Thank you for standing by. This is the conference operator. Welcome to the Extendicare Second Quarter 2020 Results Conference Call. As a reminder, all participants are in listen-only mode, and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. I would now like to turn the conference over to Jillian Fountain for opening remarks. Please go ahead.
Thank you, and good morning, everyone. Welcome to Extendicare Second Quarter 2020 Results Conference Call. With me today is Extendicare's President and CEO, Michael Guerriere, and Senior Vice President and CFO, David Bacon. Our second quarter 2020 results were disseminated yesterday and available on our website. The audio webcast of today's call is also available on our website, along with an accompanying slide presentation which viewers may advance themselves. A replay of the call will be available later this afternoon until August 28th. The replay numbers and passcodes have been provided in our press release, and an archived recording of this call will also be available on our website. Before we get started, please be reminded that today's call may include forward-looking statements regarding our future operations. Such statements involve known and unknown risks and uncertainties that may cause actual results to differ materially from those expressed or implied today.
We have identified such factors in our public filings with the securities regulators and suggest that you refer to those filings. As we discuss our performance, please bear in mind that all figures are in Canadian dollars unless otherwise noted. With that, I'll turn the call over to Michael.
Thank you, Jillian, and good morning, everyone. Before we get to our second quarter results, I'll take a moment to review our progress on managing through the COVID-19 pandemic and to thank our hardworking and committed team members. We remain vigilant in our ongoing battle to keep the novel coronavirus out of our homes and communities. Our focus remains firmly on doing everything possible to protect the health and well-being of our residents, clients, and staff. We have increased resources to manage our operations in today's environment to prevent the spread of COVID-19.
We're also preparing for a possible second wave by enhancing infection prevention measures to address the unique nature of this virus, including maintaining sufficient inventory of PPE, universal masking for all staff and visitors, single- site employer policies, limiting long-term care room occupancy to a maximum of two residents per room in Ontario, and regular voluntary testing of staff in our Ontario long-term care homes. We continue to refine our protocols and processes as we learn more about the virus. One of our strongest lines of defense against preventing outbreaks is regular staff testing. Since we launched this voluntary program in June, we've conducted over 33,000 tests and identified positive cases in 20 long-term care homes. We were able to quickly isolate these team members and prevent further transmission of the virus to residents and other staff.
We're actively advocating for the expansion of this program to other provinces in which we operate. Our staff continue to demonstrate exceptional commitment in caring for our residents and clients with true compassion and kindness. Their ready adaptability to evolving processes and protocols is a testament to their genuine commitment to doing everything possible to protect those in our care. I'm deeply grateful for the important work they do and thank them for their ongoing hard work and devotion to our mission. As of today, of our 69 long-term care homes and retirement communities, one long-term care home is currently in outbreak. Thanks to our testing program, the outbreak is limited to just one positive case of COVID-19 in an asymptomatic staff member. In respect of our Extendicare Assist clients, none are currently in outbreak. With that, let's turn to our second quarter results starting on slide four.
Our second quarter is down from the same period last year as the COVID-19 pandemic drove lower volumes in our Home Health Care segment and increased operating costs, particularly in our Long-Term Care operations. This was partially offset by government funding for pandemic-related expenses and growth in retirement and other operations. We expect COVID-19 to continue to affect our operations in future quarters as we remain focused on protecting the health and safety of our residents, clients, and staff. While the occupancy-based funding of our Long-Term Care operations is largely protected for the balance of 2020, we continue to incur additional costs associated with our enhanced infection prevention measures. To date, we have incurred an estimated CAD 11 million in pandemic expenses in excess of government funding. We understand that the fight against COVID-19 is far from over.
However, we are happy to see some initial signs of recovery as restrictions are lifted. Home Health volumes, while still well below previous levels, have shown steady improvement over the past two months. Our Ontario retirement communities have resumed in-person tours and admissions, and Long-Term Care admissions have resumed, although not beyond two residents per room. Despite the impacts of COVID-19, our financial position remains strong, with CAD 122 million of cash on hand and no scheduled debt maturities until Q1 2022. Moving to slide five in our Long-Term Care operations, the impact of COVID-19 became more evident in Q2 as occupancy levels declined and cost to protect residents and staff exceeded COVID funding programs announced to date. Occupancy levels at our long-term care homes declined to 93.5%, down from the usual run rate above 97%.
Despite the reduction in occupancy, our funding is protected as Ontario has preserved 100% of its occupancy-based funding to the end of the year. In addition, Alberta has introduced additional funding for COVID-19, which includes an allocation to address occupancy reductions, and we expect Saskatchewan and Manitoba to provide some level of support to assist with COVID-19 impacts in the future. We have highlighted the critical need to replace aging long-term care homes and the pressing demand for additional long-term care beds for many years. Accordingly, we were pleased when the Ontario government recently announced changes to its construction funding program for long-term care. The program will redevelop 12,000 beds and add 8,000 beds over the next five years. While this will not be sufficient to replace all of the Class B and C beds in Ontario, it is a welcome step in the right direction.
We have submitted applications to build 4,200 beds, which would replace all of our existing C beds and add 931 new long-term care beds to our portfolio. We continue to work closely with the government to get the necessary approvals to expedite our projects that are feasible under the new program. Turning to slide six, our ParaMed operations have also been impacted by COVID-19, with comparable average daily volumes down by 20.7% this quarter from Q2 last year. In addition, higher back-office costs and COVID expenses further contributed to a decline in NOI for our Home Health Care operations. The significant declines in demand were caused by deferral of elective procedures in hospitals, provincial restrictions on non-urgent home health care services, and the choices made by some patients to self-isolate and suspend the services they were receiving. As COVID-19 restrictions have eased, we have seen steady improvement in ParaMed's volumes.
Average daily volumes for the four weeks ending August 9th are up 10% from the Q2 average. While we can't predict how long the impacts of the virus will last, we do expect average daily volumes to continue to improve as the pandemic recedes. The final phase of the implementation of our new information system was put on hold to focus on our COVID-19 response, leaving Alberta, which represents approximately 5% of our business volume, still to be converted onto the new cloud-based platform. We are targeting to complete the conversion in Q4 2020. Once the pandemic has eased, we will refocus on achieving the back-office efficiencies the system is designed to support. ParaMed employs over 9,000 staff members, essential frontline caregivers who provide health services to clients, supported by back-office staff that coordinate operations in the field.
Given the transient nature of the softness in market demand, we applied for the Canada Emergency Wage Subsidy for the financial flexibility it provides to maintain our workforce through the pandemic. Keeping our team in place ensures that we can respond quickly to increases in demand for home health care services and return to normal volumes as the pandemic recedes. We will continue to assess ParaMed's eligibility for further wage subsidy support as the year unfolds. Turning to slide seven and our retirement living operations, COVID-19 restrictions on in-person tours and enhanced infection control protocols to protect residents and staff led to lower occupancy and increased costs this quarter. However, continued occupancy improvements in our leased-up communities year-over-year contributed to improvements in revenue and net operating income. At June 30th, stabilized occupancy was 91.3%, down 150 basis points from March 31st.
As restrictions have eased, we have resumed in-person tours in our Ontario communities and are awaiting a decision to be able to do the same in Saskatchewan, where we continue to conduct virtual tours. We are seeing early signs of recovery in our occupancy levels, with stabilized occupancy up 50 basis points at July 31st to 91.8%. On Slide eight, our Assist Contract services and SGP group purchasing services continue to show strong growth, exceeding 10% CAGR in revenue and NOI over the past eight quarters. At the end of Q2, SGP, together with our partners, provided cost-effective products and services to approximately 75,200 senior residents across Canada, up 28.1% from the same quarter last year and up 3.1% from the first quarter of 2020.
Since the end of Q2, the network has continued to grow as we've added a number of new clients, including Golden Life and Groupe Lokia, bringing our service coverage to approximately 79,000 senior residents across Canada. We continue to develop opportunities to expand SGP and Assist through additional services and product offerings, and by expanding the reach of our sales team into other geographies. I will now turn to David Bacon, our Chief Financial Officer, to provide insight into our financial results for the second quarter.
Thanks, Michael. I'll first provide an overview of our corporate financial performance for the second quarter, and then I'll provide some financial highlights of the individual business segments. For ease of comparison, when discussing our revenue and NOI, I will be excluding the impact of our BC Home Health Care operations, which we exited as previously announced in January of this year, and the incremental funding in our Home Health Care operations from Bill 148 we received in Q2 of 2019, both impacts of which are outlined on Slide 20 of the investor presentation. Turning now to Slide 10 and our results for the quarter, which were negatively impacted by COVID costs in excess of funding, a 20.7% decline in business volumes, and higher back office and administrative costs in our Home Health Care operations, partially offset by growth in the retirement and other operation segments.
While we reported growth in consolidated revenue this quarter of 4.7%, or CAD 12.7 million to CAD 281.9 million, this included CAD 27.2 million of COVID related funding to offset, in part, the CAD 36.7 million of COVID related operating expenses we incurred in the quarter. The impact of the net COVID costs, coupled with the impact of COVID on our Home Health Care volumes, resulted in a decline in our consolidated NOI of CAD 13.5 million, or 40.3% to CAD 19.9 million compared to prior year, with NOI margins declining to 7.1% from 12.4%. Likewise, adjusted EBITDA declined by CAD 17 million to CAD 8.2 million due to the decline in NOI and increased administrative costs, in part, due to COVID. AFFO decreased by CAD 12 million to CAD 2.9 million compared to the same prior year period, driven by the decline in adjusted EBITDA, offset by lower income taxes.
The estimated after-tax impact on AFFO of the net COVID-19 costs is CAD 7.8 million or CAD 0.087 per share. To further elaborate on the impacts of COVID-19 on our NOI and adjusted EBITDA, we have incurred an estimated CAD 20 million of pandemic related operating expenses and CAD 1.2 million in COVID-19 related administrative costs to date. These costs include investments in additional staffing, procurement of PPE, increased infection control, and cleaning supplies. These costs are partially offset by CAD 10.2 million in revenue or expense recovery associated with the various provincial government programs, the net resulting in a reduction of our adjusted EBITDA of approximately CAD 11 million. In addition to these amounts, we have also incurred a further CAD 17.4 million in pandemic pay, fully funded by programs announced by the Ontario and Alberta governments to temporarily increase hourly wages for certain eligible frontline employees.
Not including in these expenses I just noted, we have also purchased an additional CAD 12.7 million in PPE inventory to date to ensure that we continue to have sufficient supply, particularly as restrictions are lifted and we resume visitation and movement activities in our long-term care homes and retirement communities. Further details on the breakdown of the estimated net COVID costs are included on Slide 19 of this presentation and in our MD&A. Turning now to the individual business segments in Slide 11. Our Long-Term Care operations in the second quarter saw revenues grow by CAD 18.5 million or 11.6% to CAD 178.5 million, which includes COVID funding of CAD 17.6 million. NOI decreased by CAD 8.3 million or 42.8% to CAD 11.1 million, and NOI margins were down to 6.2% from 12.1%, as the estimated costs associated with COVID were CAD 8.6 million in excess of our government funding.
Overall, long-term care occupancy in the quarter is down to 93.5% due to the impact of COVID, primarily driven by occupancy decreases in Ontario, where occupancy-based funding is in place until the end of 2020. The timing and amount of additional COVID funding for long-term care is unknown and will create ongoing volatility in our quarterly results. We currently estimate our additional monthly cost in LTC related to COVID to be approximately CAD 5.5 million before any recovery from additional government funding. We anticipate that this could continue into 2021, and the timing and amount of additional government funding remains difficult to predict. In addition to the COVID funding, the Ontario government announced in the quarter a 1.5% increase to the flow-through and accommodation envelopes. Turning to slide 12 in our Home Care Division.
As a result of the impact of COVID-19 on our business volumes and higher back-office operating costs, NOI from our Home Health Care operations declined by 82%, or CAD 6.5 million, to CAD 1.5 million in Q2, and NOI margin was 1.7% compared to 8.4% in the second quarter of 2019. As the impact of COVID-19 intensified in Q2 of 2020, volumes from the Home Health Care operations declined by 20.7%, excluding the impact of the BC operations compared to the prior year, and declined by 17.4% from Q1 of 2020. As Michael mentioned, we have begun to see improvements in volumes in recent weeks and are targeting to complete the rollout of our new cloud-based operating system in Alberta in Q4 of this year.
Our Home Health Care subsidiary, ParaMed Inc, applied for and received in August a payment of CAD 21 million for the initial two claim periods of March and April under the Canada Emergency Wage Subsidy program as a result of the revenue declines experienced in the Home Health Care operations. The subsidy amount will be recorded in Q3 as a reduction in operating expenses of the Home Health Care segment, and we anticipate ParaMed applying for additional wage subsidy periods in the coming weeks. The original program rules are the same for May and June, and the CAD 21 million received to date is in line with our estimated claim amount for these additional periods.
The rules for the program for July onwards were amended in mid-July by the federal government, and we will be assessing for potential future additional wage subsidy under these new rules as the balance of 2020 unfolds, which will be impacted by the trajectory of ParaMed's business volume recovery. Turning to retirement living on slide 13. NOI increased in the quarter by 20.5%, or CAD 600,000- CAD 3.5 million. This improvement was driven by our increased occupancy in our leased-up communities, which had included the benefit of the opening of the Barrieview home in Q4 of 2019, which more than offset the negative impact of COVID on occupancy levels and operating costs.
With the easing of restrictions underway, in particular, in-person tours resuming in Ontario, we have started to see some early indication of improvements in occupancy with a 50 basis point increase in stabilized occupancy to 91.8% at the end of July. We continue to defer our expansion plans at our Empire Crossing Retirement Community in Port Hope at this time. Looking at our final business segment on slide 14, NOI from our contract services, consulting and group purchasing operations increased in the second quarter by 21.5%, or CAD 700,000 to CAD 3.9 million due to year-over-year growth of over 28% in the clients served in our SGP division and lower travel and marketing expenses this quarter due to COVID limitations. Turning now to slide 15 and our financial position. We remain in a strong financial position with good financial flexibility and liquidity.
At June 30th, 2020, our consolidated cash and short-term investments on hand was CAD 122 million, with CAD 71.9 million undrawn on our credit facilities. In the first six months of 2020, we have renewed and extended several mortgages and finalized a new CMHC mortgage on a retirement community to replace the existing construction loan. As a result of this activity, we do not have any scheduled debt maturities until Q1 of 2022. In addition, we have taken steps this quarter to accelerate the wind-up of our wholly-owned captive subsidiary, which self-insured our former U.S. operations. Following the completion of the regulatory approvals necessary to deregister the captive, we will be able to release an estimated CAD 14 million of restricted cash back to Extendicare. With that, I'll pass it back to Michael for his closing remarks.
Thanks so much, David. During this challenging time, our focus remains firmly on the safety of our residents, clients, team members, and families, and providing the care and support they need. The underlying demographic fundamentals that drive increasing demand for seniors care have not changed. In the longer term, once this pandemic has passed, we are confident that we are well-positioned for sustainable growth and profitability in all our business segments. With that, we'd be happy to take any questions you may have. Operator?
We will now begin the question-and-answer session. To join the question queue, you may press star, then one on your telephone keypad. You will hear a tone acknowledging your request. If you are using a speakerphone, please pick up your handset before pressing any keys. To withdraw your question, please press star, then two. We will pause for a moment as callers join the queue. The first question comes from Lorne Kalmar with TD Securities. Please go ahead.
Thanks, good morning, everyone.
Morning.
Just a quick question on the CEWS. Maybe you can explain, I guess, some color on how Extendicare was able to qualify for the March and April subsidy?
Sorry, how it did qualify, you mean?
Yeah. Just how it met the criteria for it.
Yeah. The program is based on revenue tests on a year-over-year basis. The rules are quite complicated. To be clear, it's our ParaMed subsidiary that qualified. It's by a legal entity basis. With the drop we've seen with our revenues in that Home Health Care business and with the rules of the program and the design on the revenue tests in the program, we were eligible both in March and April for the subsidy.
Okay. For, I guess, May and June, any expectation of what you guys may get for those two months?
Yeah. I think as we just said in our comments, that those initial two periods, March and April, were CAD 21 million. The rules remain intact for May and June from the original design of the program, and we think those two months are in line with what we saw in March and April. As you probably know, later in July, the government changed the program for the balance of the year. There's a whole different set of rules for the balance of the year, and we'll continue to monitor that as the year unfolds and as we watch the recovery and the pace of recovery in ParaMed's volumes.
Okay. Maybe switching gears here a bit. On the limitation of occupancy due to two per room, how many beds does that impact for Extendicare?
That would remove 185 beds in Ontario for us and a little under 100 beds across the rest of the country.
With it going down to two per room, does that now qualify them as preferred accommodations? Would you get the preferred accommodation rate for those rooms now?
No, we wouldn't.
No? Okay. Then any idea of what the government's plan is beyond 2020 once they stop funding the additional beds? Are they expecting to allow you guys to begin reoccupying the three and four ward beds, or what's the plan there?
I think at this point, we don't know specifically what the plan will be. I think too early to say. What I would offer is that across the province, that removes over 4,000 beds. I think that's going to put a lot of pressure on individual operators and individual homes. I'd say the government is certainly aware of that and I suspect as they continue to consider additional COVID funding to help us with our costs, and as well as their ongoing considerations around potential changes to the operating funding models that we know that they're working on, I think that will all get sort of put in the blender together as they think about further changes in funding. At this point, it's too early to say exactly what will happen come January.
Okay. Yeah. No shortage of uncertainty with all this stuff. Then I guess this is another sort of uncertain topic, but I know you're not sure about what government funding you'll receive, but any idea or guidance on what the net pandemic expenses will be over the balance of the year in the, I guess, predominantly LTC portfolio, but in the others as well?
Yeah, I think hard to comment on net, to be honest. I think what I just said in my comments, in our Long-Term Care division across the country, we're looking at about CAD 5.5 million right now of estimated monthly costs before any additional government funding factored in. We've got some sense of the cost side of the equation, but the revenue side is going to be volatile here and a bit uneven over the coming quarters.
Okay. Thank you very much for the color. I will turn it back.
The next question comes from Chris Couprie with CIBC. Please go ahead.
Good morning. Just following up on Lorne's line of questioning there at the end. Some of your peers have also kind of reported high levels of pandemic expenses that they're incurring in their LTC division. Presumably, you guys are not alone in experiencing this type of burn rate. Is there any reason to believe that most of this would not be ultimately recovered given the profit models of different operators?
Chris, yeah. It's something that we're all experiencing across the entire sector. Up until now, we've seen about 2/3 of the costs covered to date. There's quite a range of ability to absorb those kinds of costs over a long-term basis across the sector. The larger operators certainly have more flexibility to cover that than the smaller operators do, as you can imagine. We don't really view this as a sustainable situation. We think that there's going to have to be a reaction to it. As David said, there's a number of other things going on as well. You'll recall that on July 30th, the Ontario Long-Term Care staffing study was released
That was the report of the expert group assembled to respond to the recommendations coming out of the Gillese Inquiry. It calls for significant increases in staffing for long-term care. The premier's reaction to it was that, just a comment in one of his press conferences was that we do need to fix staffing in long-term care. They're certainly working on it. We may see something on a permanent basis as a result of those recommendations. We're really hard-pressed to say what kind of a number it would be and when it would be. We're waiting for that. Of course, the other thing to just keep in mind is that these costs are covering things that we have to do because of the pandemic. When the pandemic subsides, most of these costs will disappear.
Right. Okay. Understood. Maybe just moving on to ParaMed. With respect to what you've been seeing in the business, you highlight the change in ADV. That's great. How would you say that kind of referral volumes are? Are you basically acting on as many deferrals as you can, or is there still a kind of a big gap between referrals and what you're executing on? Like, is the bottleneck more on getting people back to work? Then maybe if you look at the type of hours that's been increasing, is it more of the more specialized type of hours versus more of the traditional PSW?
Yeah. In terms of the hours that dropped off, we saw a lot more of that reduction on the PSW side than the nursing side. The nursing side actually held up quite well through this. It was more the PSW side of the business that was impacted. In terms of what we're seeing come back, we've seen the referrals pick up quite briskly. It takes time for those referrals because, of course, a referral isn't per visit. A referral is per patient, and so a patient can require services for a year on an ongoing basis. Referrals are the leading indicator, and volumes are the lagging indicator. We're certainly seeing the referrals return to levels in most districts that are similar to what they were pre-pandemic.
Now the volumes are tracking back up, and that gives us a lot of optimism that we will return to normal levels. Of course, the caveat in any of those kinds of predictions is the possibility of a second wave causing us to go back into some kind of a lockdown that may indeed cause the volumes to go down again. We're not predicting that that won't happen. At this point, we're very optimistic, but there are a lot of unpredictable elements to take into account.
Is there anything that may have changed with respect to the cost structure as a result of the pandemic that would, if you return back to, say, 2019 type of levels, is there any reason to believe that the margin couldn't return to those levels at a minimum?
Not at all. In fact, our contribution margins have tracked very closely with the volumes, and so we don't see any change in that aspect of the business.
Okay. Maybe just last one on home care generally. I know there's been a lot of talk about changes potentially occurring in long-term care. Is there anything in the home care side that we should be aware of?
The one thing, Chris, to watch for is that if there's a major expansion in staffing in long-term care or a significant change in pay rates in long-term care, we could see resulting staffing shortages in home care. The two sectors operate right next to each other. If there are changes in one that aren't echoed in the other, then we could see some challenges that result on the labor front. That said, that report that I mentioned earlier, that reported on July 30th, they took pains to point that out and made the recommendation that anything that happens in long-term care should be echoed in home care. We'll see how that plays out.
Thanks very much.
Thanks, Chris.
Thanks, Chris.
The next question comes from Tal Woolley with National Bank Financial. Please go ahead.
Hi. Good morning, everybody.
Hi, Tal.
Hi, Tal.
Just a couple financial questions off the top. I just want to make sure I understand how this wage subsidy will work. You'll be booking like a CAD 21 million net cost reduction next quarter with the wage subsidy?
Yeah. The accounting treatment of that subsidy, for us, it's treated as a grant. In our policies and under IFRS, that gets netted against our operating expenses of the ParaMed segment in Q3.
For whatever you apply for within Q3, that would theoretically then come in Q4. Is that sort of the way to think about it?
No. The additional amount, we talked about those extra two periods, May and June, that's likely to be in our Q3 as well.
Okay. All right.
And then that-
And then-
Sorry, go ahead.
No, go ahead.
No, go ahead.
No, no. You go ahead.
No. Sorry. I was just going to say that it's in our operating, maybe, I don't know if your next question will be this. It is in our operating and therefore it will be in our AFFO. Just similar to how the COVID expenses impacted our AFFO this quarter, that will be included in our AFFO in Q3.
Okay. Do you have any, just because your numbers are going to be shifting a lot over the next little while, depending on how these reimbursements go, do you have any covenant concerns or challenges that you need to think about with your lenders, just as we sort of go through this cycle?
No. Q2, we were on side with everything. I mean, all of our covenants are tied to specific mortgages and sort of more traditional debt service coverage, tests and things like that on the long-term care side and retirement side. At this point, we have no concerns right now on the outlook on anything. There are no covenants in our bonds.
Okay. Just for SGP, any concerns about the health of the customer base that you've got right now? Or you feel comfortable that that group of customers is going to continue to operate through this period?
I can't imagine a scenario where long-term care homes that are currently in operation.
Yeah
-would somehow go out of business and then the residents have nowhere to go. We don't really have that concern. I think the retirement side of the sector is clearly starting a recovery at this point. We don't anticipate a problem there. In fact, what we are seeing is that as the sector has been under some financial challenges and of course has experienced procurement challenges, particularly with things like PPE, that we're seeing really significant interest in our offerings. As a result, we're continuing to see growth in that segment despite the fact that our sales team can't travel. They've moved everything to online, but it doesn't seem to have interrupted their ability to bring new customers to the business.
Okay. This is sort of a technical question just in terms of how operations are specified between the government and the operators for the Long-Term Care segment. The extra cost that you incurred, like this quarter, are these a result of risk management choices that the operators are making? Are these public health directives coming from the municipalities? In fact, are coming from the provinces themselves, like to manage the risk in the homes?
Well, I'd say it's a combination. First of all, there's a very collaborative engagement going on between government and the operators in the sector. There's also a very collaborative activity going on between the operators as we all share best practices, share data, share learning, in terms of how best to defend our homes and communities from the virus. That's driving all of us in a similar direction. You can see our costs are similar. The government doesn't direct us to hire certain individuals. They are certainly helping us with revisions to policies and procedures that we know work. I think you're seeing that across the whole sector as we get those worst outbreaks that occurred very early in the pandemic are now thankfully behind us.
It's not prescriptive in terms of what we need to spend, but certainly in terms of the policies and procedures that we're required to follow, that has both product and staff costs associated with it.
Sorry, just one other question. As you sort of work through the darkest part of this crisis, was there anything that sort of stuck out to you in the way the system works? I'm talking about the long-term care system, that you're just like, "Geez, this really needs to change." We sort of run into some challenges in a regular kind of year that, because they're not so significant, you can kind of work through them, but this was such an extreme thing. Just in terms of the way the funding mechanisms all work and the ability to deliver good care, do you, as one of the largest operators, have recommendations for, "Hey, these are some things we should really be changing in the system?
I think there's two things that have been true for a long time, for over a decade, that the Ontario Long Term Care Association has pointed out many times in its advocacy. One is that the older homes need to be replaced, and we've had applications into various governments for replacing our older homes for a long time. Of course, we've talked about them on these analyst calls long before the pandemic. That clearly has proven to be a vulnerability for the whole sector through the pandemic. That'd probably be at the top of my list. I think the second thing is that the way that the homes were funded for delivering care was such that if there was any significant challenge, we just didn't have the resiliency in the sector to be able to respond the way we would like to.
The College of Nurses of Ontario has published a summary of all of the long-term care reports that have been generated over the last 20 years in Ontario, and there were 35 of them. All of them with similar recommendations about the kinds of staffing levels, and this staffing expert panel that reported on July 30th repeated a lot of those recommendations. I think there's a need to recognize that over time, very slowly, the acuity and the needs of the residents in long-term care have been increasing, and the staff complement hasn't been increasing in tandem with it. I think that there's a recognition that that's the case and that we're very hopeful that we'll make strides in that direction to be able to add the staff to our teams in the homes. Those are the two things that I'd point to.
There's probably some more minor points, but those are the big ones.
Okay. Thanks very much. Appreciate it.
Thanks, Tal.
Once again, if you have a question, please press star then one. Our next question comes from Yash Sankpal with Laurentian Bank. Please go ahead.
Good afternoon.
Hi, Yash.
I think you mentioned that you have submitted application for 4,000 beds, so that essentially covers all your properties. Are you not worried that if all of those applications were approved, you would be faced with a lot of redevelopment projects, or do you think they will be approved on a tiered basis?
Yeah, Yash, I think the latter. While we have those 4,200 beds of applications in, I think that realistically, those projects will get built over a period of time. I think with the new program just announced, the government's targeting 12,000, 20,000 beds in total. If you think of that relative to the 32,000 C beds that are in the province today, it's clear that not all of those existing C bed projects across the province are going to be covered by this initial phase of the government's new program. I think there is going to be a cadence to how these get approved and how we think about things as they unfold over the next, say, five years, which is the initial target phase for this first wave.
Got it. Okay. The wage subsidy that you're getting for your home care business, what % of wage would that cover, roughly? I'm trying to understand how much is the government compensating for.
Well, the design of the program, Yash, is to reimburse employers that meet the tests of the program for up to 75% of a weekly wage maximum of CAD 847. It's a very complicated calculation. You literally are doing the calculation employee by employee and looking at the wages paid over these discrete four-week periods. The target is to pay a maximum 75% of up to CAD 847 a week per person.
The reason I ask is you have some part-time employees, like a mix. How did the government address that? Based on how much they were earning before, or?
Yes. It's based on what we've actually paid during certain periods of time. It's not based on an implied or imputed amount we would have paid. It actually looks at what we did pay in the specific period and gives us back a portion of those wages to help.
Moving to the retirement home division, would you be able to say where your occupancy is at this point?
Yeah. As I think Mike or I alluded to in the script, our as-at occupancy at the end of June was 91.3%, and we have seen a slight uptick in July, in our stabilized occupancy to 91.8%. We've seen about a 50-basis-point uptick, in the month of July.
Okay. Lastly, on your SGP division, how is the pipeline looking at this point? I'm trying to understand how much this business can grow, by, say, year-end.
Yeah, it's a couple of things. First of all, given the year that we've had so far, we're extremely reticent to predict how many sales we might close in the next six months. That said, there's still quite a lot of room to grow. We're expanding our sites to Eastern Canada and Quebec, where we haven't traditionally done very much business. We're also looking at expanding the offerings. There's other products and services that we currently don't offer through the partnership that we think we can add. In terms of additional clients and additional revenue from existing clients, we think there's a lot of opportunity there to continue to grow. Of course, as the new beds get built, we're gonna see growth in that business organically as our different clients grow their population of beds as well.
Right. Recently, you expanded into Western Canada. Are you happy with how that expansion is going?
Yeah, we're delighted with it, actually. I think the magic of that business is that our role is to give our partners access to very favorable contract terms. When it comes to the logistics of delivery and ordering and that sort of thing, it's the partners of the business, the suppliers, who take care of that. We don't have the challenge of having to expand operations into other geographies. That's something that our partners provide to our clients.
You need boots on the ground at least for coordination purposes, right?
Correct. Certainly from a sales and a customer service perspective, we have that. We have people covering the geography. Of course, we've had to reinvent the way we do that, given that nobody's traveling at the moment. We're learning a lot about how to provide that customer service virtually, which I think will have ongoing implications, positive implications for our business after the pandemic recedes. We're seeing a significant reduction in our customer service costs through the pandemic.
Okay. That's good. Thank you. That's all for me.
Thanks, Yash.
This concludes the question- and- answer session. I would like to turn the conference back over to Jillian Fountain for any closing remarks.
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