Extendicare Inc
TSX:EXE
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Extendicare Inc
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Thank you for standing by. This is the conference operator. Welcome to the Extendicare, Inc. third quarter results conference call. [Operator Instructions] The conference is being recorded. [Operator Instructions]I would now like to turn the conference over to Jillian Fountain, Vice President, Investor Relations. Please go ahead.
Thank you, and good morning, everyone. Welcome to Extendicare's Third Quarter 2020 Results Conference Call. With me today is Extendicare's President and CEO, Michael Guerriere; and Senior Vice President and CFO, David Bacon. Our third quarter 2020 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 accompanied slide presentation, which viewers may advance themselves. A replay of the call will be available later this afternoon until November 27. The replay numbers and passcodes have been provided in our press release, and an archive recording of this call will also be available on our website. Before we get started, please be reminded that today's call may include forward-looking statements. Such statements involve known and unknown risks and uncertainties that may cause actual results to differ materially from those expressed or implied today. We have identified such factors in our public filings with the securities regulators and suggest that you refer to those filings. As we discuss our performance, please bear in mind that all figures are in Canadian dollars, unless otherwise noted. With that, I'll turn the call over to Michael.
Thank you, Jillian, and good morning, everyone. Before we get to our third quarter results, I'll take a moment to discuss our efforts in relation to the COVID-19 pandemic and to thank our hardworking and committed team members. As you are all aware, the battle with COVID-19 virus is far from over. And in recent days, we have seen record numbers of new cases across Canada. As the numbers have risen in our communities, we have seen a resurgence of outbreaks in long-term care homes. Combating the recent surge is the top priority for our organization. We learned a lot from the first wave, and we have used that experience to the maximum extent possible to prepare us to meet the challenges posed by the second wave. We are focused on mitigating the spread of the virus using measures such as universal masking, maintaining sufficient levels of personal protective equipment, single-site employer policies, limiting long-term care occupancy to no more than 2 residents per room and regular staff testing in our Ontario homes in cooperation with the local public health authorities. Staff testing is important to identify positive staff who, in many cases, are asymptomatic, to minimize the potential for the virus to enter our homes. We have also assembled a team of specialized managers to provide rapid, effective assistance to homes experiencing COVID-19 challenges. This team has experience dealing with outbreaks and can quickly provide support and proven solutions to limit the impact of an outbreak on our residents and staff. We've also increased staffing levels in our long-term care homes and are investing in the education and training of a new pool of skilled caregivers. As part of our ongoing efforts, we created a new role in the organization. And in October, welcomed Dr. Matthew Morgan to our executive team as our first Chief Medical Officer. Dr. Morgan is focused on developing clinical strategies to better manage outcomes for residents, clients and their families. He will also work to establish deeper relationships with our medical directors in long-term care, and strengthen medication management practices in all of our lines of business. As a specialist in Internal Medicine with a Masters in Clinical Epidemiology, Dr. Morgan brings extensive experience and clinical expertise to our executive team. I look forward to the contributions he will make in support of our residents, clients and valued team members. Our staff continue to work tirelessly providing the crucial care and comfort our residents and clients require. With restrictions on visitations, their presence and company are an important lifeline for many and their ability to provide care with true compassion and kindness under very challenging circumstances is commendable. I'm deeply grateful for the work they do and thank all of our care providers for their ongoing hard work and devotion to our mission. While our actions have helped mitigate the impact of COVID-19 in our long-term care homes, the sharp rise of cases in surrounding communities has caused a resurgence of outbreaks. Of our 69 long-term care homes and retirement communities, 12 long-term care homes are in outbreak the majority of which are limited to fewer than 3 active cases of COVID-19 among the residents and staff. We are also working closely with some of our extended care assist clients to help them manage outbreaks in their homes. In the third quarter, the Ontario government launched an independent commission into COVID-19 in the long-term care sector. In recent weeks, the commission issued an interim report, which recommended increased funding for long-term care staff, stronger collaboration with hospitals and improved infection control including priority access to COVID-19 testing for long-term care residents and staff. We were happy to have an opportunity to present to the commission and fully support its interim recommendations. The Ontario government has already announced plans to implement some of these recommendations. With that context, let's turn to our third quarter results, starting on Slide 4. The impact of COVID-19 continues to be felt across our operations, driving lower occupancy levels in our retirement communities and long-term care homes and lower volumes in our home health care business. The costs of combating the pandemic have totaled $42.5 million to date, exceeding related funding by $19.8 million from governments where we operate. Despite the impact of COVID-19, we've continued to see improved financial performance year-over-year in our retirement living operations due to lease-up activity and in our contract services and group purchasing operations due to a growing client base. As we indicated last quarter, due to revenue declines in our home health care segment, our ParaMed subsidiary qualified for funding under the Canadian emergency wage subsidy program. ParaMed received $50.8 million this quarter which is recorded as a reduction in operating expenses. David will provide more detail on this later in the call. Moving to Slide 5 in our long-term care operations, the impact of COVID-19 remained evident in Q3 as occupancy levels continued to decline and costs to protect residents and staff exceeded COVID funding programs by $15.5 million year-to-date. Occupancy levels at our long-term care homes declined to 90%, down from the usual run rate above 97%, and a further decline from the 93.5% recorded in the second quarter. Despite the reduction in occupancy, our funding is largely protected currently as governments recognize the need to reduce ward room occupancy during the pandemic. Following the commission's interim recommendations, the Ontario government committed to increased funding over the next 4 years to enable an average of 4 hours of care per resident day. The Ontario government has also committed to introduce programs to accelerate the education and recruitment of thousands of additional health care workers that will be needed to meet the new objective. As part of its 2021 budget, the Ontario government reconfirmed previously announced targeted funding for COVID-19 costs through to Q1 2021. While the budget did not include specific investments to achieve the 4 hours of care previously announced, the government did confirm that an implementation plan will be released as part of the government's staffing strategy in December of this year. Moving to long-term care redevelopment on Slide 6. I note that for many years, Extendicare has joined with others in the sector in advocating for solutions to address the aging infrastructure and shortage of long-term care beds across Canada. During the quarter, the Ontario government moved a step closer to addressing this issue with announcements from the Ministry of Long-Term Care in respect of its redesigned capital development funding program. The Ministry's revised program provides for increases in the per diem bed construction funding subsidies and a new capital development grant to offset some of the construction costs, both of which improved the economics for development projects. The ministry announced funding for the program with a $1.75 billion investment to redevelop 12,000 long-term care beds and add an additional 8,000 long-term care beds over the next 5 years. As previously announced, we have submitted applications for 22 projects that, in total, would build over 4,200 beds, replacing all of our existing C-class beds and adding just over 900 new beds to our portfolio. In October, we received our first approval, allowing us to commence construction on a new 256-bed long-term care home in Sudbury later this month. This home will replace the 234-bed Extendicare Falconbridge home and will include 154 private rooms, with the balance of the beds in semi-private accommodation. Construction is expected to be completed in Q4 2022 at an estimated cost of $62.3 million, net of a capital grant provided by the government under their capital funding program. The Sudbury project is 1 of 6 projects at an advanced stage in the government's approval process that we hope to have under construction before the end of 2022. We continue to work closely with our industry partners and government to further refine the new capital development funding program, in particular, to address specific requirements for certain geographic regions, and to streamline related approval and licensing processes. Turning to Slide 7. Our ParaMed operations continue to be impacted by COVID-19, with comparable average daily volumes down by 9.9% this quarter from Q3 last year. In addition, higher operating costs and COVID expenses further negatively impacted our home health care results. The peak impact of COVID-19 on our average daily volumes occurred in April. And since that time, we've experienced a steady increase in our average daily volumes, increasing by 11.6% in Q3 compared to Q2 2020 and up 5.2% since the end of the third quarter. However, while referrals from our clients have recently returned to pre-COVID levels, our workforce capacity is recovering more slowly, constrained by COVID-related factors. Nevertheless, we continue to make steady progress toward pre-pandemic business volumes. To address the continued growth and demand for home care services, we are making long-term investments to address the shortage of personal support workers that has challenged our industry for many years, recently exacerbated by the pandemic. We have developed in-house programs and partnered with colleges to create a new supply of skilled caregivers. To attract a broader pool of interested students, ParaMed is covering tuition and providing paid-on-the-job training, followed by full employment upon the completion of the program. To date, we have put approximately 200 new caregivers through the program, and we expect to increase this to more than 600 students per year as we partner with additional colleges. Note also that we are targeting to complete the final stage of the rollout of our new cloud-based platform in ParaMed's Alberta operations in the fourth quarter. This will complete the final phase of the transformation project that we postponed in the early stages of the pandemic. Turning to Slide 8 and our retirement living operations. COVID-19 restrictions on in-person tours and enhanced infection control protocols led to occupancy pressures and increased costs this quarter. However, continued improvements in our lease-up communities year-over-year contributed to overall growth and financial performance. Stabilized average occupancy remains below prior year levels. But improved in Q3 2020 compared to Q2 as in-person tour restrictions were lifted in Ontario for most of the third quarter. However, in recent weeks, the increase in COVID-19 cases in Ontario has led to the reimposition of restrictions on in-person tours in certain markets, leading to a reduction in stabilized occupancy by 140 basis points since the end of September. We will continue to actively market our properties and conduct virtual tours, but expect the ongoing restrictions will continue to impact our occupancy in the short term. On Slide 9, our Assist contract services and SGP group purchasing services continue to perform well with steady growth in revenue and NOI exceeding a 9% cumulative average growth rate over the past 8 quarters. At the end of Q3, SGP, together with our partners, provided cost-effective products and services to approximately 79,400 senior residents across Canada, up 23.5% from the same quarter last year and up 5.6% from the second quarter of 2020. We continue to develop opportunities to expand SGP and Assist through additional services and product offerings and by expanding the reach of our sales team into other geographies. I'll now turn to David Bacon, our Chief Financial Officer, to provide additional insights into our financial results from the quarter.
Thanks, Michael. I'll start by providing an overview of our consolidated results for the third quarter, followed by some financial highlights of our individual business segments and our liquidity position. As evidenced this quarter, we continue to experience a high level of volatility in our financial results as a result of COVID-19. The pandemic costs remain in excess of related funding programs established by the provincial governments, occupancy pressures continue in our LTC and retirement segments and business volumes and revenues in our home care segment continue to lag below pre-COVID and prior year levels. As previously noted in Q2, our home health care subsidiary, ParaMed, received $50.8 million in the third quarter in connection with the federal government's Canada Emergency Wage Subsidy program. As we review our financial results, we will exclude the impact of the wage subsidy. And as in prior quarters, we will exclude from our 2019 comparative results the ParaMed B.C. business that we exited in January of this year and the incremental funding from Bill 148. The details of these factors are outlined on Slide 21 of our investor presentation. Turning now to Slide 11 and our consolidated revenue and NOI for the quarter. Excluding the factors impacting comparability related to ParaMed, that I just noted, our consolidated revenue increased 10.1% or $27.2 to $296.8 million compared to Q3 2019, driven by COVID-related funding of $28.7 million to offset, in part, the $35.9 million of COVID-related operating expenses we incurred in the quarter. The impact of COVID costs in excess of funding, coupled with the decline in our home health care volumes, decreased our consolidated net operating income 27.6% or $9.6 to $25.2 million compared to Q3 2019, with NOI margins declining to 8.5% from 12.9%. Adjusted EBITDA was down 45.3% or $10.8 to $13 million due to the decline in NOI and increased administrative costs compared to Q3 of 2019, primarily due to the COVID-19-related costs. AFFO was down 60% or $8.2 million to $5.5 million due to the decline in adjusted EBITDA, offset by lower income taxes and lower maintenance capital expenditures in Q3. Our overall financial results continue to be impacted by the net costs related to COVID in Q3 2020, impacting NOI and adjusted EBITDA by $7.2 million and $8.8 million, respectively. The year-to-date impact on NOI and adjusted EBITDA is $17 million and $19.8 million, respectively. Additional details on COVID-19-related costs are included on Slide 22 of the investor presentation. The net -- the impact of the net COVID costs on basic AFFO per share is approximately $0.07 in Q3 and $0.16 year-to-date. Turning now to our individual business segments on Slide 12. Our long-term care operations in the third quarter saw revenues grow by $23.8 million or 14.8% to $184.7 million, which includes pandemic funding of $21.1 million. NOI decreased by $7.7 million or 37.1% to $13 million and NOI margins were down to 7% from 12.8%, primarily due to the estimated costs associated with COVID of $6.6 million in excess of the government funding. Overall, long-term care occupancy in the quarter was down to 90% due to the impact of COVID, primarily driven by occupancy declines in Ontario, where occupancy based funding is in place for the remainder of the year. For the first 9 months of 2020, our COVID-related costs in our long-term care operations have exceeded funding by $15.5 million and for the quarter by $6.6 million. It is difficult to estimate the extent to which these costs will continue and to what extent they will ultimately be addressed by government support. Based on the information available to date, both in terms of our estimates of our costs and the government funding that has been announced, we anticipate we will see our quarterly net COVID costs in our long-term care operations, generally in line with our Q3 2020 costs of $6.6 million into the first quarter of 2021. However, this will be heavily influenced by the ongoing pandemic and the progression of COVID in the community. Turning to Slide 13 and our home health care results, which, as a reminder, exclude the impact of the wage subsidies received in Q3 and the prior year impacts of the B.C. contracts and Bill 148 funding. NOI this quarter declined by 41.5% or $3.30 million to $4.7 million, and the NOI margin decreased to 5.1% compared to 8.7% in the third quarter of 2019. The decrease in NOI and margin was largely as a result of the 9.9% decline in business volumes, increased workers' compensation benefits costs and costs associated with COVID-19 and pandemic pay in excess of funding. Our average daily volumes increased in Q3 2020 by 11.6% compared to Q2 levels. And as Michael mentioned, while we continue to see improvements in our average daily volumes, the pace of our volume recovery has slowed, as COVID-19-related factors constraining our workforce capacity, which remain below pre-pandemic levels and limit our ability to accept more referrals. As discussed, in Q3, ParaMed received $50.8 million under the federal government's Canada Emergency Wage Subsidy program related to the claim periods covering March 15 to July 4, 2020. Subsequent to quarter end, ParaMed received an additional $31.4 million related to the claims periods from July 5 to September 26, which will be recognized in our Q4 results. Under IFRS, the wage subsidy is recorded as an offset to operating expenses, thereby increasing the net operating income of the home care segment when recognized. The federal government further amended the program on October 14, 2020, and extended it to June of 2021. We anticipate filing for further amounts under the program, depending on the final details of the recent amendments to the program and the performance of our home health care segment over the coming months. The impact of the wage subsidy on our AFFO per share in Q3 and year-to-date is approximately $0.42 a share. Turning to retirement living on Slide 14. NOI increased in the quarter by 9.5% or $300,000 to $3.2 million. This improvement was driven by increased occupancy in our lease-up communities, which includes the contribution from the opening of the Barrieview retirement community in Q4 of 2019. Despite the improvement in our lease-up communities, lower same-store occupancy levels and increased costs associated with COVID led to downward pressure on our NOI margins to 26.9% from 28.3% in the same quarter last year. The easing of restrictions during Q3 and, in particular, in-person tours resuming in Ontario, contributed to an increase in our average stabilized occupancy to 91.9% in Q3 compared to 91.5% in Q2, and improvements in our as-at occupancy of 93.1% as of the end of Q3. However, as Michael mentioned, in-person tours restrictions were reimposed in certain regions in Ontario in October, which contributed to the decline of 140 basis points in stabilized as-at occupancy at October 31 to 91.7%. We expect occupancy to continue to be impacted in the short-term as COVID restrictions remain in place. Looking at our final business segment on Slide 15. NOI from our contract services, consulting and group purchasing operations increased in the third quarter by 34% to $4.3 million as the impact of our growing SGP client base, which is up 23.5% over last year and lower travel and marketing expenses due to COVID restrictions, contributed to the improvement year-over-year. Turning now to Slide 16 and our financial position. We remain in a strong position with good financial flexibility and liquidity. At Q3, our consolidated cash and short-term investments on hand were $170 million, with $71 million undrawn on our credit facilities. The impact of the home health care segment wage subsidy received in the third quarter positively impacted our debt metrics, with interest coverage improving to 4x from 2.6 and debt to gross book value improving to 47.9% from 49.7% as compared to Q2. As previously disclosed, our financing activities in the first half of 2020 positioned us well, with no scheduled debt maturities until the first quarter of 2022. In addition, we have made progress this quarter on our previously announced wind up of our wholly owned captive subsidiary which self-insured our former U.S. operations. In September, the Bermuda Monetary Authority approved the deregistration of the captive and the remaining balance of its restricted cash of USD 10 million was released to Extendicare in Q3, contributing to the increase in our liquidity during the quarter. With that, I'll pass it back to Michael for his closing remarks.
Thank you, David. During this challenging time, we remain vigilant in our efforts to protect our residents, clients and staff and are doing everything in our power to provide the care and support they need. While managing COVID-19 remains our immediate priority, we are also committed to building a better future. We are investing in our people by increasing the vital supply of caregivers with our new training programs to provide a steady stream of trained and skilled workers. We are also investing in improving the quality and quantity of available long-term care beds with the construction beginning on our new 256-bed long-term care facility in Sudbury later this month. And we are working towards finalizing approvals and construction tenders for additional projects in the near term. These important long-term investments will improve conditions for both residents and employees, while also adding value for all stakeholders. With that, we'd be happy to take any questions you may have. Operator?
[Operator Instructions] The first question is from Lorne Kalmar with TD Securities. .
Following up on Michael's last comment about some additional LTC developments in the hopper. Maybe could you guys give a little bit more color on what's sort of coming down the pipe in the near term?
Sure. So as I mentioned, we have 22 projects that we have submitted for the government's review, that would be a total of 4,200 beds. We anticipate that these will be distributed over quite a number of years. The program that has been announced only replaces about 1/3 of the C-class beds in the province. So if we expected a proportional share of our projects, we might have 6 or 7 projects approved under that program. We might have more, we might have less, but that would be roughly proportional. We would like to see something in the neighborhood of 3 projects a year launching. So we've got the Sudbury project launching next week, breaking ground next week. And we're hoping to have a couple more to announce in the next quarter or 2. But I think 3 projects per year is roughly what we're planning for. If we could do more, we would. But we're not at this point able to say how quickly we'll get the approvals from the government.
So I guess, my follow-up question is how many developments you have thought you'd carry at once? And then the occupancy guarantees in the LTC running out in, I guess, at the end of the year, have you guys gotten any word on sort of what the government's plan is for that going forward?
We don't have clarity on that at all at this point. I mean we have an expectation at this point that, that occupancy protection will continue to the end of March, to the end of the fiscal year, but we don't have visibility beyond -- when I say that, I meant the government's fiscal year, we don't have visibility beyond the end of March at this point. But given the strong evidence that's available that having more than 2 residents in a room is a risk in the midst of the pandemic, we're hopeful that we'll see that continue for the duration of the pandemic.
Okay. That's very helpful. And then just to ParaMed, it looks like the NOI margin, excluding the CEWS payment was about 5%, nicely up from last quarter. Is that sort of a good run rate for the duration of the pandemic in consideration that ADVs could be impacted by new restrictions?
Well, we've got -- David may want to comment on this, but I'll start. We've got a couple of things at play at the moment, Lorne. So one of them is that our volumes are increasing. And because of the system that we put in place and the new operating procedures we put in place, we're able to grow those volumes without growing the back office. So we'll see some margin expansion as the volumes go up. So that will change over time. But that said, it's hard for us to project just how quickly we'll see the volumes continue to rise. We were very happy to see through October, continuing growth in the business. You can see that in the ParaMed page in the deck on Page 7. So as those volumes come back to pre-pandemic levels, then we'll start to see the impact of our investments on systems and automation, improving our margins over time.
Got it. I appreciate with all the uncertainty, tough to quantify. And then last one, really quick one. I just want to confirm that the CEWS payments are, in fact, taxable?
Yes, they are.
The next question is from Chris Couprie with CIBC.
Just following up on the CEWS payment. Given what -- let's just see if we extrapolate the ADVs for the first month and kind of couple that with, I guess, some of the changes in funding for PSWs . Do you anticipate further CEWS receipts into next year?
Yes, Chris, I mean, we're going to evaluate, as I mentioned, the government-introduced rule changes in mid-October, which we still don't have all the details on. So that -- we're waiting for that and what that might look like going into 2021. There is an interplay between the rules for the balance of this year where the -- by design the program sort of tapers off your entitlement. So you have that going. And obviously, we're hoping for a recovery in our business volumes. So it's a little hard to say what that's going to look like, and we have no visibility at this point into the rules for next year. But what I would say is I think that the magnitude of what we've received to date, both in what we recognized this quarter subsequent -- I mean that is going to be the lion's share of what we think is going to be the entitlement as the program's rules change and we see recovery in the business.
Okay. That's good color. And then I just have a question with respect to ParaMed in terms of the labor force. You kind of call it out as being a bit of a bottleneck as referrals of kind of reach pre-pandemic levels. Where is the labor force sitting in terms of headcount maybe versus the prior year, ex-B.C.?
Yes. I mean we're -- if you look at our levels today, overall pre-COVID level, back in March, we're probably still down in the range of 700 to 800 employees out of the workforce.
Okay. So with the new IT system, I haven't done the math here, but are you -- is there more productivity per head with the new system in terms of hours per day?
Not in terms of frontline staff, Chris. In terms of back office, there is, but not in terms of frontline staff. We are getting higher utilization from our frontline staff, but that doesn't increase productivity per hour, but it just increases the number of hours that we're able to get from the individuals. The other point to note is similar to what we reported in the last quarter. We're seeing about 50 people or so coming back into work every 2-week pay period. So we're seeing that back over time. Of course, that workforce has been impacted by all manner of things related to the pandemic in terms of child care challenges, health challenges, the availability of federal EI and other entitlements that have been keeping people out of the workforce. And so it makes it pretty hard to predict when we see record levels of new infections in the community. So we're really staring into the unknown. I mean we're very encouraged by what we're seeing in terms of our trend line but can't be sure that, that trend line will continue the way it is now.
Sure. So absent the unknown and based on the trend lines that you're seeing, if you're doing 50 people coming back every 2 weeks or so. You could anticipate that, call it, in the next 6, 7 months, you'd be back to pre-pandemic volumes in ex-B.C.?
Yes. And don't forget, Chris, that we're also hiring new people at the same time. And we talked about our education programs, which are bringing new people into the sector. So we're not just dependent on getting people back to work, we're also hiring new people.
The next question is from Yash Sankpal with Laurentian Bank Securities.
I want to understand how much on average should cost when a home goes into hospital management? Is there a ballpark figure that you can give us?
There really isn't, Yash. I mean our experience has been quite variable. And the way to think about this is that when a home goes into outbreak, it typically needs more help, it needs more people. That can be our own people or that can be contracted people from agencies or coming from hospitals, et cetera. So it's quite variable. So ranges from nothing in most of our outbreaks to being a percentage of the total cost. But we've included those costs in our projections. So David's commentary about cost in excess of funding includes the cost of the hospital help.
Yes. No, I understand that part. Just I was trying to understand how much it costs when a home is in normal outbreak versus it is handed over to a hospital management team. Is it like -- are we talking thousands of dollars?
Well, Yash, I wouldn't think about it as handing the home over to a hospital management team, we don't hand anything over. We sign those agreements, which give the hospitals protections and then we work very collaboratively with them. But we continue to be the administrator of the home, and we continue to run the operations of those homes. We continue to add additional staff into those homes, et cetera. So it's not like there's a binary, we're handing it over or not. We're continuing to take responsibility for managing those outbreaks, whether a hospital is involved or not.
Got it. Okay. I want to -- yeah go ahead.
Just to give you one more sort of example. We've had situations where we've signed a management agreement with a hospital. And maybe there's been 2 or 3 visits of hospital experts who've come into the home, have looked at everything we're doing and have felt that it was absolutely sufficient to manage the situation, and they were not anymore involved in that. So even though we signed an agreement, it doesn't necessarily mean that there's any significant amount of workforce from the hospital engaged in that home. It's more an oversight question.
The reason I asked that question was because one of your competitors quoted like $2 million, it costs them $2 million for having their homes under the hospital management, and I was not sure how expensive that transition is?
Well, we haven't had the same experience. So -- so I can't speak to that.
Okay. Moving on to your SPG and Assist division. Are you noticing any particular trends in the services that are being required by your clientele over this period of pandemic?
No. We didn't -- yes, it really hasn't changed the types of services or what we've been doing with those supports for our clients. Those have stayed relatively consistent through the pandemic.
The reason I ask that is, especially for smaller mom-and-pop operators or smaller operators, it must be very difficult to handle these pandemics like given the kind of amount you guys are spending out of pocket. I don't know how smaller operators can handle that kind of shock. So have you noticed any clients asking you to take over the facility and manage it through the pandemic or that kind of services?
Yes. We haven't had those kinds of requests, Yash. I think that hospitals have been playing that coordinating role on a regional basis. So people have been turning to the hospitals rather than other operators. And as you can imagine, we're happy about that because we're quite busy managing our own operations.
Okay. And just one more on your home care division. So is it -- based on your answer to Chris' question, is it safe to assume that over the next 5 to 6 months, home care volumes would come back to your pre -- the pre-COVID level?
Well, all other things being equal, that's the trend line that we're on at the moment. But the other trend line that I worry about is the record high rates of infection in the community. The pressure that we're seeing on the hospitals as a result of that, the potential exists that we might see another lockdown scenario similar to wave one. It's impossible for us to be able to predict that. So we may see another change in the demand curve as a result of that. Of course, it would be temporary. Certainly wouldn't be a permanent change in demand, but we could certainly see something through the winter months that has an effect on referrals.
Okay. One follow-up. So your projection of roughly $6.6 million per quarter of out-of-pocket expense. What does that projection assume in terms of -- what you will likely see over the next 2 quarters? What is the baseline assumption?
Well, I think we've had our costs now running for 2 quarters. And as I mentioned, I think in my comments, we got some additional clarity and announcements from the Ontario government on funding for COVID-related expenses through to the end of the first quarter of next year. So I think when I look at that previous announcements from Alberta, in our run rate, we're feeling that. Again, absent a sharp change in COVID cases and those types of things, the $6.6 million net costs in LTC for lack of any other -- it is hard to know. And all of this is caveat, it's similar to the comments Michael just made about home care. But that's our best view to give some sense of the immediate term over the next couple of quarters that we're sort of forecasting for, but a lot can change that, but that's our best view today.
[Operator Instructions] Our next question is from Tal Woolley with National Bank Financial.
I'll start in Ottawa. Can you just give us an update on how the outbreaks are going there and how you've been managing them?
Yes, sure. I think the outbreaks are at a more advanced stage in their evolution now in that most of the staff are back to work and the incidence of new cases is calming down quite a lot. At one point, we had all 5 of our Ottawa homes in outbreak, and that coincided with a period of time when lab test results were very, very slow to come back, taking more than a week to get results. And I don't think it was a coincidence that all 5 of our homes went into outbreak as well as homes from other operators during that time. But we seem to be getting those under control now. And so I think the worst is passed.
And do you have an estimate of how long like you'll be working with the hospital network there on these facilities?
Yes. Well, the contracts themselves are 90-day contracts and then they automatically expire. But it's quite -- in terms of what's actually happening on the ground, it's quite dependent on the needs of the home. So we just signed agreements for 3 of our homes with the Ottawa Hospital in quick succession, not really knowing where we would need help and where we wouldn't need help. So out of an abundance of caution, we just signed them for all of them. If you take our Laurier Manor home, for instance, that was the example where the hospital experts came in a couple of times, did a couple of visits, looked at what was happening, and we're very content that, that was handled sufficiently with our existing staff. With the other 2 homes, the hospital people were more engaged. And boy, we were really happy to have them there, and they were incredibly helpful.
Okay. For the redevelopment in February, that $62 million net of the construction grant, how are -- first of all, like will the existing facilities still be running during this period? Or are you taking it -- or does it come down during this period?
No. The -- this Sudbury project is a greenfield, Tal. So it's -- we're going to be basically building the brand-new home on new land. And then we'll decamp the residents from Falconbridge over to the new building. So there is no sort of disruption to the current building through the construction.
And as you work through like this redevelopment process, I'm assuming that is likely the most preferred way to go about this because you're not taking beds off-line. What are your plans for like that existing land? Are you just going to put it back to the market? Or is that something you hang on to, like maybe you think about a retirement residence? Like how are you thinking about utilizing that extra land afterwards?
Yes. I think we -- from a modeling sort of thinking about the business case perspective, we just view it as sort of putting the land back to market. And then anything that we could do on that if opportunities arise for other development options, retirement, those other things, those would be sort of accretive to that if we were to do that. But our planning assumption is that for -- we'll just put the existing site back to market.
Okay. And if this is -- like if this is set to be completed in late 2022, like, what's the cadence of how you'd spend that $62 million over the course? Like should we expect -- is it going to be a lot next year or will be sort of evenly over the next few years? Or is it more back-end weighted? How should we think about that?
Yes. It's spread out reasonably evenly over the 2 years. We're -- I mean, we're doing some -- we're breaking ground next week, but it's some rock blasting and site prep before the winter sets in and then -- and getting going. But over the 2 years, it will be -- probably maybe 60% weighted to next year and 40% the following year.
And then you had mentioned earlier like the rule changes for the wage subsidy. What are the specific rule changes that you think impact your ability to -- or that would change your ability to receive the funding?
Well, we don't know, Tal. They said there's going to be the extension of the program to June of next year. There's no detail yet as to what the formulas are going to be in the calculations, both in terms of what the revenue decline tests are going to look like and also then what the underlying entitlement is when you have a percentage of the wage recovery that you have. So when they first announced the program, they made some changes back in July. If you recall, that did tweak some of those formulas. So we expect some changes at this point. So it's hard for us to -- hard for us to know what it's going to be. I mean the biggest one is going to be the -- how they look at the revenue test, right? Is it it going to be year-over-year? Are they going to be comparing January's revenues in 2021 to January's revenues of 2019, et cetera, I mean, all of those things we don't know. And of course, we're hoping that there's just -- we're having a recovery in our volumes as well, which would mute whatever entitlement there could be. So we're still just waiting for clarity on that. They haven't announced the details.
I guess the one thing that's sort of surprising to me with the whole thing is like the amount of the subsidies that you're taking relative to like the existing NOI generated by the business seem meaningfully different. And is there any -- like, I guess, like is there any test on the back-end of after having taken this money, where you might be -- like you might have to look at returning some of it or anything like that?
No. No, there's nothing like that on the back end.
This concludes the question-and-answer session. I'd now like to turn the conference back over to Jillian Fountain for any closing remarks.
Thank you, operator. As the operator noted, this concludes our call for today. The presentation is available on our website as are the call-in numbers for an archived recording. Please don't hesitate to give us a call if you have any further questions. Thank you, again, everyone, for joining us today, and have a good weekend. Goodbye.