This company enjoyed a major benefit during COVID-19 uncertainty as more than 90% of its long-term-care business was government funded. The recent sale of its retirement living operations will help the firm focus on its core segments.
The stock trades at 28.1 times the company’s 2023 earnings forecast.
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EXTENDICARE INC. (Toronto symbol EXE; www.extendicare.com) is a long-term care homes operator. It also provides services to senior living operators through its Extendicare Assist and SGP Purchasing Partner Network.
The firm continues to pay monthly distributions of $0.04 a share; the annual rate of $0.48 yields a very high 7.1%.
The company’s revenue in the third quarter of 2022 rose 8.7%, to $308.9 million from $284.3 million a year earlier. That’s mainly due to increased government funding. However, higher operating costs cut cash flow 77.8%, to $0.02 a share from $0.09.
Levels of community transmission of COVID‐19 trended lower throughout the quarter, resulting in fewer outbreaks and reduction in staff absenteeism. Home health care average daily volumes increased by 2.5% and long‐term care average occupancy increased as well.
As part of the Ontario government’s $1 billion investment over the next three years to expand home care services in the province, the government increased home health care rates by 3% for personal support contracts and 5% for nursing and allied health contracts effective April 1, 2022.
This is why the current dividend still looks safe as occupancy rates continue to improve. The company is also proceeding with 20 redevelopment projects, comprising 4,248 new or replacement beds. Those factors should improve its long-term cash flows.
In May 2022, the company sold its Esprit Retirement Communities, a collection of 11 retirement communities and 1,048 retirement living suites in Ontario and Saskatchewan. It received $253.6 million. Extendicare used $117.1 million of the net proceeds to repay all its debt related to the retirement properties. It also realized a $78.8 million gain on the sale.
That lets the company focus on expanding its long-term-care and home health care segments. That’s where it feels it can best use its expertise and scale to drive future revenue and cash flow.
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