MARKHAM, ONTARIO--(Marketwire - Aug. 9, 2011) - Extendicare Real Estate Investment Trust ("Extendicare REIT" or "Extendicare") (TSX:EXE.UN) today reported results for the three and six months ended June 30, 2011, in accordance with the newly adopted International Financial Reporting Standards (IFRS) for interim financial statements. Results are presented in Canadian dollars unless otherwise noted.
HIGHLIGHTS
-- Revenue was $520.0 million in Q2 2011, a 2.7% increase over Q2 2010, excluding the adverse effect of foreign exchange. -- EBITDA was $65.1 million in Q2 2011, a $3.0 million decline over Q2 2010, excluding the adverse effect of foreign exchange. -- EBITDA margin was 12.5% in Q2 2011 compared to 13.5% Q2 2010. -- Average daily revenue rates for Medicare Part A and Managed Care grew by 12.8% and 6.0%, respectively, in Q2 2011 over Q2 2010. -- AFFO was $27.3 million ($0.328 per basic unit) in Q2 2011 compared to $35.6 million ($0.435 per basic unit) in Q2 2010. -- Distributions in the first half of 2011 totalled $34.9 million, or $0.42 per unit, representing approximately 66% of AFFO for the same period. -- Cash distribution of $0.07 per unit declared for the month of August 2011. -- Cash on hand totalled $314.3 million at June 30, 2011.
"In the second quarter of 2011, Extendicare delivered solid financial and operating results despite a difficult U.S. economy," said Tim Lukenda, President and CEO of Extendicare REIT. "Though our overall Skilled Mix census remained consistent to the prior quarter, we experienced a decline in total census due to a reduction in our length of stay for short-term admissions, as well as lower hospital census and admissions. In spite of this, higher Medicare rates resulted in increased revenue for the quarter. The lack of any 2010 Medicaid rate increases that normally offset inflationary cost increases has resulted in some compression of our U.S. operating margin. Despite these pressures, our EBITDA margin remained strong at 12.5% this quarter."
"The recent announced reductions to Medicare funding by the Centers for Medicare & Medicaid Services, or CMS, are disappointing and fail to recognize the incremental costs incurred to comply with the new reimbursement process implemented last October. The skilled nursing facility sector has contributed significantly to advancing health care reform and deficit reduction in the face of state Medicaid funding pressures and other budgetary challenges. The final rule will have adverse implications for health care providers and will likely result in job reductions in the sector at a time when the economy is already in a fragile state," he added.
"We believe that Extendicare is a financially stable company with a conservative capital structure and payout ratio. The ownership of our real estate assets coupled with our geographic diversity position us favourably to address these challenges. We intend to implement specific operating plan changes to mitigate as much of the impact of the final rule as possible. And because we believe quality is key to our business, we continue to ensure that our residents receive quality care and services. We are confident that these efforts, combined with our strategic marketing initiatives, will enable us to be successful in this difficult environment. Consequently, we are comfortable in maintaining our distributions at the current level," said Lukenda.
The implementation of MDS 3.0 and RUG-IV in October 1, 2010, resulted in improvements in our average daily Medicare Part A and Managed Care rates of 12.5% and 7.9% for the six-month period, respectively. Adapting to the new reimbursement process required the implementation of additional resources involved in the provision of therapy and patient assessments. The recently announced net 11.1% Medicare rate funding reduction by CMS to take effect October 1, 2011 will essentially reverse these revenue rate increases. We believe the annualized reduction in our revenue and EBITDA as a result of the parity adjustment to be approximately US$57 million, when considering the effect on both our Medicare Part A and Managed Care rates. Though it is extremely difficult to analyze the impact of the group therapy and assessment policy changes, we estimate that after considering operational strategies, these items will reduce our EBITDA in the range of US$13 million to US$23 million. We have undertaken a thorough review of our operations and have begun formulating a plan to drive efficiencies and reduce costs wherever possible. Our goal with these efforts is to reduce the impact to EBITDA by between US$15 million and US$20 million.
In June 2011, we completed the first phase of the refinancing of our U.S. debt and closed 16 HUD-insured mortgages totalling US$110.5 million. We have now accumulated over US$200 million in cash in EHSI and have commitments for a further US$171.2 million of HUD-insured mortgages. We anticipate that the majority of the refinancing will be completed by the end of 2011 and result in interest savings of US$14 million in 2012.
2011 SECOND QUARTER FINANCIAL REVIEW
---------------------------------------------------------------------------- TABLE 1 Q2 Q2 Q1 ---------------------------------------------------------------------------- 2011 2010 2011 ---------------------------------------------------------------------------- (millions of dollars unless otherwise noted) Revenue U.S. operations (US$) 358.0 353.7 357.6 ---------------------------------------------------------------------------- U.S. operations (C$) 346.6 363.5 352.5 Canadian operations 173.4 163.9 167.0 ---------------------------------------------------------------------------- Total Revenue 520.0 527.4 519.5 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- EBITDA (1) U.S. operations (US$) 49.0 51.2 46.4 ---------------------------------------------------------------------------- U.S. operations (C$) 47.5 52.7 45.7 Canadian operations 17.6 18.3 14.2 ---------------------------------------------------------------------------- Total EBITDA 65.1 71.0 59.9 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- EBITDA margin 12.5% 13.5% 11.5% ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Average US/Canadian dollar exchange rate 0.9681 1.0277 0.9856 ---------------------------------------------------------------------------- (1) Refer to discussion of non-GAAP measures. ----------------------------------------------------------------------------
2011 Second Quarter Comparison to 2010 Second Quarter
Consolidated revenue increased by $14.0 million, or 2.7%, excluding the negative effect of the stronger Canadian dollar. New centers net of disposals (collectively "non same-facility operations"), resulted in higher revenue of $0.2 million between periods. Growth from same-facility operations of $13.8 million, or 2.7%, benefited from funding improvements, partially offset by lower U.S. census levels and lower prior period revenue settlements. However, the stronger Canadian dollar partially offset the underlying improvement in revenue, resulting in an overall decline of $7.4 million to $520.0 million in the 2011 second quarter from $527.4 million in the 2010 second quarter.
Consolidated EBITDA declined by $3.0 million, excluding the negative effect of the stronger Canadian dollar, and included lower prior period revenue settlements of $2.9 million. EBITDA was 12.5% of revenue this quarter compared to 13.5% in the 2010 second quarter. Same-facility operations in the U.S. experienced a decline of $1.8 million, while the Canadian operations experienced a decline of $1.1 million, as discussed below.
EBITDA from U.S. operations declined by US$2.2 million to US$49.0 million in the 2011 second quarter from US$51.2 million in the 2010 second quarter, and represented 13.7% and 14.5% of revenue, respectively. Non same-facility operations contributed US$0.5 million to EBITDA this quarter compared to US$0.9 million in the 2010 second quarter, for a net decline of US$0.4 million between periods. Same-facility operations declined by US$1.8 million, and included lower prior period revenue settlements of US$1.7 million. Cost increases of US$12.0 million were in excess of revenue improvements of US$10.2 million. Revenue improvements included a contribution from higher average rates of US$17.1 million, partially offset by US$6.1 million due to lower census levels. Our same-facility average daily census (ADC) declined by 244 over the 2010 second quarter, with a decline of 135 in private/other, 98 in Medicaid and a marginal decline of 11 in our Skilled Mix. Our same-facility Skilled Mix of residents improved to 23.2% from 22.9% in the 2010 second quarter. Our average Medicare Part A rate improved by 12.8% over the 2010 second quarter, increasing revenue by US$12.9 million due to a combination of changes in funding and in the mix of patients served. Higher operating and administrative costs of US$12.0 million were affected primarily by higher labour-related costs of US$5.6 million and an increase in the provision for self-insured liabilities of US$3.4 million, with other cost increases in food, supplies, medical equipment, advertising, utilities, travel and state provider taxes. As previously announced, we completed an actuarial review of our accrual for self-insured liabilities for the second quarter that will be in addition to the normal third quarter and year-end review. The increase in the provision for self-insured liabilities in the second quarter is a reflection of a refinement of pre-2009 claims along with settlements within the first half of 2011. The provision for unit appreciation rights, included in labour costs, was a credit of US$0.3 million this quarter compared to nil in the 2010 second quarter.
EBITDA from Canadian operations was $17.6 million this quarter compared to $18.3 million in the 2010 second quarter. Excluding the $1.2 million of prior period funding received in the 2010 second quarter, EBITDA improved by $0.5 million this quarter, and represented 10.1% of revenue this quarter compared to 11.2% in the 2010 second quarter, or 10.5% adjusted for prior period funding. Non same-facility operations contributed EBITDA of $0.9 million this quarter compared to $0.5 million in the 2010 second quarter, for a net improvement of $0.4 million between periods. Remaining same-facility operations improved by $0.1 million, with improvements in home health care operations partially offset by a lower contribution from managed operations of approximately $0.6 million primarily due to the completion of contracts.
2011 Second Quarter Comparison to 2011 First Quarter
In comparison to the 2011 first quarter, consolidated revenue in the second quarter improved by $6.8 million, or 1.3%, excluding the negative effect of the stronger Canadian dollar. Growth from same-facility operations was $4.6 million due to improvements from our Canadian operations as discussed below.
Revenue from U.S. operations improved by US$0.4 million to US$358.0 million this quarter from US$357.6 million in the 2011 first quarter. Revenue from same-facility operations declined by US$0.2 million, with improvements from higher average rates of US$1.6 million, other revenue of US$1.7 million and one extra day in the quarter of US$3.6 million, offset by lower census levels of US$6.4 million and lower prior period revenue settlements of US$0.7 million. Our same-facility ADC was lower by 162 this quarter, 100 ADC of which was from a decline in Skilled Mix. Our same-facility Skilled Mix of residents declined to 23.2% this quarter from 23.6% in the 2011 first quarter.
Revenue from Canadian operations improved by $6.4 million this quarter to $173.4 million from $167.0 million in the 2011 first quarter. Revenue from nursing home operations increased by $4.6 million, and included a contribution of $1.8 million from non same-facility operations. Revenue from remaining nursing home operations improved by $2.8 million primarily due to funding improvements, timing of recognition of funding under the Ontario flow-through envelopes and an extra day in the quarter. Home health care revenue improved by $1.9 million primarily due to a 3.5% increase in daily volumes and the extra day in the quarter. Other revenue declined by $0.1 million.
Consolidated EBITDA improved by $6.0 million this quarter, excluding the negative effect of the stronger Canadian dollar, and represented 12.5% of revenue compared to 11.5% in the 2011 first quarter. Growth from same-facility operations was $5.2 million, of which $2.2 million was from our U.S. operations and $3.0 million was from our Canadian operations, as discussed below.
EBITDA from U.S. operations improved by US$2.6 million to US$49.0 million this quarter from US$46.4 million in the 2011 first quarter, and represented 13.7% and 13.0% of revenue, respectively. Non same-facility operations contributed US$0.4 million. Growth from same-facility operations of US$2.2 million resulted from lower costs of US$2.4 million, partially offset by a decline in revenue of US$0.2 million as discussed above. Operating and administrative costs were lower by US$2.4 million primarily due to favourable labour-related costs of US$3.4 million and utility costs of US$1.5 million, partially offset by a US$1.3 million increase in the provision for self-insured liabilities and higher other costs of US$1.2 million, such as food, medical equipment and travel costs. The decline in labour costs of US$3.4 million included a seasonal decline in payroll taxes of US$3.9 million and a US$1.4 million decline in the provision for unit appreciation rights (a credit of US$0.3 million this quarter versus a charge of US$1.1 million last quarter), partially offset by an extra day this quarter.
EBITDA from Canadian operations improved by $3.4 million, or 23.9%, to $17.6 million this quarter from $14.2 million in the 2011 first quarter, and represented 10.1% and 8.5% of revenue, respectively. Non same-facility operations contributed $0.4 million to EBITDA. Growth from same-facility operations of $3.0 million, or 21.9%, was primarily due to a seasonal decline in utility costs of $1.0 million, a lower provision for unit appreciation rights of $0.7 million (nil this quarter versus a charge of $0.7 million in the 2011 first quarter), funding improvements, higher home health care volumes and an extra day in the quarter.
2011 SIX MONTH FINANCIAL REVIEW
Consolidated revenue increased by $26.3 million, or 2.5%, excluding the negative effect of the stronger Canadian dollar. Revenue from non same-facility operations was lower by $6.5 million between periods. Growth from same-facility operations of $32.8 million, or 3.2%, benefited from funding improvements and higher U.S. Medicare census levels, partially offset by lower Medicaid and private census levels and prior period revenue. However, the stronger Canadian dollar partially offset the underlying improvement in revenue, resulting in an overall decline of $7.5 million to $1,016.1 million in the first half of 2011 from $1,023.6 million in the first half of 2010.
Consolidated EBITDA declined by $1.0 million, or 0.8%, excluding the negative effect of the stronger Canadian dollar, and was 12.0% of revenue this period compared to 12.5% in the first half of 2010. The contribution from non same-facility operations was $2.0 million in both periods. The $1.0 million decline in same-facility operations resulted from improvements in U.S. operations of $2.1 million offset by a decline of $3.1 million from Canadian operations, as discussed below.
---------------------------------------------------------------------------- Six months TABLE 2 ended June 30 ---------------------------------------------------------------------------- (millions of dollars unless otherwise noted) 2011 2010 ---------------------------------------------------------------------------- Revenue U.S. operations (US$) 715.6 705.8 ---------------------------------------------------------------------------- U.S. operations (C$) 699.1 729.7 Canadian operations 340.4 324.3 ---------------------------------------------------------------------------- Total Revenue 1,039.5 1,054.0 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- EBITDA (1) U.S. operations (US$) 95.4 94.0 ---------------------------------------------------------------------------- U.S. operations (C$) 93.2 97.2 Canadian operations 31.8 34.2 ---------------------------------------------------------------------------- Total EBITDA 125.0 131.4 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- EBITDA margin 12.0% 12.5% ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Average US/Canadian dollar exchange rate 0.9768 1.0338 ---------------------------------------------------------------------------- (1) Refer to discussion of non-GAAP measures. ----------------------------------------------------------------------------
EBITDA from U.S. operations improved by US$1.4 million, or 1.5%, to US$95.4 million in the first half of 2011 from US$94.0 million in the first half of 2010, and was 13.3% of revenue in both periods. Non same-facility operations contributed US$0.6 million to EBITDA this period compared to US$1.2 million in the first half of 2010, for a net decline of US$0.6 million between periods. Growth in same-facility operations of US$2.0 million, or 2.2%, resulted from higher revenue of US$26.7 million, partially offset by higher costs of US$24.7 million. Revenue improvements included a contribution from higher average rates of US$34.0 million and higher Medicare census levels, partially offset by lower Medicaid and private census levels, resulting in a decline in revenue of US$7.2 million. Our same-facility ADC declined by 209 over the first half of 2010, with a decline in private ADC of 93 and Medicaid ADC of 164, partially offset by an increase in Skilled Mix ADC of 48. Our same-facility Skilled Mix of residents improved to 23.4% from 22.7% in the first half of 2010. Our average Medicare Part A rate improved by 12.5% over the first half of 2010, increasing revenue by US$25.9 million due to a combination of changes in funding and in the mix of patients served. Higher operating and administrative costs of US$24.7 million were affected primarily by higher labour-related costs of US$14.0 million and a US$4.0 million increase in the provision for self-insured liabilities, with other cost increases in food, supplies, medical equipment, advertising, utilities, travel, and state provider taxes. The US$14.0 million increase in labour costs was primarily due to higher staffing levels attributable in part to the implementation of MDS 3.0 and RUG-IV and a 1.2% average wage increase in nursing home operations. As well, higher payroll taxes amounted to US$1.7 million between periods and the provision for unit appreciation rights was higher by US$0.5 million (US$0.8 million this period versus US$0.3 million last period). The balance of the operating costs included increases that were in excess of inflation due to cotton, food product and gas price increases. The lack of any 2010 Medicaid rate increases that normally offset wage rate and non-wage inflationary increases has resulted in a compression of our U.S. operating margin.
EBITDA from Canadian operations was $31.8 million in the first half of 2011 compared to $34.2 million in the first half of 2010. Excluding the $3.0 million of prior period funding received in the first half of 2010, EBITDA improved by $0.6 million. EBITDA was 9.3% of revenue in the first half of 2011 compared to 10.6% in the first half of 2010, or 9.7% adjusted for prior period funding. Non same-facility operations contributed EBITDA of $1.4 million this period compared to $0.7 million in the first half of 2010, for a net improvement of $0.7 million between periods. Remaining same-facility operations were lower by $0.1 million with improvements in nursing home and home health care operations offset by a lower contribution from managed operations of approximately $0.8 million primarily due to the completion of contracts and a $0.5 million increase in the provision for unit appreciation rights ($0.7 million this period versus $0.2 million last period).
NET EARNINGS FOR THREE AND SIX MONTHS ENDED JUNE 30, 2011
Extendicare REIT reported net earnings of $30.3 million in the 2011 second quarter compared to net earnings of $23.7 million in the 2010 second quarter. The comparability of net earnings is impacted by fair value adjustments on convertible debentures and on the Class B units of Extendicare Limited Partnership (the "Exchangeable LP Units"), as well as gains and losses on foreign exchange, financial instruments, asset impairment, disposal and other items. Such items are highlighted on the attached condensed consolidated earnings statement. Earnings prior to these separately reported items were $15.3 million in the 2011 second quarter compared to $20.8 million in the 2010 second quarter and included a $0.8 million negative effect of the stronger Canadian dollar. In addition to the decline in consolidated EBITDA of $3.0 million, excluding the negative effect of the stronger Canadian dollar, earnings were impacted by higher net interest and depreciation costs. Net interest costs included a charge of $1.0 million related to the amortization of deferred financing costs associated with the modification of our commercial mortgage backed securitization (CMBS) financing that was due in November 2011 to extend the term to May 2012.
Extendicare REIT reported net earnings of $21.9 million in the first half of 2011 compared to $29.1 million in the same 2010 period. Earnings prior to separately reported items, as outlined on the attached condensed consolidated earnings statement, were $25.6 million in the first half of 2011 compared to $31.3 million in the first half of 2010 and included a $1.4 million negative effect of the stronger Canadian dollar. In addition to the decline in consolidated EBITDA of $1.0 million, excluding the negative effect of the stronger Canadian dollar, earnings were impacted by higher net interest and depreciation costs.
ADJUSTED FUNDS FROM OPERATIONS (AFFO)
AFFO of $27.3 million ($0.328 per basic unit) in the 2011 second quarter declined by $8.3 million from AFFO of $35.6 million ($0.435 per basic unit) in the 2010 second quarter. Excluding the negative effect of the stronger Canadian dollar, AFFO was lower by $7.0 million, primarily due to the $3.0 million decline in EBITDA, higher net interest costs and increased spending of $2.3 million in facility maintenance capital expenditures.
In comparison to the 2011 first quarter, AFFO improved by $1.7 million this quarter from $25.6 million ($0.308 per basic unit). This was primarily due to the improvement in EBITDA partially offset by higher facility maintenance capital expenditures of $2.4 million between periods.
For the first half of 2011, AFFO of $52.9 million ($0.636 per basic unit) was lower by $7.4 million in comparison to the same 2010 period of $60.3 million ($0.752 per basic unit). Excluding a $2.4 million negative effect of the stronger Canadian dollar, AFFO declined by $5.0 million this period, primarily due to higher net interest costs and increased spending of $2.7 million in facility maintenance capital expenditures, and the decline in EBITDA.
Facility maintenance capital expenditures were $7.1 million in the 2011 second quarter, compared to $5.2 million in the 2010 second quarter and $4.7 million in the 2011 first quarter, representing 1.4%, 1.0% and 0.9% of revenue, respectively. For the first half of 2011, facility maintenance capital expenditures were $11.8 million compared to $9.8 million, representing 1.1% and 0.9% of revenue, respectively. These costs fluctuate on a quarterly basis with the timing of projects and seasonality. It is our intention to spend between 1.5% and 2.0% of revenue annually, which is consistent with our objective to maintain and upgrade our centers.
Distributions declared in the first half of 2011 totalled $34.9 million, or $0.42 per unit, representing approximately 66% of AFFO of $52.9 million compared to 56% in the same 2010 period.
U.S. OPERATIONS KEY METRICS
Skilled Nursing Facility Revenue Rates
The average daily Medicare Part A rate for our wholly owned U.S. subsidiary, Extendicare Health Services, Inc. (EHSI), excluding prior period settlement adjustments, increased by 12.8% this quarter to US$515.90 from US$457.23 in the 2010 second quarter and increased by 0.1% from the 2011 first quarter rate of US$515.49. The improvement over the 2010 second quarter resulted from changes to the Medicare reimbursement system that took effect October 1, 2010.
Our percentage of Medicare patients in the "high" to "ultra high" RUGs classifications increased to 79.2% in the 2011 second quarter from 78.2% in the 2010 second quarter and declined from 81.1% in the 2011 first quarter. The percentage of Medicare residents receiving therapy services declined to 84.9% this quarter as compared to 91.1% in the 2010 second quarter and 86.7% in the 2011 first quarter. We believe the declines in therapy services experienced over the 2010 second quarter were primarily due to the implementation of MDS 3.0 and RUG-IV. Under the changes implemented on October 1, 2010, residents are assessed on a more frequent and in-depth basis with limitations on the look-back period and they are now classified into 66 RUGs categories (previously 53). In addition, the changes involved the elimination of billing for concurrent therapy services and for services provided by technicians.
EHSI's average daily Managed Care rate, excluding prior period settlement adjustments, improved by 6.0% to US$441.06 this quarter from US$416.18 in the 2010 second quarter and declined by 1.5% over the 2011 first quarter of US$447.77. While changes in our average Managed Care rates are reflective of the type of clients served in any particular quarter, the increase we experienced over the 2010 second quarter was largely due to the changes in the implementation of MDS 3.0 and RUG-IV that favourably impacted RUGs-based Managed Care contract rates.
Our average daily Medicaid rate, excluding prior period settlement adjustments, increased marginally by 0.5% in the 2011 second quarter to US$180.99 from US$180.08 in the 2010 second quarter and by 0.4% over the 2011 first quarter of US$180.20.
Total and Skilled Census
For the first half of 2011, our same-facility Skilled Mix was marginally ahead of the same 2010 period, at 3,289 compared to 3,241. The improvement over 2010 that we experienced in the 2011 first quarter tapered off during the 2011 second quarter, resulting in a slight decrease in Skilled Mix from the 2010 second quarter of 11 ADC and a decline of 100 ADC over the 2011 first quarter. Our private and Medicaid ADC in the second quarter and first half of 2011 remained below the 2010 levels, for a total decline in same-facility ADC of 244 over the 2010 second quarter and 209 for the first half of 2010. Our same-facility Skilled Mix of residents was 23.2% in the 2011 second quarter compared to 22.9% in the 2010 second quarter and 23.6% in the 2011 first quarter. We continue to experience reduced admissions due to the slow pace of the economic recovery. We maintain a focus on aligning our clinical programs and services to meet the needs of every community in which we are located and upgrading our centers through capital expenditures to attract prospective customers.
In terms of our total operations performance, which includes both newly built centers and recently disposed ones, our Skilled Mix of residents was 23.5% this quarter, up from 22.7% in the 2010 second quarter and down from 23.8% in the 2011 first quarter.
UPDATE ON STATUS OF U.S. REFINANCING
As previously announced, EHSI is in the process of refinancing approximately US$636 million of its debt with US$565 million in mortgages insured by the U.S. Department of Housing and Urban Development (HUD) and cash on hand of US$71 million. The refinancing is to be completed in stages through to December 2011. Assuming EHSI is able to secure an average interest rate of 4.9%, inclusive of mortgage insurance premium (MIP) fees, and reduce its debt by US$71 million, its interest costs will decline by an estimated US$14 million per annum. Upon completion of the refinancing, EHSI anticipates having 44 unencumbered centers with an approximate value of over US$260 million.
We have submitted 79 HUD-loan applications totalling US$565 million. During June 2011, we completed the first phase of the refinancing and closed on 16 HUD-insured mortgages with a principal balance of US$110.5 million, a weighted average interest rate of 4.60% (including MIP fees of 0.50%) and an average term to maturity of 32 years. A portion of the funds were used to repay the Sovereign Bank mortgages of US$44.0 million. We anticipate that HUD will complete the processing of the balance of the loan applications in stages to enable the repayment of EHSI's CMBS financings beginning in September 2011 with final payment anticipated in December 2011.
As of August 9, 2011, EHSI has received commitments to close on a further 18 HUD loans under rate lock agreements totalling US$171.2 million, with a weighted average interest rate (including MIP fees) of 4.54%, and a weighted average term to maturity of about 32 years. In addition, EHSI has a forward rate lock agreement of 4.58% (including MIP fees) on US$5.7 million for one loan awaiting its loan commitment.
AUGUST 2011 DISTRIBUTION DECLARED
The Board of Trustees today declared a cash distribution of $0.07 per unit for the month of August 2011, which is payable to unitholders of record at the close of business on August 31, 2011, and will be paid on September 15, 2011.
Extendicare Limited Partnership also announced that it has declared a cash distribution of $0.07 per Class B limited partnership unit (the "Exchangeable LP Units") for the month of August 2011, which is payable to unitholders of record at the close of business on August 31, 2011, and will be paid on September 15, 2011.
ABOUT US
Extendicare REIT is a leading North American provider of post-acute and long-term senior care services. Through our network of owned and operated health care centers, our qualified and experienced workforce of 37,900 individuals is dedicated to helping people live better through a commitment to quality service that includes skilled nursing care, rehabilitative therapies and home health care services. Our 258 senior care centers in North America have capacity to care for approximately 28,000 residents. Extendicare REIT is a specified investment flow-through trust (SIFT) that has been subject to the SIFT tax since January 1, 2007.
CONFERENCE CALL AND WEBCAST
On August 10, 2011, at 10:00 a.m. (ET), we will hold a conference call to discuss our results for the 2011 second quarter. The call will be webcast live and archived in the investors/presentations & webcasts section of our website at www.extendicare.com. Alternatively, the call-in number is 1-866-696-5910 or 416-340-2217, conference ID number 5201633#. A replay of the call will be available until midnight on August 26, 2011. To access the rebroadcast, dial 1-800-408-3053 or 905-694-9451, followed by the passcode 4341341#. Slides accompanying remarks during the call will be posted to our website as part of the live webcast. Also, a supplemental information package containing historical quarterly financial results and operating statistics can be found on the website under the investors/financial reports section.
REVISED BASIS OF PRESENTATION
The financial information presented herein has been prepared on the basis of IFRS for interim financial statements and is expressed in Canadian dollars unless otherwise stated. Our unaudited interim financial statements for the three and six months ended June 30, 2010 have been restated to reflect our adoption of IFRS, with effect from January 1, 2010. Details of the impact of the transition to IFRS were provided in Extendicare REIT's unaudited interim report for the three months ended March 31, 2011.
Non-GAAP Measures
Extendicare REIT assesses and measures operating results and financial position based on performance measures referred to as "EBITDA", "earnings before separately reported gains/losses and distributions on Exchangeable LP Units", "Distributable Income", "Funds from Operations", "Adjusted Funds from Operations" and "Adjusted Gross Book Value". These are not measures recognized under GAAP and do not have standardized meanings prescribed by GAAP. These non-GAAP measures are presented in this document because either: (i) management believes that they are a relevant measure of the ability of Extendicare REIT to make cash distributions; or (ii) certain ongoing rights and obligations of Extendicare REIT may be calculated using these measures. Such non-GAAP measures may differ from similar computations as reported by other issuers and, accordingly, may not be comparable to similarly titled measures as reported by such issuers. They are not intended to replace earnings (loss) from operations, net earnings (loss) for the period, cash flow, or other measures of financial performance and liquidity reported in accordance with Canadian GAAP. Reconciliations of these non-GAAP measures from net earnings and/or from cash provided by operations, where applicable, are provided in this press release. Detailed descriptions of these terms can be found in the disclosure documents filed by Extendicare REIT with the securities regulatory authorities, available at www.sedar.com and on Extendicare's website at www.extendicare.com.
Forward-looking Statements
Information provided by Extendicare REIT from time to time, including this release, contains or may contain forward-looking statements concerning anticipated financial events, results, circumstances, economic performance or expectations with respect to Extendicare REIT and its subsidiaries, including its business operations, business strategy, and financial condition. Forward-looking statements can be identified because they generally contain the words "expect", "intend", "anticipate", "believe", "estimate", "project", "plan" or "objective" or other similar expressions or the negative thereof. Forward-looking statements reflect management's beliefs and assumptions and are based on information currently available, and Extendicare REIT assumes no obligation to update or revise any forward-looking statement, except as required by applicable securities laws. These statements are not guarantees of future performance and involve known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements of Extendicare REIT to differ materially from those expressed or implied in the statements. Given these risks and uncertainties, readers are cautioned not to place undue reliance on Extendicare REIT's forward-looking statements. Further information can be found in the disclosure documents filed by Extendicare REIT with the securities regulatory authorities, available at www.sedar.com and on Extendicare's website at www.extendicare.com.
Extendicare REIT Condensed Consolidated Earnings ---------------------------------------------------------------------------- (in thousands of Canadian Three months ended Six months ended dollars) June 30 June 30 ---------------------------------------------------------------------------- 2011 2010 2011 2010 ---------------------------------------------------------------------------- Revenue Nursing and assisted living centers United States 333,760 350,665 674,069 704,534 Canada 130,480 122,959 256,421 241,543 Home health - Canada 41,021 38,362 80,100 77,891 Health technology services - United States 4,827 4,139 9,209 8,285 Outpatient therapy - United States 3,445 3,758 6,782 6,694 Management, consulting and other services 6,485 7,556 12,978 15,072 ---------------------------------------------------------------------------- Total revenue 520,018 527,439 1,039,559 1,054,019 Operating expenses 435,105 436,220 872,741 882,157 Administrative costs 17,168 17,515 36,442 34,492 Lease costs 2,664 2,739 5,417 5,999 ---------------------------------------------------------------------------- Total expenses 454,937 456,474 914,600 922,648 ---------------------------------------------------------------------------- EBITDA(1) 65,081 70,965 124,959 131,371 Depreciation and amortization 18,714 18,232 37,937 36,368 (Gain) loss from asset impairment, disposals and other items (942) 4,031 (373) 4,031 ---------------------------------------------------------------------------- Results from operating activities 47,309 48,702 87,395 90,972 ---------------------------------------------------------------------------- Finance costs Interest expense 23,070 22,016 45,369 44,426 Interest income (1,041) (2,076) (1,830) (3,011) Accretion costs 499 534 1,006 1,083 Distributions on Exchangeable LP Units 652 674 1,314 1,360 Fair value adjustments (14,881) (11,916) 3,707 (2,753) (Gain) loss on foreign exchange and financial instruments 31 4,505 (1,005) 1,285 ---------------------------------------------------------------------------- Net finance costs 8,330 13,737 48,561 42,390 ---------------------------------------------------------------------------- Earnings before income taxes 38,979 34,965 38,834 48,582 ---------------------------------------------------------------------------- Income tax expense (recovery) Current 12,187 12,220 22,296 23,857 Deferred (3,486) (947) (5,346) (4,388) ---------------------------------------------------------------------------- 8,701 11,273 16,950 19,469 ---------------------------------------------------------------------------- Net earnings 30,278 23,692 21,884 29,113 Add (deduct): Fair value adjustment on convertible debentures, net of tax (7,576) (4,780) 457 213 Fair value adjustment on Exchangeable LP Units (7,305) (6,766) 3,250 (3,389) (Gain) loss on foreign exchange and financial instruments, net of tax (90) 5,422 (1,078) 1,467 (Gain) loss from asset impairment, disposals and other items, net of tax (672) 2,583 (255) 2,583 Distributions on Exchangeable LP Units 652 674 1,314 1,360 ---------------------------------------------------------------------------- Earnings (loss) before separately reported gains/losses and distributions on Exchangeable LP Units 15,287 20,825 25,572 31,347 ============================================================================ (1) Refer to discussion of non-GAAP measures. ---------------------------------------------------------------------------- Extendicare REIT Condensed Consolidated Statements of Financial Position ---------------------------------------------------------------------------- (in thousands of Canadian dollars, unless June 30 December 31 otherwise noted) 2011 2010 ---------------------------------------------------------------------------- Assets Current assets Cash and short-term investments 314,312 267,759 Restricted cash 9,790 10,095 Accounts receivable, less allowance 201,340 212,610 Income taxes recoverable 2,754 3,182 Other current assets 25,354 23,670 ---------------------------------------------------------------------------- Total current assets 553,550 517,316 ---------------------------------------------------------------------------- Non-current assets Property and equipment, including construction-in-progress of $24,555 and $17,470, respectively 1,176,376 1,206,656 Goodwill and other intangible assets 107,124 110,272 Other assets 114,592 126,200 Deferred tax assets 18,482 19,190 ---------------------------------------------------------------------------- Total non-current assets 1,416,574 1,462,318 ---------------------------------------------------------------------------- Total Assets 1,970,124 1,979,634 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Liabilities and Equity Current liabilities Accounts payable 33,405 36,167 Accrued liabilities 210,963 230,113 Accrual for self-insured liabilities 15,566 16,013 Current portion of long-term debt 582,061 571,168 Income taxes payable 6,847 - Exchangeable LP units 32,229 29,264 ---------------------------------------------------------------------------- Total current liabilities 881,071 882,725 ---------------------------------------------------------------------------- Non-current liabilities Provisions 29,555 29,848 Accrual for self-insured liabilities 31,220 30,535 Long-term debt 688,239 670,028 Other long-term liabilities 46,351 44,155 Deferred tax liabilities 197,640 209,349 ---------------------------------------------------------------------------- Total non-current liabilities 993,005 983,915 ---------------------------------------------------------------------------- Total liabilities 1,874,076 1,866,640 Unitholders' equity 96,048 112,994 ---------------------------------------------------------------------------- Total Liabilities and Equity 1,970,124 1,979,634 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Closing US/Cdn. dollar exchange rate 0.9645 0.9946 ---------------------------------------------------------------------------- Extendicare REIT Condensed Consolidated Cash Flows ---------------------------------------------------------------------------- Three months ended Six months ended (in thousands of Canadian dollars) June 30 June 30 ---------------------------------------------------------------------------- 2011 2010 2011 2010 ---------------------------------------------------------------------------- Operating Activities Net earnings 30,278 23,692 21,884 29,113 Adjustments for: Depreciation and amortization 18,714 18,232 37,937 36,368 Provision for self-insured liabilities 6,982 3,942 12,797 9,433 Payments for self-insured liabilities (2,300) (8,536) (11,704) (11,659) Deferred taxes (3,486) (947) (5,346) (4,388) Current taxes 12,187 12,220 22,296 23,857 (Gain) loss from asset impairment, disposals and other items (942) 4,031 (373) 4,031 Net finance costs 8,330 13,737 48,561 42,390 Interest capitalized (123) (270) (234) (506) Other 62 7 239 52 ---------------------------------------------------------------------------- 69,702 66,108 126,057 128,691 Net change in operating assets and liabilities Accounts receivable 6,158 10,464 8,645 2,158 Other current assets (2,470) 513 (5,620) (2,650) Accounts payable and accrued liabilities (9,752) (11,500) (15,923) (17,143) ---------------------------------------------------------------------------- 63,638 65,585 113,159 111,056 Interest paid (24,735) (24,529) (43,107) (42,886) Interest received 1,054 2,087 1,827 3,001 Income taxes paid (11,960) (1,732) (14,993) (4,118) ---------------------------------------------------------------------------- 27,997 41,411 56,886 67,053 ---------------------------------------------------------------------------- Investing Activities Purchase of property, equipment and software (13,004) (11,804) (25,275) (27,770) Acquisition of nursing centre, net of cash acquired - - (7,299) - Net proceeds from dispositions 4,805 5,482 4,805 5,482 Other assets (868) (490) (755) (1,185) ---------------------------------------------------------------------------- (9,067) (6,812) (28,524) (23,473) ---------------------------------------------------------------------------- Financing Activities Issue of long-term debt, excluding line of credit 110,079 9,427 123,380 30,138 Repayment of long-term debt, excluding line of credit (50,980) (6,957) (61,085) (20,365) Issue on line of credit 2,962 - 10,344 - Repayment on line of credit (7,265) - (14,051) - Decrease in restricted cash 51 3,039 305 3,039 Decrease (increase) in investments held for self-insured liabilities (6,448) 7,950 6,662 8,278 Distributions paid on REIT Units (15,166) (15,294) (30,284) (29,726) Issue of units - - - 82,212 Financing costs (9,623) (476) (12,123) (740) Other 424 (95) 597 (95) ---------------------------------------------------------------------------- 24,034 (2,406) 23,745 72,741 ---------------------------------------------------------------------------- Foreign exchange (loss) gain on cash held in foreign currency (1,218) 4,457 (5,554) 2,209 ---------------------------------------------------------------------------- Increase in cash and cash equivalents 41,746 36,650 46,553 118,530 Cash and cash equivalents at beginning of period 272,566 215,892 267,759 134,012 ---------------------------------------------------------------------------- Cash and cash equivalents at end of period 314,312 252,542 314,312 252,542 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- EXTENDICARE REIT Financial and Operating Statistics ---------------------------------------------------------------------------- (amounts in Canadian dollars, Three months ended Six months ended unless otherwise noted) June 30 June 30 ---------------------------------------------------------------------------- 2011 2010 2011 2010 ---------------------------------------------------------------------------- U.S. Skilled Nursing Center Statistics Percent of Revenue by Payor Source (same-facility basis, excluding prior period settlement adjustments) Medicare (Parts A and B) 35.8% 33.8% 36.1% 33.6% Managed Care 10.2 9.5 10.2 9.5 ---------------------------------------------------------------------------- Skilled mix 46.0 43.3 46.3 43.1 Private/other 8.0 9.0 8.1 9.0 ---------------------------------------------------------------------------- Quality mix 54.0 52.3 54.4 52.1 Medicaid 46.0 47.7 45.6 47.9 ---------------------------------------------------------------------------- 100.0 100.0 100.0 100.0 ============================================================================ Average Daily Census by Payor Source (same-facility basis) Medicare 2,381 2,431 2,429 2,418 Managed Care 858 819 860 823 ---------------------------------------------------------------------------- Skilled mix 3,239 3,250 3,289 3,241 Private/other 1,303 1,438 1,345 1,438 ---------------------------------------------------------------------------- Quality mix 4,542 4,688 4,634 4,679 Medicaid 9,431 9,529 9,420 9,584 ---------------------------------------------------------------------------- 13,973 14,217 14,054 14,263 ===========================================================================- Average Revenue per Resident Day by Payor Source (excluding prior period settlement adjustments)(US$) Medicare Part A only $ 515.90 $ 457.23 $ 513.88 $ 456.79 Medicare (Parts A and B) 555.03 499.38 551.98 499.38 Managed Care 441.06 416.18 443.79 411.46 Private/other 228.04 222.74 224.47 223.58 Medicaid 180.99 180.08 180.81 179.87 Weighted average 266.27 252.15 266.12 251.30 ---------------------------------------------------------------------------- Average Occupancy (excluding managed centers) (same-facility basis) U.S. skilled nursing centers 86.0% 86.4% 86.3% 86.7% U.S. assisted living centers 68.1 65.2 68.2 64.9 Canadian centers 97.8 98.4 97.8 98.2 ---------------------------------------------------------------------------- Purchase of Property, Equipment and Software (thousands) Growth expenditures $ 6,041 $ 6,902 $ 13,699 $ 18,517 Facility maintenance 7,086 5,172 11,810 9,759 Deduct: capitalized interest (123) (270) (234) (506) ---------------------------------------------------------------------------- $ 13,004 $ 11,804 $ 25,275 $ 27,770 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Average U.S./Cdn. dollar exchange rate 0.9681 1.0277 0.9768 1.0338 ---------------------------------------------------------------------------- EXTENDICARE REIT Supplemental Information - FFO and AFFO The following table provides a reconciliation of EBITDA to Funds from Operations (FFO), Distributable Income (DI) and Adjusted Funds from Operations (AFFO) for the periods ended June 30, 2011 and 2010.(1) ---------------------------------------------------------------------------- (in thousands of Canadian dollars Three months ended Six months ended unless otherwise noted) June 30 June 30 ---------------------------------------------------------------------------- 2011 2010 2011 2010 ---------------------------------------------------------------------------- EBITDA 65,081 70,965 124,959 131,371 Depreciation for furniture, fixtures, equipment and computers (5,611) (5,580) (11,488) (11,033) Accretion costs (499) (534) (1,006) (1,083) Interest expense, net (22,029) (19,940) (43,539) (41,415) ---------------------------------------------------------------------------- 36,942 44,911 68,926 77,840 Current income tax expense (2) (11,693) (12,232) (21,799) (23,869) ---------------------------------------------------------------------------- FFO 25,249 32,679 47,127 53,971 Amortization of financing costs 2,871 1,934 4,802 3,868 Principal portion of government capital funding payments 651 615 1,299 1,226 ---------------------------------------------------------------------------- DI 28,771 35,228 53,228 59,065 Additional maintenance capital expenditures (3) (1,475) 408 (322) 1,274 ---------------------------------------------------------------------------- AFFO 27,296 35,636 52,906 60,339 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Per Basic Unit ($)(4) FFO 0.304 0.399 0.567 0.673 AFFO 0.328 0.435 0.636 0.752 ---------------------------------------------------------------------------- Per Diluted Unit ($)(4) FFO 0.282 0.362 0.530 0.616 AFFO 0.304 0.393 0.590 0.684 ---------------------------------------------------------------------------- Distributions declared (4) 17,484 17,346 34,937 34,019 Distributions declared per unit ($) 0.2100 0.2100 0.4200 0.4200 ---------------------------------------------------------------------------- Basic weighted average number of units (thousands) (4) 83,230 82,576 83,156 80,221 Diluted weighted average number of units (thousands) (4) 96,980 96,389 96,938 94,034 --------------------------------------------------------------------------- (1) "EBITDA", "funds from operations", "distributable income" and "adjusted funds from operations" are not recognized measures under GAAP and do not have a standardized meaning prescribed by GAAP. Refer to the discussion of non-GAAP measures. (2) Excludes current tax with respect to the loss (gain) from derivative financial instruments, foreign exchange, asset impairment, disposals and other items that are excluded from the computation of AFFO. (3) Represents total facility maintenance capital expenditures less depreciation for furniture, fixtures, equipment and computers already deducted in determining DI. (4) Per unit amounts, distributions declared and the number of units are based on the total of the REIT Units and Exchangeable LP Units. ---------------------------------------------------------------------------- Reconciliation of Cash Provided by Three months ended Six months ended Operating Activities to DI & AFFO June 30 June 30 ---------------------------------------------------------------------------- (in thousands of Canadian dollars) 2011 2010 2011 2010 ---------------------------------------------------------------------------- Cash provided by operating activities 27,997 41,411 56,886 67,053 Add (Deduct): Net change in operating assets and liabilities, including interest and taxes 9,332 (6,467) 6,052 (1,703) Current tax on fair value adjustments, gain/loss on foreign exchange, financial instruments, asset impairment, disposals and other items 494 (12) 497 (12) Net provisions and payments for self- insured liabilities (4,682) 4,594 (1,093) 2,226 Distributions on Exchangeable LP Units 652 674 1,314 1,360 Depreciation for furniture, fixtures, equipment and computers (5,611) (5,580) (11,488) (11,033) Principal portion of government capital funding payments 651 615 1,299 1,226 Other (62) (7) (239) (52) ---------------------------------------------------------------------------- DI 28,771 35,228 53,228 59,065 Additional maintenance capital expenditures (1,475) 408 (322) 1,274 ---------------------------------------------------------------------------- AFFO 27,296 35,636 52,906 60,339 ---------------------------------------------------------------------------- ----------------------------------------------------------------------------
Contact Information:
Douglas J. Harris
Senior Vice President and Chief Financial Officer
(414) 908-8855
(905) 470-4003 (FAX)
djharris@extendicare.com
Visit Extendicare's Website @ www.extendicare.com