Extendicare Inc
TSX:EXE
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Extendicare Inc
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Welcome to the Extendicare Inc's Third Quarter Analyst Conference Call. [Operator Instructions] And 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.
Thanks, operator, and good morning, everyone. Welcome to Extendicare's third quarter 2021 results conference call. With me today are Extendicare's President and CEO, Michael Guerriere; and Senior Vice President and CFO, David Bacon.Our Q3 results were disseminated yesterday and are available on our website. The audio webcast of today's call is also available on our website along with an accompanying slide presentation, which viewers may advance themselves. A replay of the call will be available later this afternoon until November 19. The replay numbers and passcodes have been provided in our press release and an archived recording of this call will also be available on our website.Before we get started, please be reminded that today's call may include forward-looking statements. Such statements involve known and unknown risks and uncertainties that may cause actual results to differ materially from those expressed or implied today. We have identified such factors in our public filings with the securities regulators and suggest that you refer to those filings.With that, I'll turn the call over to Michael.
Thank you, Jillian, and good morning. Before we review our third quarter results, I will highlight our ongoing efforts to ensure the safety of our residents, clients and staff, as we continue to navigate the COVID-19 pandemic and work to keep the virus out of our homes. In August, we announced that COVID-19 vaccination would become mandatory for all long-term care and retirement home staff across Canada. Those not vaccinated by October 12 were placed on unpaid leave. Currently, all staff working in our long-term care homes and retirement communities are vaccinated.Prior to the implementation of our policy, we had made significant progress on our vaccination campaign. And as a result, we were able to implement our policy with minimal disruption to operations. The high vaccination rates for both residents and staff, along with our continued commitment to active symptom screening, testing and infection control are effectively limiting the impact of the fourth wave in our homes and communities. We have also made significant progress in delivering third doses to our residents to further boost their immunity to the virus. Currently, 4 of our 69 long-term care homes and retirement communities are recovering from outbreaks. There are currently no active cases of COVID-19 among the residents and staff of those homes. The 4 long-term care homes in outbreak are in Alberta, where there continue to be heightened numbers of COVID-19 cases in the community.Our ongoing vaccination campaign in ParaMed is going well, thanks to the positive response of our team members to the program. Our goal is full vaccination for our home healthcare team. To achieve this, we support team members by offering educational resources, reimbursement of expenses and paid time off for vaccine appointments to remove all barriers to vaccination. As well, vaccination is a condition of employment for all new hires across ParaMed. As of October 28, 92% of ParaMed staff have at least one dose of vaccine and more are being vaccinated each week.Turning to Slide 4, I'll begin our third quarter update by highlighting several important new announcements made in the last month by the government of Ontario that are related to long-term care. On October 6, Ontario announced the first phase of funding for increased staffing levels as part of its $4.6 billion long-term care staffing plan. Starting in this month, the government is providing additional funding to support an initial increase to 3 hours of direct care per resident day with subsequent increases planned each April 1 until 4 hours per resident day is reached in 2025. This means that the additional staff we brought on board during the pandemic will be supported by this new funding on a permanent basis, allowing them to deliver the high-quality care our residents need and deserve. These additional team members are already familiar with our homes and processes and have been an integral part of addressing the challenges brought on during the pandemic.On the long-term care redevelopment front, on October 20, the Ontario government announced a new call for applications for new and upgraded long-term care beds under the long-term care home capital development funding program that was announced in 2020. We currently have 3 long-term care redevelopment projects under construction and 6 additional projects with bed license allocations that are at advanced stages of planning and approvals. We intend to resubmit our remaining 13 redevelopment projects into this new call for applications by the end of this year. And then just yesterday, the Ontario government announced its fall economic update and allocated an additional $3.7 billion in funding starting in 2024, '25 for the commitment to build 30,000 net new beds and 28,000 upgraded long-term care beds across the province by 2028. This brings its total investment in new homes to $6.4 billion.On October 28, the Ontario government introduced Bill 37 the providing more care, protecting seniors and building more beds act. In addition to detailing the commitment to increase direct care hours and build new long-term care beds, it outlines measures to improve transparency and accountability in the long-term care sector. The proposed legislation strengthens the resident's bill of rights and introduces new requirements for annual resident, family and caregiver surveys. It also establishes new compliance and enforcement tools. We believe that the proposed legislation is an important and positive step toward ensuring seniors get the quality of care they need and deserve. Our strategy is aligned with the government's key pillars as we continue to focus on our redevelopment agenda and work to implement the increase in direct hours of care.We believe the enhanced accountability and transparency included in the proposed legislation puts a clear focus on the quality of care, accountability and support for caregivers that's required to restore public trust in the sector after the devastation caused by the pandemic. We are committed to doing our part to make this happen. Finally, on October 28, the Ontario government extended the $3 per hour pandemic wage premium for front-line PSWs until March 31 next year. Extending the wage premium recognizes the ongoing contributions by long-term care and home healthcare front-line team members and supports our efforts to increase staffing capacity, particularly in our home health care segment.Now, let's turn to the financial highlights on Slide 5. With the marked decrease in COVID-19 cases during the quarter, our pandemic-related spending decreased by approximately $10 million from Q2 levels to $32.4 million and was largely offset by provincial funding, which included $5.1 million related to costs incurred in Q1. The as a result, costs exceeded COVID-related government funding by only $700,000 this quarter, an improvement of $8.8 million over Q2. While COVID-19 costs are declining, we will continue to incur elevated costs as we remain committed to our ongoing efforts to protect residents, clients and staff until the threat of the pandemic has passed. We anticipate further recovery of unfunded pandemic costs retroactive to prior periods. However, the amount and timing of any recoveries are uncertain and may not cover all of the costs incurred.Occupancy levels at our long-term care homes and retirement communities continue to recover from the lower levels we experienced at the height of the pandemic with average occupancy in long-term care up 360 basis points from Q2. The our home health care average daily volumes were marginally higher than Q2 despite the seasonal softness we experienced in the summer months. Lower back-office costs and the additional operating day in the quarter contributed to the sequential improvement in NOI margins of 180 basis points from Q2 after adjusting for wage subsidy payments and net COVID costs. Our SGP customer base continued to grow in Q3, up 5.9% from Q2 and up 11.4% year-over-year. NOI in our other operations segment was down this quarter compared to Q2 and prior year as a result of the investments in growth initiatives to capitalize on future opportunities in this segment.Moving on to Slide 6. We continue to work with the provinces to address the pressing need to replace aging infrastructure with new modern homes to meet the current and future demand for senior services. In total, we have 22 long-term care redevelopment projects in Ontario that we are actively advancing with the goal of building more than 4,200 new long-term care beds, 3,285 of which would replace aging Class C beds across the province. Last week, we commenced construction of a new long-term care home in Stittsville near Ottawa. This new 256 bed home will replace a 240 bed Class C home nearby, with completion expected in the first quarter of 2024. This project joins 2 other homes already under construction in Kingston and Sudbury.Together, these 3 projects will replace 684 Class C beds with 704 new beds, requiring a net investment of approximately $179 million. We have a further 6 projects in advanced stages of approvals in Ontario with a goal of commencing construction on all 6 before the end of 2023. These projects represent an estimated $285 million in additional net investment. We are currently working to resubmit our remaining 13 projects by the end of the year in response to the newly announced call for applications by the Ontario government. We continue to work with our industry partners and the government to address those projects that are facing economic barriers that affect their feasibility under the current capital funding program, including diseconomies of small scale in rural areas and very high land acquisition costs in the GTA.Moving to Slide 7 and our long-term care operations. Lower rates of COVID-19 in the community and easing of pandemic-related restrictions resulted in a decline in costs and an increase in admissions during the quarter. COVID-19-related costs were $23.2 million in the quarter, down 29% from Q2. As I mentioned earlier, $5.1 million of funding received this quarter related to pandemic costs incurred in Q1. As a result, COVID funding received by the long-term care segment in Q3 was in excess of COVID cost by $800,000. Average occupancy across our long-term care homes increased to 89% in Q3, up 360 basis points from Q2. In October, the Ontario government extended basic occupancy protection until January 31 next year.We will not return to full occupancy in homes with word style 3 and 4 bed rooms, which takes 185 beds out of circulation in Ontario until such time as the homes are redeveloped. It is not yet clear what impact the removal of these beds will have on funding after January 31. The initial phase of the Ontario government's long-term care staffing plan comes into effect this month, which provides us with the funding to make permanent, the additional staff we added throughout the pandemic. The increased funding will be provided through the nursing and program flow through envelopes and takes us to 3 hours of care per resident day with subsequent increments in April of each year.On October 14, the Saskatchewan Health Authority and Extendicare announced our intention to transition the delivery of long-term care services operated at our 5 long-term care homes in Saskatchewan to the SHA. We are working collaboratively with them during the transition to keep the focus on the needs of residents, families and staff. Although terms of the transfer are under negotiation, our exit from the 5 long-term care homes in that province is not anticipated to have a material impact on our financial results. David will address this in more detail in his comments.Turning to Slide 8. Our ParaMed volumes increased slightly last quarter as traditionally slower summer months were offset by a resumption in volume growth in September. In comparison to the prior year quarter, our average daily volumes were up 11.4%. Adjusted NOI margins were 9.7%, up from 7.9% in Q2 when COVID-related costs and revenues are excluded. David will also provide more detail on these margin improvements. Our volume growth continues to be constrained by the staffing challenges facing the industry. Nursing shortages are increasingly becoming a challenge across the entire health care sector as demographic trends and the stresses of the pandemic caused nurses to leave the profession at a time when demand for their services is on the rise.We are focusing our attention on recruiting and retention programs for nurses to counter these market dynamics. We are encouraged by the progress of our PSW college partnerships and in-house HSW training programs. In the first 9 months of this year, more than 470 new caregivers graduated from these programs and joined our front-line ParaMed team. We remain on track to achieve our target of 600 graduates in 2021. The in addition, more than 460 PSW students are getting experienced in our long-term care homes. They are currently enrolled in various federal and provincial programs aimed at expanding the workforce in the long-term care sector and we intend to offer these students employment upon graduation.We continue to encourage our employees who have been on pandemic-related leave to return to work. The extension of the $3 per hour pandemic wage premium for PSWs in Ontario may encourage more employees to return to active duty, particularly in home health care. Lastly, I want to mention the recent home health care rate increases. Subsequent to the end of the third quarter, we received notice that home health care rates in Ontario and Alberta have increased, retroactive to April 1, 2021. Ontario rates have been increased by approximately 1.9% and Alberta rates increased by 1%. These rate changes and the retroactive amounts will be included in our Q4 2021 results.I'll now turn it over to David Bacon, our Chief Financial Officer, to provide further insight into our consolidated and segmented financial results for the third quarter. David?
Thanks, Michael. I'll start by providing an overview of our consolidated results for the quarter followed by some financial highlights of our individual business segments and our liquidity position. Turning to Slide 10 and our consolidated results. As in prior quarters, we have included a detailed schedule of the impact of COVID-19 on our revenues, operating expenses, NOI and adjusted EBITDA on Slide 19 in the presentation. We continue to receive funding support under various provincial programs. And as Michael has said, we received $5.1 million this quarter from the Ontario government to cover a portion of the unfunded COVID costs in LTC incurred in Q1. As a result, the net impact of our unfunded COVID costs on our consolidated adjusted EBITDA was $700,000 for the quarter, and the after tax impact on our AFFO was approximately $500,000.We expect continued volatility in our results, at least through the first quarter of 2022 until the effects of the pandemic are behind us. Year-to-date Q3 2021, we have incurred cumulative unfunded COVID costs of $31.3 million at the consolidated adjusted EBITDA level when you exclude the $18.8 million received in Q1 of this year that related to costs incurred in 2020. The we do have some visibility into the level of COVID prevention and containment funding for the fourth quarter and Q1 of 2022 in both Alberta and Ontario. However, the quantum and timing of our actual costs and any further recovery of unfunded COVID costs incurred to date are uncertain and the amount of any additional COVID funding may not cover all of the costs we've incurred to date.Our consolidated revenue in the third quarter increased by 4.5% or $13.3 million to $310.1 million from the third quarter of 2020. This increase was driven primarily by an 11.4% increase in home health care volumes, increased COVID-related funding of $3 million, long-term care funding enhancements and lower group purchasing volumes related to slowing demand for pandemic supplies. Due to ParaMed's receipt of $50.8 million in the Canada emergency wage subsidy in Q3 of last year, our quarterly consolidated net operating income was down $44.4 million to $31.6 million and represented 10.2% of revenue compared to 25.6% in Q3 2020. Excluding the wage subsidy, consolidated NOI grew by $6.4 million to $31.6 million with an NOI margin of 10.2%, up from 8.5% in Q3 2020.Improvements in home health care operations and a reduction in net COVID costs were partly offset by increased cost of resident care, lower preferred accommodation revenue in our long-term care operations and a decline in NOI of our other operations. Our consolidated adjusted EBITDA decreased $44.5 million from Q3 2020 to $19.3 million due to the factors impacting NOI noted above. Administrative costs were flat year-over-year with the impact of higher IT costs and insurance claims offset by lower COVID-19 administrative costs.Turning now to our individual business segments on Slide 11. Our long-term care operations saw revenue grow by $4.7 million or 2.6% to $189.5 million in Q3, largely driven by increased COVID funding of $2.9 million as well as other funding enhancements and the timing of flow through funding. This was partially offset by lower preferred accommodation revenue that is not covered by the basic accommodation funding protection in Ontario. NOI increased by $3.4 million or 26.5% from the same period last year to $16.4 million and represented 9.4% of revenue, largely due to a reduction in unfunded COVID costs of $7.4 million on a year-over-year basis. This was partially offset by higher labor and operating costs and lower preferred accommodation revenue.The successful impact of the vaccines and easing of restrictions as community case counts declined, particularly in Ontario, have continued to permit increased admissions and this quarter our occupancy increased 360 basis points from Q2 21 to 89%. While we are encouraged by the improvements in occupancy levels, we anticipate that a small number of our Ontario long-term homes may not return to levels above 97% before the occupancy protection expires at the end of January of 2022. The our occupancy at the end of Q3 of our Ontario long-term Care homes, adjusted to exclude the ward style beds we have taken out of service was 94.6%, and we await more specific details regarding the ongoing funding related to the ward style 3 and 4 bedrooms after the current basic occupancy protection expires.As mentioned, the ongoing volatility over the next couple of quarters as it pertains to the level of COVID-19 costs incurred and related funding recoveries is largely driven by our Ontario LTC operations. However, the initial phase of the Ontario long-term care staffing plan that commences this month will help to alleviate some COVID cost pressures by funding the staff we added during the pandemic through enhancements to the nursing and program envelopes, where any funding not spent on resident care is returned to the government. We estimate the LTC staffing plan will provide incremental flow-through funding towards direct care hours of between $40 million to $45 million in 2022.As Michael discussed, we are transitioning the operations and potentially the ownership of our 5 long-term care homes in Saskatchewan to the Saskatchewan Health Authority in 2022. The transfer is not anticipated to have a material adverse impact on the business, results of operations or financial condition of the company. The Saskatchewan long-term care homes contributed $42.6 million in revenue and had an NOI loss of $1.3 million, an estimated negative impact on AFFO of $1.5 million for the 9 months ended September 30, 2021. The from a balance sheet perspective, the net book value of the assets related to our Saskatchewan long-term care homes is $5.4 million and we currently have $3.2 million in outstanding mortgage financing remaining on these homes that matures in January of 2022.Turning next to our home health care segment. Revenue grew $8.8 million or 9.4% to $102 million in Q3, driven by an 11.4% increase in average daily volume year-over-year. Excluding the wage subsidy received in Q3, ParaMed's NOI grew by $4 million to $8.7 million with an NOI margin of 8.5%, up from 5.1% in Q3 of 2020. This improvement reflects growth in volumes, lower workers' compensation costs and improved back office efficiencies, partially offset by an increase in the unfunded net COVID costs impairment. On a sequential basis, excluding the impact of the wage subsidy and the impacts of net COVID costs, the NOI margin in Q3 was 9.7%, up from 7.9% in Q2 and up from 7.3% in Q1. The our average daily volumes were up 0.3% in Q2, impacted by the traditional lower volumes in the summer months.Back office efficiencies continue to drive NOI margin improvements. Our NOI this quarter also benefited from a non-recurring workers' compensation rebate and the impact of an additional operating day as compared to Q2 of 2021. The excluding these 2 factors, the Q3 margin would have been approximately 9.1%. As Michael mentioned earlier, the Ontario and Alberta governments implemented rate increases retroactive to April 1 of 2021, which will be recorded in Q4 of 2021. We estimate that the annualized impact on revenue from these rate increases to be in the range of $6 million to $7 million.Turning now to our retirement operations on Slide 13. Increased occupancy levels and care services came with higher labor and promotional costs, leading to a slight year-over-year decline in financial performance. Q3 revenue was up slightly by $100,000, driven by improvements in our lease-up properties, while NOI declined $200,000 million to $3 million, representing 24.8% of revenue. Throughout the pandemic, our stabilized average occupancy has remained above 90% and was 90.2% for the 9 months ended September 30. During Q2, it averaged 89.8%, down 210 basis points from Q3 of 2020, but ended Q3 at 90.3%, up 80 basis points from the as at June 30, 2021 occupancy.In terms of the retirement portfolio overall, average occupancy grew up 130 basis points from Q3 2020 and sequentially from Q2 of this year, driven by lease-up improvements, offset by a modest decline in our stabilized communities. The easing of restrictions has allowed occupancy in our lease-up communities to end the quarter at 79.7%, up 670 basis points from Q2 of 2021 and we anticipate continued improvements as long as community infection rates remain low with respect to COVID.Turning now to our other business segment on Slide 14. Our assist contract services and SGP group purchasing services revenue declined 4.3%, largely due to lower group purchasing volumes associated with a decline in the demand and price for pandemic supplies. We increased our spending on business development and other growth initiatives this quarter, which has led to a year-over-year decline in NOI and NOI margins in our third quarter. Year-to-date, our NOI margin in our other operations segment is 56.6%, which was in line with our segment's historical margins prior to COVID. The underlying demand for our services remain strong and SGP now supports over 88,000 third-party residents, an increase of 11.4% from Q3 2020 and up 5.9% from our second quarter.Finally, turning to our overall financial position. At the end of Q3, our consolidated cash on hand remains strong at $132 million, with $73 million in undrawn credit facilities and approximately $96 million in undrawn construction financing facilities for our Sudbury and Kingston long-term care projects. We are currently in the process of negotiating construction financing for our new long-term care redevelopment project in Stittsville and expect this to be completed in Q4 on similar terms as the Sudbury and Kingston financing.With that, I'll pass the call back to Michael for his closing remarks.
Thank you, David. I thank our team members for their efforts and their dedication to help keep the virus out of our homes. The high vaccination rate we achieved even before the announcement of our mandatory policy is a testament to the outstanding commitment of our care team members to our residents, clients and their families. Our primary focus continues to be on meeting the needs of our residents, clients and team members. We are extremely encouraged by our progress to date and the success of the booster vaccine campaign to provide a further level of protection in our homes. Enhanced staffing levels, regular testing and ongoing prevention measures will remain in place until the pandemic is firmly behind us.Extendicare has been delivering services across the seniors care continuum for more than 50 years and we are building for the next 50. Demand for high-quality seniors care continues to increase as the aging demographic strains our health system. We are committed to addressing the pressing need to replace aging infrastructure and expand long-term care capacity through our redevelopment program. We are also continuing to invest in our people to provide seniors with the high-quality care they need and deserve. Thank you for your continued interest and support.With that, we'd be happy to take any questions you might have. Operator?
[Operator Instructions] The first question comes from Jonathan Kelcher with TD Securities.
First question, just on the, I guess, the occupancy on long-term care in Ontario. You're pretty close to 97%. I guess, it's a couple of homes that may prevent you from getting there in January. Can you just give us a little bit of color on why that would be?
I think it's, Jonathan, I think it's a matter just of time. Some of the homes were more affected than others by the pandemic and it's taking them longer to recover. The vast majority of our homes are already back at more traditional occupancy levels. And so we're just thinking it's a matter of time. We may be in a situation of full occupancy by the end of January, but there's just a few homes that are a little bit slower. But there's no reason for us to believe that they won't get to full occupancy in due time.
And you're excluding the 185 beds in that 97%, I'm guessing?
Yes. I mean, we, yes, we don't intend ever to have more than 2 residents per room. And as it happens, the homes that are already under construction have a significant number of those 3 and 4 bedrooms. We prioritize those for replacement. So that will be a time limited issue. But we haven't heard yet from the government on their plan to handle that from a funding perspective. So we're just not sure how it will be handled.
And then the funding for the nursing that's coming in, I guess, started in October. Should we -- like how should we expect that to play out for your margins in long-term care? Should we -- do you think they get back close to 2019 levels in 2022 or were there other costs in there that might not cover?
Jonathan, it's -- I think there are a few things on that. So I think when you think of the margins, I think 2 things. We do -- there's a lot of moving parts currently at the moment, as you can appreciate. So as we're working through rolling out and reacting to the new 4 hours of care program and not getting phased in. There has been quite a bit of disruption in the labor side, which has led to some of the increased costs we've seen with staffing and agency use in over time, but we hope that that does regulate and get back to more normal levels, and then also, obviously, on a higher level with the additional nursing flow through funding. We have seen some escalation in some of our other operating costs, things like insurance and utilities that are harder to control. So in part, we need to rely on sort of inflationary rate increases to help us mitigate that going forward. But it is -- we have seen some increase, obviously, in those costs. But -- so overall, hard to predict exactly sort of what it shakes out to, but we do think we're going to trend back towards those levels, but there are some headwinds on some cost items that aren't necessarily part of the 4 hours of care. The other thing, I think, that'll be important for us all to understand as well, obviously, with the 4 hours of care funding coming in that is all flow through. So from a margin percentage point of view, we are going to see a change in our -- in the margin percentage profile as that phases in over the next 4 years. But that should not have an impact on sort of NOI dollars per bed and sort of absolute dollars. But that's not a sort of insignificant impact from a margin percentage point of view. So I think there's a lot of moving parts, but there's elements, I think, like on the labor side, we feel will stabilize with the flow-through, but there's some cost input elements that have had some inflation pressures in the last few quarters.
And then last question, just, I guess, more high-level and staffing has been an issue in the ParaMed business for a long time. Do you think the increase to 4 hours of care in long-term care and the demands of that sector will -- like how does that impact ParaMed or does it impact ParaMed in terms of getting staff?
I think there's a balancing act between the increased need for caregivers, the changes in compensation that are happening in the sector and the increase in supply of new workers through the various government programs that have been announced. We've seen some pretty large increases in enrollments in programs for PSWs and nurses happening across the country. We've also seen the introduction of funding and programs for on the job training, which is underpinning some of our efforts to grow our own workers. And so the answer to your question is in the balance between the increased needs and the increased supply of workers. The other thing that's a dynamic here that is very hard to get any kind of real current data on is the fact that we have dependent on immigration to bring significant numbers of care workers into Canada in the past. And of course that was shut off for 18 months or so. And there's a variety of initiatives now to increase that and to help people with credentials from outside Canada to qualify in Canada. So I would say that there's a pretty big demand for workers underway, but there's also some pretty significant efforts to increase supply. So right now, I would say that my confidence on this is a bit different for PSWs versus nurses. On the PSW front, which is probably 80% of our workforce from a caregiver perspective, I'm very confident on that front. I think the programs that we're running combined with the programs that are happening with various colleges will more than offset the increase in demand for those workers. And we're also seeing the continuation of the $3 premium pay at least in Ontario until March. So I'm very confident on the PSW front and -- in both home care and long-term care. On the nursing front, it's, I think, going to be a greater challenge because it takes longer to train nurses than PSWs. So while there's a vigorous response to the nursing shortage, it will take some years for that to have an effect. And that's where immigration is the big variable that will probably mean the difference between a mild shortage and a more severe kind of shortage. So hard to predict how that's going to play out. But that is a relatively small proportion of our staff that's impacted there.
The next question comes from Scott Fromson with CIBC.
Question on the impact and timing of the recent Supreme Court pay equity decision. What do you think that that's going to do to labor cost?
So Scott, it's hard to predict. The -- this is a complex issue that really goes back over a decade and it's something we're working with other long-term care operators, unions and the government to try to work our way through. But I will say there's a couple of things to -- when looking at this issue. One is that it's industry-wide. It affects the whole long-term care industry, and in fact, probably has knock-on effects in other sectors of the health system as well. And second is the fact that pay equity adjustments historically have been funded by government. So this really is a sector-wide issue to sort out. And I think it's going to take some time for us to resolve it.
So it sounds like it will be addressed, but there could be a lag as with other reimbursements. Is that fair?
It's hard to predict. I mean, I would expect that we would have -- a solution would be comprehensive. So it will be an industry-wide solution and any adjustments to funding would be timely. I don't see this as something akin to COVID, where with COVID we incur the costs and then we file a claim. I think in this case, it will be more like the flow-through funding that we've had for pandemic premiums, where the timing of the reimbursement and the timing of the cost is actually quite closely matched.
And just for modeling purposes, when do you expect to remove the beds in Saskatchewan, the 649 beds?
Scott, I think it's hard to say exactly on the timing of that. It is going to happen in 2022. We are trying to focus on having that done sometime before the end of Q3, but it is difficult to predict the exact timing at the moment. So we'll give more updates as time goes on in future calls and hopefully be able to get some more specific timing around that, Scott, as the negotiations advanced.
The next question comes from Yashwant Sankpal with Laurentian Bank.
Firstly, on the occupancy protection. So the government has not told you yet about the ward beds, but you are saying that it will -- they will be removed. Is that correct from the calculation?
Yes. I think there's 2 pieces of the picture, Yash, here. And I'll be clear that there's nothing explicit and sort of official, but we do anticipate for purposes of the actual occupancy calculation in terms of achieving the 97%, that we do believe the government intends to remove the 3 and 4 bed wards out of that calculation and that does go hand-in-hand with our -- as we've stated intent not to fill those beds again. The piece -- so that's what we believe will happen on that, but it isn't official. And what the other piece of the equation is just what funding though will continue related to those beds. So we're still waiting for clarity after January in terms of the dollars still attaching to those beds, but the test will, we believe, remove those beds from the calculation.
On the -- going to the retirement home sector, the 500 bps sequential decline in your margin. How much of that was because of labor inflation?
It's a component. I don't have that broken out, but there's a component of that in there. But again I think part of that decline is in our lease-up properties, as you can appreciate, as the lease-up occupancy does improve the cost side of the equation in terms of adding staff and to support more residents moving in isn't necessarily linear. So you can have some step-ups and unevenness in sort of the cost side and staffing component as you're leasing up. So there is some inflation in labor costs, for sure, as we're seeing across LTC as well, but some of it does relate to just sort of the unevenness when you're in lease-up, and a lot of our occupancy growth is coming from the lease-up properties.
And then moving to the home care sector. The recent wage increase or rate increase, where was the last time government did similar increase in the past and how much?
It's been quite some time of looking around the room to -- it's been a few years, I would say, 5 or 6 years since there's been a true rate increase. There's been a number of elements, as you can -- if you recall, where rates have increased to absorb incremental cost. There was the Bill 148 wage increases that came through a couple of years ago. So in terms of -- across the board rate increase, this is the first time in a number of years that we've had.
So why is the industry not pushing for like LTC style a regular rate review, like how your LTC payment rate gets reviewed every year?
Yash, may want to just take a look at the release from the home care Ontario association yesterday in response to the fall economic statement in Ontario. It does just that.
And then moving to the Saskatchewan issue. What was the contribution of those 5 homes in like a more normalized year, say 2019?
I think in our -- in the MD&A, Yash, you'll see that sort of more normalized level was about $1 million one point -- like if you go back to 2020 and beyond, you're talking at -- we're looking at about $1 million a year of NOI in 2020. And back to '19, we don't have that number handy, but it's a bit higher than that, but I still think, ultimately, you're talking about $1 million or less on AFFO, which would be about $0.001 of AFFO.
And what will be the rough market value of those properties? I know your -- you have quoted your -- what you carry them on the balance sheet, but what would be their market value?
I think, Yash, I'd say that we don't disclose that. I mean, we're into a negotiation now with SHA. There's different ways to value those properties given the age of the properties and the underlying land. But I'd say that the value is in excess of our book value, but there is negotiation and the discussion here that's going to go on with the province over the next few months to settle that.
And just one last question, if I may. Given the wage inflation we are seeing and Saskatchewan properties going away, has the Board considered the current distribution level recently? Any color would be great.
I mean, we always look at our distribution level, Yash. I think something we're always cognizant of. We're comfortable with the current level. I think the SHA going away, as you can see, was -- didn't really contribute much from a cash flow perspective, AFFO perspective. So I think that, that moving away doesn't have much impact on our thinking around distribution levels. But we're comfortable and I think we're in a good liquidity position I think the way that we're focused on the redevelopment program and the capital for that. But just by design the way the program works with the grants coming in at the end of construction, if we can cycle through to the next projects. I think, overall, we're comfortable with the current level we're at.
The next question comes from Tal Woolley with National Bank Financial.
I just want to go back to your comments on nursing. You've made reference to the challenges in particular that being -- that running the home health care to be -- or let me start again. You made reference to the challenges that you're having finding adequate nursing staff for home health care in this environment. Should we be similarly concerned about it in long-term care? And can you just remind us what the complements of nursing is as a percentage of the staffs in long-term care versus home health care?
They're pretty similar, Tal. I don't know those numbers off the top of my head, but it's definitely a majority of our staff, our PSWs with support from nurses in both of our segments. So I think we're going to face more challenges on the nursing side, as I said earlier. I think that may require some policy changes and some shifts in the types of duties of different individuals. We've responded by adding a lot more in-house training capabilities. I've been talking about that now for a couple of years. But part of the reason for that is to insulate ourselves from some of those shortages and to allow our PSWs to pick up more of the slack. So I think this is a sector-wide issue that we'll have sector-wide solutions. And our efforts to create a pipeline of new PSWs has been really what underpinned our 11% plus year-over-year increases in our home care operations. And we're committed to continuing that in the long-term.
And are there any differences in the vacancies and the turnover rate between the 2 businesses for nursing specifically? Like is it significantly less in long-term care or significantly more in home health care?
No, I would say they're quite similar. The thing about it is that these labor markets are very regional in their nature. So in some parts of the country, it's quite easy to be fully staffed. And then in other parts, we can have significant challenges, recruiting people. As you can imagine, large municipalities, it's easier to find people than it is in small -- some of the smaller towns or rural areas. So it is quite regional in its behavior.
Can you talk a bit to just, now that the pandemic has, I dare to say, become a bit more manageable for everyone. What's your sort of sense and what are you doing to sort of get a good gauge on employee satisfaction right now and employee well being? And what are you sort of hearing right now and do you have any concerns coming out of those findings?
I've spent a fair bit of time in the last couple of months visiting our homes, visiting our home care offices. And I think the staff are feeling very supportive and very positive about the future. I mean, the pandemic was very difficult for everybody. I think we're all still contending with the trauma of the pandemic. But the fact is that the response, particularly in the province of Ontario, to that very negative event has been very positive by way of support, everything from salaries to new facilities to adding staff so that workloads are more manageable. I think the sector is feeling more supported right now than it has in 20 years. So I think people are optimistic about the future. And I can only just point to our groundbreaking in Stittsville in the last week in October, we had a lot of our staff there. They were very excited to see us break ground on a new home, very excited about what that means for the future. We had some of our residents there as well. They were very excited about it. So my view is that the mood is improving pretty dramatically.
On the retirement side, you had mentioned some incremental promotional costs in had crept into the P&L this quarter. Were these like -- was it just a case of like sort of restarting the marketing engine a bit from where you had been in the past and so you had a little bit of extra cost getting going or where you making like direct promotions to drive occupancy? Was it your offering rebates or incentives to drive occupancy?
I think it's more of the getting going again, I'd say, versus anything new or different. So -- and we've -- there is some incentives to drive people coming in, but it's more of a restarting. I think we're very comfortable with sort of the level there and we're protecting the kind of revenue per door averages. But yes there is some incentive activity and mostly to kick start some of the -- get us back on and keep going on the trajectory. And as I said earlier, we still have homes in lease-up, and that's where a lot of our activities getting driven from.
And the -- I think you said it was 185 beds that are at back you sort of don't intend to put back into service with the -- in the 3 and 4 bed wards. If there's no agreement sort of reached with the government, do you have an idea like what the impact of that of just losing funding on those 185 beds would be?
I think, there's not an exact impact. I think there's going to be some funding towards them. I don't know whether it's going to be, what it's going to look like between flow through versus OA funding. So -- but I mean, again, it's 185 beds out of 5,100 in Ontario and 8,000 in all of long-term care. So it's really not a material impact. We don't from our point of view.
This concludes the question-and-answer session. I would like to turn the conference back over to Jillian Fountain for any closing remarks.
Thank you, operator. That concludes our call for today. This presentation is available on our website as are the call in numbers for an archived recording. Thank you, everyone, for joining us today, and have a good weekend. Please don't hesitate to give us a call if you have any questions.
This concludes today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.