must isolate when they move in; introducing specific customer service training for our screeners, who are the first point of contact for visitors; modifying our life enrichment best practices for COVID-19; developing a healthy living series so that residents can remain active and connected; and modifying our care service offerings in our Ontario retirement residences to ensure that we are meeting the needs of our current and future residents. In terms of families and loved ones, we continue to send communication to them via email every week, as well as more often if the home goes into outbreak or suspected outbreak. We're also seeing our residents' families more often, as visitor restrictions have eased, and in many cases, as loved ones have chosen to be designated as essential caregivers.
We believe all of these efforts are helping our retirement residences feel like home for our residents and their loved ones feel welcome even during this challenging time. I continue to be extremely proud of our Chartwell strong team, including, most importantly, our frontline workers and our management teams in our residences, as well as our corporate team members who support our homes. Their hard work and dedication and fearless effort to contain this virus will continue to help us to make people's lives better. Oh, sorry. I'd like to turn it over to Sheri Harris, our Chief Financial Officer, to talk about our financial results.
Thank you very much, Karen. As shown on slide eight, in Q3 2020, our net loss was CAD 6.8 million, compared to a net loss of CAD 0.8 million in Q3 2019. For Q3 2020, FFO was CAD 38 million, or CAD 0.17 per unit, compared to CAD 53.7 million, or CAD 0.25 per unit, in Q3 2019. Our same property adjusted NOI decreased by CAD 13 million, or 17.2%, in Q3 2020. Same property occupancy was 83.3% in Q3 2020, compared to 89.7% in Q3 2019. In our retirement residences, same property occupancy declined to 82.5% in Q3 2020, compared to 88.3% in Q3 2019. Permanent move-ins were 75% of previous year volumes, and move-out activity continued to be slightly below previous year levels. Through Q3, we saw increases each month over the previous month in move-in activity, along with a slight increase in move-out activity.
In addition to the impact of lower occupancies on our Q3 results, we have made investments in initiatives to enhance resident safety and staff safety, and our pandemic expenses continued to exceed announced government funding by approximately CAD 4.1 million for Q3 2020. The majority of our pandemic expenses are for additional staff to provide screening, enhanced cleaning and disinfection, to expand dining service hours to facilitate physical distancing, and in many of our retirement residences for additional care where families were not able to provide assistance in person or where governments were not able to provide home care services. To date, investments in our Ontario long-term care homes are not yet fully funded. Reduced marketing, food, supplies, and repairs and maintenance in our residences and contributions from our acquisitions and developments partially offset our reduced occupancy and unfunded pandemic-related expenses.
Turning to slide nine, I will discuss our same property operating platforms results. In Ontario, occupancy was 77.5%, compared to 83.8% in Q3 2019. NOI decreased CAD 6.9 million, or 18.3%, due to lower occupancies, pandemic-related expenses net of funding of CAD 2.4 million, higher property taxes, utilities, and office expenses, which were partially offset by rental rate increases in line with competitive market conditions and lower food and marketing expenses. In Western Canada, our occupancy was 88.3%, compared to 95% in Q3 2019. NOI decreased CAD 1.5 million, or 9.9%, due to lower occupancies, higher property tax, staffing costs, and office expenses, which were partially offset by rental rate increases in line with competitive market conditions, government funding net of pandemic expenses, and lower food and marketing expenses. In Quebec, occupancy was 86.7%, compared to 91.2% in Q3 2019.
NOI decreased CAD 3.4 million, or 21.8%, due to lower occupancies, higher property taxes resulting from a rebate in Q3 2019, for which there is not a comparable amount in Q3 2020, pandemic-related expenses net of funding of CAD 0.6 million, and staffing costs, which were partially offset by rental rate increases in line with competitive market conditions. In long-term care, occupancy was 88.3%, compared to 98.8% in Q3 2019. NOI decreased CAD 1.5 million, or 17.8%. Same property adjusted NOI decreased CAD 1.2 million, or 16%, due to reduced preferred accommodation revenues and increased nursing and pandemic expenses that exceeded government funding. Turning to slide 10, you will see our monthly occupancies. In October 2020, occupancy declined 0.3 percentage points. The pace of decline in occupancy has steadily slowed since the onset of the pandemic in mid-March, with move-in activity increasing each month.
Leasing activity has been slower in October, with increased restrictions on in-person tours in certain of our residences and with elevated COVID-19 cases in the community. We collected substantially all rent and service fees for October and November, consistent with our past experience. As noted, we continue our investments to protect our residents and staff and reduce the spread of COVID-19. We do anticipate costs decreasing as we move to a more steady state. Our priority must be to protect our residents and staff, and as such, our reduction in costs is expected to be gradual and will be based on careful risk assessments. We will rationalize and improve schedules where and while single-site staffing restrictions remain in place, and where we have added staff to provide additional services previously provided by families or home care that has not been available.
We will work with our residents to assess additional service revenue opportunities on a go-forward basis. In addition, some discretionary corporate projects will be deferred. We continue to advocate for the governments to fund incremental expenses and home care services that we have replaced out of necessity to ensure that our residents are cared for appropriately. In addition, we are in the process of implementing the Canada Emergency Wage Subsidy, CEWS, to maintain quality jobs for our employees who provide necessary services. We expect to apply for approximately CAD 3 million-CAD 4 million of staffing support for Q3 2020. As you can see on slide 11, at September 30th, 2020, our liquidity amounted to CAD 357.8 million, which included CAD 51.4 million of cash and cash equivalents and CAD 306.4 million of available borrowing capacity on our credit facilities.
In addition, our share of cash and cash equivalents held in our equity accounted JVs was CAD 7.6 million. At September 30th, 2020, our unencumbered assets had a value of CAD 928.8 million. Our mortgage maturities remain well staggered, with an average term to maturity of 6.4 years at September 30th, 2020. Our interest coverage ratio was three times at September 30th, 2020. Our debt to gross book value, calculated using the historical cost of our assets, was 52.6% at September 30th, 2020. Our net debt to adjusted EBITDA ratio was 9.1x . Consistent with our business strategy to build and purchase high-quality, state-of-the-art new properties, our portfolio currently includes several new properties in lease-up.
In Q3 2020, four newly developed properties and one recently acquired property with an aggregate gross book value of CAD 274.5 million and weighted average occupancy in Q3 2020 of 44.2%, generated adjusted NOI of CAD 0.7 million in Q3 2020. Upon achieving the expected stabilized occupancy of 96%, these residences are estimated to generate annualized adjusted NOI of CAD 20.3 million at our share of ownership. Our net debt to adjusted EBITDA metric when calculated with the additional incremental NOI of these properties as they stabilize of CAD 18.1 million, would be 8.6x. Turning to slide 12. As Vlad noted, at November 5th, 2020, liquidity amounted to CAD 408.6 million. We expect to be able to meet all of our obligations as they come due, utilizing primarily cash flow generated from our operations, property-specific mortgages, secured and unsecured credit facilities, or term loans.
The pandemic has introduced significant uncertainties, and we continue to monitor the situation closely. We have CAD 14.2 million of remaining mortgage maturities in 2020, of which CAD 12.4 million are CMHC-insured. CMHC refinancings for 10-year terms are currently being arranged at approximately 1.75%. In 2021, we have CAD 244.3 million of mortgage maturities, of which CAD 37.5 million are currently CMHC-insured. With strong lending relationships and scheduled refinancing, our mortgage maturities in 2020 and 2021 are proceeding in the normal course with top-up opportunities available.
Projects under construction are budgeted to require an additional CAD 109 million to completion. This includes CAD 52.5 million related to the redevelopment of Chartwell Ballycliffe, which we anticipate financing with construction financing. Chartwell Teasdale II has achieved stabilized occupancy as defined in our agreements with Batimo. We expect to complete the acquisition of an 85% interest in this project in Q4 2020 and are currently in negotiations on pricing.
We anticipate settling the purchase price by assuming the related construction financing of CAD 37.3 million and repayment of the outstanding mezzanine loan of CAD 3.9 million, with the balance to be paid in cash. We regularly reinvest capital in our owned property portfolio with the goal of growing our property NOI and protecting and maintaining our properties.
Due to restrictions in accessing our residences, only emergency capital works were undertaken during the first wave of the pandemic. While we have begun to allow contractors into our buildings with very strict requirements on infection control practices, we do anticipate that our 2020 capital investments will be approximately 85% of our historical spend. I will now turn the call back to Vlad to wrap up.
Thank you, Sheri. Thank you for your time and attention this morning. We would now be pleased to answer your questions. Elena, please open the lines.
Certainly. Thank you. If you have a question and you're using a speakerphone, please lift your handset prior to making your selection. If you have a question, please press star one on your device's keypad. If at any time you wish to cancel your question, please press the pound sign. Please press star one at this time if you have a question. There will be a brief pause while the participants register. Thank you for your patience. The first question is from Brendon Abrams. Please go ahead. Your line is now open.
Hi. Good morning, everyone.
Morning.
This might be a difficult question to answer, but just as it pertains to retirement occupancy, it looks to have stabilized here over the last few months at around 82%. Just wondering, your expectations over the next few months, based on whichever indicators you're looking at, whether it be deposits, site visitor tours, et cetera, maybe just would you expect this to trend maybe a little bit upward, a little bit downward, or stay relatively flat through kind of the remaining fall and winter months, just maybe some color there?
Sure. I'll give you some color sort of on occupancy just overall since the pandemic and where it is and where we see it going. In wave one, we really, as we all know, as a society, really shut down. We would've had very limited move-ins, and that's when you would've seen our occupancy decline. When the summer came and we were able to start to open up, we actually saw improvements in our occupancy in August, and into September. Sorry.
You mean in move-ins?
In move-ins, sorry. In move-ins. We see that as a good sign. October, when we are now seeing Wave 2, that's where we've seen a bit of a decline in leases. The other thing I would say is we're not shutting down across provinces the way we were before. It's being done in these pockets where they see community spread. We saw that in October, but we're already starting to see some of those communities open up. In Ontario, they put us in either high alert or alert status, but then they take a community out of that status so that we can do personalized tours and, I think we'll start to see a pickup where that happens. The other thing I would say is the needs of the seniors who are living at home are not changing. If anything, they're increasing.
I think, those needs will have to be filled. I think people are probably thinking about whether they can actually stay home for the winter, as opposed to whether they need care and service in retirement homes. We have a number of strategies in place as well, whether it's our Make a Friend, a Neighbour referral program or Winter Stay program. That's just a bit of color on where we see that going.
Yeah. Brendon, of course, in this environment, nobody will be able to give you any kind of definitive answers or numbers of where we see it going. It really will be dependent on the severity of restrictions that remain in place, or the openness that remain in place. We are doing all we can to encourage people and help them understand the safety and precautions that we're taking in our residences to help with their decision to move in. As Karen pointed out, the pent-up demand, I believe, is in the system. When these restrictions are lifted or the case count in the community starts to go down, my expectation is that we will start seeing much better pace of move-ins and recovery. When this will happen is, at this point in time, very hard to predict.
No, of course. Difficult to forecast in this environment for sure. Maybe just on a related topic of rental rates, it looks like, overall, you've been able to hold rates fairly firm, maybe even increase in certain instances. Where occupancy is within your portfolio in the sector, I know historically, that's not really an area where you've wanted to either reduce rates or give incentives because it could be a bit of a slippery slope. I'm just wondering if that philosophy may have to change over the near or maybe medium term, especially as potentially some of your competitors who are not as well capitalized, smaller operators, depending on what they do with market conditions. I'm just wondering if you could give some color there.
Yeah. Our philosophy is not changing. We are offering value to our residents and lifestyle and quality of lifestyle that we provide in our homes. We are not going to be competing on discounts with other people. We much rather understand the customer. We would love to understand their needs, what exactly they value, and what exactly matters to them, and then do our best to address those needs. If it ends up being a few hundred-dollar discount, that might be it. In many cases, that's not what the customer really wants. Especially in these circumstances where you think about safety and you think about quality of staff and quality of services that people provide, the discounts probably is not the first thing that anybody's thinking when they come to the residences.
Not only our philosophy is not changing, it's probably even more reinforced in the situation like today.
Okay. Maybe just on the unfunded pandemic related costs of just over CAD 4 million, is that a level that you would expect to incur over the next few quarters just for modeling purposes?
Yeah. It is a bit hard to predict. We continue to advocate with various governments, in relation to incremental funding. Last night there was an announcement from the Ontario government, which will absorb about CAD 1.2 million of the Ontario retirement expenses that we would have included in our results. On a go forward in terms of monthly expenses, we would look to stabilize the number there, Brendon, for now.
Right. Okay. That's helpful. I'll turn it over. Thank you.
Thank you. The next question is from Jonathan Kelcher. Please go ahead.
Thanks. Good morning. First question just on insurance. You talked a little bit about in the MD&A about increasing rates. What has insurance typically run historically as a percentage of revenue?
Well-
We're working on that.
We'll have to get you this number, Jonathan. As you know, our expenses are, let's say in retirement, be 60% labor, 10% food and realty taxes and utilities. After that, whatever's left is not as much in sort of overall expenses. I'd be guessing right now our number probably less than CAD 10 million in insurance premiums.
Yeah
for the year. That's historical. I don't know if that answers your question.
Okay. Well, yeah, I'm just trying to get a sense of if I doubled it, what that would sort of do type of thing. Is that sort of the way to think about it? Could it be that high?
No. It's not going to be that high. I'll maybe turn it over to Jonathan just to give you a bit more color on what we're seeing there in the marketplace. We're in the middle of the renewal process right now.
Sure. It is a very hard market in insurance generally, in all classes of insurance. That is partly due to the industry we're in and partly due to a broader market on insurance. We're working on our renewal, and it renews pretty shortly. We're looking at our retention levels or deductible levels and the premiums we would pay. We haven't settled on what that will be, but we're pretty confident at this point that we're going to have appropriate coverage. The amount of premium increase is yet to be determined.
We'd be looking to manage that at about.
Yeah.
40% would be a number that we're certainly not think it's going to be more than that.
That's probably worst case. Having said all that, we don't think that the insurance climate properly or appropriately reflects the actual risk that we think there is. We think that risk has been greatly mitigated by, or will be greatly mitigated by proposed legislation in Ontario that would protect service providers like us to the extent we weren't grossly negligent and to the extent we followed public health guidelines. That legislation is already in place in BC. We think that the risk there has been reduced.
Okay. That's helpful. Switching gears, I know you probably won't say too much because you're in the negotiations with Batimo, but how has that changed versus the last couple of assets? Has it changed really versus the last couple of assets that you bought from Batimo earlier this year?
How has what changed?
Looking for difference in valuations.
To start off, we are very keen and excited to get this building and connect it to our existing building, Teasdale. As you noted, we're negotiating the price. We can't really or won't really get into where we expect to land on that. We are in those negotiations, and we expect to close in the next few months. In terms of change, there haven't been a ton of transactions out there, so it's hard to see how pricing has changed. Generally, there's a lot of uncertainty due to the pandemic.
I guess, a hesitancy on buyers' parts to deploy capital, and that has been tempered by what we see, the very low interest rates. All that to say, there's not a whole lot of data points out there, and we're in the thick of discussions with Batimo on the purchase price. More to come on that.
Okay. Just last one for me. The Ontario government, I think last week, announced that it's selling some excess land for purpose-built long-term care development. Is that something that you guys would look at, any of those three parcels?
We are looking at those three parcels. Each of them comes with different requirements on size of build. We are actively looking at that as we look at ways to redevelop our existing Class C homes and these new programs which we also carefully look at.
Okay. With those, and maybe you can or can't answer this, but with those properties, given that there is a long-term care component, would it sort of limit the buyer group to basically current operators of LTC properties?
It's still a little early to answer that question, but I suspect it would, given the fact that there is an LTC component, and I don't think there are a lot of people looking to enter the space that don't have that kind of operating experience. I suspect the answer is yes.
They'd need management.
They would need management, yes.
Okay, thanks. I'll turn it back.
Thank you. The next question is from Chris Couprie. Please go ahead.
Good morning. Kind of wanted to circle back on Brendon's questions regarding occupancy. Just appreciate we can't, with the restriction, we don't know what the pace of move-ins might be. What about overall lead generation? How is that trending on a year-over-year basis? I would imagine part of the change would be commensurate with how much marketing that you're doing. Just any color on lead generation, and just also curious on virtual tours versus in-person tours. Maybe there's just not enough information at this point, but if you've noticed any difference in closing ratios between the two types of activity.
I guess it varies month by month, depending on what restrictions are in place out there. Clearly, when people hear the escalation in the number of community cases, the natural reaction for people is to hunker down and not really start looking for moving. The lead generation has been slower compared to prior periods. It's better than it was in the middle of the first wave of pandemic. I think it follows sort of discussion that Karen had answering Brendon's question. It's better than wave one. It's not as good as last year. That's applicable to lead generation, initial contacts, move-ins. All of our kind of leading indicators are going in the same direction. It's not as good as last year, but better than what we saw in wave one.
I just want to comment. We can do personalized tours in Quebec and Western Canada. It's just in Ontario where we're restricted, and that's if our homes are in high alert or alert, which is changing on a weekly basis. They've put communities in and out. Mostly they've been, well, in our case, it was reduced the number of homes week over week that were in those higher status categories. I'd also say it's just like all of us are getting used to Webex and all of the different Zoom, whatever we're using to do business. Our sales force has, I would suggest, done a very good job learning how to use the new technology to do And they're not just virtual tours, they're personalized virtual tours with our prospects and their families. Our training has gone very well.
I think the fact that we have this kind of technology now has been very advantageous for us. People do, of course, come in to be able to sign their lease and sort of see their suite before they actually move in.
Okay, thanks. That's good color. Then maybe a series of questions just regarding different legislation that's out there. The wage subsidy. Do you expect to potentially receive more funding in Q4? Just technical perspective, how is this going to flow through on the financials? Then two other quick ones. That Bill 218 that was alluded to. Is there a timetable as to when that may pass? Then the occupancy protection funding in long-term care. I think it's till December. Any kind of update on what's happening there? That's it for me. Thanks.
Sure. I'll take CEWS first. It's a function of the revenue decline and the factors for that time period. The federal government program, those factors have been changing. The program has been announced to go through to June of 2021 at this point, but the factors will decline over time.
We will continue to be eligible for certain entities. It's defined at the eligible employer level. We will record this the same way we're recording other government funding, which is in our retirement residences. It is net in the expenses, and in our Ontario long-term care homes, it is gross. You'll see it revenue and expense. Again, it'll be math depending on the revenue decline and the factors in place for the government for Q4, but it should continue on until, at this point, the announced timeframe is to June 2021. In terms of the occupancy protection, we would have, it's about 4,500 beds that come out of the system by closing the three and four-bed wards to a maximum of two occupants.
We are very optimistic that that will continue on through the next wave of the pandemic into 2021, as long as we're in this position of only two occupants in those rooms.
For Bill 218, it's passed its second reading, so we would expect it to become law soon. I'd note that it's a government bill or proposed by a member of the majority government. We don't expect there to be any issues, but I'm speculating.
Yeah. We are hoping that once that is in place, that that mitigates some of our insurance issues, discussions as well.
Absolutely. Thanks very much.
Thank you. The next question is from Himanshu Gupta. Please go ahead.
Thank you and good morning. Just on the COVID cases in your portfolio. It seems that the number of homes in outbreak in November are much less than the number of homes in outbreak in the month of April, May. Is the way the public health is declaring a home in outbreak, has the definition changed this time at all? Or is it mostly because Chartwell is better prepared this time, more testing is being done, more safety protocols is being followed?
Yeah. A few things I'd say. First of all, we do understand the virus better and the asymptomatic nature of it. That's been helpful. Where I said in my remarks that testing is better, it's better than it was, and again, that helps, and there's more sort of consistent testing. I would also say that the key to this is to have less invasive, more rapid testing. The federal government and provincial governments have been looking at that. It looks like there could be something, and there's talk about long-term care and retirement homes with these vulnerable populations, long-term care in particular, being prioritized for that, for sure. Our processes have been defined. We were developing processes in wave one. They're now in place and we have these IPAC specialists that's helping.
In long-term care, we feel like our partners in the healthcare system this time are helping through hospitals and public health, et cetera. Those things are all helping us to be better positioned in wave two. You can't underestimate that there is, at this point, obviously no vaccine for this, and our folks are vulnerable. It's why we continue to, in particular, focus on the need for less invasive rapid testing for our sector, which I think will help with the spread and also help us to fulfill our role in retirement, which is to make sure that we're providing care and services for those residents as well.
Sure. In terms of the definition, if a staff is declared COVID positive, will they declare the entire home into outbreak, or would you simply ask the staff to quarantine and not declare the home into outbreak?
Public health determines whether it's an outbreak or not. I would say that there is not complete consistency between public health across the country, it does depend. We, as Chartwell, decide, because you can either be in suspect and be not an outbreak. You could be in suspected outbreak, particularly, let's say, if you have maybe one staff member, and they've not had a lot of contact, and they're at home and isolating. There are outbreaks. Sometimes we decide as well at Chartwell, even if you're in suspected outbreak, that we'll put some of the measures in place that are more what we call level 4 outbreak. At the end of the day, the actual determination of an outbreak is made by public health.
Got it. Once a home is declared an outbreak, I'm assuming the new admissions or the move-ins are restricted in those homes. For how long new admission would not be allowed there?
Well, it would depend on the length of the outbreak. Some of the outbreaks can be over within 14 days, and so it can be very short. Others can be longer. It just really depends. I can't give you an exact number, but a minimum of 14 days.
Got it. Okay. In terms of the discussion of first wave versus second wave, if I remember correctly, in your entire focus in the first wave was on safety, and I think marketing or sales program was kind of put to a pause. Is this time, the marketing sales campaign are going as usual on the side as well, along with the additional safety protocols? Have you slowed down any of your marketing campaigns?
No, we have a marketing campaign in place and have for the last number of months. We never completely closed down, even in wave one for admissions, but we had very few. That would've picked up, certainly in the summer, and we've been running our marketing campaign. Just like the rest of the country, the provinces were balancing between safety, which is first, always will be first and foremost. How do we make sure that we're also providing care and services to residents or to seniors in need in the community. For sure, we are still open for business and balancing that with making sure that we have the highest IPAC standards and good programs for our residents so that they stay connected as well, because it's both physical and emotional focus that we have.
Got it. Then just switching gears on the same property NOI expectations next year. Do you think you can get back to 2019 levels in 2021, or do you think it might take longer than that? Also, I think in your comments, you made a comment that a reduction in cost will be gradual. How gradual do you think that will be given the circumstances?
Well, these are the questions that we actually, having a very hard time. We're asking ourselves these questions all the time because the answer to all of this is depends, right? I fundamentally believe that there is a pent-up demand in the system. I fundamentally believe that people that couldn't move in now for seven months, the need hasn't changed. They need the services, and they're struggling in their homes. When the restrictions are over, when the sentiment changes in the public, we should see improved demand for our services and recovery of occupancy. Your question about whether it's gonna happen in the first quarter of 2021, second quarter of the 2021, or next month, we just don't know.
It's really hard to answer these questions because we just don't know when things will open up and when this pent-up demand will materialize to our homes. I do believe that fundamentally it will.
No, that's helpful. I totally understand. Maybe just final couple of questions on the balance sheet. Credit rating, it was unchanged. I think only outlook was changed to negative. What could trigger a potential change in credit rating here? How much room do you have more on the debt to EBITDA or interest coverage ratios?
Right. Well, we've maintained ongoing discussions with DBRS, and as you mentioned, the rating was maintained. We have indicated that we will be a little higher on our debt levels, and that's what DBRS has indicated, has moved it to a negative outlook. You'll see that Ballycliffe, for example, is a project that is five years in the making, and we felt compelled to move ahead with that given the economics and fundamental returns that were compelling, along with our other development projects. That will be a little higher. The range that DBRS has provided on net debt to EBITDA is 8- 10, is their range for BB B (low). That is available in their report.
Got it. Okay. Thank you so much. Thank you for the color. I'll turn it back.
Thank you. The next question is from Tal Woolley. Please go ahead.
Hi. Good morning, everybody.
Morning.
Morning.
How many of your suites right now would sort of be prevented from being marketed traditionally? I'm assuming, like, these outbreaks are where we're seeing the cases right now in the broader population. Do you have an estimate of how many of your suites right now are sort of, where you cannot do the physical visits?
Yeah, you'll see the list of properties that are in outbreak on our website or the COVID-19 banner.
13 retirement homes.
13 retirement homes was as of yesterday where we have outbreaks, so there are no visits or move-ins or anything that's happening in those 13 homes. We have homes that are in various zones in Ontario where the tours are not allowed because of the community spread in the locations where these homes are. That's about 50.
Yeah, we're definitely with those still marketing and still doing virtual-
Yeah
tours and sales are occurring even in those homes. It's just the personalized tours.
Right. I guess as you've had to adapt here, you've moved to these sort of virtual tours. Are you kind of the view now that the customer response is pretty decent? It's an attractive cost profile to do a lot of this stuff virtually. Do you think this is going to become part of your way forward?
Yeah
even post-pandemic?
Yeah, it's interesting, right? There's always things that you learn through crises, and certainly, I think this will just be a tool in our toolkit. We would have family members who have been helping residents try to select a home. This is always, we've had this, and they've been out of town. Now we'll be able to use this technology to help that adult daughter, let's say, see the retirement residence virtually. Yeah, I absolutely think this will stay as part of what we do.
It was a great personal experience for me. I recently moved a parent into a home. My aunt is based in Vancouver on the island. We actually both got to see where my parent was moving to. It was a really positive experience for her to know where her sister was going.
Got it. You had mentioned over the course of Q3 that the move-out rate had ticked up. Was that surprising, or is that anything surprising about the move-out rate ticking up, or anything particular driving that?
No, nothing really surprising. It was in the timeframe that things were reopening, that is where we would've seen some increased move-out rates. There is a point at which, in our retirement residences, that isn't the right setting, moving long-term care is a very different setting. That certainly was to be expected as things reopened a bit. Nothing surprising in it.
Okay. I have to think that the cost of providing your services probably could stay elevated for a bit here while we're continuing through this. Do you think that you'll be able to ameliorate that with price or packaging of the service revenues to try and better optimize and manage that cost exposure?
Certainly, we've seen that now that we have more of the playbook for how we manage and tools in place in terms of data and reporting, that we are now much more able to manage that. We've got tools in place, and then maybe I'll turn it to Karen to speak about some of our other strategies.
An example of our costs are the PPE is definitely stabilized. The unit price for all kinds of masks, gowns, et cetera, is reduced. We're working hard to continue to recruit our own staff, because agency costs are higher. We have a pretty fulsome national campaign to do that, and staffing costs are our highest cost. That will certainly help as well. We are looking as well at how do we provide additional care in retirement homes for people who maybe are on the waiting list for long-term care or wanting to stay with us longer, which could help with additional revenue there.
Okay. Just on that Ballycliffe redevelopment, could you maybe walk through how you'd expect the cash flows to play out just under this new funding regime, just so we have an idea of how to think about it? It sounds like you're still basically going to have to front most of the upfront construction and land acquisition costs, that kind of stuff. This development grant kicks in somewhere during that process. Maybe you can just give us an idea of how that's going to play out.
There's two components of the funding. We will front all costs until the building is completed. There is a 17% on certain costs grant that comes into play once the building is built. There's capital funding subsidy that will be trickling in over the next 25 years.
Okay. That's at the end of the construction process. How long would you expect the construction process to be for a project like this?
We expect to open it in first quarter of 2023.
Okay. Got it. Perfect. Thanks very much, guys.
Thank you.
Thank you. The next question is from Pammi Bir. Please go ahead.
Thanks. Hi, everyone. Just with respect to the credit facility, I noticed some changes in terms of the occupancy requirements there. Can you maybe just comment on whether you're seeing any, I guess, broader changes in underwriting, I guess, among lenders, whether it's loan to value or even spreads?
No. Credit facility is a special circumstance where the secured assets that are securing this facility, there's an occupancy requirement on those assets. Obviously, during pandemic, some of them fell below, and we work with our lenders to make sure that they continue to maintain this borrowing capacity for us. The discussions have been very positive. It's unique to that particular facility. The general lender requirements from what we're seeing in our negotiations with CMHC or the lenders on other type of financings have not really changed.
Good to hear. I guess, just in terms of sticking to the credit facilities, and the, I guess, trend change from DBRS to negative, is there any change in the cost or would that only occur on a rating change?
Only occurs on a rating change.
Got it. I'm not sure if you have this available, but have there been any instances of where residents perhaps contracted COVID after moving into a retirement home over the last few months?
The homes that are in outbreak have residents who contracted COVID, so some of them may have moved recently. I'm not sure of your question, Pammi, maybe you can clarify?
Yeah, just really trying to get a sense of, I guess, the infection prevention that's been implemented and it seems to be going well. Of course, the number of outbreaks have increased as the pandemic has resurged. I guess, just trying to get a sense if it's from existing residents, where maybe outside parties or family members came in, I'm just trying to get a pulse on whether the ability to prevent new residents from contracting it is working.
Yeah. Karen described all the activities that we take in conjunction with the public health partners to prevent the spread of the virus. The reality, though, is our homes are located in communities, and communities have increased number of COVID-19 cases. We are not in a full lockdown, and I hope we'll never be. I don't think we will. That means people come into our homes. It's service providers, it's families, it's our employees. That's when the outbreaks happens. We work with public health to trace the contacts to understand where specifically this virus came. It's all of these people that are bringing the virus into the homes, including our residents who are going out to the community for visits and just out of the homes, hospital appointments.
It's all of these things, and that's why we cannot stress enough the need in the rapid testing for our homes. We've been saying from the beginning of this pandemic that there's probably not a silver bullet that's going to solve all our problems. We've now, I think, fixed everything that we could. The remainder piece is this rapid testing, because even now, this improved testing regime that we have in Ontario, it still takes at least 48 hours for the test to come in, and people shedding this virus five days before they become symptomatic. Two days is just too long. If we had this rapid test, I think this would solve a lot of our problems and put more people into a kind of safe environment, and we knew exactly how to deal with people who are positive.
We know exactly how to deal with people who are positive. We just don't know whether they're positive fast enough.
Yeah, I know for sure. Hopefully this new testing does come through. Thanks for the color. I guess just really one last one for me. Just on Bill 218. If passed, would that effectively eliminate the risks associated with the existing, I guess, proposed or three proposed class actions that have been filed?
It mitigates the risk. It doesn't eliminate the risk because there's nothing that would stop a plaintiff or plaintiff's counsel from, I guess, restating or recharacterizing their claim. I just think it's going to make the bar, or the threshold very high, in terms of proving that any damage caused is worthy of a lawsuit. I don't think anything can eliminate the risk. There are going to be frivolous lawsuits all the time over all sorts of stuff, but it sure helps.
Thanks very much. I will turn it back.
Thank you. There are no further questions registered at this time. I will turn the meeting back over. Thank you.
Thank you, Anna, thank you everybody for joining us today. As always, if you have any further questions, please do not hesitate to give any of us a call. Goodbye. Have a great weekend.
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