Thank you for standing by. This is the conference operator. Welcome to the Extendicare Inc. Fourth Quarter 2022 Analyst Conference Call. As a reminder, all participants are in listen-only mode. The conference is being recorded. After the presentation, there will be an opportunity to ask questions. To join the question queue, you may press star then one on your telephone keypad. Should you need assistance during the conference call, you may signal an operator by pressing star and zero. I would now like to turn the conference over to Jillian Fountain, Vice President and Investor Relations. Please go ahead.
Thank you, operator. Good morning, everyone. Welcome to Extendicare's Fourth Quarter and Year-End 2022 Results Conference Call. With me today are Extendicare's President and CEO, Michael Guerriere, and our Senior Vice President and CFO, David Bacon. Our Q4 results were disseminated yesterday and are 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 March 17th. The replay numbers and passcodes have been provided in our press release, and an archive recording of the call is also available on our website. Before we get started, please be reminded that today's call may include forward-looking statements.
Such statements involve known and unknown risks and uncertainties that may cause actual results to differ materially from those expressed or implied today. We have identified such factors in our public filings with the securities regulators and suggest that you refer to those filings. With that, I'll turn the call over to Michael.
Thank you, Jillian, and good morning. We begin our presentation today with an update on the impact of COVID-19 on our operations. During the quarter, COVID-19 continued its endemic presence in our community, driving outbreaks and staff absenteeism across the sector. Over 80% of our own long-term care homes experienced a COVID outbreak in Q4. Fortunately, high rates of vaccination have dramatically reduced the incidence of severe illness, so the virus has a much milder impact on our resident population than earlier in the pandemic. Despite the persistence of outbreaks in our homes, occupancy continues its gradual recovery. Outbreaks are keeping costs elevated as we continue to invest the resources required to help protect our residents, clients, and staff.
To date, we have received funding to cover approximately 90% of our COVID-related costs, leaving a cumulative unfunded COVID cost bringing continuing operations at CAD 31.4 million. In December, the Ontario government announced further prevention and containment funding of CAD 180 million to assist with COVID-19 costs through to March 2023. Alberta has announced its pandemic funding will end in June. Manitoba has indicated funding will continue at least until the end of March. We are grateful for the government's support to date, we expect to continue to experience volatility in our financial and operating results until pandemic impacts recede.
We anticipate that some portion of the CAD 15.5 million in cumulative unfunded COVID costs we have incurred in long-term care will be recovered in 2023, we can't be sure of the quantum or the timing. In home health care, our operations returned to growth in Q4 as staff absenteeism eased. Limited availability of caregivers continues to constrain our ability to meet the strong demand for services. We are working to alleviate this issue with a continuing focus on large-scale recruiting and enhanced retention programs, supplemented by our ongoing college partnerships and in-house training programs. Pandemic-related costs across the business are dropping as the pandemic recedes.
We anticipate that lower costs will result in stronger margins in 2023. Turning to strategic transactions on slide 4, we made significant progress last year toward completing our strategic transformation while managing the challenges caused by the pandemic. During the year, we created a strategic partnership with Axium and Revera, which, once approved, will drive significant capital-efficient long-term growth. We also refocused our operations with the sale of our retirement living segment and our Saskatchewan long-term care homes. The funds from these asset sales are being directed toward advancing our redevelopment program and returning value to shareholders through our share buyback program.
Collectively, these transactions support our strategic agenda to focus on long-term care and home health care, leveraging our deep expertise and scale to drive growth using a less capital-intensive business model. Work continues to prepare for the completion of the Revera and Axium transactions. Regulatory approvals in Ontario and Manitoba are in progress. In the meantime, we continue to work with Revera and Axium on a comprehensive integration plan to ensure a smooth and efficient transition following approval. We have incurred approximately CAD 9 million year-to-date in strategic transformation costs related to these activities. The aggregate consideration to be paid on closing these transactions remains an estimated CAD 70 million.
Following the completion of the sale of our retirement living segment, we initiated a Normal Course Issuer Bid, purchasing approximately five million common shares for cancellation and returning CAD 35 million in capital to shareholders in 2022. Moving to slide five. Our redevelopment program has gained momentum with enhanced funding from the Ontario government. In November, the government introduced a time-limited capital funding supplement of CAD 35 per bed per day to help counter significant inflationary pressures and rising interest costs that had otherwise prevented new long-term care homes from starting construction. This enhanced program is available to eligible applicants who receive construction approval by August 2023.
We are working toward a goal to break ground on up to four new projects this year. As a reminder, our Ontario redevelopment program consists of 20 projects representing 4,248 new and replacement long-term care beds. Three projects are currently under construction and are projected to open between the third quarter of 2023 and the first quarter of 2024. We continue to advance the balance of our projects to ensure they are construction ready in anticipation of funding that may be available in future years. We are working collaboratively with our industry partners and the Ontario government to make all of our projects economically feasible, as we still have not overcome the economic barriers faced by projects in the Greater Toronto Area and in small rural markets.
Let's turn to a few operational highlights on slide 6. Despite the ongoing impact of the pandemic in the form of persistent outbreaks in our homes, long-term care average occupancy improved 100 basis points in the quarter over Q3. As I mentioned earlier, we continue to face ongoing staffing shortages and inflationary pressures that impact our operating costs. These factors, together with occupancy clawbacks and funding increases that lag inflation, have negatively impacted our financial performance. In our home health care segment, we experienced a 2% sequential increase in our average daily volumes in the fourth quarter, due in part to a decline in staff absenteeism.
We are encouraged by the return to growth as the pandemic recedes and our recruiting and enhanced retention programs help us to meet continued strong demand for our services. We were delighted to announce that ParaMed retained its status as a nationally accredited service provider, having been awarded exemplary standing by Accreditation Canada, the highest level an organization can receive. This award is a reflection of our dedicated team members, our high-quality programs, and our commitment to service excellence. It is also a testament to the exceptional care our home health staff provide to our patients and clients each and every day, especially in this challenging environment.
In our managed services segment, we continue to see strong growth in our SGP customer base, which increased 2.6% from Q3 and 17.7% from the prior year. With that, I'll turn it over to our CFO, David Bacon, who will comment on our consolidated and segmented financial results for the fourth quarter.
Thanks, Michael. I'll start by providing an overview of our consolidated results for the quarter, followed by some financial highlights of our business segments and our liquidity position. This quarter, we reported CAD 3.9 million in costs related to the strategic transformation of the company in connection with the Revera and Axium transactions, bringing the total cost to date to CAD 9 million. We have reported these costs as a separate line item and other expense, which is excluded from AFFO and EBITDA, and we will continue to track them as such on a go-forward basis.
As a reminder, our retirement living communities that were disposed of in May and the Saskatchewan long-term care operations sold in October have been classified as discontinued in our financial results. Turning to slide eight in our consolidated results. On a year-over-year basis, Q4 consolidated revenue increased 1.4% to CAD 310.4 million. This increase was driven primarily by long-term care flow through funding enhancements and prior period long-term care funding. Home health care rate increases and growth from managed services. This was partially offset by lower COVID funding support of CAD 20.8 million, the impact of Home health care retroactive rate increases received in 2021, and a 1% decline in home health care average daily volumes.
Our Q4 NOI decreased CAD 17.1 million to CAD 21.7 million, with an NOI margin of 7% compared to 12.7% in the prior year, driven primarily by a net increase in unfunded COVID costs of CAD 13.5 million, higher operating costs across our segments, and 1% lower home health care average daily volume. We continue to receive COVID funding support under various provincial programs. However, the mismatches between the timing of funding and costs continues to drive volatility in our financial results. Net unfunded COVID costs impacted our consolidated NOI by CAD 8.5 million this quarter.
We continue to believe that additional COVID funding will be provided in Ontario in the first half of 2023, but the time and quantum of any additional prevention and containment funding will result in ongoing volatility in our results. Q4 adjusted EBITDA decreased CAD 15.3 million to CAD 9.2 million, reflecting the decline in NOI, partially offset by lower administrative costs of CAD 1.7 million. AFFO per share was CAD 0.02 in Q4, down from CAD 0.18 in the prior year, reflecting the decline in earnings, driven by the CAD 0.11 impact of the swing in net unfunded COVID costs as compared to the prior year, and the loss of approximately CAD 0.02 per share from our disposed retirement living segment.
Our full year 2022 payout ratio was 162%, which was elevated in part by the loss of retirement segment AFFO per share of approximately CAD 0.07, which will be largely replaced by the combination of our estimated AFFO per share contribution of CAD 0.05 from the pending Revera and Axium transactions and the full year impact of our 2022 NCIB activity. Turning to our individual business segments. First to long-term care. We saw revenue increase by 2% in Q4, driven by funding enhancements and timing of flow-through spending and prior period funding. This was partially offset by lower COVID funding of CAD 13 million.
NOI decreased by CAD 13 million in Q4 to CAD 10.5 million and represented NOI margins of 5.4%. Excluding a reduction in COVID recoveries of CAD 13.8 million, NOI increased by CAD 800,000, which included the benefit of CAD 2.5 million in prior period funding adjustments and workers' compensation rebates received in the quarter, partially offset by higher operating costs. Government funding increases have been lagging inflationary impacts on our operating costs over the past three years. In 2022, we did not receive an increase in our other accommodations envelope in Ontario, contributing to growing pressures on NOI margins in our LTC segment.
Our Q4 NOI margins, adjusted to exclude the impact of COVID-19 and the out-of-period funding, were 8.9% compared to 10.8% in the prior year. In addition to the inflationary pressures, margin percentages are down approximately 100 basis points from the impact of the increase in Ontario direct care hour flow-through funding and the permanent PSW $3 an hour rate increase in Ontario. Occupancy in our long-term care homes continues to recover despite the persistent level of outbreaks. After the removal of occupancy protection in Ontario earlier this year, our average adjusted occupancy was 96.9%, with six Ontario homes falling short of the required occupancy level of 97%, which lowered our NOI by approximately CAD 700,000 for the full year 2022.
Turning to our home health care segment, revenue was down 1.2% in Q4, driven by reduced COVID funding of CAD 7.8 million. Excluding this reduced COVID funding, revenue increased CAD 6.5 million or 6.4%, driven by billing rate increases and additional funding to support the permanent wage increase for PSWs. This was partially offset by a one-time billing rate increase of CAD 3.5 million received in Q4 of 2021 and the 1% year-over-year decline in our average daily volumes. ParaMed's NOI decreased by CAD 4.5 million to CAD 6.4 million, with an NOI margin of 5.9% compared to a 9.9% margin in the prior year.
The decline in NOI reflects higher wages and benefits, travel and technology costs, including costs associated with the elevated levels of recruitment, retention, and training to address our staffing capacity challenges. On a sequential basis, our average daily volumes increased 2% and, excluding the impact of the net COVID costs, our NOI margins improved 90 basis points in Q4. Turning now to slide 11. We continue to see strong growth in our managed services segment, which is comprised of our Extendicare Assist and SGP group purchasing divisions. SGP now supports over 109,000 third-party beds as of the end of Q4, up 17.7% from a year-ago and up 2.6% sequentially.
Q4 revenue increased by 24% to CAD 8.6 million, largely due to timing and mix of assist services and growth in our SGP clients served, which resulted in a CAD 500,000 increase in NOI compared to the prior year. Turning to our financial position. We are well positioned with strong liquidity, including cash and cash equivalents of CAD 167 million and access to a further CAD 77 million in undrawn credit facilities at year-end. We have undrawn construction financing available of CAD 123 million to fund the balance of the construction costs for our ongoing redevelopment projects. Our maturity profile remains strong with only modest debt maturities coming due over the next two years.
Our liquidity position provides us with the flexibility to allocate capital strategically, whether in respect of our long-term care redevelopment program, the pending Revera transaction, or other potential acquisitions and capital structure initiatives. As Michael mentioned, we acquired approximately CAD 5 million or 5.6% of our outstanding common shares through the issuer bid we initiated in June 2022 at an average cost of CAD 6.99. The issuer bid provides us with the ability to purchase up to 7.8 million shares through to the end of Q2 2023. Decisions regarding further purchases will continue to be based on market conditions, share price, and our outlook for our capital needs. With that, I'll pass the call back to Michael for his closing remarks.
Thanks, David. While we continue to be impacted by COVID-19, we're cautiously optimistic about mounting evidence that the pandemic is transitioning to endemic status. While we anticipate continued pandemic-driven volatility in our performance, its impacts appear likely to wane in the coming months. We made significant progress in executing our strategic transformation last year. Once approved, the Axium and Revera transactions will position us to focus on our core operational strengths, leveraging our scale and expertise using a less capital-intensive business model to drive growth in our managed services segment. We're encouraged by the enhancements to the capital funding program in Ontario and our potential to continue to advance our redevelopment agenda.
Combined with our return to growth in our home health care segment, we believe we will create sustainable value for our shareholders in the coming years. We remain focused on providing high quality care for our residents, patients, and clients as we advance our strategy to be a leading growth-oriented seniors care provider. Finally, thank you to all the caregivers across our organization and to the teams who support them for their unwavering dedication to our mission of helping people live better. Operator, we'll be happy to take any questions that may come up.
Certainly. We'll now begin the question and answer session. To join the question queue, you may press star then one on your telephone keypad. You'll hear a tone acknowledging your request. If you're 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 Jonathan Kelcher from TD Cowen. Please go ahead.
Thanks. Good morning.
Morning.
First question, just on the long-term care NOI and your outlook. I guess the big driver for 2023 is gonna depend on how much government funding you guys get when they announce it. What are your expectations for that?
Yeah. Jonathan, I think, you know, there is a budget coming in Ontario in the end of March. Obviously we're waiting for that. I mean, we do feel that based on all of our dialogue with the government, we do expect to see rate increases both in the care envelopes and in the OA. You know, similarly, there's budgets and coming in the West as well. You know, I think that there's been a lot of work done to help the governments understand the inflationary pressures that we have been under, and that while they're putting a lot of money into care, as an example, in Ontario, with the four hours of care agenda and CAD 3 for the PSWs, they have been short on the other accommodation side.
We do expect some rate increase, very hard to predict. I don't, we don't, we're not gonna try and guess. What I'd say is historically pre-COVID, you know, generally they would keep pace with inflation. I think there's a long, steady period of time where increases would be 1.5%-2.5% a year, depending on the inflation environment and generally kept pace. Obviously we have a bit of a gap here. Not sure whether they're gonna make any of that up or not or just get back to what the, sort of the historical trend lines. We are optimistic that we won't see another 0% increase year.
I mean, that's, you know, from a, from a rate increase, that's what we're seeing. I think the other important thing is we do expect some more funding on COVID to fund some of our gap that we've had to date. They've been pretty good funding us, but albeit delayed and which has caused the volatility. We also do have in Ontario context, we do have the next step up in hours of care to 3.7 hours starting in April. That, you know, I think will help as we all unwind some of the pandemic costs and, you know, see that kind of feather into our normal flow through nursing envelopes that are gonna have a step-up come in April.
All of those things combined would feel like, you know, there will be improvements in margins in long-term care or opportunity for that. The quantum exactly will depend a lot on timing of the COVID and what the ultimate rate increase decision is in the budget at the end of the month.
Okay. That's helpful. Then on, the home healthcare side of the business, you guys did, 2% growth in Q4, which was good. Without I guess if you don't see any major changes in staffing, and I know you guys are trying to address that, how much higher can you really drive that, the home healthcare, average daily volumes?
I think probably the experience that we had recovering from some of the early waves of the pandemic in 2021 probably gives you a reasonable model in terms of quarter-over-quarter improvement in volume and performance that we can achieve. Of course, we can't be sure what's going to happen. This pandemic has had lots of surprises associated with it, so it, you know, makes it very difficult to anticipate. I think we're back on a growth trajectory. You know, we are seeing the impact of the pandemic receding. We're seeing the impact of on absenteeism receding. We're seeing more ability to attract and retrain and retain staff.
I think we're back on a growth path that mimics the quarter-over-quarter kind of performance that we were able to achieve in 2021.
Okay. I guess another way of asking that is, you're sort of 25,000+ hours right now. Are you guys running at basically full efficiency with your current staff, or is there room to grow that? Like if you wanna take this to 30,000 hours, that would obviously require a lot more staff. Is that the way to think about it?
I think growth is gonna be mostly driven by additional staff. There may be some additional gains in utilization of existing staff that are possible, but I think that would be limited. I think the vast majority of future growth will come from additional staff.
Okay. That's, that's helpful. Thanks. I'll turn it back.
If you have a question, please press star then one on your telephone keypad. The next question comes from Tal Woolley from National Bank Financial. Please go ahead.
Hi. Good afternoon.
Hi, Tal.
For the new LTC sites coming online later this year, can you talk a little bit about the transition plan, like how that works? Is there a site nearby that gets decommissioned? How does it sort of work, and what should we think of like the financial impact of that as we move forward?
I think in all three projects, they're greenfield sites, so we are moving into a brand-new building on a new location. That's the first thing. We're not trying to—you know, the decanting's quite straightforward, right? We're closing an old building, moving the residents and then closing an old building, generally. That leaves us then with decommissioning the old site, and, you know, selling the land and those projects off. That's the first thing on the old site. On the new projects that we're bringing online, all the homes are, you know, newer homes with 60% preferred occupancy. Sorry, preferred beds.
You know, compared to some of the homes that they're taking out, they will have a higher proportion of preferred, and there's also incremental beds as well in those projects. The three new projects are 704 beds. Those projects address about 84 of our three and four-bed ward issues on those homes. We get those 84 beds back in service as well as some new beds as well. You have more beds, higher proportion of preferred, some of the C beds, the three and four-bed wards, come back in to into operation.
There will be a step up. I mean, where we're at now, I mean, our first home will open sometime in Q3. So that, you know, for the current year, we're probably only gonna have about one quarter of results, you know, operations of one of the new homes for 2023. There's not gonna be it won't be very impactful for 2023.
Okay. I understand that from a timing perspective. I guess, like, what I'm trying to get an answer to is just like, what is the NOI coming offline from the existing assets and what is the NOI coming online from the new assets?
The NOI coming online is about CAD 8.4 million. That's disclosed in our materials. We have the annual CFS on those new projects as well. On a step up, I'd have to get back to you, Tal, on sort of NOI offline, but you could take an average of our NOI per bed. We don't actually disclose what the old home NOI is at the moment. You could look at our NOI per bed on a kinda overall average basis, but there is a step up in the NOI, given the higher proportion of preferred and that's in the new homes.
The other thing I'd remind you of too is that, you know, with the pending Axium transaction, you know, those projects will be sold into the joint venture sometime this year. Therefore, largely the opening of those homes will take place sort of in the joint venture. Largely our, you know, what happens for us on those projects is they become, you know, managed homes with a management fee stream, and then a, our proportionate share of the JV earnings.
So there will be—you know, as we get closer to the homes opening, we get closer to clarity on the timing of the joint venture, you know, there'll be a lot more kind of information that we can talk about in terms of what that kind of pro forma effect looks like on the business. At the moment, yeah, we need to get that deal closed, then we'll talk more about that as we get closer to closing the Axium deal.
Okay. I guess, like, the other thing I'm thinking to, as these transactions, like the Revera, the Axium deals start to close, I think, like, it comes a point really where, like, we're gonna be either like, a lot of your more high proportion of your income is gonna be coming from, you know, sort of traditional kinda, like, service revenue, as opposed to it being attached to real estate ownership operations/development. So I would assume from a tax perspective, one of the things we sort of need to think about is that, like, this will probably be like you're probably a higher or you're higher tax rate, you know, on your income as we move through this.
Yes, in the sense that, you know, it's, as you said, management fees and you know, revenue streams without necessarily the, you know, the shelter from interest and depreciation, et cetera, off the capital. That's true. I would just say that will be a very gradual transition, you know, as we look to do that with our current portfolio. You know, we have 56 homes, 17 redevelopment projects in Ontario. We do think it'll take a number of years as we move that transition, as we redevelop those homes and move them into a JV structure.
It'll be a gradual, it'll be a gradual shift. Once we get a bit more clarity in the future, you know. That is an impact potentially as we go forward, but it'll be a very gradual one.
Okay. That's perfect. Thanks for your help. I appreciate it.
This concludes the question and answer session. I would like to turn the conference back over to Jillian Fountain for any closing remarks.
Thank you, operator. That concludes our call for today. This presentation is available on our website, as are the call-in numbers for an archived recording. Thank you for joining us. Please don't hesitate to give us a call if you have any questions.
This concludes today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.