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Operator
Thank you for standing by. This is the conference operator. Welcome to the Extended Care, Inc. First Quarter 2022 Analyst Conference Call. As a reminder, all participants are in a listen-only mode, and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. To join the question queue, you may press star 1 on your telephone keypad. Should you need assistance during the call, you may signal an operator by pressing star 0. I will now like to turn the conference over to Jillian Fountain, Vice President, Investor Relations. Please go ahead.
spk00
Thank you, Operator, and good morning, everyone. Welcome to Extended Care's first quarter 2022 results conference call. With me today are Extended Care's President and CEO, Michael Greer, and Senior Vice President and CFO, David Bacon. Our Q1 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 May 27th. The replay numbers and passcodes have been provided in our press release and an archive recording of this call will also be available on the 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.
Michael Greer
Thank you, Gillian, and good morning. Once again, we start the call with a pandemic update, marking the ninth consecutive quarter that's been impacted by COVID-19. The dramatic run-up in Omicron cases in the community resulted in an increase in outbreaks in our homes and staffing challenges across the organization, setting back the positive trajectory of our occupancy levels and home healthcare volumes in the previous few quarters. Thanks to vaccinations and boosters, the virus has manifest as a mild illness for the vast majority of our residents and staff. We continue to remain vigilant and focus on prevention and control measures to minimize the spread of the virus as it can still pose a serious risk to the most vulnerable members of our community. Despite milder symptoms, high levels of staff absenteeism due to illness or isolation led to increased labor costs in the quarter through higher sick leave, overtime, and agency use. This was particularly impactful in our home healthcare segment, where it also affected our ability to meet the demand for services and resulted in a significant drop in our average daily volumes as compared to Q4 2021. While we are continuing to experience an elevated level of new cases within our homes, and among our staff in the second quarter, there's been no impact on the demand for our services. Currently, 24 of our 58 long-term care homes are in outbreak. However, the number of new cases, both among our staff and residents, has leveled off in recent weeks, suggesting we may be experiencing the same seasonal drop-off in viral transmission we've seen over the past two years. In the first quarter, we benefited from $13.3 million in COVID funding for our Ontario long-term care operations related to costs incurred last year. This narrowed the cumulative unfunded costs since the beginning of the pandemic to $33.1 million. Subsequent to the quarter, the Government of Ontario announced additional COVID prevention and containment funding of $278 million for the 12 months ending March 31, 2023, $130 million of which will flow in Q2, helping to mitigate the costs we continue to incur. The Alberta and Manitoba governments have also indicated their intention to continue funding support on a retroactive basis for COVID costs incurred through to March 31, 2023. We are encouraged by these announcements and grateful for the continuing support. We will continue to experience volatility in our operating and financial results until the effects of the pandemic are behind us. Turning to slide four, as previously announced, we took important steps in the first quarter to execute on our strategy to focus on the long-term care and home healthcare segments using a less capital-intensive business model. Through a series of transactions, we are repositioning Extendicare to focus growth on operating and building new long-term care homes, while substantially reducing our ownership stake in the properties we operate. This will allow us to deploy capital more efficiently and to provide greater flexibility to fund growth initiatives, including acquisitions. The sale of our Esprit retirement operations is expected to close on Monday, May 16th. The sale to the Siena-Sabra partnership for $307.5 million is expected to result in net proceeds to Extendicare of approximately $125 million. The transaction unlocks the value of our retirement segment at an implied cap rate of approximately 6%, thus focusing Extendicare on its two core segments, long-term care and home healthcare, where we can leverage our deep expertise and scale to drive improved performance and high-quality care for seniors across Canada. The retirement segment represented approximately $7.1 million in AFFO contribution, or $0.08 per share, based on our 2021 results. Slide 5 summarizes the two transactions with Revera and Axiom Infrastructure that we announced in March that take the next step in our strategic shift. These arrangements will add 56 long-term care homes to the Extended Care Assist portfolio of managed homes, bringing the total we own or manage to 164. These homes will also add approximately 7,500 beds to the SGP Purchasing Partner Network, bringing the total participating beds to over 100,000. In addition, we are acquiring Rivera's 15% interest in the 24 long-term care homes they own in partnership with Axiom, along with an opportunity to purchase future Rivera redevelopment projects. An important element of these transactions is the addition of Riviera's Long-Term Care Operations Group and a number of head office staff to the Extend-a-Care team. They will continue to support the ongoing delivery of high-quality care and services to ensure a seamless transition into Extend-a-Care for the Riviera homes, the care staff, and the residents and families. We will also enter into a joint venture with Axiom for the redevelopment of our own Class C homes. The joint venture provides us with capital to support our redevelopment agenda, as well as a platform to expand our long-term care operations through acquisitions and greenfield development. Total aggregate consideration to be paid on closing of these transactions is approximately $70 million, subject to customary adjustments consisting of cash and debt assumed through our 15% ownership stake in the joint venture. Based on the anticipated revenue of the management agreements to operate Revere's 56 long-term care homes, net of our incremental costs, management services could generate AFFO of $0.04 for basic share. Additionally, Distributions in respect of our 15% interest in the 26 long-term care homes to be jointly owned with Axiom could generate AFFO of 1 cent per basic share for a combined 5 cents per share, or $5.3 million. Closing of these transactions is subject to customary closing conditions, including receipt of regulatory approvals from the provincial health authorities in Ontario and Manitoba which are underway. It is difficult to predict when the regulatory process for the transactions will be complete and the subsequent closing date, but we're actively working on integration planning with Revere and Axiom to ensure that we're in the best position possible to integrate Revere's long-term care operations team, the homes under management, and the JV interest into extended care expeditiously after close. Slide 6 summarizes the strategic benefits of the Revera and Axiom transactions. They provide extended care the ability to focus on our two core segments, long-term care and home care, where our depth of experience and scale will enable us to capitalize on the growing demand for these services. A less capital-intensive business model, coupled with the proceeds from the sale of the retirement operations, will provide the flexibility to allocate capital strategically, including priority investments in our people, technology, and our long-term care redevelopment program. The JV platform created by these transactions provides a foundation to expand beyond our own redevelopment agenda and allows us to consider acquisitions both within long-term care and home health care, greenfield long-term care new builds, and redevelopment of homes outside of Ontario. In addition, these transactions expand the customer base for our extended care assist managed services and SGP group purchasing, driving growth in our higher margin other operations segment. The preferential rights to acquire Riviera seabed redevelopment projects also provides us with a pipeline of new long-term care homes in Ontario to further grow the JV and extend related management fees. Overall, these transactions are estimated to contribute approximately $0.05 of AFFO per share, replacing a significant portion of the $0.08 per share of AFFO lost with the sale of the retirement operations. Using on an enterprise value basis approximately $70 million, of the $307.5 million generated from the sale of the retirement portfolio. Moving to slide seven, we continue to advance our redevelopment strategy to replace our older Class C beds in Ontario. In total, we have been awarded 4,248 new and replacement beds across 20 redevelopment projects, which would replace all of our 3,285 existing Class C beds, including the three projects currently under construction. We are pleased to contribute to expanding much needed long-term care capacity in the province. Our new homes will be constructed exclusively with single resident bedrooms to maximize privacy, safety, and resident comfort. We're actively engaged with industry partners and the government to obtain the necessary enhancements to the government's capital development funding program to make projects in all markets economically feasible, given the considerable widespread inflation being experienced across the construction industry today. We continue to work through the Ontario Ministry of Long-Term Care and municipal approval processes for all of our projects and are targeting to have six ready for construction before the end of 2023. Now let's turn to a few operational highlights on slide eight. As you can see in the table, while we experienced year-over-year improvements in long-term care occupancy and home healthcare volumes, the impact of the Omicron variant resulted in a decline. in long-term care occupancy, which was 120 basis points lower than in Q4, and a drop in home health care average daily volumes, which were down 4.8% on a sequential basis. We did continue to see growth in our SGP customer base in Q1, up 6% from Q4 and 21.9% year-over-year. While our pandemic related spending began to decline in the second half of last year, it increased in December and continued to be elevated through the first quarter due to the Omicron surge. Pandemic related spending increased to $42.2 million in the first quarter, up $10 million from Q4. Additional COVID funding I mentioned earlier resulted in a net recovery of COVID costs of $8.5 million for the quarter. With that, I'll turn it over to our CFO, David Bacon, to provide commentary on our consolidated and segmented financial results for the first quarter. David?
Gillian
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 liquidity position. Before I begin, I should note that as a result of the agreement to sell our retirement living operations, We have classified this segment as discontinued and held for sale in Q1 of 22. And as you'll recall, in Q4, we did the same with our Saskatchewan long-term care operations, pending their transition to the Saskatchewan Health Authority, which we continue to work towards completing in 2022. As such, these operations are excluded from our results from continuing operations in our financial statements and MD&A and in our review of our financial results today, unless otherwise indicated. We've included a slide in the appendix of this presentation illustrating the contribution to revenue, NOI, and AFFO of our discontinued operations, and further details can be found in our Q1 MD&A and Note 14 of our interim financial statements. The retirement living operations contributed $1.3 million to AFFO in Q1 of 2022 and $7.1 million, or approximately $0.08 per share, for the year ended December 31, 2021. The Saskatchewan long-term care operations generated an AFFO loss of approximately $1.4 million in each of Q1 of 22 and for the 21 year, or approximately a loss of one and a half cents per share. As Michael mentioned, we're scheduled to close the sale of retirement operations this coming Monday. Settlement of the estimated purchase price will be in cash of approximately $254.1 million. an assumption of mortgages by the buyer uncertain of the communities of $53.4 million. Cash proceeds will be used to repay all remaining outstanding debt related to the retirement operations of approximately $117.1 million. Net proceeds are estimated to be approximately $125 million, subject to customary post-closing working capital adjustments. The net book value of the property and assets related to the retirement living operations is approximately $220 million at closing, resulting in an estimated gain of $75 million that will be recognized in our second quarter results through discontinued operations. Turning now 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 EBITDA on slide 18 in the presentation. We continue to receive funding support under various provincial programs, which included an additional $13.3 million in the quarter from the Government of Ontario related to unfunded COVID costs in our long-term care segment incurred in 2021. As a result, we reported a net recovery of COVID costs positively impacting our consolidated adjusted EBITDA from continuing operations of 8.5 million for the quarter and an estimated after-tax impact on the FFO of approximately 6.3 million or 7 cents per share. Our consolidated revenue in the first quarter increased 3.7% or 10.8 million to 305.7 million for the first quarter of 2021. This increase was driven primarily by long-term care funding enhancements, including $2.9 million in retroactive long-term care funding in Manitoba and home health care billing rate increases, partially offset by reduced COVID-19 funding of $3.9 million, and the impact of the timing on our long-term care flow-through funding. NOI decreased by $3.3 million from $36.3 million in Q1-21, due to the $9.7 million of Canadian Canada emergency wage subsidy received by Paramed in Q1 of 21. Excluding this impact, our Q1-22 NOI would have decreased by $6.4 million to $33 million, with a consolidated NOI margin of 10.8%, up from $26.6 million and a margin of 9% in Q1 of 21. NOI improvements were driven by higher net COVID-19 recoveries of $7.9 million and retroactive long-term care funding of $2.9 million, partially offset by higher operating costs and the impact of the loss of occupancy protection for Ontario long-term care homes. Our consolidated adjusted EBITDA decreased $4.2 million from Q1 of 2021 to $19.6 million, due to the factors impacting NOI just noted, including higher administrative costs, primarily attributable to higher transaction-related professional fees and increased IT costs, offset by lower COVID-related administrative costs. Excluding the impact of the wage subsidy received by Paramed in Q1 of 21, our consolidated adjusted EBITDA increased by $5.5 million as compared to Q1 of 21. AFFO per share was $0.13 in Q1, down 38.4% from the prior period. Excluding the impact of the wage subsidy received by Paramed in the prior year, the year-over-year decline in AFFO per share is $0.01. Turning to our individual business segments on slide 11, our long-term care operations saw revenue increase by $10 million, or 5.3% in Q1, driven by funding enhancements including the $2.9 million in retroactive funding in Manitoba and $9.1 million in Ontario flow-through funding, partially offset by reduced funding for COVID-19 of $2.7 million and the impact of the loss of occupancy protection. NOI increased by $10.8 million for the same period last year to $26.6 million and represented 13.3% of revenue. largely due to the net COVID recovery of 9.9 million, driven by the 13.3 million of COVID funding received in the first quarter related to 2021 costs. These increases were offset by higher labor, utilities, and the impact of the occupancy protection. We believe the improving trend we experienced in occupancy levels in 2021 will return as the impacts of the Omicron wave moderate and subside. In Q1, our occupancy declined 120 basis points from Q4. Occupancy protection in Ontario long-term care homes expired at the end of January, and we are required to achieve 97% occupancy over the remainder of 2022 to receive full funding, excluding ward-style beds no longer in use. Our average adjusted occupancy for the two months ended March 31st was 94.9%. We are tracking a small number of homes in Ontario that are currently tracking below the 97% requirement for full funding and have targeted plans in place to attempt to recover the occupancy shortfall over the balance of 2022. Turning to slide 12 in our home health care segment, revenue grew 1 million or 1% in Q1 driven by billing rate increases and a 0.8% volume increase partially offset by reduced COVID-19 and pandemic pay funding of $1.2 million. Excluding the wage subsidy received in Q1 of 21, Paramed's NOI declined by $3.6 million to $2.7 million with an NOI margin of 2.7% from $6.3 million and 6.4% margin in the same period last year. The decline in NOI reflects an increase in unfunded COVID costs of approximately $2 million, and higher costs to address our staffing capacity challenges, which resulted in higher wages and benefits, recruitment, travel, and training costs, as well as higher IT costs in the quarter. The surge in COVID-19 cases among pyramid staff had a significant impact on our workforce capacity in the quarter, leading to a sequential decline in volumes of 4.8% and a narrowing of our NOI margins. Staffing shortages across the entire health sector, including both nurses and PSWs, continues to be a challenge and was further exasperated by the prevalence of community transmission caused by the Omicron variant. In the first quarter, more than 2,100 paramed staff took some amount of COVID-related sick leave, peaking at more than 900 staff absent in the last week of January of 22. We continue to focus on supporting the safe return of our staff who are on leave building capacity through our large-scale recruiting efforts and hiring through our internal training programs. Our PSW college partnerships and in-house training programs graduated and hired more than 170 caregivers in Q1, and we are in track with our target of an additional 600 staff from these programs for all of 22. On a sequential basis, excluding the impact of the net COVID costs and adjusted for the retroactive billing rates recorded in Q4 of 21, The NOI margin in Q1 was 5.5% down from 8.8% in Q4. This decrease in NOI margins in the quarter was largely due to the staffing capacity challenge impacting volumes and higher related operating costs as noted earlier. Consistent with our experience in 21, we do anticipate that we will resume our recovery in our home health care volumes as the effects of the pandemic recede and our staffing capacity recovers. We're also encouraged by the recent announcements from the Ontario government of an additional $1 billion in funding for the home health care segment over the next three years included in the April 22 budget and the making of the $3-hour PSW wage enhancement permanent. We believe these are important investments by the government and will help us drive the recovery needed in staffing across the sector to address the existing and growing demand for home health care. Turning now to slide 13 and our other operations, assist contract services and SGP group services segments. The underlying demand for our services continues to be strong and SGP now supports over 98,800 third-party residents, an increase of 21.9% from Q1 of 21 and up 6% from Q4 of last year. Q1-22 revenues declined 2.1%, largely due to lower management services revenue, and NOI decreased by $900,000 to $3.7 million due to increased staff and IT costs to support the growth initiatives in this segment. Finally, turning to our overall financial position, at the end of Q1, we remain well positioned with consolidated cash of $118 million and $73 million in undrawn credit facilities. In addition, we have closed construction financing facilities for our three long-term care redevelopment projects under construction and have an aggregate of $151 million in available undrawn construction financing available on these facilities. The estimated $125 million in net proceeds to be realized on closing of the retirement living sale will provide added flexibility to allocate capital strategically including in our long-term care redevelopment program, to fund the Rivera transactions, consider other potential acquisitions, as well as capital structure initiatives. Excluding the impact of the retirement living debt, which is being fully repaid or assumed on the closing of the sale, our maturity profiles improved, with only modest debt maturities coming due over the next two years remaining, and our pro forma debt to gross book value at 34.6%. With that, I'll pass the call back to Michael for his closing remarks. Thanks, David.
Michael Greer
Before we turn to your questions, I just want to highlight the commitment of our team members and the incredible dedication they display every day in caring for our clients, residents, and their families. Throughout the pandemic now entering its third year, our team members have remained steadfast in their commitment to protect the health of the most vulnerable in our society. For this, we are extremely grateful. We are optimistic about the opportunities for growth in our long-term care and home health care segments. The combination of the sale of our retirement operations and the Revera and Axiom transactions focuses the organization on those areas where we have the greatest expertise and scale. As we are faced with the demographic reality of relentlessly increasing demand, we are dedicated to advancing the delivery of much-needed, high-quality home health care and long-term care. Thank you for your continued interest and support. And with that, we'd be happy to take any questions you might have. Operator?
Operator
Thank you. We will now begin the question and answer session. To join the question queue, you may press star 1 on your telephone keypad. You will hear a tone acknowledging your request. If you are using a speakerphone, please pick up your handset before pressing the star key. To withdraw your question, please press star 2. We will pause for a moment as callers join the queue. Thank you. Our first question is from Scott Brumson with CIBC.
Scott Brumson
Just a quick question on inflation. How are you thinking of it besides staffing and agency costs? How are you thinking of its impact on future cost structure?
Gillian
Yeah, I think, Scott, I mean, the... From an inflation perspective, on our cost structure, it's always been a bit of a challenge in the sense that over the long term, the historical trend has been that the inflation impacts do work their way through the different lines of business, with ultimately funding changes and rate increases that address things, but it does tend to happen you know, over longer periods of time. Obviously, in the short term, we're seeing some acute increases in some of our costs. I think on the operating side of things, you know, we are seeing generally seeing support starting to come into the sector from the various provincial governments acknowledging that. So we are seeing rate increases coming through on the LTC side or continued funding on COVID The announcement included in the budget for the billion dollars over three years in the home care side, you know, details still to come on that, but we do expect that some component of that billion in funding will go into rate increases that will help us address the increases in our labor costs that we've been experiencing. But, you know, we have to wait for the full details on that to come out. On the construction redevelopment front, it is a concern at the current moment. I think that just the magnitude of kind of the increases that the sector is seeing broadly, not just in seniors' care obviously, but broadly in construction, does leave us in a situation where the construction and our projects we are needing to work with our partners and the government on looking at the capital funding program, which at the moment doesn't have an inflation component or an indexation component in it. So obviously there's some work to be done there to continue to progress on the construction side on the redevelopment.
Scott Brumson
Do you have any concern that the focus on seniors and long-term care will sort of wane after the election in Ontario?
Michael Greer
Well, it's always a consideration, but I think the government, with its new legislation, has enshrined in that legislation the move to four hours of care per resident day by 2025. Uh, the, the, the bed allocations for the capital program over the next five to seven years have all been made. Now, uh, all those, all those letters have been issued. Uh, so none of that is a guarantee, but certainly the program has been laid out over the next, uh, number of years. And it would take, uh, a government deciding to, uh, actively roll that back, uh, to, um, to see us kind of step away from these historic investments. The other thing that's there that hasn't really worked its way through the system is the federal commitment to long-term care. We've seen a couple of smaller provinces come to an agreement with the federal government on the spending of some of those funds, but there's more to come on that front as well. So there's some federal support coming. So yes, I think it's a risk given all of the competing needs for government support in healthcare and outside of the healthcare sector, but they certainly have made an effort to enshrine the capital and the staff programs on a multi-year basis.
Scott Brumson
Great. That's excellent color. Thanks, gentlemen. I'll turn it back.
Operator
Thank you. Our next question comes from Jonathan Kelcher with TD Security. Please proceed with your question.
Jonathan Kelcher
Thanks. First question, just on the home health care business, I guess Omicron slowed it down in the first quarter. Are you still seeing staff shortages as we go through Q2 here? How was April versus last year?
Michael Greer
Yeah, I think Q2 is continuing to have some challenges, not as bad as Q1 in terms of the severity of the Omicron infection rates, but we're certainly seeing elevated absenteeism as we go into Q2. We're also seeing significant kind of post-pandemic turnover that I think we're seeing quite broadly throughout the labor market. So that's been a challenge. It's hard to know how long that will continue. But I think we put in three pretty good kind of sequential quarters of of growth in both volumes and margins last year when the pandemic was at a relative low point. And we feel that we've got the systems in place to return to that kind of a cadence as soon as the, you know, as soon as the pandemic recedes. And as I mentioned in my remarks, I mean, the last two years in mid-May, we've seen, you know, the pandemic go quiescent just just on a seasonal basis. And so we're certainly hopeful that that will happen again.
Jonathan Kelcher
Okay. And then just in that business, the home health care workers, I'm assuming they're responsible for their own getting from home to home, so they pay their own gas?
Michael Greer
Well, there's a series of, yeah, we reimburse our staff for travel costs. So that's, you know, that's built into our agreements with them. So we, you know, they are responsible for paying those costs, but then, you know, we reimburse them.
Jonathan Kelcher
Okay. So that's something that should be obviously a little bit more expensive this year than last year. Yes.
Michael Greer
Yes.
Jonathan Kelcher
Okay. And then just you guys talked a little bit about capital initiatives with some of the proceeds you're going to get. Would share buybacks sort of be in the bucket you're looking at?
Michael Greer
We're considering everything at the moment. I think our focus right now is closing the transaction on Monday, is on the regulatory approval process for the other transactions. And of course, we're waiting to see how quickly our redevelopment program moves forward, which will dictate the capital needs for that. So I think we've got still some work to do before we make final decisions on how best to deploy the capital and when.
Jonathan Kelcher
Okay, that's helpful. Just one more quick one. Just on the LTC, the way it works, you're 95%, give or take, for February and March. Is the 97% a full year average, or is it sort of done by month?
Gillian
It's a full year. Yeah, it's a full year average. Well, typically it's an annual calendar measurement, and this year it's going to be an 11-month year. just given they had that COVID-related occupancy protection in place for January. So the test is 97% for the 11 months. So it's something, you know, we measure... as we go and have an outlook as well. But yeah, we are, for the two-month period, we're 94.9 on the new basis of the calculation. So that's a number we'll be tracking and talking about as we move through the year. And obviously, the goal there is to get that number to 97 for the 11 months.
Jonathan Kelcher
Okay, thanks. I'll turn it back.
Operator
Thank you. Our next question is from Tal Woolley with National Bank Financial. Please proceed with your question.
Tal Woolley
Yeah, I just wanted to talk a little bit more about the labor, the labor situation. Most of your employees are unionized, correct? So like in terms of like the rate you're paying, you have visibility on that, correct?
Michael Greer
Well, yes. I'm yes. You mean visibility visibility going forward as well? Is that what you're asking?
Tal Woolley
Well, yeah, I'm saying like, you've got like, you know, contracted wage rates, contracted wage rates for the next few years with your unions, right? So the issue with respect to labor costs is really it seems like it's a it's an availability issue. It's not so much a wage rate issue.
Michael Greer
Yeah, I think availability is the biggest factor right now. Yes, that's true. And just, you know, as we're talking about home care, just over half of our staff is unionized. So it's not 100% union. Okay. And then...
Tal Woolley
If we say, just going back to the question about travel costs, and obviously you've got fuel costs through the roof, so clearly that's going to have an impact. Just the way the contract works with governments, is it basically gross revenue to you and the costs are on your own, or is it more you're on your own to manage? uh, for the costs or is it more like LTC where it's a bit more prescribed?
Michael Greer
Um, you know, it's very much the former. So we're, you know, our, our, our, our revenue is paid as a single, as a single rate and then we're responsible for the costs. Got it. So, okay.
Tal Woolley
Um, makes sense. And then, uh, you know, you, you talked a little bit about turnover, um, you know, post-pandemic, do you have a sense of where your staff is going? And is it a certain, you know, is it nurses? Is it PSWs? Is it care assistants? Or is it just kind of across the board?
Michael Greer
Well, there's several dynamics here. First of all, we have a... let's say, a competition within the healthcare sector itself, where we've got hospitals adding beds, long-term care adding staff, and then, of course, the expansion in home care. So there is significant movement between those segments of the healthcare sector. So, you know, we certainly see people moving to other opportunities as they get experience. We have staff that come into our organization, get training and experience, and then move on to other opportunities. Then I think the other thing that's happened is for certain groups that we employ as part of our home care operations for general housekeeping and supporting people in their independent living, those people can also leverage that experience to move into the hospitality sector. And of course, we've seen in the last six months a big opening up of hospitality, which is increasing competition for labor as well. So there's dynamics within healthcare and there's dynamics across with other sectors. And, you know, that combined with the generally very high participation right now in the, you know, from an employment perspective means that labor competition is heightened at the moment.
Tal Woolley
And are you also seeing a dynamic where the industry is suffering from availability challenges and so you're employing agencies, but I mean the agencies are getting contracted back to you at a higher typical rate than you would have for the staff. So are you seeing employees move from staff to deciding to go work for an agency instead?
Michael Greer
That's a dynamic that is true in the long-term care side of the business, not in home care. We don't use agencies in home care for the most part. But in long-term care, we do tend to see a surge in agency use during periods of heightened absenteeism. So when we get a lot of outbreaks, agency use tends to go up. But then we manage it back down again when things go back to normal. So that tends to be a transient kind of situation as opposed to something that is on a long-term trend.
Tal Woolley
Sorry, I guess just more specifically, if I'm a care worker in an LTC facility on a union contract, Is it possible for me to go work for an agency instead and make more money?
Michael Greer
Well, theoretically, yes, but you'd be moving to a situation of stable employment to unstable employment, right? Because by its very nature, it's short-term. There's no commitment. So, you know, while that might happen in a few cases, generally doing that is is kind of putting your long-term employment at risk. Got it. Okay.
Tal Woolley
And then just going back to the restructuring of the LTC operations, when you start the redevelopment of certain of your Class C facilities with Axiom, can you talk a bit about how the pricing of the sale of those assets into the JV will work?
Gillian
Sure. The structure of the deal is the joint venture we're going to establish will acquire an 85% interest in the home. We are going to be the manager of the home within the JV on a sort of typical management agreement structure and earn management fees to continue to operate that home. The pricing, the details of the mechanics have a couple of different elements to it around how we arrive at the components. There's a development fee, a management fee. There's some other consideration. But in the end, we're looking at selling the homes uh into the jv um in you know cap factors in the six and a half to six and three quarter range so um there's a lot of ways we get there but if you on an implied kind of cap you're in that in that sort of six and a half to seven range and and your intention then so it's not you know because i thought one of the ways you could have structured it too is you would you know maybe take less for the homes and then participate less on the capex side
Tal Woolley
in the redevelopment, but it sounds like you're going to do it sort of like try and do it as everything at market as best you can through the JV.
spk07
Yes.
Tal Woolley
Okay. And then how much NOI right now comes from the Class C beds?
Gillian
We don't generally break that. I don't think we've broken that out before.
Tal Woolley
If I use the proxy, like just for the bed count, am I in the ballpark?
Gillian
Yes, I'd say if you took our NOI and extrapolated across the beds, I'd say the C beds run a slightly low, you know, they run lower NOI than an A bed home, just given the composition of the home and basic versus preferred split and the funding. So, So if you looked at our long-term pre-COVID NOI margins in long-term care of sort of 11.5 to 12, you'd have the C beds slightly below that average and the A beds a bit above. But you could do a proration off the beds.
Tal Woolley
Okay. And then for the occupancy bonus for this year, if you hit 97%, everything's cool. If you come in, let's say, at like 95% for the year, what's sort of the amount of dollars we're talking about in terms of that you end up giving up as a result?
Gillian
Yeah, there isn't a lot of homes, to be honest. We're tracking a handful of homes in Ontario now that need a recovery plan that the ops team is focused on. I think sitting here today at a 94.9, we're talking about a million two to a million three potential impact that we're going to be working to mitigate. So it's not, it isn't big, but it is straight to NOI. So it is, you know, but that's kind of the magnitude of how we're feeling today, given where we're at. I mean, if we have a some type of resurgence of a seventh wave or something different. But where we sit today, that's kind of the magnitude of the problem we're looking to solve.
Tal Woolley
Okay. And then, Michael, just lastly, like, I appreciate that all of the, you know, all these changes, you know, you made are going to take quite some time to actually play out. But if you think about, you know, five, 10 years down the road, can you, do you have an idea in your head of like how much NOI you expect to be generating from, you know, principal investment in real estate and operations of long-term care homes versus how much will come from service operations and management fees, that kind of stuff?
Michael Greer
Yeah, it, it, well, it's a good question. Um, But our focus at this point has been to create a number of growth platforms for our organization so that we have opportunities for organic growth in terms of, of course, home care, in terms of long-term care management services, in terms of the services that we provide to other operators. And these transactions are setting us up to be able to do that. To be able to predict what the mix might be five to seven years out really is difficult because with our partnership with Axiom, we see lots of opportunity for new greenfield builds in all the provinces that we operate. We know that the demographic projections that actually just came out with the recent census release are predicting that by 2040, the number of people over age 85 will triple in that period of time. And, of course, that's our prime market focus, and that's where our demand comes from. So we could see quite a lot of expansion. What the government decides to do in terms of the mix of long-term care or home care in terms of servicing that aging demographic still remains to be seen. It's an issue of some debate. And I think people will be feeling their way forward kind of year over year as we see what happens with the wait lists and what happens with demand, et cetera. So, you know, I'm really not sure, but our, you know, our agenda is to be able to capitalize on wherever the growth materializes, whether it be in people's own homes or in homes of our, that we operate. Either way, we'll be able to capitalize on that demographic demand. Got it.
Tal Woolley
All right. Thanks very much, John. I appreciate it.
Michael Greer
Thanks. Thanks, John.
Operator
As a reminder, if you would like to ask a question, please press star 1 on your telephone keypad. Thank you. There are no further questions at this time. I would like to turn the floor back over to Jillian Fountain for any closing remarks.
spk00
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.
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