Extendicare Inc.

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.

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.

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?