Ladies and gentlemen, welcome to Sienna Senior Living Inc.'s Q3 2020 conference call. Today's call is being hosted by Nitin Jain, President and Chief Executive Officer, and Karen Hon, Chief Financial Officer of Sienna Senior Living Inc. Please be aware that certain statements or information discussed today are forward-looking and actual results could differ materially. The company does not undertake to update any forward-looking statement or information. Please refer to the forward-looking information and risk factors sections in the company's public filings, including its most recent MD&A and AIF for more information. You will also find a more fulsome discussion of the company's results in its MD&A and financial statements for the period, which are posted on SEDAR and can be found on the company's website, siennaliving.ca. Today's call is being recorded and a replay will be available.
Instructions for accessing the call are posted on the company's website, and the details are provided in the company's news release. The company has posted slides which accompany the host remarks on the company website under the events and presentations. With that, I will now turn the call to Mr. Jain. Please go ahead, Mr. Jain.
Thank you, Andrew. Good morning, everyone. Thank you for joining us on our Q3 call this morning. Since the onset of COVID-19, we have been focused on steering Sienna through this crisis, always with the health and well-being of our residents and team members being a top priority. Eight months into the pandemic, we are continuing with the relentless efforts to fight COVID-19 and to minimize the impact of new outbreak. While we continue to manage through a very difficult environment, we were able to adjust and strengthen our operations and become more knowledgeable and better prepared in our response to the second wave. We've continued to invest in our frontline teams and processes, strengthened the way we communicate, and expanded our leadership team.
In order to further strengthen clinical quality and resident safety measures across our platform, our Board of Directors established a Quality Committee to focus on the quality of resident care and resident experience. This also includes resident and team member satisfaction, safety, and many other initiatives directed towards improving the quality of our residents' life. I'm very pleased that Dr. Andrea Moser joined Sienna as Chief Medical Officer. In her role, she's focused on leading and implementing all aspects of medical services, improving our resident quality platform, and building on Sienna's virtual care capabilities so that physicians can come to the bedside of our residents via technology, enabling access to broader range of medical expertise.
In addition to Dr. Moser, we continue to receive advice from some of Canada's premier healthcare experts, including Joe Mapa, the former President and CEO of Sinai Health System, Dr. Allison McGeer, one of Canada's premier infection prevention and control specialists, and Mary Jane Dykeman, an expert in healthcare risk management. We are also in the process of joining Seniors Quality Leap Initiative, an initiative that helps us to benchmark our quality indicators against international standards and allows us to participate in the sharing of best practices, all with the goal to improve the clinical quality and quality of life for our seniors. Moving to infection prevention and control. During the third quarter, we continued to make good progress in implementing important quality and safety measures and to prepare for the second wave.
Our incident management team meets daily to monitor the impact of COVID-19 at our residences, reviews announcements and changes to provincial directives, and provides guidance and oversight for implementing changes to applicable policies and procedures. We enhanced our training and education of team members and have been holding weekly training seminars and webinars, many of which are focused on learnings from the first wave and addressing site-specific needs. We also substantially increased our Personal Protective Equipment reserves and centralized our order inventory system through establishing eight regional hubs in Ontario and BC Each of our residences now has 30 days worth of supply, and we are grateful for the government's additional supply of personal protective equipment.
We implemented enhanced restrictions for non-essential visitors and non-essential outings in many of our communities ahead of government-mandated requirements to do everything we could as COVID cases started to rise across many of the regions in September. During the peak of the first wave, we entered into hospital management agreements at three of our long-term care residences. Our hospital partners' support helped us evaluate and implement additional measures, processes, and protocols. In September, two of the three agreements have concluded. Over the past months, we enhanced our pandemic staffing strategy to support our frontline team members and to ensure continuity of care for our residents. Our staffing needs are met internally through regionally focused talent acquisition teams and further supported by external agencies who are specifically focused on short-term, ready-to-deploy qualified team members.
We are very grateful for the continued government support that helps us cover some of the extraordinary pandemic expenses so far. At the end of Q3, the government of Ontario announced additional funding for long-term care of over CAD 500 million, increasing total funding to over CAD 800 million. As of September 30th, approximately CAD 327 million has been allocated to the long-term care sector. The government of British Columbia has allocated approximately CAD 187 million in funding for costs in connection with additional screening and staffing, infection prevention and control measures, and social visitations. The funding is crucial to help offset some of the significant costs driven by the pandemic. Moving to communications, marketing, and sales initiatives. We continue to strengthen the way we communicate with our residents and our team members.
We launched a team members mobile app, which gives us the ability to reach out to thousands of team members in different locations quickly and directly with new information. We also launched our new centralized call center, which supports our communication and marketing efforts with current and prospective residents and their families. Over the summer, we intensified our marketing and sales activities across our retirement portfolio and connected with thousands of prospective residents. We made significant investments with respect to a digital presence with a goal to drive online traffic to our website [audio distortion] potential leads to resident move-ins by the end of Q3.
We started our winter staycation campaign for shorter-term stays in our retirement residences over the winter months. Our marketing and sales efforts resulted in a significant increase in deposits and move-ins from prospective residents in our retirement portfolio. Average monthly occupancy was 81.7% in September, up 60 basis points from August, and it increased by another 100 basis points to 82.7% in October. This positive occupancy trend over the past two months was a result of our intensified marketing and sales campaign ahead of the second wave. Retirement occupancy was 81.9% at the end of October, and we expect that the second wave will negatively impact occupancy in the coming months. Rent collection levels remained high at over 99%. Comparing year-over-year occupancy rates, the average same property occupancy in our retirement portfolio declined to 81.4% in the quarter from 86.9% in the same period last year.
This was primarily related to a decline in new residents moving in due to the impact of the pandemic, including access restrictions. In our long-term care portfolio, average occupancy declined to 87.4% in the third quarter from 98.2% in the same period last year. Long-term care residences are fully funded for vacancies if it cannot get better due to an outbreak. In addition, we currently receive full funding if we lost rooms due to capacity limitations of two beds per room. This funding protection, however, does not compensate us for the loss of premiums we receive for preferred accommodations for private and semi-private rooms if they're vacant. The impact of the pandemic is reflected in our financial results, which include the extraordinary expenses to manage the pandemic in excess of government funding.
We have made investments in additional staffing, personal protective equipment, property infrastructure, entered into management agreements with hospitals, and added additional senior healthcare expertise to navigate the impact of COVID-19. As a result, Sienna's AFFO payout ratio increased to 110% in the third quarter versus last year. Excluding the net pandemic expenses, the payout ratio would have been 75%. While we expect a continued increased level of expenses in the foreseeable future, we are confident that we will steer Sienna through the second wave of the pandemic and beyond. We have taken many actions to strengthen our operations, invested in our frontline teams and processes, and maintained a solid financial position with a BBB credit rating. In addition, our liquidity remains healthy at CAD 210 million as of the end of the third quarter.
These are all indicators for Sienna's strong fundamentals in the long term, with demand for senior housing expected to remain resilient. There is no doubt the senior living sector has been deeply affected by COVID-19. However, recent developments regarding a potentially effective vaccine are encouraging, and overall fundamentals for senior housing remain strong. With that, I'll turn it over to Karen.
Thank you, Nitin. Good morning, everyone. As Nitin mentioned, Sienna has taken extensive precautions to manage the impact of COVID-19 and prepare for the second wave of the pandemic. This impact is reflected in our results and key metrics. Going forward, our results will depend on certain developments, including the duration and extent of the pandemic. I will start on slide 11 on our Q3 financial results. Revenue decreased marginally by 0.7% year-over-year to CAD 166.9 million in Q3 2020 compared to Q3 2019. Our same property net operating income of CAD 28.9 million in Q3 2020 decreased by CAD 11.3 million over the prior year, mainly related to net pandemic expenses of CAD 7.2 million.
Long-term care same-property NOI decreased by CAD 8.4 million to CAD 14.9 million year-over-year. Retirement same-property NOI decreased by CAD 3 million to CAD 13.9 million. Excluding net pandemic expenses, same-property NOI decreased by CAD 4.1 million, largely due to lower occupancy, partially offset by rental rate increases in our retirement portfolio and lower preferred accommodation revenues in our long-term care Ontario portfolio because of vacancies in private and semi-private rooms. It was further impacted by annual inflationary increases in labor costs and higher property expenses, partly due to timing and seasonality. We continue to incur an increased level of expenses to support the cost of fighting the pandemic and minimizing the impact of outbreaks. As outlined in detail in our MD&A, there are various programs and financial assistance provided by the government to support pandemic-related expenses.
It is important to note that there may be timing differences between the time of incurring these expenses and the funding of such expenses. During the quarter, we recorded net pandemic expenses of CAD 9.7 million related to managing COVID-19, a decrease of 8.5% compared to the second quarter's CAD 10.6 million. We maintained higher staffing levels and accelerated recruitment and retention of team members as we entered the second wave towards the end of the quarter. We also incurred management fees for hospital partner support. This was partially offset by lower per-unit costs for PPE and additional funding received from the government for pandemic-related expenses. As we overcome COVID-19, related incremental expenses and its overall impact from the pandemic are expected to subside, and we expect this will lead to improvements in the company's operational and financial performance. Turning to slide 13.
Q3 OFFO per share was CAD 0.203, a decrease of CAD 0.161 compared to the prior year. Excluding net pandemic expenses, OFFO per share would have decreased by CAD 0.054 compared to the prior year. The decrease was mainly due to softer retirement occupancy and mark-to-market adjustments in share-based compensation, partially offset by annual rental rate increases in retirement and lower current income taxes. Q3 ASFO per share was CAD 0.212, a decrease of CAD 0.156 compared to the prior year. Excluding net pandemic expenses, ASFO per share would have decreased by CAD 0.055 compared to the prior year. Moving on to our balance sheet. Subsequent to the end of Q3, on October 2nd, we successfully completed CAD 275 million of our debt financings, which significantly reduced near-term debt maturity and improved our long-term debt ladder.
These financings, which reflected the confidence placed in our company, included CAD 175 million in unsecured debentures carrying a coupon rate of 3.45% and maturing in February 2026, and a CAD 100 million term credit facility carrying a floating Bankers' Acceptance rate + 225 basis points. The proceeds from these financings were mainly used to repay existing debts, including the full redemption of our Series B secured debentures, which were due in February 2021. With these successful financings, the weighted average term to maturity of our debt has been extended to 4.9 years on a pro forma basis from four years at the end of Q3. In terms of our debt and liquidity, Sienna maintains a strong financial position.
We were reassigned a BBB credit rating with a stable trend by DBRS in September, ended the third quarter with over CAD 210 million in liquidity, and further increased our unencumbered assets pool to over CAD 840 million subsequent to our financings on October 2nd. Our debt is well distributed between unsecured debentures, conventional mortgages, CMHC-insured mortgages, and credit facilities. Looking at our debt metrics on Slide 16, our debt to book value increased by 80 basis points to 47.3% year-over-year, mainly due to CAD 107 million drawdown from our credit facility, of which CAD 40 million has been invested in short-term investments to provide us with financial flexibility. Subsequent to the quarter, we repaid CAD 30 million of our credit facility. We decreased our weighted average cost of debt by 40 basis points to 3.3% year-over-year, primarily due to increasing our mix of floating-rate debt.
Excluding the impact of net pandemic expenses, debt to adjusted EBITDA increased to 7.2 x in Q3 from 6.6 x in the prior year, and our interest coverage ratio decreased to 3.6x in Q3 from 4 x in the prior year. Given the ongoing uncertainty surrounding the impact and duration of COVID-19, we have withdrawn our 2020 guidance earlier this year. In the meantime, we remain committed to providing periodic updates on the impact of the pandemic on our business operations and financial results. I will now turn the call back to Nitin for his closing remarks.
Thank you, Karen. We have taken many actions over the past months to review and strengthen our company's foundation. Our initiatives have helped us adjust and enhance our operations, maintain a strong financial position, and made us more knowledgeable and better prepared in our response to the second wave. We look forward to help strengthen the future of long-term care and improve our portfolio with the development of older homes. We have started to evaluate how the Government of Ontario's new Long-Term Care Development Program could benefit Sienna's properties, and we have submitted our applications for the program. In our view, the new Long-Term Care Development Program would make many projects financially feasible. Three of our current development projects are in advanced stages of planning and approval.
Our development plans also include the redevelopment of Sienna's Altamont Care Community in Toronto into a new 320-bed long-term care campus in partnership with Scarborough Health Network. If built, this campus would provide integrated care for the local community and include 161 new beds in addition to the redevelopment of the existing 159 beds. Since the beginning of March, we have taken many actions. We have further increased our focus on quality and safety and strengthened the company's protocols and procedures. We have added over 800 frontline team members. On October 23rd, the Ontario's Long-Term Care COVID-19 Commission issued recommendations in relation to increased staffing, stronger healthcare sector partnerships, and improved infection prevention and control measures. We were able to share our own experience and observations during the first wave of the pandemic with the commission.
As a result of these recommendations, the Government of Ontario announced that they would increase the hours of direct care for each long-term care resident to an average of four hours per day. This change is expected to be phased in over the next four to five years. We are encouraged by these recent announcements, which are expected to help shape and strengthen the future of long-term care. As we look beyond the pandemic, overall sector fundamentals remain strong. An aging population, long wait lists for long-term care, and a slowdown in future supply of retirement residences are all expected to support our sector's outlook going forward.
I'm incredibly grateful for our team of over 13,000 who are helping Sienna through the first wave of the pandemic with compassion and resilience and is now doing everything they can to prevent the spread in our residences during the second wave. Thank you for your participation on the call today. We are pleased to now answer any questions that you may have.
Thank you, ladies and gentlemen, if you have question this time please press star then one on your telephone if your question have been answered and you want to remove yourself from queue please press pound queue. Our first question comes from the line of Jonathan Kelcher with TD Securities.
Thanks. Good morning. First question, just on the increase in occupancy in the retirement portfolio. Have you been adjusting rental rates to drive that, and what sort of incentives have you been using, if any?
Thank you, Jonathan, and good morning. Our focus has never been to adjust rental rates. First of all, that's not a good thing to do long term, and unlike hotels where people don't talk to each other, in a retirement home, residents talk to each other, and it's not a good feeling when someone new coming in is paying substantially different lower rates than someone who has been there for some time. Usually, what we use in line with other peers would be one-time incentive or help with moving in. That has been our focus rather than adjusting or lowering rental rates. We would adjust rental rates in markets, for example, if there's new supply coming in or we're reacting to some other factors. As a common practice, adjusting rental rates is not what we follow.
Okay. That's good. Secondly, just on the government funding, do you think you've received all that you will for Q3, or do you think you might still get some of those expenses covered? Secondly, some of your peers have applied for the CEWS program. Is that something that you guys are looking at?
Sure. I can answer the first one, and Karen can take the second part of the question. We do anticipate future government funding. Just to use Ontario Long-Term Care, where majority of our funding is, we got around CAD nine and a half million dollars in Q3. However, expenses were much higher just because of few one-time items such as hospital management fee and others. We do expect future funding. We don't really think it'll cover past expenses, but our goal would be to narrow the gap between what we are spending versus what we're getting, as we better understand where and how we need to deploy resources. Karen can answer your second part of your question.
Hi, Jonathan. With respect to the CEWS, we were eligible for that program in Q2, and the amounts, however, were not significant based on our occupancy changes. As we know, the CEWS program is continuing into June 2021. We expect to continue to evaluate our eligibility and apply accordingly.
Okay, thanks. I'll turn it back.
Thank you.
Thank you. Our next question comes from the line of Brendon Abrams with Canaccord.
Hi, good morning. Just want to focus on the net pandemic expenses, came in just under CAD 10 million for the quarter. Just wondering, how we should be thinking about this maybe moving into 2021 for modeling purposes. As well, maybe a second part of the question, if we look beyond COVID-19 or the pandemic, how much of these, let's call it net expenses, do you think could become potentially structural parts of the business?
Thank you, Brendon. I would just say on the current run rate, our primary focus is to keep our residents and team members safe. With the magnitude of expenses differ greatly from property to property, depending on the level of outbreaks. When there is an outbreak, and a significant one, really all your forecast is out the window because you're doing everything you can to ensure you get additional staff. You might be burning through more personal protective equipment, adding additional staff as needed. It is very difficult to forecast that because we don't really have much prediction of how and when outbreaks would happen. Having said that, we continue to advocate for better funding, and we always talked about having a conservative balance sheet and having strong liquidity, which we have been putting to work during the second wave.
It is difficult to give us a projection. However, on your second question, we continue to believe that majority of these expenses, because they relate to additional staffing. For example, you would have additional staffing for screening. Your dining room might be open longer in retirement homes because there's only one person sitting on a table, or you might be serving meals in the rooms of the residents in both retirement and long-term care. That adds additional staffing. We truly do continue to believe that most of these expenses would go away once the pandemic subsides, and given the recent news on the Pfizer vaccine, we do believe that potentially could happen sooner rather than later.
Right. Okay. Yeah, no, that's very helpful. Just maybe on some of the development initiatives, the one at Altamont and the three others you're advancing. Maybe can you just give us a sense of how we should think about, or how you're thinking about, whether it's development yields, return on investment, et cetera. How does that look? The second part of the question is just in terms of funding the upfront capital costs over time, is there potential to bring in partners? Would you fund this primarily through construction loans? Maybe just some color on returns and then the funding aspect of it.
Sure. Let me give you an example of the three projects we have announced previously, which is Brantford, North Bay, and Keswick. They're roughly around 160 new additional long-term care beds. In some cases, we might decide to add retirement, which we are reviewing at this moment. If it's around 160 long-term care beds, the cost is close to CAD 45 million, give or take. Our goal would be to put construction financing. Currently, there are construction financing available for close to 70%-85%, so there is a big range there. If you look at the difference, you're really looking at around CAD 10 million a project of equity on even low side of financing. As I mentioned, you can get even a bit higher. In the new redevelopment program, there is an upfront grant you get once the construction is complete.
That could further reduce your equity requirement upfront. Our goal would be to really fund it through a construction loan and using some of our equity, or using our equity. And when I say equity, I mean retained cash flow. We're not looking to go into market for something like this. We look at development yields, and for those three projects, we think we can get a development yield of around 8%. The Altamont project is a bit different. In that case, we are working that with Scarborough Health Network. We believe that will be a great partnership, and we believe the first one in Ontario between a hospital and a private company. We are still in early stages of reviewing that. The funding is different because it's in Scarborough with the new government program, it goes by location.
It's too early for me to reflect on the yields there. To your point, we are partnering in that project.
Okay. That's great. I'll turn it over. Thank you.
Thank you.
Thank you. Our next question comes from the line of Himanshu Gupta with Scotiabank.
Morning. Just to follow up on the pandemic expenses in the LTC segment, unfunded CAD 6.4 million in Q3. What was the amount of one-time items in the Q3 number, and which you think will not be repeated in Q4?
Hi, Himanshu. During the quarter, we incurred CAD 2 million of hospital partner management fees. Though we really appreciated their expertise and support at three of our long-term care residences. As Nitin mentioned, two of those agreements have concluded in September, so we would view those as one-time expenses. Looking at the amount of unfunded pandemic expenses, again, Nitin touched on it, is really, the thing with the staffing is we have to be conscientious of, we are in second wave. During the quarter, as we were gradually adjusting staffing, the case count started to rise again. Even though during the summer our cases were low, and then we actually achieved a zero active resident case for about five weeks.
When second wave hit us again, we made sure that we did everything possible to be ready for the second wave, to ensure that we have adequate staffing, and at the same time accelerated the recruiting and retention of our frontline team members. That led to higher pandemic labor expenses. Included in our results is also Sienna's Pandemic Pay that is included in Q3, and that program has ended during the quarter as well.
Sure. Barring these one-time expenses, sounds like around CAD 2 million. Can we assume the unfunded level of expenses in Q4 could be very similar to Q3, as of today?
Unfortunately, Himanshu, we don't really have any guidance on that because, first, we don't know what the government would fund. We can only make a guess. Secondly, we can make some adjustments if a home is not in outbreak, what we would be spending. When it goes into an outbreak, depending on the severity of it, where we are located, and depending on what happens with staffing, it is very difficult to forecast that. Unfortunately, we don't really have any guidance for you for Q4.
Sure. That's fair enough. Just bigger picture, it sounds like government is providing certain level of expenses to get through the pandemic, but I think the level of care which you provide, the expenses are much higher. Is there a way you can adjust your LTC operations so that you incur expenses which are in line with the government? Is that what government is asking the long-term care operators to be?
Yeah, that's an interesting question. Again, that's not how we look at it. Government is obviously doing whatever they can to help. It is a global pandemic and everyone is getting impacted, so we understand we would have to bear some of the pain of it rather than just the government only. Our focus has not been to see what we are not starting with, "This is how much we have to spend, let's come in line with that." What we are starting with, "This is what we need to do to ensure everyone is safe and healthy," and the funding would be what it would be. If it continues on for two or three years, we will have to look at it. We all believe that, especially given the recent vaccine announcement, that this is not a long-term thing.
This could be a short to medium term, call it over next to six to nine months, before a vaccine is commercially available. At this stage, our focus is not to spend what we are getting. Our focus is to spend what we need to spend, but to do it in a disciplined manner.
Absolutely
spend versus what we get.
No, absolutely. That absolutely makes sense. Just switching over to retirement home occupancy, just to follow up there. Obviously, your occupancy up two months in a row. What led to outperformance there? It sounds like, in your previous answer, you said you are not providing much incentives. Is it the sales program or something else which led to the outperformance?
In around early August, we really started to focus, even from a management team perspective, we thought about who's working on the crisis and who's working on the strategy for the company. Because I think if you all work on crisis, we'll wake up after the pandemic and have a company which is not really focused on strategy. In the first wave, our Ontario retirement portfolio or retirement in general, was not impacted significantly by COVID-19. The team had started to focus keenly on ensuring we are driving the right marketing campaign, spending what we need to spend from a digital perspective, and to ensure that we are calling all the previous leads that we had, because we believe there's a pent-up demand as people were not able to visit. That happened to be true.
We had significant uptick in people taking tours when restrictions were lifted, That's really what drove our occupancy. In August and September or, middle of August and early September, we were quite optimistic that this is just the start of something great where we can build on it. However, I would say based on what has happened, we will now call it refueling our tank. We know people would leave, as they get frailer, they might have to move into long-term care or hospitals, which we cannot stop. We got ready by having as many people as we can add to our portfolio, We will continue to do that, once the second wave subsides or calms down a bit. The reality is our virtual tours continue to be quite strong.
In some locations which are not hotspots where we are safely able to do so, we continue to have in-person tours including as late as last week. Again, only do it in places which are not in outbreak, which are not in hot regions. Again, we continue to be cautiously optimistic in the forecast of our retirement occupancy. If it wasn't for the second wave, we would be even be comfortable sharing a bit more in terms of forecasting others, but just not at this point.
Got it. I think you mentioned about the winter short-term stays or staycation. How much did that contribute to occupancy growth in the month of October? Do you think they will now be reflected in the month of November?
What we have is some fully furnished suites, for some of those prospects who cannot travel south as many people do in every year. It is really going to be the fourth quarter and early first quarter we will see some results. It's too early to predict that.
Got it. Okay. Just last question from me. On Bill 218, is that very similar in design to the protection you have in British Columbia or is it a bit different? I'm assuming it will be retrospective, and will that cover anything and everything from March and onwards?
Again, our understanding is Bill 218 will provide a degree of civil liability protection similar to what exists in B.C. The bill frankly recognizes the circumstance of COVID-19 and protect those who responded to this crisis in good faith. Our understanding is that it would be retroactive to March.
Awesome. Does that mean that the couple of lawsuits which you have in the first wave, that will be covered under that bill as well?
We don't really comment on lawsuits. It is too early to review them anyways. That is something when they become a bit more real and based on the advice from insurance companies and lawyers, we can provide further information, but it's too early to comment on it.
Got it. Fair enough. Thank you so much. I'll turn it back.
Thank you.
Thank you. Your next question comes from the line of Pammi Bir with RBC Capital Markets.
Thanks, and good morning. Nice to see the increase in deposits in Q3, although occupancy did slip in October. What can you share with us in terms of maybe deposits or lease commitments thus far that have come through in Q4?
Thank you. Hi, good morning, Pammi. As I mentioned, even as late as last week, we continue to see new virtual tours, some in-person tours. We have had a good sense of deposits even in the first half of this month so far. Things have not slowed down to zero, which is very positive. Obviously, they are not in a stage what they would be otherwise. High level deposits so far for the month of October were around, call it three-fourths or 75% of what we would've seen the year before. Hopefully we'll see something similar in November. The challenge is really how do you stop the move-outs, because as people get frailer and at a certain stage, they will start moving into hospitals or into long-term care, wherever it is possible to move into long-term care. Again, we see good traction.
Our deposits have not gone down to zero. We definitely see some positive traction. What is hard to predict at this point is how many people will move out.
Yeah. Thank you for that. Thanks, Nitin. Just in terms of the advisors that you still have on board, do you expect that these costs, and I guess this advisory group, will continue into next year? Just curious on perhaps the implications from a G&A perspective.
Sure. One of the advisors was Dr. Andrea Moser, and we did hire her full-time, so she would be working with us full-time, and we are very excited with the rigor she would bring to our medical practices and others on overall company. The rest of the healthcare advisors that I mentioned, a majority of the cost has already been spent. There would be some going forward next year. We do not see a significant impact of those costs. Some of the G&A costs would be more around crisis management or commission legal work. Again, it's hard to predict depending on the next stages of those things.
I guess, in terms of the, I think it was CAD 2.5 million or CAD 2.6 million of G&A costs in pandemic-related costs in G&A in Q3. I think last quarter you talked about maybe CAD 3 million for the back half of the year. It seems like the majority of that has essentially been spent maybe a little bit more ago?
We do expect some pandemic costs to continue on. I just think it's hard, Pammi, to give you insight of what it might look like, because I know whatever we tell you, we would be wrong, because again, we don't really have a view of what it could be.
Fair enough.
Hard to quantify at this point.
Understood. I guess, just in terms of the potential long-term care project in Scarborough, when would that project be completed if it were to proceed?
That project is still in the early stages. The likelihood of us announcing shovels in the ground are much higher for the other three projects that we talked about, because in many cases, in all three of those cases, it's greenfield. Nothing exists on that site. We, in some cases, even have site plan approval. We have quite a bit of design work done. They would be much ahead, and they could be in ground depending on few of our other priorities in the next 12-18 months. The Scarborough one is still. We started working on it the last couple of months. It's still in the early stages. There's quite a bit of work to be done there. It's hard for me to provide you any timing for the Scarborough project.
Just on the three projects, can you just remind us again, sort of how much spending you expect to incur, I guess, over the next couple of years?
Sure. Each project is around CAD 45 million or so. Our goal is to start maybe two potentially in the next 18 months, and then the one after that. We expect at any given time close to CAD 100 million of development on our books when things ramp up, because it will not be 0 to 100 in a day. It'll be a few months before it gets to that point. There's a very clear line of sight of good visibility into construction financing, 75%-90%, what is available for it. That's what we would be doing, and the balance, call it, CAD 10 million-25 million, it'll take some time to get to that CAD 25 million, I think we would fund it through our retained cash flow.
Thanks very much, Nitin. I will turn it back.
Thank you.
Thank you. Our next question comes from the line of Tal Woolley with National Bank Financial.
Hi, good morning.
Morning, Tal.
In terms of managing the outbreaks, are you finding now that from an operational perspective, I don't know the right way to phrase it, but basically that you're getting more efficient at controlling these? Are you seeing an improvement in how these are being managed in the home versus where you were at the start?
Hi, good morning, Tal. I think there are three things which are different in the second wave than the first wave. The first one is, universal masking didn't come till April. Now everyone is wearing a mask and ensuring they're wearing the rest of the personal protective equipment, and it is also readily available now. That is the first one. The second one is single sites, because in all of our residences in Ontario, especially even ahead of government directive, we stopped all visitors into long-term care into Ontario. That has obviously helped. The third one is universal testing, where people are getting tested every two weeks. That has been, in our view, one of the three key factors of why the number of outbreaks might be less. Having said so, what is different now is more people are getting tested.
It's a combination of that, and things are not being shut down. I think in Ontario so far, we have 10 days of more than 1,000 cases. To run any long-term care or retirement community, you need people, you need team members, and they would go home and come back to work. This is how COVID would get into most of the places, and there's really no way around it, because even with the two-week testing, they would have some delay in that. It is different in the sense that there are those three factors, but also people are dealing with the reality of the economy and not shutting it down completely. That's what we are struggling with. Where we're seeing significant outbreaks would be in the GTA area, which have one of the highest counts of COVID cases in Canada.
That's the reality what we're dealing with. A big part of it really is luck. Two properties could be at the same place with the same quality standards, and one could have three people who somehow got in touch with COVID and at the property, no one. It is very hard to predict that.
Okay. That's understood. Just going back to the development, you'd mentioned these projects for about 160 beds or about CAD 45 million. That translates to roughly CAD 280,000, give or take, per bed. When we're thinking about as more of these announcements go forward, is that a reasonable sort of number for us to think about when we're trying to budget in our head how much these things might cost?
I would say, depending on site, anywhere from 260 to 300. I'm just giving those numbers out just as a midpoint.
Yeah.
It could be anywhere from CAD 260-CAD 300 per bed is what we're seeing now. Obviously, construction cost is probably the only thing which never slows down. There's continued inflation in it. Take it for the number as a point in time, that those are the kind of costs that we are seeing.
Okay. Just on the redevelopment of these properties, maybe we can use Altamont as an example. Assuming you get the green light to proceed with the new campus, does the existing facility, is that going to run all the way through or does that capacity get taken offline? I guess what I am trying to figure out is as the whole system works through this redevelopment phase, is the capacity of the system going to get even more acute because we are going to have to start taking beds offline?
Right.
Not because they're in three and four-bed wards, but also just because we're redeveloping the facilities.
Our development program is really two different kinds of development. I think I would just bucket these three developments in North Bay, Brantford, and Keswick separately than the one in Scarborough. The cost estimate I gave you were for those three properties. In all of those cases, they're greenfield. They're not on existing site, where the current long-term care operations are. Building these new would have no impact on current operations for the three projects. The fourth one, which is Altamont in Scarborough, in that case, it would be actually demolishing the current site and building on top of it. Part of the challenge is to ensure how do residents and team members get impacted. That is part of our due diligence at this stage.
How do we ensure that there's a place for those residents and potential employment for those team members. That is the work we're doing, so that is quite a bit different and that is driven by the reality of not really many GTA sites being available. The government recently came out with three different sites, and they're reviewing them, and they could be an option. Those are kind of the things we are working on at the current time. They're two very different kind of projects, in Scarborough versus the other three.
Has there been any conversation about how to handle the license expiries for the older beds with the government? Obviously they're not going to get through all of this prior to when the older licenses expire. I know the licenses can be a bit of an overhang in terms of funding financing.
For sure. I know our association has a continued dialogue in terms of license expiry, because it would be very difficult to rebuild all the 30,000 beds in the province by 2025. I think it would not be feasible to do that, frankly. Again, that's where our association actively continued to work with the government, and I do think there's an understanding when this 2025 was announced, I think it was around three or four years back, or if I'm not wrong, actually five years back. There has not been much development because the previous redevelopment program did not really work at all. I think there were close to 600 beds built in the last five years. This new program is going to be feasible, but what was difficult to do in 10 years, I'm not sure how would be achieved in four now.
We do expect something to change in that, but it's hard for us to predict public policy.
Okay. Just on the occupancy moves between September and October is there anything unique, were you expecting a lot of occupancy loss in October? It just seems like, it's a fairly meaningful reversion versus trend and versus what some of your peers are reporting.
I would say it was a lot of elbow grease, to people really focused on making sure that for the team, that they're doing everything they can. We looked at our team structure a bit. We looked at how people were, like our sales team was incentivized. I wish I could tell you it was a cool new campaign. It wasn't that. It was really the team working all out to ensure that was happening and had a singular focus on it to ensure we do that from a sales and marketing perspective and following up on all the leads we have had in the past. That is something we are very proud of and we feel we can do more of if, probably, the second wave is going to dampen our enthusiasm as it comes to that.
Okay. I think that is it for me. I'll leave it there. Thank you very much.
Thank you.
Thank you. Our next question comes from the line of Yash Sankpal with Laurentian Capital at Laurentian Bank.
Good morning.
Morning, Yash.
If I understand this correctly, in your long-term homes, you have vacancy even in your private suites. Is that right?
Right now, long-term care is running at around 87% occupancy because in many areas, that has not changed in terms of laws really control when people move into long-term care homes. Given if a home has an outbreak, or if it's in a hot region, the number of move-ins are quite muted. We are running at 87% occupancy across the portfolio, which includes the [audio distortion] . Yes, we would have vacancy in our private beds as well.
If a home has an outbreak, the government covers the occupancy, but it doesn't pay you any premium for premium accommodation. Is that right?
That's right. The government is covering us for full occupancy until the end of the year. However, what we have lost is the co-pay from residents on that premium for semi and semi-private beds as a portion of those have become vacant as a result of an outbreak.
Okay. Now, I just want to focus on the CAD 4 million NOI drop excluding the pandemic expenses. How much of that would you attribute to the premiums that you're not receiving? Any breakdown would be great.
Yeah. We've shared that the loss of preferred revenues is about CAD 600,000 for the quarter. That is not included in our net pandemic expenses. Net pandemic expenses really represent the incremental expenses we have incurred to manage the pandemic, net of related government funding.
Right. I just want to get a breakdown of the CAD 4 million you talked about that is excluding net pandemic expenses, the NOI drop of CAD 4 million.
All right. You're referring to long-term care?
Yes.
Included in that is net pandemic expenses, and, beyond that, we have, again, the loss in preferred revenues. We also have incurred additional property expenses, such as utilities was seasonally higher as we have experienced a very warm summer and early start to that. As well as deferred maintenance expenses from the [audio distortion] heavier on the quarter and expecting to be such for the remainder of the year as well.
Switching gears. I just want to get some idea. How much incremental cost do you incur when a property or a home goes into outbreak, generally?
Hi, good morning, Yash. It is a very difficult question to answer because outbreaks are not all similar. You could have an outbreak where a few team members were tested positive, and they are at home isolating, and there's no resident which has tested positive. In that case, your costs might be limited. In another scenario, you could have significant residents and team members both tested positive. Now you're looking to bring agency staff. You're adding up more staffing than you need before because you want to make sure that people are checking on the residents more often. All the regular things are shut down, such as eating in the dining room or others. It is very difficult. There is no really one formula which applies, if it's an outbreak, what happens.
It really is a case-by-case scenario, and it would look very different in a retirement home versus long-term care, and it'll also look very different if a long-term care home is an A or a C building. There's really no one cost structure which works.
Can you give us a range? The reason I'm asking is, I'm trying to understand how, if a company like Sienna is facing this, what happens to a small mom-and-pop operator? Their facility is in outbreak.
That is correct. It is a province-wide issue or a country-wide issue, in our view. You're right, this could add significant pressure, because there's really the three things which drive what happens. I would say the majority of it, if it's out of 100, 80% of it is luck. The 15 on the last 20% is location. Maybe a little bit of your prep work, because that is really if someone walks into your home with COVID-19, it is very difficult to find that out, even though with two weeks testing. We completely agree that it is a difficult time for everyone, including the smaller owners and operators, whether they're municipal, for-profit, or charity. The same applies to us.
Okay. All the net pandemic expenses you incurred in Q2, did you recover any of them in Q3, at all?
Again, we got additional funding in Q3, but we incurred more expenses in Q3. You can look at it as some of it is for recovery of Q3, but essentially you're spending more and the recovery is what we got. Again, we do not anticipate our previous expenses to be covered in the future. Again, our goal would be to ensure that we are spending money in a disciplined manner so they start to converge. If it wasn't for the second wave, we could see a path for that conversion. During the second wave, again, the focus is not on cost. The focus is to ensure that we are keeping people safe. Again, it's hard to predict that for the next quarter.
No, I'm not trying to forecast it, but I'm just trying to understand. For example, you have incurred CAD 20 million of net pandemic expenses. Is it fair to assume that it's gone out of your pocket?
Yes, that would be a fair assessment. I'm not sure how much of it could be recovered. Some of it could be, if there's a new funding program, that we do anticipate a good amount of it might be ours. Some of it is related to G&A, which we know would not be funded. Some of it is related to, for example, there was a pandemic pay which applied to frontline workers in the first wave, but we did something additional for our management team for those homes as well, because they worked equally hard. A lot of them were working 24/7 in those homes. We understand that would not be funded, and we are okay with that. Again, I think a good chunk of it, we do not anticipate funding backwards for the CAD 20 million.
Okay. Moving on to your distribution and payout ratio. I'm sure the board and management, you're regularly discussing this issue. Just want to understand, at what point would you be forced to consider a cut? Do you guys have any internal matrix that you track? How should we think about it?
It really comes down to our comfort with liquidity and the strength of a balance sheet. In August, for example, we had zero cases, but we had a big refinancing risk. We were looking at it in a certain way. When the refinancing risk is gone, you're looking now at it in a different way, but now you have a bit more expenses. To just for context, our payout ratio is more than 100%, but just, we pay dividends around CAD 6 million in a month, but our liquidity is CAD 210 million. Again, what we might be funding might be half a million or CAD 1 million over the 100% payout ratio. As we talked previously, our focus has never been on our payout ratio. Our focus is to ensure, do we have enough liquidity? This is something we'll continue to monitor.
Again, given that there is a potential vaccine on the horizon, and this could be a six to nine-month thing, again, our goal would be to keep the way things they are, but review them on a consistent basis.
That's it for me. Thank you.
Thank you.
Thank you. Our next question comes from the line of Joanne Chen with BMO Capital Markets.
Hi. Good morning. Most of my questions have been answered. Maybe just a really quick one, just to tie things up. Have you noticed any change, I guess, in terms of the competitive environment from the summer and to now, given how the environment has changed in terms of the number of cases? Are you seeing things getting a little bit more competitive now as we enter into November and December?
Hi, Joanne. When you say competitive, you mean for the retirement residents?
Yes, that's correct. Sorry.
The competition is so local in all of our communities. Again, everyone is running at a much lower occupancy. Instead of a competition, I think the focus really has been to make sure that you're reaching out to people in a proactive manner, understand their individual needs, what they might be looking for. Really no significant change in competition. Again, overall as a sector, we don't really see a lot of price cutting because it's not the right message for the current residents, and it's not really sustainable long term. The focus is what is the right fit for each different resident or prospective resident. Really no change in competition from our viewpoint.
Okay, got it. Maybe this is a much more longer term question, just given the cost pressures that we're seeing with this pandemic and your discussions with government, is it too early to tell whether going forward there's going to be a permanent change in terms of the cost structure within the long-term care business?
Sure. The recent announcement of increasing the direct care hours to four hours, and the care has always been funded by the government. Any operator of any kind, whether that's profit, not-for-profit, or municipal, do not make any money off it. We do anticipate as those care hours go up, that there would be additional funding for it. Which is a positive thing to actually increase the number of care hours. We do not see a significant change in the overall cost structure for this business. The positive is that the new development program is now financially feasible, and we would see some development there. That would be, again, in our view, positive.
Okay. Got it. That's it from us, and I'll turn it back.
Thank you.
Thank you. I'm showing no further questions. With that, I will turn the call back over to Nitin Jain for any further remarks.
Thank you, everyone, for your time, and we looqk forward to speaking to you in our next quarterly call. Thank you.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating, and you may now disconnect.