Cc comments
LTC Funding
We continue to show margin improvement in long-term care segment from a combination of occupancy recovery, lower use of agency staff and moderating inflation. We believe there's further opportunity for margin improvement, as the funding gap that opened up in recent years due to funding increases lagging inflation, has been the subject of discussions with government and sector partners. We are hopeful that this will be addressed to some degree in the Ontario government budget to come later this month.
Financial Condition
Our strong balance sheet, low debt ratios, increasing cash flows from operations and partnership with Axium given give us lots of optionality as we seek to drive growth and shareholder returns.
Move to Asset Light and Implications for EXE
With the completion of our strategic transactions that started with the sale of our retirement operations in 2022, and culminated in the closing of the Revera and Axium transactions in Q3 of '23. These transactions established a foundation that we will use to drive growth and value creation using a less capital intensive, higher margin business model. We are focused on expanding managed services, building new long term care homes in partnership with Axium and growing home health care services.
Closing the Axium and Revera transaction has enhanced our financial stability and provided added flexibility. We ended 2023 with a solid liquidity position with cash and cash equivalents of $75 million and access to a further $71 million in undrawn credit facilities. Our maturity profile is favorable with no debt maturities before the second quarter of 2025.
We do expect to generate additional proceeds in 2024 from the sale of our Sudbury and Kingston legacy seabed properties and the sale of our new 256 bed project in Ottawa into the Axium joint venture in Q2. The improvement in our operating results added flexibility from our strategic transactions, and the proceeds from the sale of our retirement operations in 2022 have allowed us to return capital to shareholders under our NCIB.
Margins in LTC were depressed by staff holidays
Question: And then, David, just on the margins, I guess there's a note in your presentation, probably about an additional staff holiday. How does that impact is that just pays 1.5 times. And does it really hit the quarterly margins by 120 basis points, or am I reading that incorrectly?
Answer: No, it is sizable. If you think of the business, Jonathan, it's are all labor, right, from a cost perspective highly variable. So, that comment is on the sequential quarter. So I know we've been focused on sequential trends as we've been through this recovery, I think we can probably next year start moving to year-over-year comparisons. And then we don't have to get into these quarter by quarter seasonal differences. But when comparing to Q3, there is an impact of about $1.5 of additional hit to NOI for having an additional staff holiday for our staff.
So it is on a sequential quarter basis. It is a sizable impact. So if you exclude that from our quarter, our margins would have been closer to 10%, which would have had been a slight uptick, which you'd expect to see given the volume growth in Q4 over Q3. So it's more of a seasonal quarter-to-quarter things often as opposed to kind of an annual impact.
Capital allocation - potential acquisitions
I mean, the reality is that the healthcare system is struggling to keep up with the need for services. The pandemic really resulted in us getting behind the curve of keeping up with the demographics. And so we're seeing really significant demand, we've got a waiting list for long-term care in the province of Ontario 46,000 people. The home care situation is such that that almost 25% of all the referrals that come to the various service providers in home care are turned down, because people don't have enough capacity to meet them. So there's this huge unmet demand situation across the sector.
So, we're waiting to see now what the reaction to that might be, in terms of a next step. I think that the 6.7% rate increase to home care on top of the 3% that was already announced, is the kind of government reaction that we're seeing to this situation, governments are really trying to address this and are moving quite, quite aggressively.
At the same time, we've seen so far in the province of Ontario, about 10 long-term care homes shut their doors, for various reasons, perhaps because the land underneath could be redeveloped in different ways, or some of the smaller homes are having financial difficulty kind of operating in the current market.
So the point of all of that is that we expect that there might be other operators that are looking for scale. I mean, we see the how people are seeking scale, just by the growth in our purchasing partnership, it's just been explosive growth, people are looking for ways to operate more efficiently. But I also think people are realizing that smaller operators are just going to have more challenges given the complexity of the market.
So we do think that there may be assets that come on the market that are looking for better leverage looking for a different approach. We've already seen that with Chartwell and Revera exiting long term care. But I think there might be other developments in that regard.
So I think we'll be very careful and very selective, we're very happy with our organic growth. But there may be some opportunities to advance. What we're doing through acquisitions, but our strategy of focusing on services, focusing on redevelopment home care and managed services is our plan. So we won't be considering any acquisitions that go outside of that strategic direction, it would only be things that accelerated and are accretive to our earnings.
LTC Margins
Question: Last one for me on long-term care. A decent I think sequential pickup in the quarter in terms of the NOI, but as far as you know, you think about 2024, I think we've talked about this in the past. But coming back to your comments around the budget for the Ontario budget and thoughts on funding, just curious whether you see 2024, maybe getting back, or is it still too early to sort of get back to those pre COVID? Levels?
Answer: It’s a good question. So two or three things to point out on that. First of all, we are undertaking some significant cost and efficiency programs in our homes and so we expect to be able to improve our margins somewhat from where they are now. And we could do that just on our own. But as we've pointed out before, and as others have pointed out, there's quite a lag in our funding, compared to -- lag in our funding compared to inflation.
I mentioned that some smaller homes are closing, part of that is just the financial pressure, that inflationary gap is creating for the sector. But that inflationary gap is also constraining redevelopment. And it's not moving as fast as the government had originally envisioned when they announced the program a couple of years ago.
So there's a number of policy reasons that I think that government needs to act on this, to be able to advance the capacity building that we need to achieve. So I'm, that's why I'm cautiously optimistic. But of course, we don't know until we see what's in the budget a few weeks from now.
So, I think there's opportunity for us to make some improvement on our own. But I do expect that, that will get some help. And then the last thing Pammi, just to remember is that the flow through care funding envelope is increasing quite a lot. It increases again in April, so that we can provide four hours of direct care per resident day. And as those follow through amounts increase that just this the math reduces the margin. So the margin is -- looks a little lower than those historical numbers. But in absolute dollars, I do think that, that over the next year or two, it's very likely that we will return to those more historic levels.