Chartwell Retirement Residences' (CWSRF) CEO Vlad Volodarski on Q1 2020 Results - Earnings Call Transcript

Chartwell Retirement Residences (OTC:CWSRF) Q1 2020 Earnings Conference Call May 8, 2020 10:00 AM ET

Company Participants

Vlad Volodarski – Chief Executive Officer

Karen Sullivan – President and Chief Operating Officer

Sheri Harris – Chief Financial Officer

Conference Call Participants

Jonathan Kelcher – TD Securities

Brendon Abrams – Canaccord Genuity

Himanshu Gupta – Scotiabank

Pammi Bir – RBC Capital Markets

Chris Couprie – CIBC

Troy MacLean – BMO Capital Markets

Tal Woolley – National Bank Financial

Operator

All participants please stand by. Your conference is ready to begin. Good morning ladies and gentlemen and welcome to the Chartwell Retirement Residences Q1 2020 Financial Results Conference Call. Following the formal comments, we will hold a question-and-answer session. Please be advised that this call is being recorded.

I would now like to turn the meeting over to Mr. Vlad Volodarski, Chief Executive Officer of Chartwell Retirement Residences. Please go ahead sir.

Vlad Volodarski

Thank you. Good morning and thank you for joining us today. There's a slide presentation to accompany this conference call available on our website at chartwell.com under the Investor Relations tab. Joining me are Karen Sullivan, President and Chief Operating Officer and Sheri Harris, Chief Financial Officer.

Let me remind everyone that during this call we may make statements containing forward-looking information and non-GAAP measures. I direct you to our MD&A and other securities filings for information about the assumptions, risks and uncertainties inherent in such forward-looking information and details of such non-GAAP measures. More specifically, I direct you to the added disclosures in our Q1 2020 MD&A under the heading forward-looking information and COVID-19 risks. For discussion of risks and uncertainties introduced by the COVID-19 pandemic. These documents can be found on our website or at sedar.com.

All crisis have a tendency to bring either the best or the worst in people. No doubt this one brought out the best in Chartwell people. The stories of selfless dedication and commitment of our frontline employees, residents, management staff, the regional and corporate support teams are numerous, heartwarming and inspiration on so many levels. In these difficult circumstances, our employees continue to provide exceptional services and compassionate care to our residents, ensuring that they're physically and mentally active and feel connected to their loved ones and their communities.

Our people also support each other, stepping in when their coworkers fall ill, encouraging each other with kind words and actions. I'm proud to be a part of this outstanding 15,000 people strong group and I'm deeply grateful to each one of them for everything that they are doing for our residents, their families and each other.

The overwhelming support and words of gratitude and encouragement we receive from our residents, their families, communities where we serve and in many cases from government and public health officials are just amazing and drive us to continue our important work during this difficult time. While the residences teams are focused on keeping our residents safe, providing direct care and services to them and keeping their loved ones informed, their ability to maintain this focus has been strongly by our regional and corporate teams.

This is where our culture, the depth of talent within our organization and the strength of our management platform has really come through. I'm now going to turn the call over to Karen to discuss measures that our teams have been undertaken to provide direction and support to our residents during this pandemic. Karen?

Karen Sullivan

Thank you, Vlad. As shown on Slide 5, on March 11, 2020, the World Health Organization declared the COVID-19 outbreak a pandemic. In the following days Canadian health authorities and governments began issuing their directives. On that same day, we activated our Critical Incident Command, across functional group of seniors – senior leaders and subject matter experts in operations, nursing care, labor relations, human resources, supply chain management, communications, information technology and finance, with the following mandate, to monitor and review, and interpret governmental and public health authorities, recommendations, directives and orders to provide timely and clear direction to our regional and residences operating teams to provide assistance to our homes that are experiencing shortages through a centralized recruitment campaign and reallocation of our resources, to source sufficient quantities of personal protective equipment, to work with industry associations and governments to inform advocacy efforts to position our sector to effectively address the myriad of emerging issues related to fighting this pandemic.

And to assist our homes management teams to provide timely and meaningful communications to residents, families, staff and communities in which they operate, as well as to address media inquiries.

The following are some of the outcomes of the CIC’s work. We developed and rolled out enhanced infection control protocols including, active screening, modified dining arrangements, enhanced cleaning practices and health monitoring at all of our residences. We established, rolled out and trained our employees on COVID-19 outbreak protocols in all of our communities. Each one of our residences practiced these outbreak preparedness procedures so they would know exactly what needs to be done if an outbreak is declared.

We received numerous letters from residents and families in homes that did experience an outbreak with words of gratitude for our timely communication and clarity of our procedures. We launched a recruitment campaign which resulted to-date and over 11,000 applications and well over 500 new hires so far. We have over 60 of our corporate staff involved in helping us with these recruitment activities at this time. We established a bilingual 24/7 hotline to quickly respond to any questions that our onsite managers may have in the areas of nursing care, operations, information technology, human resources or PPE inventory.

We sourced sufficient quantities of personal protective equipment and established timely distribution strategies to allow us to exceed public health requirements and providing this protection to our staff and residents. To-date, our supply chain management team sourced almost 3 million pieces of this equipment at a cost of close to $4 million. We worked with our partners and associations in supporting the seniors housing sector, through informing governments emergency response, including special funding to support the industry and frontline employees, sharing operational information to support smaller operators and participating as the founding –as one of the founding members of the Canadian Alliance to Protect and Equip Seniors Living a collective established to source PPE. As a founding member, we contributed 1.5 million to this initiative with 35% of this contribution dedicated to support smaller operators to have access to the much needed PPE.

I like to express my personal gratitude to the staff in our homes as well as our regional and corporate support teams for their truly heroic efforts during this pandemic. Thank you so much. And now I'd like to turn it over to Sheri Harris, our Chief Financial Officer to talk about our financials. Sheri?

Sheri Harris

Thank you, Karen. Turning to our financial position and credit metrics at March 31, 2020. Our liquidity amounted to $340. 9 million, which included $131 million of cash and cash equivalent and $209.3 million of available borrowing capacity on our credit facilities. In addition, at March 31, 2020 our share of cash and cash equivalents held in our equity accounted JVs was $7.1 million. At March 31, 2020, our unencumbered assets had a value of point $957.3 million. Our mortgage maturities remain well staggered with an average term to maturity of 6.9 years at March 31, 2020.

Our interest coverage ratio was 3.2 times at March 31, 2020. Our debt-to-gross book value calculated using the historical cost of our assets was 52.3% at March 31, 2020. And net debt-to-adjusted EBITDA was 8.4 times.

I'll now take you through a summary of our Q1 2020 results. Net income was $11.4 million compared to $15 million in Q1 2019. For Q1 2020 FFO was $45.3 million or $0.21 per unit compared to $47.1 million or $0.22 per unit and Q1 2019. Our same property adjusted NOI increased by 0.3% in Q1 2020, same property occupancy was 89.4% in Q1 2020 compared to 90.7% in Q1 2019.

I'll now take you through our platform results. Our Ontario retirement same property platform, net operating income increased by $0.1 million or 0.3%, occupancy was 84.1% compared to 86.1% in Q1 2019. We received higher rent and service revenues, funding to defray some of our COVID-19 related expenses and lower marketing expenses. This was partially offset by lower occupancies, higher staffing, property tax expenses and as noted the COVID-19 related expenses. Our Western Canada same property retirement platform increased NOI by 0.8 million and 5.5% occupancy – at 5.5% occupancy was 94.6% compared to 95.1% in Q1 2019. The Ontario rent and service revenues and this was partially offset by lower occupancies, higher staffing, property tax expenses and as noted the COVID-19 related expenses.

Our Western Canada same property retirement platform increased NOI by $0.8 million or and 5.5% occupancy, followed by 0.5% occupancy was 94.6% compared to 95.1% in Q1 2019. Our entire rent and service revenues and this was partially offset by lower occupancies, higher staffing, property tax expenses, utilities, insurance costs and COVID-19 related expenses. Our Quebec same property NOI decreased to $0.9 million or 6.8%. Occupancy was 90.1% versus 91.7% in Q1 of 2019. We had lower occupancies and higher COVID-19 related expenses. Higher staffing costs and higher food costs, these were partially offset by modest rental rate increases and lower utility costs. Our long-term care platform, ROI increased by $0.2 million or 3.2% due to increase preferred accommodation revenues and the timing of repair expenses.

I'd like to provide you with a more current update on our occupancy and rents as well as government funding announcements and liquidity. As a reminder, due to the uncertainty of the effects of COVID-19 on April 16, 2020 we withdrew our 2020 outlook contained in our 2019 MD&A. As you know, as a result of the COVID-19 pandemic, we have restricted move-ins of new residents to our homes. At this time only emergency move-ins are allowed at our retirement communities that are not in outbreak.

In addition, for those that are already staying with us on a short-term stay arrangement; we are accepting conversions to permanent residency. We have also been experiencing lower than usual resident move out rates in our retirement residences. You will see that our monthly occupancies in our same property retirement homes for January was 88.4%, February 88%, March 87.4% and April 85.7%. Our experience in January and February was consistent with 2019. The decline in April from March of 170 basis points is due to reduced moving activity, partially offset by lower move outs and short-stay conversions to permanent.

We collected substantially all rents for April and May consistent with past practice. We'd also highlight that the Ontario government recently announced emergency measures funding policy that provides protections over the existing protection of the 97% threshold and outbreak protection policies. We appreciate the speed with which the Ontario government has acted to address occupancy based funding.

With that, we'll turn to recent government funding announcements. We are working extensively with sector associations and all levels of government agencies to navigate this situation together to preserve the health and wellbeing of residents, staff and their families, and we appreciate the investments made by the provinces that we operate in. The following funding announcements have been made to-date.

Quebec has provided $410 million, which includes funding for temporary pay increases for the healthcare staff of $287 million. Ontario has announced funding for temporary compensation increases for frontline workers in vulnerable settings and for Ontario long-term care $268 million has been allocated to-date to support additional expenses among other initiatives. Ontario retirement homes have been allocated $20 million to help with the additional costs burden of PPE, screening, staffing, additional cleaning and disinfection protocols. Alberta is also providing funding for temporary compensation increases for frontline workers in vulnerable settings and Alberta retirement homes have been allocated $24.5 million. British Columbia has allocated $10 million to assisted living and long-term care. In addition, there will be rate reductions in energy costs and various deferrals. For example, workers' compensation premiums and realty tax payments.

I'd like to turn to an update of our current liquidity at May 7, 2020. Liquidity amounted to $363.3 million, which included $173.3 million of cash and cash equivalents and $190 million of available borrowing capacity on our credit facilities. In addition, Chartwell’s share of cash and cash equivalents held in its equity-accounted joint ventures was $12.9 million. Our unencumbered asset pool remained the same as at March 31, 2020 valued at $957.3 million. These unencumbered assets could be used to access additional debt financing, should this be required. We were already in the process of reevaluating returns on projects that were in preconstruction. These projects will continue to be on-hold pending greater clarity on economics in a COVID-19 world.

In normal circumstances we regularly reinvest capital in our own portfolio with the goal of growing our property NOI and protecting and maintaining our properties. At this time, we are only allowing essential visitors to enter our properties and as such commencing on March 18, 2020 only emergency capital works will be undertaken. This will continue until such time as we can safely allow non-essential visitors to access our properties.

In response to market disruptions caused by the COVID-19 pandemic, on March 16, 2020 we announced a temporary suspension of our DRIP program, effective with the April 2020 distributions. The DRIP will remain suspended and all distributions will be payable in cash until further notice. If and when we resume the DRIP program, investors previously registered in our DRIP who remained continuous unit holders will automatically be re-enrolled.

I would like to close by joining Vlad and Karen in my heart-felt thanks to our residents, regional and corporate teams who inspire us every day. One of the very best parts of my day is to watch the daily blast from operations critical incident command to see the incredible highlighted stories of caring of our staff for our residents and their families. Another amazing part of my day is learning what the latest innovations are from our corporate teams who are doing everything possible to make it easier for our homes to care for our residents and communicate with their families. Thank you.

I will now turn the call back to Vlad to wrap up.

Vlad Volodarski

Thank you, Sheri. The COVID-19 pandemic has had a profound impact on all our lives, global economies, and many businesses. This virus is especially dangerous to those with pre-existing medical conditions. Many of our residents, particularly in long-term care communities are most vulnerable to becoming seriously ill from this virus.

My sympathies’ and thoughts are with those families who are directly affected by this pandemic. I'm sorry that despite best efforts of our teams, we were unable to protect all of our resident’s. Day-in and day-out, now for two months our residents and staff are showing up to do everything they can to protect our residents to serve, care and support them in these most prime time.

Our regional and corporate teams continue to work virtually around the clock to provide clear direction and support to our local teams so that they can fully focus on their residents. The resolve of our people, the depth and strength of our leadership teams, our strong corporate culture and corporate governance give me confidence that Chartwell will sustain through this pandemic and emerge as a strong and respected industry leader. Thank you for your time and attention this morning.

And we would now be pleased to answer your questions. [indiscernible] please open the lines.

Question-and-Answer Session

Operator

Thank you, Mr. Volodarski. [Operator Instructions] Our first question is from Jonathan Kelcher from TD Securities. Please go ahead.

Jonathan Kelcher

Thanks, good morning.

Vlad Volodarski

Good morning, Jonathan.

Jonathan Kelcher

Like understandably your near-term focus is rightly on operations, but have you guys been – I'm just trying to see through to the other side and think about occupancy. Have you guys been getting much in the way of inquiries? Obviously not through, it can't do tourists but outside of that and some of your channels outside of that?

Karen Sullivan

Yes. So it's been interesting. The first thing I want to make sure, Sheri talked about this a little bit. We have had some move-ins through this, right? Were people who have needs and in situations where we're not in outbreak and people have sold their homes and they really have – the situation is such that they need to move in, that has occurred through this in a limited way. And that's sort of speaks to, I think that we are this needs driven business and we're already hearing from some of the local health integration networks in Ontario and other places about that. And so, the inability of those in need to move in now, we think should create a pent-up demand and support for eventual recovery. The other thing that's been interesting is our salesforce or we call them retirement living consultants as this pandemic progressed.

They kind of pivoted to contacting the prospects that are in our database and having conversations with them, because these are people who are at home alone and so we've been kind of there for them. Just to talk, maybe help them a little bit if they needed help, ordering things et cetera. And we could see throughout that and continue to see that there is still, first of all overwhelming gratitude from our prospects, from what they hear that we're doing but also that there is still an interest from people to move in. When – after this progresses a little bit more and that they are safe to do so. And so we're in the process of doing is, starting to understand some of the – we have really good safety protocols, but maybe additional protocols we can put in place for when we can take move-ins and also looking at technology solutions so that we can adapt to, for example, virtual personal visits. So we definitely still see the need out there.

Jonathan Kelcher

Okay. And then when you do start move-ins, is that going to be a national thing or will it depend on the initiatives from provinces and how they open up?

Karen Sullivan

Definitely it won't be national, and I'm not even – I'm quite sure it won't even be fully provincial. I think there'll be pockets of the province that will probably open before others. So you think about the North in Ontario, there just hasn't been the same number of outbreaks as some of the urban centers. So I think it will happen in that more sort of staged approach depending on the situation.

Jonathan Kelcher

Okay. And is there any government mandate thing there or is that totally a Chartwell decision, if you wanted to start opening up in DC that seems to be ahead of Ontario or Northern Ontario?

Karen Sullivan

Yes. As I said, they've never – we have restrictions on visitors, so that makes personal visits, obviously not on right now. But there isn't a restriction on move-ins. It's just when there's that sense of additional safety because we flattened the curve a bit more or so. So yes, and we wouldn't of course move people in if we were COVID – in a COBIT outbreak.

Jonathan Kelcher

All right. Okay. Thanks. I’ll turn it back.

Operator

Thank you. A following question is from Brendon Abrams from Canaccord Genuity. Please go ahead.

Brendon Abrams

Hi, good morning and congratulations. Firstly to your entire team and particularly the frontline workers, who are working under difficult circumstances? Maybe just following up on Jonathan’s comments with respect to occupancy, I think you mentioned January and February were relatively consistent with historical levels, and then obviously the acceleration in April from March, largely due to COVID. I'm just thinking about future occupancy levels. Can you just remind us about any seasonality in terms of move-outs?

And secondly can you remind us just on an annual basis what retirement home turnover is more generally?

Karen Sullivan

Sure. So we'll start with turnover generally is around 30%. We typically experience lower move-ins in the first half of the year. The last four months of the year are about 20% higher than I had that first six months. And July and August are also generally lower as people tend to be on holidays, a little bit higher in June.

Brendon Abrams

And so on the move-outs?

Karen Sullivan

Move-outs are relatively consistent depending on a flu season? And we've tracked that back for several years. 2015 would have been the last year that we had those higher turnover levels earlier in the year. What we saw this year was a little bit lower on the turnover front in January and February.

Vlad Volodarski

But generally, it's within a few percentage points. So it's...

Karen Sullivan

Pretty close.

Brendon Abrams

Okay. That's good color. And perhaps just thinking about margins and how that may move along with occupancy. Can you – I don’t know, if you have a rule of thumb or if you could remind us how much of your operating costs are fixed versus variable. And in other words, if someone moves out and you lose, let's say $4,000 of incremental revenue, how much in operating costs would you still incur versus save, because generally speaking?

Vlad Volodarski

So our cost structure is debt [ph] cost structure, right? So if you have one person moving out, then there's very little cost savings that you can achieve. On the opposite side if you have one extra person moving in, that there's an – they're little incremental costs that are being incurred, but it's a step structure. So if you are going from 75% to 85%, the rule of thumb that we normally using internally is about 75% of cost common with it.

Brendon Abrams

Right. Okay. That's helpful. I'll turn it over. Thank you.

Operator

Thank you. Our following question is from Himanshu Gupta from Scotiabank. Please go ahead.

Himanshu Gupta

Thank you and good morning. So on the occupancy discussion in terms of your salesforce communication what feedback are they receiving from seniors? So if the government restrictions are lifted, do you expect seniors to move in immediately or are they considering other options including delaying the decision to move in?

Vlad Volodarski

Well, as Karen pointed out, this is needs driven business. I mean, as much as we like to have our customers moving in with us for lifestyle choices, the majority still moves in because they need assistance with activities of their daily living or that they foresee that they would need those that assistance in the short-term. That needs doesn't go away. It's still presented in the community and the feedback that we've been receiving from our retirement living consultants when they're reaching out to these prospects is a very positive day. There is a lot of questions about when can I move, I'm ready open it up. And so that gives us a hope and some sort of – some degree of confidence that the recovery will be faster once these restrictions are lifted, that there is this pent-up demand in the system.

Himanshu Gupta

Got it. And on the sense of demand, do you think you might have to adjust pricing in the near-term or the demands will be enough post the COVID that new pricing adjustment will be required?

Vlad Volodarski

No, we don't think that the pricing adjustments will be required, at least not at this stage. This – still, there's a lot of uncertainty out there in terms of the timing and the impact that this has on people. The reality is the profile of our customer normally is that they are very conservative investors and normally they either sold their house or they have access to pension income. And so those things have not as much being affected by this pandemic or economic disruptions that we had in the system. So at this time, our expectation is that the pricing will remain the same, but this certainly remains to be seen.

Himanshu Gupta

Got it. And previously, I think you've commented on both seasonality or the pace of new movements in the previous years, and it feels like May and June is very similar to the month of April. So if the restrictions are not lifted, can we assume the decline in May, June occupancy will look very similar to April occupancy at the time?

Vlad Volodarski

Well, it's really hard to tell that, as we pointed out the turnover has been lower so far. And if this continues, then it should certainly help us to maintain the occupancies, but it's really hard to be making predictions in this environment, especially on a month-to-month basis.

Himanshu Gupta

Sure. And maybe final question for me on the development, the completed projects like Sumach in Toronto I see the expected stabilization has been pushed out by one quarter. Will that be enough? And also are you looking to revisit the definition of your stabilized occupancy level, which has been previously at 95% or above?

Vlad Volodarski

So our assumptions of stabilized occupancies have not changed in terms of the timing of the lease up. I mean, this is the best, our best estimate in the present conditions that we could make, so we pushed everything off by a quarter, given the fact that now for two months and it's probably going to be a bit longer when we will not be able to accept residence. As we pointed out, our retirement living consultants and our sales teams continues to reaching out to their prospects and having conversations and all discussions that I had with respect of this being needs driven business and that there is a need in the community applies to our newly developed projects as well. But we felt that it was prudent to push the they are expected stabilization date by three months right now.

Himanshu Gupta

Sure. Thank you, guys.

Operator

Thank you. Our following question is from Pammi Bir from RBC Capital Markets. Please go ahead.

Pammi Bir

Thanks and good morning. Just in terms of some of the additional costs that you've incurred, whether it's staffing or otherwise, when you think maybe longer term, what portion of these do you see as sort of becoming permanent or again, perhaps coming back to the margin question, set another way. How do you see this, these costs impacting margins on a go forward basis?

Vlad Volodarski

All the costs that we have been incurring so far and that Sheri mentioned in her presentation were COVID-19 related costs. So these are because of temporary issues that we had with respect of additional hours required to affect safety protocols in the homes where we had to add staff to do the screening and health check and monitoring of our residents and enhanced infection control and cleaning protocols. Then you have additional costs of personal protective equipment, which of course is being used at a much higher rates than what we normally have, particularly in the homes with the COVID-19 outbreaks and the cost of that equipment doing the disruptions in the supply chain – global supply chains and the worldwide demand for this equipment has skyrocketed. These costs are order of magnitude higher than what they used to be. So our expectation is when things are back to whatever new normal is going to look like, then the majority of these costs will disappear from the system or at least moderate significantly.

Pammi Bir

Right. I guess just thinking about from a regulatory perspective, do you see or are you hearing of new potential requirements being introduced for the retirement home sector? Again, that could perhaps alter some of the assumptions or some of the expectations that you just mentioned?

Vlad Volodarski

No, there's certainly a lot of discussions about long-term care sector. As you know, 90% of our business is retirement and the impact of this pandemic on retirement even when the homes do go and outbreak is very different from it is in the LTC. LTC is have insignificantly impacted by this COVID, because we care for the most frail population in these residences. And because of the physical limitations of the physical plan, it is a lot harder to cohort and isolate people in these homes. There's a lot of discussions obviously about we've used all of the LTCs particularly in Ontario and actually across the country and that, that will certainly be happening. I do not – we have not heard any discussions about changes in regulations through retirement homes to the present time.

Pammi Bir

Thanks very much Vlad for the alternative. I'll turn it back.

Operator

Thank you. Our following question is some Chris Couprie from CIBC. Please go ahead.

Chris Couprie

Good morning. Just wanted to circle back on the April occupancy trend? So if turnover is generally 30% a year, so roughly 2.5% a month would move out, but your occupancy was only down 170 month-over-month. So does that imply that didn't move-ins make up that Delta or was there just a slower pace of move outs because of LTC limitations or anything like that?

Karen Sullivan

Yes. So, the Delta is made up from three things. One would have been short-stay conversions to permanent people, who would have sticked with us. We would have had move-ins and fewer move-outs, so it's those three components in there. They're about equal.

Chris Couprie

Okay, great. And then just with respect to the costs and funding that you've received for COVID-19 so far, is the time period essentially the last two weeks of March is that what those period – is that what those costs and revenues cover?

Karen Sullivan

Yes, correct. And the Ontario funding programs were announced prior to March 31, and were quite clearly articulated. So we've recorded offsetting revenue for the Ontario expenses based on their funding program. We were waiting for clarifications on the other funding programs and we're continuing to advocate for funding for those expenses in all of our provinces. And governments have been really exceptional stepping up to listen to that from our teams.

Chris Couprie

So it sounds like there could be some additional funding to offset the costs that you’ve absorbed in the quarters. Is that fair?

Karen Sullivan

Correct. We just need some clarification around eligibility and timing. And governments are working to clarify those eligibility requirements.

Chris Couprie

I noticed the line of credit you drew that down somewhat in the quarter; I'm just wondering if you could talk at all about how you're thinking about capital allocation during this difficult time?

Vlad Volodarski

Yes. We did draw $100 million in the very first day when this was declared a pandemic because we wanted to have access to cash immediately if we needed that to react and provide for our homes, whether it be staffing or PPE equipment, so we did that.

In terms of the capital allocation in this environment, whatever homes need to keep our residents safe and our staff safe that money they have access to. As Sheri spoke about deferred some of our development projects that made sense, I mean all pre-construction projects certainly are not going to be starting in this environment. We also deferred some discretionary capital investments that we were planning to do with our existing properties to preserve liquidity and to ensure that the capital is available for us to continue to run our operations.

So the first place is our properties, that's where it goes. And then of course we have to pay our lenders and other stakeholders including our unit holders.

Chris Couprie

So with respect to the CapEx, I think last quarter you thought $80 million to $85 million would be the kind of typical year, what do you think it might be in this environment, a lot like half of that?

Sheri Harris

Yes, I mean, certainly while we're in restricting essential visitors only, the reality is we practically cannot put any discretionary capital into the property. So that will slow things down for some time. And with the short-term decision to restrict move-ins, we will also see that our discretionary budgets for suite turns and upgrades, we'll have suites that are available that will be – that won't need that same level of investment for this year. So definitely you would see a reduction from the $85 million and it depends on how long we continue on in this essential visitor's state. If it continues, then you would see a material reduction through to the balance of the year, but that will depend on when things open up.

Chris Couprie

Thanks very much.

Operator

Thank you. Our following questions from Troy MacLean from BMO Capital Markets. Please go ahead.

Troy MacLean

Good morning. Just curious, are you still getting your typical annual rent lift on existing tenants? Or have you paused that while this is going our way, we have the pandemic

Sheri Harris

Now. We've continued with our regular annual rent increases. And Karen spoke about this; we generally have such a sense of gratitude from our residents and their families. I had a really amazing story from last Friday, one of the individuals that I went to the ICD DEP Program; Directors Education Program sent me a note from on behalf of herself and her sisters just saying, thanks for doing such a great job of taking care of mom when I can't be there. So that appreciation for the amazing work that our staff are doing.

Troy MacLean

And then on the 3 million pieces of PPE, how long should that last? And on the cost of $4 million, what would that have cost before COVID had kind of impact pricing in that for that material?

Vlad Volodarski

Well, we have sufficient equipment to last for a long time. We continue putting orders through to supplement this inventory. In some cases government stepped up and we're very thankful to them for that and provide PPE, particularly in the long-term care homes that got into outbreak and some retirement homes. So that was very helpful. So our expectation that we will continue to have sufficient PPE provided to our homes and continue to partner with the governments on that.

In terms of the pricing, it really depends on what kind of equipment there is, but it's certainly significantly high right now for anything from masks to gowns, to face shields, to sanitizer, the cross skyrocketed really. And in some cases for some equipment it's actually starting to stabilize. So that's helpful.

Troy MacLean

And then on the recruitment drive what would be the wage – how would the wages for the people you're trying to bring on compare to what wages would have been for similar positions a few months ago? I know we talked a lot about costs on this call, but I wanted to see what the specifically kind of wage pressure you're seeing.

Vlad Volodarski

The wages are not that different from what they were before, except for whatever government programs been announced. So in Ontario, there is additional pay of $4 an hour for the period of time plus some bonuses for people working in certain positions or certain hours. There's the same program in Quebec and in Alberta. And so the new employees that we hire are getting those kinds of rights as well, but this is on top of the regular compensation they've been receiving. And that's regular compensation in – as you know, majority of our workforce is unionized and so that's been either further negotiated ourselves with through arbitrations and so these wages remain in place.

Troy MacLean

Do you think what's happening now will have any impact on the LTC capital renewal program, is the province more likely to want to accelerate that or provide more funding or do you think it's just too early to tell?

Vlad Volodarski

Well, there's definitely going to be a detailed review of the long-term care program and funds allocation. And I do think that this will accelerate the capital renewal program. In fact, as we’ve spoke about before there's been significant progress made before the COVID pandemic in terms of the discussions with the governments and making changes to this program to make it better and viable for the implementation. I do think that this will accelerate it. First, we need to get out of this first.

Troy MacLean

And then I know – just on development, do you think how you develop a property will change, like, will you have to incorporate anything we've kind of learned from this pandemic for retirement homes? Or do you think it's – there's been really no change in how you would develop it?

Vlad Volodarski

Oh, no. Our teams being looking into the learning’s already. There may be good news, I'm not sure it's good news, but it's the truth that the development team does have a little bit of capacity to start looking and analyzing the lessons learned already, while the rest of the operating team continues to be really on the frontline, fighting the pandemic. Our other teams are looking at lessons learned and how the design of the buildings may need to change in the future to make it even more pandemic or infection proof. So this remains to be seen, but there are people certainly working on it and we'll try to learn as much as we can from this.

Troy MacLean

Do you think those changes will make it more expensive to build or just if it's a change in layout that should have any impact on costs?

Vlad Volodarski

That would be too early to tell. I did not know at the present time what these changes might look like and what kind of costs would be required to come with them.

Troy MacLean

That's it for me. I'll turn it back. Thank you very much for the comments.

Vlad Volodarski

Welcome.

Operator

Thank you. [Operator Instructions] The following question is Tal Woolley from National Bank Financial. Please go ahead.

Tal Woolley

Hi. Good morning.

Vlad Volodarski

Good morning.

Tal Woolley

You've talked a lot about where you might face some cost challenges. If you look up and down the P&L are there – can you just outline where you might find some room to economize on some of your other costs to?

Sheri Harris

So I'll talk about a couple of areas where there's room for optimization. We would have had pressures prior at on overtime and agency as this normalizes with changes in the structure of the economy. We would expect that there is additional labor that's available to us. So that is certainly one area on the go-forward. That certainly would have been some of the pressures in our Quebec results for Q1.

We would also short-term be reducing our marketing expenditures. You would have seen my note on utilities costs, those are coming down. And we will certainly look at other areas, but those would be the ones that I would highlight. This is one of those scenarios where it breeds innovation. We've launched our first robotic process automation at corporate office, automating the upload of our employee time sheets from the properties and managed to accomplish that in the space of about three weeks at very low-cost investments.

So, certainly we see some opportunities where we're trying to lift work out of the properties, so that they can focus on taking care of our residents even more than they already do. So lots of – there are some interesting opportunities that we're already working through.

Tal Woolley

Okay. and then just across the industry, are you sort of seeing any, I mean everyone is somewhat stressed right now obviously, but are you seeing any abnormal signs of stress among operators and developers out there?

Vlad Volodarski

We're kind of paying more attention to our own situation in this scenario. So yes, everybody certainly is trying to do their best to manage through this pandemic. It remains to be seen whether there is going to be some profound impact on some operators and potentially create additional consolidation opportunity if that's what you're asking about.

But at the present time, we actually as the industry all trying to support each other. And you know Karen spoke about the CAPES initiative where larger operators came together and contributed 35% over and above their own orders for PPE to support smaller operators. And we're trying to share information like how in terms of, how to run operations efficiently with our industry partners through industry associations.

At the end of the day, first and foremost, we need to get through this together as the industry successfully. And then after that we'll continue our normal healthy competition as we always had.

Tal Woolley

Okay. And then, I apologize, I can't remember if it was Karen or Sheri, who mentioned this in your preamble, but you had made reference to some of the lens are actually sending referring people to you now, on the retirement side. Okay.

Karen Sullivan

Yes. And not so much referring. They're just – they've – and it's not a lot of them, it's just a couple who've kind of reached out to sort of understand whether we have – we're going to be willing to take people soon, so you can just tell that they are getting that pressure, that's building up in the community. So these have just been conversations with some of my operations team about that.

Tal Woolley

Okay. And right now, for – in the retirement residences, you still have a lot of people accessing care services through the lens. Are they still able to do that right now?

Karen Sullivan

They are for the most part, although where they're not able to, we've been working with the government on how we can receive funding for that if our staff – if we have sufficient staff and in many cases we do, to be able to do that. So that's been a focus of our provincial association here in Ontario, it’s how can we make sure that where they – they can't come to our homes that we are getting that revenue, so that is – that's a part of the discussion and underway.

Tal Woolley

Okay. And then just finally do you have any union contracts that you need to deal with over the next 24 months?

Vlad Volodarski

Any union contracts?

Tal Woolley

Yes.

Vlad Volodarski

Yes. We always bargain with various unions. There's a large number of unions that we deal with across the country and at any given point in time, there are a large number of bargaining going on. So yes, the answer is yes.

Tal Woolley

Okay, perfect. Thanks very much.

Vlad Volodarski

Thank you, Tal.

Operator

Thank you. We have no further questions registered at this time. I'd now like to turn the meeting back over to you Mr. Volodarski.

Vlad Volodarski

Thank you, Mon. This wraps up today's conference call. Thanks again to everybody for joining us. Our Annual General Meeting will be held on Thursday, May 14th at eight o'clock in the morning in Mississauga, due to Ontario's emergency orders related to COVID, only a very small number of people will be admitted and social distancing will be observed. I strongly encourage you to vote in advance of the meeting and call-in to listen to the presentation. Call-in details are on our website under the Investor Relations tab.

As always, if you have any further questions, please do not hesitate to give us a call. Thank you and goodbye.

Operator

Thank you. The conference has now ended. Please disconnect your lines at this time. And we thank you for your participation.