by. This is the conference operator. Welcome to Extendicare Inc.'s Third Quarter 2023 Analyst 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. 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, then zero. I would now like to turn the conference over to Jillian Fountain, Vice President, Investor Relations. Please go ahead.
Thank you, operator, and good morning, everyone. Welcome to Extendicare's Third Quarter 2023 Results Conference Call. With me today are Extendicare's President and CEO, Michael Guerriere, and our Senior Vice President and CFO, David Bacon. Our Q3 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 November twenty-fourth. The replay numbers and passcodes have been provided in our press release, and an archive recording of this call will also be made 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 Mike.
Thank you, Jillian, and good morning. Our third quarter results reflect substantial improvement in our financial performance across all our operating segments, with improving operating margins and strong growth that reflect the compelling market opportunity emanating from the growing demand for seniors care. This quarter also marks a significant milestone in our strategic transformation with the close of the Revera and Axium transactions. Our Q3 results give us a first look at the impact of having the 56 Revera and joint venture homes as part of our managed services portfolio. Our long-term care operations continued to recover from pandemic-related impacts. Occupancy improved 60 basis points from Q2 to 97.8%, up 430 basis points from the prior year. Cost management initiatives and moderating inflation are driving better margins.
Notably, our teams have made steady progress in lowering the use of high-priced agency staff as we recruit full-time care professionals to staff our homes. While better alignment of costs and funding in the quarter improved long-term care margins, we are still contending with funding increases that have fallen behind inflation in recent years. We continue to work with the government and sector partners to address the ongoing funding gap in a joint effort to return the long-term care sector to its historical financial stability. Our home healthcare segment continues to perform well, overcoming the seasonal softness usually experienced in the summer months to deliver its fourth quarter of consecutive volume growth. Average home healthcare daily volumes increased 1% from the previous quarter and were up 9.3% from the prior year. Our technology-enabled back office proved highly scalable, allowing us to reduce costs while expanding volumes.
Along with government rate increases that offset increased operating costs, we are making steady progress in restoring operating margins to historical norms. We expect continued strong demand for our services, supported by demographic trends, which will continue to drive growth in the coming years. SGP added significantly to its market share in the quarter, increasing its third-party and joint venture beds served by 11.6% from Q2, up 20.5% from the same prior year. On slide four, we look at the impact of closing the Revera and Axium transactions, which were key steps in our strategic transformation to focus on long-term care and home healthcare using a less capital-intensive, higher-margin business model. These transactions set in place a foundation to support growth as demographics increase demand for the services that Extendicare provides.
We will focus on expanding long-term care managed services, building new homes, utilizing the joint venture partnerships to support capital requirements, and growing our home healthcare services. Our managed service offerings include management contracts, redevelopment services, consulting services, and the SGP purchasing partnership. The Axium transaction closed on September thirteenth, at which time the limited partnership joint venture formed with Axium acquired our four Class C home redevelopment projects under construction. The projects comprise an aggregate 960 funded long-term care beds in Sudbury, Kingston, Stittsville, and Peterborough. We realized a gain of CAD 8.7 million, with net cash proceeds to Extendicare of CAD 59 million. The partnership with Axium provides us with a more capital-efficient business model for the redevelopment of our Class C long-term care homes, with Extendicare retaining a 15% managed interest in each new home.
We will continue to undertake all development and construction management activities in respect of the homes sold into the joint venture, earning development fees in our managed services segment during construction. On completion, Extendicare will operate the homes, earning recurring management fees and SGP revenues over the life of the home. Note that Extendicare continues to own and operate the legacy Class C long-term care homes, which are to be replaced by the redevelopment projects sold into the joint venture. The revenue and NOI from those legacy homes will continue to appear in our results until the developed home opens. At that time, the Class C bed home will close, and recurring management fees and SGP revenues earned from the joint venture will enhance our managed services segment revenue and NOI. Our 15% share of the joint venture AFFO will also be included in our results.
We will then work to monetize the closed Class C homes, selling or repurposing the property for alternative uses to generate additional proceeds or sources of revenue. As previously reported, the Revera transactions closed on August first, adding 56 homes and approximately 7,000 beds to our managed services segment. We acquired a 15% managed interest in 25 of these homes through an existing limited partnership joint venture with Axium. The recurring fees earned for managing these homes since the close on August first are reflected in our managed services segment in the quarter, adding approximately CAD 4 million of revenue and CAD 2 million in NOI. We are working to complete full integration of the operations and IT platforms, supporting the 56 homes and approximately 9,000 team members by the end of 2024. Moving to slide 5.
Subsequent to the end of the third quarter, we broke ground on a new 256-bed home in Orléans, Ontario, which qualified for the capital funding subsidy program that ended in August. This home is expected to open in Q2 2026 and will replace a 240-bed Class C home in the Ottawa area, bringing to five the number of Extendicare projects under construction. We anticipate that the home will be sold into the Axium joint venture. This new Ottawa project, together with the four projects recently sold into the JV, total 1,216 new beds under construction, replacing 1,074 Class C long-term care beds in Ontario. The temporary enhancements to the Ontario government's capital funding program expired at the end of August.
While no successor program has been announced as yet, we continue to advance the remaining 15 homes in our redevelopment portfolio in anticipation of future funding availability. Construction costs, interest rates, and applicable regulatory approvals will be pivotal in determining whether and when our other projects might be financially viable to proceed. Additionally, as part of the Revera transactions, we have the option to purchase alone or with Axium, all future long-term care redevelopment projects that proceed in connection with Revera's 30 Class C long-term care homes that we now manage. With that, I'll turn it over to our CFO, David Bacon, to discuss our first quarter results in more detail.
Thanks, Michael. I'll start by reviewing our consolidated results for the quarter. As Michael mentioned, we closed the Revera and Axium transactions in Q3, which contributed to improvements in our results this quarter and strengthened our financial position. As a result of the sale of our four redevelopment projects under construction to the Axium joint venture, included in our earnings from continuing operations, we recognized an after-tax gain on sale of CAD 8.7 million. Net proceeds were CAD 59 million, and the joint venture assumed the construction debt facilities, which had CAD 72.3 million drawn at closing. We retained a 15% managed interest in these projects through our joint venture ownership.
In our interim consolidated results, the pre-tax gain from the sale of CAD 9.1 million is netted in the line item, other income, with their strategic transformation costs, which in Q3 were CAD 4.1 million, bringing the total of such costs this year to CAD 9.1 million. As a reminder, this line item is excluded from our adjusted EBITDA and AFFO, and these costs include the transaction, legal, regulatory, IT integration, and management transition costs associated with the Revera transactions. We will continue to incur an aggregate of between CAD 10 million and CAD 12 million in strategic transformation costs through to the end of 2024 as we complete the full integration of Revera's operations and IT platforms. Turning to our consolidated results. On a year-over-year basis, our Q3 consolidated revenue increased 4.4% to CAD 322.5 million.
This increase was driven primarily by long-term care flow through funding enhancements, higher LTC occupancy, home health care rate increases, and a 9.3% increase in average daily volumes, and growth in our managed service segment. This was partially offset by COVID funding recognized in 2022 of CAD 22 million. Our Q3 NOI increased by CAD 11.7 million- CAD 35.2 million, with an NOI margin of 10.9%, compared to 7.6% in the prior year. This reflects our growth in home health care, ADV, and rate increases, an improved alignment of LTC costs with funding, and growth in managed services, partially offset by higher operating costs. Adjusted EBITDA reported in Q3 increased by CAD 10.7 million- CAD 20.8 million, reflecting the improvement in NOI, offset by higher administration costs.
Our AFFO per basic share in Q3 was CAD 0.14, up CAD 0.12 from the prior year, reflecting the improvement in adjusted EBITDA, partially offset by higher taxes and maintenance CapEx. Our payout ratio for the third quarter improved to 82%, reflecting the improvements in the underlying operations and the impact of the closed Revera transactions. The contribution this quarter to our AFFO from the growth in managed services related to the Revera homes, including the impact of our 15% share of the joint venture AFFO, is approximately CAD 0.023. Turning to our individual business segments and beginning with long-term care, excluding the impact of CAD 18.7 million in COVID funding received in Q3 of 2022, our revenue increased by CAD 18.1 million year-over-year, driven by funding increases, timing of spend, and improvements in occupancy.
NOI, as reported, improved by CAD 2.7 million- CAD 16.6 million, with an NOI margin of 8.7%, compared to 7.2% in the prior year. The improvement reflects lower staffing agency use, funding enhancements, and increased occupancy, partially offset by higher operating costs. While we are seeing improvements in our NOI margins, the elevated level of inflation that has impacted our operating costs in recent years remains an issue. The 2% accommodation rate increase in Ontario, effective April 1 of this year, was below our expectations, given the funding gap that has accumulated and continues to impact our NOI margins. Turning now to our home health care segment.
Revenue was up CAD 10.4 million, or 9.6%, driven by growth in our volumes and rate increases, partially offset by the impact of last year's COVID funding of CAD 3.3 million. NOI increased by CAD 6.4 million to CAD 11.6 million, with an NOI margin of 9.8%, compared to 4.8% last year. Adjusting for last year's COVID impacts, NOI improved by CAD 5.7 million and an NOI margin of 410 basis points. The improvement in NOI was partially offset by higher wages and benefits. Our staffing capacity is stabilizing, thanks to the ongoing efforts in our employee retention and workforce expansion projects.
Turning to our managed services segment, we had strong growth this quarter due to the addition of the managed homes from the Revera transactions and the addition of other new SGP clients, partially offset by Extendicare Assist clients that reduced their scope of service or went to self-management, as we had disclosed in the second quarter. Our Q3 revenue increased by CAD 3.9 million, or 44.3% to CAD 12.7 million, contributing to growth in NOI of CAD 2.5 million to CAD 7 million compared to last year. The Revera transactions contributed approximately CAD 4 million in revenue and CAD 2 million in NOI in Q2 for the two months following the August first closing.
At the end of Q3, Extendicare Assist had management contracts supporting 9,962 beds, up 59.1% from a year ago, and SGP supported over 128,900 third-party beds, up 20.5% from a year ago and up 11.6% sequentially. Turning finally to our financial position. The proceeds from closing the Axium transaction more than replenished our cash used in the Revera transactions. In addition, under the Axium transaction, the joint venture assumed the construction financing facilities in connection with our redevelopment projects that were acquired. At the end of September, our liquidity is healthy, with cash and cash equivalents of CAD 96 million and access to a further CAD 76 million in undrawn credit facilities, and our maturity profile remains strong, with only modest debt maturities coming due prior to 2025.
Lastly, we continue to be active under our normal course issuer bid and have purchased approximately 1.4 million shares for cancellation this year at a cost of CAD 8.8 million, representing a weighted average price of CAD 6.29. This includes 771,000 common shares under our NCIB that we renewed in June. With that, I'll pass the call back to Michael for his closing remarks.
Thanks, David. The improved operating performance across all our segments highlights robust demand for our services, an increasingly stable workforce, and our team's ability to execute and manage costs.
... Although cost pressures continue to present challenges, we are seeing a return to more normal operations after three years challenged by the pandemic. We have completed a significant chapter with the closing of our strategic transactions, marking progress in executing our long-term strategy. The Revera and Axium transactions have enhanced our scale and expertise and increased our ability to advance the delivery of high-quality care for Canadian seniors. Our focused strategy will enable long-term care, long-term growth, and further improvements in our financial metrics. I'll finish my remarks today by recognizing the outstanding efforts of our dedicated care professionals and team members, who work tirelessly in pursuit of our mission to help people live better. With that, we'd be happy to take any questions that you might have. Operator?
Thank you. 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're using a speakerphone, please pick up your handset before pressing any keys. To withdraw your question, please press Star then Two. The first question comes from Jonathan Kelcher with TD Cowen. Please go ahead.
Thanks, good morning.
Morning.
First question, just on the managed services business. I guess with the Revera closing, you had two months of that, your margins were 55%. But it looks like the Revera contribution was only really 50%. I'm just trying to get a sense of how we should think about operating margins in that business going forward.
Yeah, I think on that, I think we have said in the past, we're looking at in the 50%-55% range blended for the managed services. So there is some variability quarter to quarter based on consulting projects that can vary the margins there. But we're looking in that sort of in that range, probably between the 50% and 55%, would be probably a longer term view, and we've said that. I think that's consistent with what we've said in the past.
Okay. So you, so obviously, I guess you had some consulting projects hit in, hit in Q3 to sort of push that to the top end of that range?
Yeah.
Okay. And then I guess just sticking with operating margins, home healthcare business was very good in the quarter. Do you—is that a sustainable operating margin? Was there anything one time in there, or do you expect it to sort of trend up as you keep adding, being able to add to the average daily volumes there?
Yeah, there's nothing unusual in the quarter. There is some seasonal patterns that do happen in this business, although, as we said, you know, we did not experience the Q3 decline that we usually see, but partially because of all the efforts we've had on growing capacity and staffing, and we're on a good trajectory. You know, it will be - there will be some quarterly volatility, Q4 with holidays and weather. You get into Q1 and certain wages and benefits costs kick in when, you know, our workforce goes back to full CPP and EI until they, you know. So there is some variability that you'll see in that. In terms of is it sustainable, is that a good number?
I mean, we're not really giving guidance at this stage, but we have said in the past that we do think this can be, you know, a low double-digit margin business when we hit that. But you know, we're not gonna say, but I think that you know, we're on a good trajectory. And you know, I think positive signs seen there in the Q3 results, so.
Okay, that's helpful. And then the last one for me on the JV with Axium. Is there, is there, like-- is that a limited life JV, or is there a set amount of capital to be invested in it? And the reason I'm asking is, like, just looking at the slide deck and seeing future Revera redevelopments may go into a JV two. Just curious why it wouldn't just stay in the first JV.
Yeah, sort of three questions there. So it's not a limited life joint venture partnership. It's a long-term partnership. Axium is quite committed to this space and is a very long-term focused investor, which was part of the attraction for us as a partner. And in terms of capital, obviously capital is never unlimited, but you know, they are committed to this space, and they are a sizable player. In terms of the joint venture structure, there are two separate JVs, and that's just by the necessity in the sense that we bought an existing 15% interest in the legacy Revera joint venture, which was an existing joint venture.
So it made, you know, from a whole host of reasons, we stepped into Revera's shoes buying that interest, and we created a new joint venture focused on our projects. Over time, I mean, as we think about it, it really, you know, we have the same partner, same governance structure, same ownership percentage, same, same asset class. So it's more of a legal form issue that there happens to be two, but I think as we go forward, it really is indifferent. And, you know, obviously, down the road, we may look to do some things about restructuring that. So just think of them as-
Okay. So there already are two of them.
Yeah, there is two, and, but the distinction-
Okay
... is really more of a legal form distinction versus anything meaningful from an economics point of view.
Okay, fair enough. I'll turn it back. Thanks.