Sienna Senior Living Inc
TSX:SIA
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Sienna Senior Living Inc
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Ladies and gentlemen, welcome to Sienna Senior Living Inc.'s Q4 2020 Conference Call. Today's call is 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 are forward-looking and actual results could differ materially. The company does not undertake to update any forward-looking statements or information. Please refer to the forward-looking information and Risk Factors section of the company's public filings, including its most recent MD&A and AIF for more information. You'll also find a more focused discussion of the company's results and 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's remarks on the company's website under events and presentations. With that, I will now turn the call to Mr. Jain. Please go ahead, Mr. Jain.
Thank you, Michelle, and good morning, everyone. Thank you for joining us in our Q4 call today. First, I would like to express my deepest gratitude to our team members. Their demonstration of resilience, compassion and commitment over the past year has been rational and truly making remarkable difference by prioritizing the health and well-being of resin, often making significant sacrifices in their own lives. With the arrival of COVID-19 vaccines, we ended 2020 with we both promise and urgency in the ongoing fight against the pandemic. We have new protection and renewed hope as many of our residents and team members are now vaccinated. Since mid-December, Sienna's vaccination class scores has been rolling out vaccinations across our long-term care and resident residences, retirement residences in Ontario and British Columbia. Over the past 2 months, approximately 92% of Sienna's long-term care residents and 60% of Sienna's long-term care team members have received their first dose of with the vaccine. While the rollout of the vaccine in long-term care has been a government priority, approximately 46% of our residents and 28% of team members, retirement residences have also received their first dose of the vaccine. In addition, the administration of the second dose is also well underway at many of our residences. The arrival of the vaccine has been a turning point and is expected to be the most impactful defense in the fight against COVID-19. With a high vaccination rate at our residences, we are encouraged that the number of residents is an outbreak, and the severity of outbreaks has started to decrease significantly over the past few weeks. As of yesterday, we had 12 residences with active cases of COVID-19, including 9 residences in Long Term Care and 3 residences in retirement. At this point, we have no active COVID-19 cases across any of our residences in BC, and only 6 residences in Ontario have active resident cases. This marks a significant improvement and represents a 96% decline since the beginning of 2021. Moving to our continued focus on quality of care and safety. We continue to expect to have stringent precautions in place to reduce the COVID -- impact of COVID-19 at our residences. Coupled with the high level of community spread, the transmission rate of the virus and older B and C buildings has post significant challenges in vigilant IPAC measures and protocols will remain in place for the foreseeable future. Our incident management team meets on a regular basis, reviews announcements and changes to provincial directives and provides guidance and oversight for implementing changes to applicable policies and procedures. With the guidance of Dr. Moser, our Chief Medical Officer; and Dr. Magaeurs, Sienna's infection -- Chief Infection Prevention and Control Adviser, we made enhancements to our IPAC measures and developed a standardized COVID-19 management guide based on public held guidelines. This guide provides further advice and IPAC measures to our team members and help standardize the clinical management of COVID-19 in our residences. Moving to Slide 6. As a result of the pandemic, we enhanced our staffing strategy, both through our internal talent acquisition teams and the use of external agencies who provide short term, be ready to deploy key members. From March to December of 2020, we added approximately 1,200 team members to our workforce, and we increased our full-time workforce by 16% to about 2/3 of our total employees. Learnings from the first wave continue to be a key focus of team member training and weekly training webinars, which are held at all of our properties along with webinars to address site-specific needs. We have also placed additional emphasis on wellness programs, including mental health and well beam. We also made improvements to the way we communicate with residents and team members. We strengthened Sienna's family care giver engagement program to better engage with our residents, families and caregivers and to provide them with additional support. Every residence now holds a virtual town hall with all families at least once a month and send out a newsletter every second week. In Q4, we have hosted close to 170 virtual town halls and issued more than 300 newsletter. We also launched a wellness series currently focused on stress management and dealing with loss. We engaged our in-house medical experts, Dr. Moser and Dr. McGeer, to provide information and answer questions about the COVID-19 vaccines to our team members, residents and their families. We made further enhancements to a centralized call center. This includes longer hour of operations and enhancements to its marketing and sales function to support our retirement operations. And we continue to leverage crew, our team member mobile app, which has been invaluable in connecting with thousands of team members in different locations quickly and efficiently. Over the fall and winter months, we continued with intensified marketing and sales activities and process improvements across our retirement platform to improve efficiency and productivity. Our continued investments in our digital presence have been driving traffic to our website and in social media sites to support lead generation. Online leads have increased by approximately 80% in Q4 of 2020 compared to the prior year and remained well above their prior levels in the first week of 2021. Initiatives also include professional referral programs and a sales incentive program. In addition, we continue the use of virtual tours at our residences. Moving to occupancy. Given the ongoing pandemic, occupancy decline in our retirement portfolio by 3.7% in the fourth quarter to 79.7% at the end of 2020. With average occupancy of 81.3% in Q4, year-over-year occupancy declined by 6.1% since the end of 2019. After several months of occupancy gains in the late summer and early fall of 2020, renewed access restrictions led to the occupancy decline in the final months of 2020. Average monthly occupancy further declined to 78.6% in January of this year, down 120 basis points from December, and we expect continued occupancy pressure until mid-2021. Based on our assumption that restrictions and our retirement residences will ease over the coming quarters, we forecast occupancy improvements during the second half of the year. Supported by anticipated pent-up demand and our continued investments in our sales and marketing initiatives. In our long-term care portfolio, average occupancy declined to 84.8% in the fourth quarter from 98.2% in the same period last year due to access restrictions and capacity limitations. Occupancy will continue to be impacted by the pandemic with gradual improvements expected during the second half of the year.Excluding the impact of net pandemic expenses, we expect the financial performance of Sienna's long-term care portfolio in 2021 to be similar to 2020. Long-term residencies are fully funded for vacancies if new residents cannot be admitted due to an outbreak. In addition, we continue to receive full funding for capacity limitations to a number of 2 residents per room in multi bedrooms in Class B and C homes until February 28, 2021. This occupancy protection, however, does not compensate us for the loss of premiums we received for preferred accommodations for private and semiprivate rooms if they're vacant. Moving to Slide 9. Our operating performance has been significantly impacted by the extraordinary expenses incurred to manage a pandemic. Q4 OFFO per share was $21.1, a decrease of $12.9 compared to the prior year. Excluding net and expenses, OFFO per share would have decreased by $4.4 and compared to the prior year. Q4 AFFO per share was $19.6, a decrease of $11.7 compared to the prior year. Excluding endemic expenses, AFFO per share would have decreased by $3.2 compared to the prior year. Sienna's AFFO payout ratio increased to 119% in the fourth quarter. Excluding the net and expenses, the payout ratio would have been 83%. For the full year, AFFO per share was $1.04 compared to $1.40 in the prior year, and the payout ratio was 90% compared to 66% in 2019. While we expect a continued increased level of expenses in the foreseeable future, higher fascination rates, coupled with the many actions we have taken to strengthen our operations, provide new protection to our residents and team members and increased optimism across our sector and our company. With that, I'll turn it over to Karen, who will provide an update on our operating and financial performance.
Thank you, Nitin, and good morning, everyone. As Nitin mentioned, Sienna has taken extensive precautions to manage the impact of COVID-19, which is reflected in our results in key metrics. We have made investments in additional staffing, PPE and property infrastructure, entered into management agreements with hospitals and added senior health care expertise to navigate the effects of COVID-19. All of this affected our operating and financial results. I will start with our Q4 financial results on Slide 11. The revenue decreased by 1.9% year-over-year to $168.8 million in Q4 2020 compared to Q4 2019. The our same-property net operating income of $28.5 million in Q4 2020 decreased by $9.5 million over the prior year, mainly related to net unfunded pandemic expenses of $7.7 million. Retirement same-property NOI decreased by $4.30 to $12.2 million, which included net unfunded pandemic expenses of $1.8 million recognized during the quarter. Excluding net pandemic expenses, requirement same-property NOI decreased by $2.50 to $14 million, mainly due to lower occupancy levels and inflationary increases in labor costs, partially offset by annual rental rate increases in line with market conditions. Long-term care same-property NOI decreased by $5.20 to $16.3 million year-over-year due to net unfunded pandemic expenses of $5.2 million. Excluding net pandemic expenses, long-term care same-property NOI was flat to prior year with decreases in preferred optimization revenue in our Ontario portfolio, offset by timing of expenses. Moving to Slide 12 on our full year financial results. Same-property NOI decreased by $31.5 million compared to 2019. Same-property NOI and retirement decreased by $16.9 million or $11.6 million, and long-term care in property NOI decreased by $22.5 million or $19.9 million over the prior year. Rent collection levels in the retirement portfolio remained high and approximately 99% throughout the dynamic. We incurred an increased level of expenses to support the cost of fighting the pandemic and minimizing the impact of outbreaks. 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 pandemic expenses and the funding of such expenses. During the quarter, we recorded net unfunded pandemic expenses of $7.7 million related to managing COVID-19, a decrease of 20.8% compared to the third quarter's $9.7 million. The decrease compared to last quarter was mainly related to lower pandemic staffing costs as a result of our effective recruitment and retention initiatives, leading to a reduction in external agency costs. We also incurred lower hospital management fees compared to the last quarter. This was partially offset by increased PPE costs in response to the second wave. For the full year, net pandemic expenses were $28.2 million. We are very grateful for the continued government support that helps us cover some of the extraordinary pandemic expenses. With the exception of funding related to accommodation, all government funding is flow through funding, which means it has to be spent entirely on resident care. Any amounts that are not spent directly on resident care or pandemic expenses have to be returned to the government. At the beginning of January, the government of Ontario announced additional funding for long-term care of $398 million for costs related to enhanced testing requirements and continued infection prevention and containment efforts. Increasing total funding to the long-term care sector to over $1.3 billion. This funding included an allocation of $6.9 million to date to Sienna for expenses that were incurred in 2020. The as the impact of this additional funding being recognized in 2020, same-property NOI in our long-term care portfolio would have been $23.2 million in Q4 2020. To date, the Ontario government has approximately allocated $747 million, excluding amounts for occupancy protection funding. Of this amount, approximately $47 million has been allocated to Sienna to date. The government of British Columbia has allocated approximately $197 million in funding for cost in connection with additional screening and staffing, infection prevention and control measures and social visitation of which $3 million has been allocated to Sienna. All of this funding is crucial to help offset some of the significant costs driven by the pandemic. Moving to our debt financing efforts. On October 2, we successfully completed $275 million of debt financing, which significantly reduced near-term debt maturities and improved our long-term debt ladder. These financings which reflect the confidence rating our company included $175 million in secured unpressured expenditures carrying a coupon rate of 3.45% and maturing in February 2026 and $100 million credit facility, carrying a floating bankers' acceptance rate plus 225 basis points. The proceeds from the financings were mainly due to early redeem or Series B secured debentures which would have been due in February 2021. We see successful financing, the weighted average terms of maturity of our debt has been extended to 4.7 years at the end of the year. Looking at our debt metrics for the full year 2020 on Slide 16. Excluding the impact of net pandemic expenses, our interest coverage ratio was 3.9x in 2020, in line with the prior year. And excluding the impact of net pandemic expenses, debt to adjusted EBITDA increased to $0.075 in 2020 from 6.7x in the prior year. Our debt to growth will probably increased by 220 basis points to 48.2% year-over-year, mainly due to an $87 million drawdown on our credit facility. Of which $40 million has been invested in your term investments to provide us with continued financial flexibility. Subsequent to the end of the year, we repaid $53 million of our credit facilities therefore, decreasing our debt to gross book value by 160 basis points to 46.7%. We decreased our weighted average cost of debt by 40 basis points to 3.2% year-over-year primarily due to increasing our list of floating rate debt. In terms of our balance sheet, Sienna maintains a strong financial position and investment-grade credit rating, and ended the year with $217 million in liquidity and an unencumbered asset pool of over $840 million. Our debt is well distributed between unsecured debentures, conventional mortgages CMHC insured mortgages and credit facilities. As mentioned, we expect an increased level of expense for some time, which will continue to affect some of Sienna's key performance indicators in particular, with respect to the company's operating perfomance. Given the many factors influencing our results, we remain committed to providing periodic business updates on the impacts of the pandemic and on our business operations and financial results. I will now turn the call back to Nitin for his closing remarks.
Thank you, Karen. I had the opportunity to safely, and within all the provincial guidelines, visit 24 of our residences June of last year, including 5 in the last few weeks. When visiting our residences, I witnessed firsthand the dedication and courage of our incredible team members, many of whom have been battling COVID-19 for almost a year now. I'm truly grateful that our government's privatized senior living in their rollout vaccines. It gives our residents and team members the much-needed protection they deserve. I'm also thankful for the government of Ontario's decision to increase Direct Care hours over the coming years to an average of 4 hours per day for each resident in Long Term Care, a significant increase compared to the current 2.8 hours. At Sienna, we have taken many actions over the past year to review and strengthen our company's foundation by adjusting and enhancing our operations and our capacity to respond to the pandemic. Many of these initiatives have been highlighted in our inaugural ESG report, which was published yesterday. The extent of the pandemic impact on our operational and financial performance in 2021 and depends on numerous developments. These include the duration and scope of COVID-19 outbreaks at the residences and the impact on our residents, employees and suppliers. The speed of vaccine rollout across the wider population in Canada, the arrival of new variants of the virus as well as the extent of the general economic recovery. In terms of our strategic focus and development, our plans include over $600 million in capital investment to develop our Ontario Long Term Care portfolio over the next 5 to 7 years. This is a major opportunity to invest with a focus on sustainability to enhance the lives of seniors we serve and enrich the work environment for our team members. Our 2021 goal is to start with 2 development projects in this year. Last year had been filled with learning, innovation and resilience. With many of our residents and team members now vaccinated, we have new protection and increased optimism. As we look beyond the pandemic, overall sector fundamentals remain strong, an aging population, long wait list for Long Term Care and a slowdown in the 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 is doing everything it can to prevent the spread in our residences during the second wave. I also want to acknowledge many stakeholders who are dedicated to supporting us in our ongoing fight against COVID-19, including the governments of Ontario and British Columbia, our sector associations and our residents and their families. Thank you for your participation on the call today. We are pleased to now answer any questions you may have.
[Operator Instructions] Our first question comes from Jonathan Kelcher with TD Securities.
First question, just on the Long Term Care and the extra pandemic costs. I guess with vaccines being rolled out in your infection rates way down, which is obviously good. When do you think they'll start easing off a little bit? Is that something that should taper over the course of '21?
Jonathan, we are very pleased with our vaccination rates to date. And with Long Term Care having been prior terize our residents being 92% vaccinated to date, that's very meaningful, and we see a very favorable correlation with the high vaccination rate and the decline in the number of outbreaks as we are now at less than 0.2% of active resident cases. And our pandemic expense do very greatly depending on whether our home is on outbreak or not and the severity of that outbreak. And what we've seen is once the home goes into outbreak, there is increased needs for staffing costs for PPD cleaning and cohorting and so forth. However, even with the vaccinations in place, we're very committed to continuing with our IPAC measures and protocols, which means continuing with an elevated level of staffing and PP and all those measures that come with it. And with the homes now coming out of outbreak, those costs would continue for some time as we would unwind some of the extra efforts, but it really has a standard level of IPAC protocols that will continue for some time. And really, until the general population well would get back needed because we see a direct relationship between community spreads and the infection of our residences. So we are fully committed to ensuring that our residents, our team members are still very well protected from the pandemic and as the pandemic subside in the general population, those costs would come down.
Okay. So I guess another way of asking that is if we were to assume that you're fortunate enough to have 0 outbreaks in all of Q2, roughly what would the extra pandemic cost be for that quarter?
Jonathan, I think it's very hard to estimate that because it depends on the community restrictions in that area as well, and there would be, again, as Karen mentioned, there will be a certain standard, you would always keep you would be screening people until the overall population is vaccinated. People would still be wearing some personal protective equipment so it's really hard to estimate at this point what it would look like if we had no outbreaks.
Okay. Okay. Maybe switching gears just on the development program that you outlined, the $600 million. How would funding work for a typical development? Like how much loan to cost can you get in terms of construction financing?
Sure. So around 75% for Long Term Care, given the certainty of -- there's really no lease of risk. So there is -- you can borrow a bit more. And this -- there are certain lenders who are very active in this space. We can borrow close to 25-year money for around 3.25%. So we are speaking with a few of them. And the balance, you would fund it from your equity upfront. And after the home or the building is completed, depending on where you're located, you can get around 10% to 17% of that construction amount back as an upfront grant. So whatever equity put in, around half of it could be recovered once the home is open. So for our $600 million program, if you just think of it a high level, if we borrow $450 million, which is the 75%. And out of the balance of the $150 million, we would be close to $70 million upfront over the next 3 years. And then once that program gets going, as building comes online, that equity is self-funded through those grants going forward.
Okay. So bottom line, you're looking at about $70 million of cash that you guys need to come up with over the next 3 years for the program?
That's correct. And these are, again, high-level numbers at this point as we have detailed programs for a few sites, and we have high level assumptions for some of the other sites, but directionally, yes.
Our next question comes from Fred Blondeau with IA Securities.
Just looking at the action plan from here, would you see you're pretty much done increasing the size of your team? And in terms of the occupancy protection funding, I mean, could you remind us and I might have missed that what happens post February 28?
Sure. Fred. So on the first one, yes, our team is overall built. There are 3 areas where we added expertise, the first one being the health care, the second one around communications, which included us opening a call center, and the last one is centralizing our talent acquisition. And we were fortunate to be able to do that in the time we did. In terms of the February 28 guideline, we continue to work with the ministry on how safely to reopen the homes, so people can start to come back and also discuss how do we get people back into the 3 or 4 bedrooms and still maintain infection prevention control. So I know there's a lot of conversation happening at the multiple tables to ensure how do we do it in the best interest of everyone. So at this point, we really don't really have any more guidance than that.
No, that's totally fair. And then expanding on Jonathan's question on your redevelopment program. I know we discussed that in the past, but what would be your current assumptions in terms of yield on costs? And how would you say that these assumptions evolved over the last year or so? And the reason why I'm asking, obviously, is that we all saw material costs rising over the last couple of quarters?
Correct. So our assumptions continue to be that we would expect the development returns to be in 50 to 100 basis points over a stabilized Long Term Care home. Now the reality is there's been very limited construction of a Long Term Care homes in Ontario. There were 500 beds built in the last 5 years. So people are making guesses on what that cap rate would look like. When we look at A homes, and we recently went through a very fulsome appraisal process because as you were doing an unsecured financing, the cap rates for A homes could be anywhere from 6.75% to 7.25%. And we would argue and advocate that if you have a brand-new building built now with a brand-new license, the cap rate should be lower than the 6.75% number. So I would say anything in the 7% yield range would make sense for us financially. But secondly, it is also the right thing to do. These older homes were built 50 years back. For different resident profile, 50 years back when people used to walk into Long Term Care home. The average length of stay could be 4, 5 years. Today, people come much later in life with acute health care needs. And those buildings are just not -- we have to make them work for the next 5, 7 years because you cannot really change them overnight. But going forward, as the acuity level would only become more and more difficult to manage you need the right infrastructure to be able to do that. So for us, we feel from an ESG perspective, it's the right thing to do socially. It's the right thing to do environmentally. And it would have -- we expect a decent return for our shareholders as well because we would be relying on a huge amount of capital to make this happen.
That's great. And congratulations to you and the team on great work. I can only imagine how difficult the situation is.
Our next question comes from Himanshu Gupta with Scotiabank.
With respect to additional funding announcement in January, has that been fully allocated now. And then just to confirm, you have received $6.9 million in January pertaining to expenses incurred in 2020, but that's not recorded in the financials so far?
You're right on all those fronts. So in the January funding announcement, Ontario has shared a new funding of $398 million, which helps with the testing requirements as well as COVID related expenses covering staffing PP and all the kinds of costs we have been incurring. And out of that new funding, about 40% of it has been allocated to date. And we've shared that what we have received $6.9 million related to 2020 expenses. And because the funding announcement was only known in January, those are not reflected in our year-end results.
Got it. And if I look at the total unfunded expenses in 2020, they were around $18 million. And it looks like you have received $7 million already in January. Do you get a sense from the government that you're likely to receive more funding to close the gap between that $12 million left now, $11 million left now, which is not recovered from the last year?
That's a good question. What I can only say is that out of that new funding that has been shared there is still about 60% of it to be allocated. We're not sure how that would be allocated. But in addition to that, there was also a funding program that was announced back in the fall in September, whereby every month, we have been getting pandemic funding to support with our ongoing costs as well. And as of late, that monthly allocation has been about $3.2 million, $3.5 million.
Got it. Okay. And then just looking at the nature of the pandemic expenses. I mean, if I look at the PP&E expenses were almost $2 million in the quarter. There were other expenses as well. I think -- and obviously, in the pandemic labor continue to be elevated. So which expense category do you think will come down? I mean, like similar to Jonathan's question on the homes, which is 100% COVID free, 100% vaccinated, which category do you think the first category, which should come down? And any -- what could be the level of savings there?
I think that's -- John -- you're right, Jonathan asked the same question, and it's not that we are not looking to give you an answer, but let me just walk you through some of the scenarios. For example, the vaccination is still relatively new. And a month back, the conversation was even if you receive vaccination, you should still be getting screened and tested on a regular basis. Now there's some new conversation coming that as people are vaccinated that maybe they don't have to get tested on a regular basis. But again, that is still in very early stages before you can implement it. Then the second concept of rapid testing. And we are now doing a pilot in 5 of our sites. And the initial assessment was that it will take incredible amount of team members to make that happen because you're really creating a mini lab in 83 of your residences, even though it's not mandated on Retirement at this moment. So it is very hard to estimate at this point. As we learn a bit more, we, again, can provide a bit more information. And that's why we are committed to provide regular business guidance rather than just waiting for the quarter. So as we know a bit more on how and what level of expenses can come down given the vaccination, we can certainly come back and provide a bit more fulsome update.
Okay. That's fair enough. And then just changing gears to Retirement home occupancy. So the question is, were there any restrictions in terms of admissions to Retirement homes in Q4 or currently in January, February so far? I mean just looking at the occupancy drop here, can you elaborate that?
Sure. Our Retirement team has done an excellent job of following up on previous leads and as you can imagine, as seniors are moving into one of the Retirement homes, they would like to see it, compare it to other options and then move in. So during the summer of last year, when they were not -- there were less restrictions, and they were more in person tours, people who are already in the pipeline, we were able to actually see your occupancy increase. Now since all of those leads are gone and restrictions have been in place for quite some time. And there's a certain cycle for a senior to move into a Retirement home. You're -- in many cases, they're selling their own house. So the good news is the housing prices continue to be very strong and are only going higher. But if you're a senior and you're in the middle of COVID with all the restrictions, it is challenging to be listing at home and selling it. So we haven't really seen much traction. And with the restrictions, they are only virtual tours available. And there's still the need to ensure that people are isolating for the 14 days when they first move in, even so they might have a COVID negative test. So there are some items that we continue to work with that association and with the government to see if we can find you influence them in a safe manner to make moving a bit more easier for seniors. But again, safety always comes for a long way of answering a question around that there continues to be restrictions. We're doing virtual tours when people are visiting in person. They're allowed to do so. They have to have a COVID test to be able to do that. So at this stage, I would say we are cautiously optimistic with the vaccine that as vaccine study take impact, we can start to have a bit more visits in person and a bit will follow-up from a sales and marketing perspective.
Got it. And then maybe the last question is previously, you mentioned you were not giving much incentives. For supporting entertainment of occupancy. Has that view changed now? Or will that be changed now given that some of your homes will be -- are at below 80% occupancy levels?
Right. So in the past, we've always talked about we provide onetime incentives rather than changes in rates. So we will continue with onetime incentives, whether it's moving cost, whether it's the whether it's some health of the furniture or might be some rent reputed free upfront. And we believe that's a better way than to lower market rents because it also offsets your current residents. It's a bit unfair if someone is living with you for 2 years, and the next-door neighbor is knocking less because you're just trying to fill occupancy. And there is continued cost pressure from a PPE perspective as well. So most of the sophisticated Retirement owners and operators, they continue to provide incentives rather than lower rates because I don't think that's the right strategy in the long term. So we are in the same boat of providing onetime incentives, but not really looking to change market rates.
Our next question comes from Tal Woolley with National Bank.
On the staffing vaccination rates, what's sort of the impediment to increasing those? Because I think one of the things you sort of learned, but that's sort of been one of the vectors that has created some of the outbreaks going forward and I'm just wondering if it's a vaccine availability issue or if there's anything else that's sort of factoring into that?
The biggest issue is availability because the residents are prioritized first. And for team members, it usually -- the path has been, you go to the local hospital when there's vaccines available to do that. And we have 60% of our team members and Long Term Care vaccinated. Our refusal rate has been quite low. It's been less than 10%. And with the new variants coming in, that rate is only going lower and with more education, which both our Chief Medical Officer and our Chief infection prevention control adviser are doing because there was a lot of meds around this vaccine, how it might be unsafe because it was developed so fast, and that is not the case. So it's -- we don't really see a huge number of refusals and in cases where we had vaccine availability and we had staff who were worried. We even took on to ensure we can provide one-on-one education to get people back on it because we're 100% correct, the best -- the most fulsome way of fighting this pandemic is to get people vaccinated. So that continues to be a high priority, and we do expect our team members' numbers to be extremely high once there's fulsome availability, which we understand might be coming in next weeks or so.
Okay. Just pivoting back to the Retirement occupancy. I mean, we're sort of a year into it, and I appreciate that regulatory changes, everything staffing shoes, everything that's happened throughout the year. It's made -- obviously, it was making it a little bit difficult to call, like month-to-month, what the expected impact should be on the business. But when you sort of look now kind of a year out. And thinking about what the average tenure of a Retirement resident is, like the rate of occupancy loss, has it been about what you expected now? Like is it -- or is it a little worse than what you were thinking or maybe even a little bit better. Now that you've got like sort of some time at looking at how it's performed.
Sure. So usually, in the Retirement homes, Q1 is a challenging quarter because with the flu season, many people are -- would be moving into Long Term Care. So I'll just give you some high-level metrics, for example, if you had 90 move-outs, let's call it, in January of last year in Retirement, I'm just giving you aggregate numbers. The number of move-outs would be 70% of that this year because -- so the number of people moving out has definitely gone down. The challenge is the number of people moving in might be a 20% rate of what people were a year back because of all the reasons I talked about before in terms of tours, people selling their houses and others. So the move-out actually has not been a challenge. And in fact, has come down because of restrictions in Long Term Care. But it's the movements which we actively need to work on. And what we have been busy doing, whether it's with our call center, whether it's a sales and marketing program, is ensuring that we are ready that as restrictions do come out and the markets where it's out, we are actively doing that, building those local partnerships. So I can imagine the frustration on calling it out, the same applies to us. But I would just give you an example. In November, there was no conversation of our U.K. variant. And now currently, that's going to be the biggest part of COVID in Canada. So things are changing at a rate, which are difficult to manage so far from everything we have done. This new vaccine is or the vaccine continues to defend people against the variant. So that is positive. But there's just a lot of new information coming on a regular basis, tile, which makes it very difficult to forecast things.
Okay. And then from your marketing teams, like, what's the tone? Like has there -- are they noting more concern from prospective residents about moving into a senior home? Or is it partly Retirement residents through this period? Like are they -- are you finding like their conversations are having to revolve around, like here are the infection controls and stuff like that? Or is it more like it was in the past? It's just -- I've got a family member relative who needs more assistance. But I'm just wondering if the conversation has changed from a marketing perspective a lot.
Not really. Again, our residents profile is 85 years old, and it is need driven to some extent to do that. The 14-day isolation period definitely is challenging. It does seem like a lot, someone moving in, but we also have to ensure we are keeping everyone else safe. So that's the work we're doing if people have a negative COVID test or residence of a negative COVID test and that isolation period could be different. But again, we'll only change that once it's safe to do so. So it's more things around being able to tour, probably, being able to talk to people, being able to tour multiple times rather than really a change in mindset because, again, as I talked about our Retirement resident profile is more need driven rather than just living style.
Okay. And then you mentioned too in your MD&A just about trying to do more medical visits virtually within your Long Term Care homes and looking to spend some money on that. Can you just talk to me about what exactly you're talking about? What type of money we're sort of discussing in that initiative?
It's not really -- that's for virtual care, it's more on technology such as iPads or hardware. And you always have to, as our Chief Medical Officer, keeps reminding everyone that virtual care visits only go so far. So you really need to do both, where it's a physical visit and a virtual visit. What you're trying to do is that between those in person visits, you're really doing the virtual visits, and there would be some up and costs such as the hardware to set that up.
Okay. So it's nothing, it's not a big system implementation by any starch of the maturation.
Maybe I'll just add to that tell is we did get also a separate bucket of funding for IPAC related capital expenditures. So that's been helpful.
Our next question comes from Joanne Chen with BMO Capital Markets.
Maybe just just going back just on the pandemic expenses, assuming -- I know it's hard to -- because things are changing day by day. But assuming kind of the trend that you're seeing now, would it be fair to assume that the portion of that net unfunded expenses should continue to trend down like it did from Q3 to Q4 throughout 2021?
Again, it is hard to tell whether it's going to trend down, but we are very encouraged with the decline in our number of homes on outbreak and the number of cases. So as the number of outbreaks and cases come down, the expenses would also come down. But still there is a level of IPAs measures that are required, and we are fully supportive of and so we could expect that our expenses could still be a bit higher -- higher than what the funding might be.
Right. But hopefully, that gap closes. And sorry, I might have missed this earlier here. And you mentioned something with respect to $147 million and the $47 million allocated in Ontario. Is that for expenses? I don't know if I heard it wrong, but was that for expenses to be incurred in 2021?
No. So there were -- the number I referred to is the total pandemic funding that we have gotten to date of $157 million. And of the new funding announcement in January of $398 million. Out of that, we had allocated a portion of it, of which $6.9 million was recognized in January but related to 2020 expenses.
Okay. And I guess the assumption is later a couple of months later down the line for whatever expenses incurred in 2021 that will come from the government later down in the year, correct?
Potentially, Joanna, you were saying that for expenses in this year, would we continue to get funding. Again, that would be our -- that is something we would be looking for because, again, all of this funding goes directly towards pandemic expenses. And if we don't use it, you give it back to the government. So as outbreaks go down and hopefully, the expenses go down. Maybe the funding will go down. But at this point, we continue to see increased level of staffing and increased personal protective equipment. So that is something which would -- we expect and hope that will continue on to help us mitigate all this risk.
Okay. And perhaps this is a longer-term question, but assuming the pace of vaccination continues at a good rate and we finally achieve some sort of herd immunity. With respect to your Retirement home, is there any thoughts on the -- in terms of what you guys are thinking in terms of the occupancy recovering back the time line for the occupancy to return kind of back to close to pre pandemic levels?
Again, our view on fundamentals haven't changed. And in fact, with slowdown of some of the Retirement and new supply. And we will even give you our example where in the previous time, we have announced that we're going to do a project in North Bay, and we were thinking of doing both Long Term Care and Retirement. We are only going to go ahead with Long Term Care at this point. We were going to do a project in Kingsmere. But an expansion, we have put that project on hold. So again, we expect Retirement supply is going to decrease, and that will continue to, again, help from an occupancy perspective. So our view really hasn't changed, and we expect on a stabilized view to get to the low 90% in the long term. It just -- we just don't know how the long-term. Is it 18 months? Is it 2.5 years? It's hard to predict that today. But in the summer of last year, we saw significant uptick in occupancy at a very fast pace, but it's just hard to say that today.
Our next question comes from Yash Sankpal with Lorenson Bank.
Let me try this one more time. Would it be fair to say that you will continue to incur these out of profit costs, a sizable amount of them in 2021. Would that be a fair assumption?
Let me answer that question in a more direct way. So what we will ensure is we do not do. We are not going to cut on costs if it's unsafe to do so. So whether we get the funding from the government or not, we will continue to have the right level of staffing, the right level of person protected equipment or anything else needed to fight the pandemic. Our view would be that this is a sector-wide issue, and we should continue to get support from the government. But that is not going to stop us from continuing to do what we need to do. On things such as extra care hours, in terms of changing from the current 2.8% to 4%, those are long term that's -- those are the ones which we expect the government to continue to work with the government and others to make it happen, and we are fully supportive of doing that. It's just hard to predict how that would look like, how much funding we would get versus our expenses.
Now given the prospect of incurring higher cost for foreseeable future and the uncertainty in terms of your recovery in your retirement home occupancy. How does the Board think about your distribution at this point?
Sure. So we have been talking about our distribution throughout the year on a monthly basis. And there's a lot of media conversation around dividends as well around people taking government funding and putting into dividends, which is absolutely untrue because you cannot actually do that. You can only make any income from either your retirement homes, which we have, which is half of our business or the accommodation portion of the funding. Our payout ratio for 2020 was 90%. We always believed in having a conservative payout ratio to ensure that we continue to bring our leverage down. And we're saving it for a rainy day. Well, it's been a hurricane for quite some time. But with the vaccination and the high rates of vaccination we see, we do see an end to this in the call it short to medium-term or expenses coming down. We just don't know how much. So for now, we continue to feel strongly invested in what our dividend is, but that is a conversation we would have internally and with the Board on a regular basis. And we -- if we think that it's going to -- that we need to make a different decision, we'll do that. But we have not -- so far, we continue to believe that we have a good payout ratio and it's -- and we have strong liquidity to offset any of the short-term cash pressure.
Our next question comes from Brendon Abrams with Canaccord Genuity.
Maybe just following up on the earlier line of questioning around the Long Term Care developments. On Fred's question relating to yield on costs, I'm just wondering if you can be a little bit more specific in terms of on a percentage basis, like a cash-on-cash return, what you would be expecting in terms of future Long Term Care redevelopments?
Yes. I would just say, from a total investment perspective, because at a high leverage, your cash return might look a bit different. We expect on a -- just from a development yield perspective on total investment versus the NOI you would generate. We expect the development yield to be in the range of 7% to 8%, so depending on project. So that's really our view has not changed on it. But as I did talk about, with the way the development program works and the high leverage on Long Term Care, you could you your cash and cash yield might look better than your overall development yield, but that could be misguided at a time. So for us, we continue to believe a development yield of 7% to 8% of total investment would make sense for us to keep going with this development program.
Right. And what would it translate to in terms of a price per suite basis? Like if we're thinking about $600 million over the next 5 to 7 years. How many suites would that represent?
Yes. So we have 2,200 older Long Term Care beds. So this assumes roughly, call it, $275,000 to $300,000 a bed, including land cost in areas where we -- in most cases, we have existing land. And our goal would be wherever possible, where we have land where there's the highest and best use for something else to be able to do that and reinvest that money into our long-term tier plan. So again, we -- as we talked about, our internal estimates are that we will need close to $70 million to kickstart this program over the next 3 years. And after that, it should really become self-funding between the construction financing and the government grant you get upfront.
Okay. That's great. That's helpful. And maybe just returning to operations. Clearly, no one has a crystal ball at this point. But if we look out to 2022, hopefully, we're in a more kind of normalized environment. If I look back to 2019, operating margins for retirement was 45% and Long Term Care was 17%. How are you thinking about operating margins in the business maybe 2022 and beyond in a more normalized environment, do you think you can get to pre COVID levels? Or given maybe some of these measures might become permanent it would be -- it would fall somewhat shy of that.
You're correct. That is a big question. And in our view, really the Long Term Care of the long-term margins do not really change. So let's just use a Retirement for an example. Where we see margin pressure is additional personal protective equipment, is screening cost, it's longer dining hours because instead of having 4 people on a table, you may have one or people might be eating in their rooms. And in all my visits, when you talk to residents, they are not looking forward to living, waiting a mask every day and eating separately because that is part of coming into retirement home is to -- is the whole aspect of not going through social isolation. So our belief is that in retirement homes, as occupancy picks up, margin will come back to the right level. For Long Term Care, the 2 biggest areas are personal protective equipment, which is where how efficient the vaccine is and as we get more data on how much personal protective equipment do you need. When people -- when everyone is vaccinated, that remains to be seen, but we do expect that number to come down. And on a staffing thing, the whole direct care hours, as we've talked about in the past, no operator, which any ownership kind make any money of care. So we expect with the government's announcement of additional care hours going up to 4, we will get more funding, and we will spend that funding towards care. So our margin percentage might come down, but margin dollars should not change.
There are no further questions. I'd like to turn the call back over to Nitin Jain for any closing remarks.
Thank you, Michelle. On behalf of our management team and our Board of Directors, I want to thank all of you for your continued support. And I hope all of you can to stay safe and healthy. Thank you.
Ladies and gentlemen, this does conclude the program. You may now disconnect. Everyone, have a great day.