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 charwell.com under the Investor Relations tab. Joining me are Karen Sullivan, President and Chief Operating Officer Sherry Harris, Chief Financial Officer and Jonathan Balakia, 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 and 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 and A under the heading Forward Looking Information and COVID-nineteen Risk for discussion of risks and uncertainties introduced by the pandemic. These documents can be found on our website or atsedar.com. As new waves of the pandemic continue throughout Canada, Charwill people are once again being called upon to step up to protect the most vulnerable segment of our population. And 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 4 hours of care per resident by 2025. And as a result of recent improvements made to the long term care redevelopment program, we have commenced the redevelopment of 100 Bed Charleville Valley Cliff Long Term Care Residence in Ajax, Ontario. This project has been 5 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 residents 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 length long term care operators with our healthcare 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 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-nineteen 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 life tours and resident move ins, which in turn continue to negatively impact our occupancies in the short term. We 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 5, 20 amounted to $408,000,000 including $61,600,000 of cash and cash equivalents and $347,000,000 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 prospects of our sector remain bright. The growth in the over 75 year old population is accelerating, particularly in 2022 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 result 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 Charahua 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 5, our efforts in Q3 focused on learning from wave 1 of the pandemic in order to best be prepared for wave 2. 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 and our processes for handling outbreaks and suspected outbreaks have been well established, tested and standardized.
This has allowed 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 20 fourseven 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, 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 residences' needs and to get the best price possible as PPE prices stabilize. In addition, 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 and in turn they have been highly complementary 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 1800 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 Long Term Care Commission on COVID-nineteen, 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 4 hours of care per resident per day by 20, 20 four-twenty 5.
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 8 week supply of PPE per home. Turning to Slide 6, we continue to focus on sales initiatives in our retirement residences, including personalized tours in our Quebec, BC 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 7, throughout this pandemic, we have been guided by and have benefited from our focus on our unique value proposition that Chartwell experienced. 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 program 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 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 e mail every week as well as more often if the home goes into outbreak or suspected outbreak. We are 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 to 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. I'd like to turn it over to Sherry Harris, our Chief Financial Officer, to talk about our financial results. Thank you very much, Karen.
As shown on Slide 8, in Q3 2020, our net loss was $6,800,000 compared to a net loss of $800,000 in Q3 2019. For Q3 2020, FFO was $38,000,000 or 0 point 17 dollars or $13,000,000 or 17.2 percent in Q3 2020. Same property occupancy was 83.3 percent in Q3 2020 compared to 89.7 percent 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 $4,100,000 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 9, I will discuss our same property operating platforms results. In Ontario, occupancy was 77.5% compared to 83.8 percent in Q3 2019. NOI decreased $6,900,000 or 18.3 percent due to lower occupancies, pandemic related expenses net of funding of $2,400,000 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 1,500,000 or 9.9 percent 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 and lower food and marketing expenses.
In Quebec, occupancy was 86.7% compared to 91.2 percent in Q3 2019. NOI decreased $3,400,000 or 21.8 percent due to lower occupancies, higher property taxes resulting from a rebate in Q3 2019 for which there is not a comparable amount in Q3 twenty twenty, pandemic related expenses net of funding of 600,000 dollars 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 $1,500,000 or 17.8 percent. Same property adjusted NOI decreased 1 point $2,000,000 or 16 percent 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-nineteen cases in the community. We collected substantially all rents and service fees for October November, consistent with our past experience.
As noted, we continue our investments to protect our residents and staff and reduce the spread of COVID-nineteen. 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 government to fund 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 Saucity SUS, to maintain quality jobs for our employees who provide necessary services. We expect to apply for approximately $3,000,000 to $4,000,000 of staffing support for Q3 2020. As you can see on Slide 11, at September 30, 2020, our liquidity amounted to 350 $7,800,000 which included $51,400,000 of cash and cash equivalents and $306,400,000 of available borrowing capacity on our credit facilities. In addition, our share of cash and cash equivalents held in our equity accounted JVs was $7,600,000 At September 30, 2020, our unencumbered assets had a value of $928,800,000 Our mortgage maturities remain well staggered with an average term to maturity of 6.4 years at September 30, 2020.
Our interest coverage ratio was 3 times at September 30, 2020. Our debt to gross book value calculated using the historical cost of our assets was 52.6 percent at September 30, 2020. Our net debt to adjusted EBITDA ratio was 9.1 times. 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 Lisa. In Q3 2020, 4 newly developed properties and one recently acquired property with an aggregate gross book value of $274,500,000 and weighted average occupancy in Q3 2020 of 44.2 percent generated adjusted NOI of $700,000 in Q3 2020.
Upon achieving the expected stabilized occupancy of 96%, these residences are estimated to generate annualized adjusted NOI of $20,300,000 out of our share of ownership. Our net debt to adjusted EBITDA metric when calculated with the additional incremental NOI of these properties as those stabilized of $18,100,000 would be 8.6 times. Turning to Slide 12, as Clive noted, at November 5, 2020, liquidity amounted to $408,600,000 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 $14,200,000 of remaining mortgage maturities in 2020, of which $12,400,000 are CMHC insured.
CMHC refinancings for 10 year terms are currently being arranged approximately 1.75%. In 2021, we have $244,300,000 of mortgage maturities, of which $37,500,000 are currently CMHC insured. With strong lending relationships and scheduled refinancing of 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 $109,000,000 to completion. This includes $52,500,000 related to the redevelopment of Chartwell Valley Cliff, which we anticipate financing with construction financing.
Chartwell with Teasdale 2 has achieved stabilized occupancy as defined in our agreements with Batimo. We expect 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 $37,300,000 and repayment of the outstanding mezzanine loan of $3,900,000 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 property. Due to restrictions in accessing our residences, only emergency capital works were undertaken during the 1st 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 Rahab.
Thank you, Sherry. 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 The first question is from Brandon Abrams.
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, etcetera. 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 fall and remaining fall and winter months? Just maybe some color there?
Sure. So 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. So in Wave 1, we really, as we all know, as a society really shut down. So we would have had very limited move ins and that's when you would have 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. You mean in move ins?
In move ins, sorry, in move ins. And so 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. But 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.
And so we saw that in October, but we're already starting to see some of those communities open up. So 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. And 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.
So that 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. And then we have a number of strategies in place as well, whether it's our make a friend, a neighbor referral program or winter stay program. So just a bit of color on where we see that going.
Yes. And Brandon, 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 and we are doing all we can to encourage people and help them understand the safety and precautions that we're taking on our residences to make to help with their decision to move in. As Karen pointed out, the pent up demand, I believe, is in the system. And 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.
But when this will happen is, at this point in time, very hard to predict.
Yes. No, of course, difficult to forecast in this environment for sure. And maybe just on a related topic of rental rates, it looks like overall itself, it's you've been able to hold rates fairly firm, maybe even increase in certain instances. Where occupancy is within your 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.
So I'm just wondering if you could give some color there.
Our philosophy is not changing. We are offering value to our residents and lifestyle and quality of lifestyle that we provide in our homes. And 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.
And if it ends up being a few $100 discount that might be it, but in many cases that's not what the customer really wants. And especially in these circumstances where you think about safety, when you think about quality of staff and quality of services that people provide, the discounts probably is not the first thing that anybody is thinking when they come to the residences. And so, not only our philosophy is not changing, it's probably even more reinforced in the situation like today.
Okay. And then maybe just on the unfunded pandemic related costs of just over $4,000,000 Is that a level that you would expect to incur over the next few quarters just for modeling purposes?
Yes. I mean, it is a bit hard to predict and we continue to advocate with various governments in relation to incremental funding. Last night, there was an announcement from the Ontario government, which will be absorb about $1,200,000 of the Ontario retirement we would look to stabilize the number there, Brendan, 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 and A about increasing rates. What has insurance typically run historically as a percentage of revenue?
We'll have to get you this number, Jonathan. As you know, our expenses are, let's say, in retirement, it'd be 60% labor, 10% food and realty taxes and utilities. After that, whatever is left is not as much in sort of overall expenses. I'd be guessing right now with our number probably less than $10,000,000 in insurance premiums for the year. That's historical.
So I don't know if that answers your question.
Well, yes, I'm just trying to get a sense of like if I doubled it, what that would sort of do type of thing. And is that sort of the way to think about it? Could it be that high?
Well, 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. So it is a very hard market in insurance generally in all classes of insurance. And that is partly due to the industry we're in and partly due to a broader market on insurance. So 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.
So 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 and the amount of premium increases yet to be determined.
But we'd be looking to net out of that. 40% would be a number that we're certainly not think it's going to be more than
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 and that legislation is already in place in BC. So we think that the risk there has been reduced.
Okay. That's helpful. Switching gears just and I know you probably won't say too much because you're in the negotiations with Fatima, but how has that changed versus the last couple of assets or has it changed really versus the last couple of assets that you bought from Battle Royale earlier this year? Looking for difference in valuations.
So to start off, we are very keen and excited to get this building connected to our existing building, Teasdale. And as you noted, we're negotiating the price. So we can't really or won't really get into where we expect to land on that. But 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 and I guess hesitancy on buyers parts to deploy capital and that has been tempered by what we see the very low interest rate. So all that to say, there's not a whole lot of data points out there and we're in the thick of discussions with Fatima on the purchase price. So more to come on that.
Okay. And then 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 3 parcels?
We are looking at those 3 parcels. Each of them comes with different requirements on size of build. So 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. And then with those and maybe Ken or Ken 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 operators, 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 think there are a lot of people looking to enter the space that don't have that kind of operating experience. So I suspect the answer is yes.
Or they would need management.
Or they would need management.
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 Brendan's questions regarding occupancy. I appreciate we can't with the restriction, we don't know what the pace of move ins might be. But what about overall lead generation? How is that trending on a year over year basis?
I mean, I would imagine part of the change will be commensurate with the how much marketing that you're doing, but just any color on lead generation? And just also curious on virtual tours versus in person tours, if you I mean, 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 everybody people hear the escalation in a number of community cases, the natural reaction for people is to hunker down and not really start looking for moving. So 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. So I think it follows sort of discussions that Karen had answering Brandon's question.
It's better than wave 1. It's not as good as last year and that's applicable to lead generation, initial context, 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 1.
And 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 if our homes are in high alert or alert, which is changing on a weekly basis, they put communities in and out mostly they've been on 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 of 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. And our training has gone very well.
So I think the fact that we have this kind of technology now has been very advantageous for us. And then 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. And 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? And just technical perspective, how is this going to flow through on the financials?
And then 2 other quick ones, that Bill 2 18 that was alluded to, sort of timetable as to when that may pass and then the occupancy protection funding in long term care. I think it's still December. Any kind of update on what's happening there? That's it for me. Thanks.
Sure. So I'll take SUSE 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.
So we do expect that 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 growth. So you'll see a revenue and expense.
So, no, again, it will be math depending on the revenue decline and the factors in place for the government for Q4, but it should continue and so 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 3 and 4 bed wards to a maximum of 2 occupants. And we are very optimistic that that will continue on through to through the next wave of the pandemic into 2021 as long as we're in this position of only 2 occupants in those
rooms. And for Bill 2018, 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 government of the majority government. So we don't expect there to be any issues, but I'm speculating.
And we are hoping that once that is in place 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. So 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. So is the way the public health is declaring a home in outbreak, has the definition changed this time at all? Is it mostly because Chartwell is better prepared this time, more testing is being done, more safety protocols is being followed?
Yes. So a few things I'd say. First of all, we do understand the virus better and the asymptomatic nature of it. So that's been helpful. And 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. And federal and 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 retirement homes with these vulnerable populations, long term care in particular being prioritized for that for sure.
So our processes have been defined. I mean, we were developing processes in Wave 1. They're now in place and we have these IPAC specialists that's helping. In long term care, we have we don't we feel like our partners in the healthcare system this time are helping through hospitals and public health, etcetera. So that those things are all helping us to be better positioned in Wave 2, but you can't underestimate that, you know, this there is, you know, at this point, obviously no vaccine for this and our folks are vulnerable.
So 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. And in terms of the definition, like if a staff is declared COVID positive, will you declare I mean will they declare the entire home into outbreak or would you simply ask the staff to quarantine and not declare the home into outbreak?
So public health determines whether it's an outbreak or not. And I would say that there is not complete consistency between public health across the country. So it does depend. And then we as Chartwell decide because you can either be in suspect to be not an outbreak. You could be in suspected outbreak, particularly, let's say, if you have maybe one staff member and they have not had a lot of contact and they are at home and isolating, and then there are outbreaks.
Now 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, but at the end of the day the actual determination of an outbreak is made by public health.
Got it. And then once home is declared an outbreak, so 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 and then others can be longer. It just really depends. So I can't give you an exact number, but a minimum of 14 days.
Got it, okay. And then in terms of the discussion of 1st wave versus 2nd wave, so if I remember correctly, I mean, your entire focus in the first wave was on safety and I think marketing or sales program was kind of put to a pause. And is this time the marketing sales campaign are going as usual on the side as well along with the additional safety protocols. I mean, have you slowed down any of your marketing campaign?
No, we have a marketing campaign in place and have for the last number of months. And we never completely closed down even in wave 1 for admissions, but we had very few. And then that would have 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, but then how do we make sure that we're also providing care and services to residents or to seniors in need in the community. So, 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. And then just switching gears on the same property NOI expectations next year. I mean, do you think you can get back to 2019 levels, I mean, in 2021 or do you think it might take longer than that? And also I think in your comments you made a comment that reduction in cost will be gradual. I mean 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 7 months, the need hasn't changed. And so they need the services and they're struggling in their homes.
And so 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 going to happen in the Q1 of 2021, Q2 of 2021 or next month, we just don't know. So, it's really hard to answer these questions because we just don't know when things will open up and when the spend of demand will materialize to our homes, but I do believe that fundamentally it will.
That's helpful. I hope you understand. And 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? I mean 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. And 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 Valley Cliff for example is a project that is 5 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.
So that will be a little higher. We are the range that DBRS has provided on net debt to EBITDA is 8 to 10 is their range for BBB low and 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.
Good morning.
Good morning.
How many of your suites right now would sort of be prevented from being marketed traditionally because I'm assuming that these outbreaks are where we're seeing the cases right now, the broader population.
Do
you have an estimate of how many like of your suites right now are sort of where you cannot do the physical visits?
Yes. You'll see the list of properties that are in outbreak on our website are the COVID-nineteen banner. 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. And then 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.
And so that's about 50.
Yes, but we're definitely with those still marketing and still doing virtual
tours
and sales are occurring even in those homes. It's just the personalized tours.
Right. And then I guess like as you've had to adapt here, like you've had you've moved to these sort of virtual tours.
Are you kind of of
the view now that like this is a a the customer response is pretty decent. The cost it's an attractive cost profile to do a lot of the stuff virtually. Like do you think this is going to become part of your way forward even post pandemic?
Yes, 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. And 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 and now we'll be able to use this technology to help that adult daughter, let's say,
see the retirement residents virtually. So yes, I absolutely think this will stay as part of what we do. Yes, it was a great personal experience for me. I recently moved a parent into a home and my aunt is based in Vancouver on the island and we actually both got to see where my parent was moving to. So it was a really positive experience for her to know where her sister was going.
Got it. And you had mentioned sort of over the course of Q3 that the move out rate had ticked up. Was that surprising or is that sort of anything surprising about the new bit rate ticking up or anything particularly driving that?
No, nothing really surprising. It was in the timeframe that things were reopening and that is where we would have seen some increased move out rates. And there is a point at which in our retirement residences that isn't the right setting and moving long term care is a very different setting. So that is certainly was to be expected as things reopened a bit, nothing surprising in it.
Okay. And 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 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 we're now that we have sort of more of the playbook for how we manage and tools in place in terms of data and reporting that we are now sort of much we're much more able to manage that. So we've got tools in place. And then maybe I'll turn it to Karen to speak about some of our other strategies.
Yes. So an example of our costs are the PPE is definitely stabilized. The unit price for all kinds of mass, gowns, etcetera, is reduced. We're working hard to continue to recruit our own staff because agency costs are higher. So we have a pretty fulsome national campaign to do that and staffing costs are our highest So that will certainly help as well.
And 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. And then just on the Valley Cliff redevelopment, could you maybe walk through like how you would sort of expect the cash flows to play out just under this new funding regime, just so we have an idea of like how to think about it? It sounds like you're still basically going to have to front most of the upfront construction, land acquisition costs, that kind of stuff. And then 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?
Yes. So there's 2 components of the funding. We will front all costs until the building is completed. Then there is a 17% on certain costs grant that comes into play once the building is built. And then there's capital funding subsidy that will be trickling in over the next 25 years.
Okay. So that's at the end of construction process. And how long would you expect the construction process to be for like a project like this?
We expect to open it in Q1 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 and 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, we're not seeing so credit facility is a special circumstance where the secured assets that are securing this facility, there's an occupancy requirement on those assets. And 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 and these discussions have been very positive. But it's unique to that particular facility. So 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 I guess 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. Now I'm not sure if you have this available, but have there been any instances of where residents perhaps contracted COVID after moving into retirement over the last few months?
The residents the homes that are in outbreak have residents who contracted COVID. So some of them may have moved recently. I'm not sure your question, Pavel, maybe you can clarify.
Yes. Just seeing whether really trying to get a sense of, I guess, the infection prevention that's been implemented and it seems to be going well, but of course, the number of outbreaks have increased as the pandemic has resurged. So I guess, just trying to get a sense if it's from existing residents where maybe outside parties or family members came in or whether just trying to get a pulse on whether the ability to prevent new residents from contracting is working?
Yes. I mean, 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-nineteen cases. We are not in a full lockdown and we'll hope we'll never be, I don't think we will. And that means people come into our homes, service providers, it's families, it's our employees.
And that's when the outbreaks happens. We work with public health to trace the context community for visits and just passed out of the homes, hospital appointments. So 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 still takes at least 48 hours for the test to come in and people shedding this virus 5 days before they become symptomatic. And so 2 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 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 are positive fast enough.
Yes, I know for sure. Hopefully, this new testing does come through. And thanks for the color. I guess just really one last one for me. Just on Bill 2 18, if passed, would that effectively eliminate the risks associated with the existing, I guess, proposed or 3 proposed class actions that have been filed?
It mitigates the risk, it doesn't eliminate the risk because there's nothing that would stop plaintiff or plaintiff's counsel from I guess restating or recharacterizing their claim. I just think it's going to make the bar vary or the threshold very high in terms of proving that any damage caused is worthy of a lawsuit. So 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. And there are no further questions registered at this time. So I will turn the meeting back over. Thank you.
Thank you, Elena, and 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.
Thank you. The conference has now ended. Please disconnect your lines at this time and we thank you for your participation.