Extendicare sold off its retirement living operations in 2022, and its current focus on long-term care homes and home health care has paid off. The stock has now regained all the ground it lost after the onset of the pandemic and more—we think it can go higher. It’s a Power Buy.
The firm’s impressive 11.3% revenue growth and strategic expansion into high-margin segments is complemented by strong operational metrics, including a 98.4% occupancy rate.
The high payout appears sustainable and ambitious growth plans through new facility development create a solid foundation for long-term value creation.
EXTENDICARE INC. (Toronto symbol EXE; www.extendicare.com) owns and operates long-term care homes. Investors also tap the company’s ParaMed Home Health Care branches. ParaMed provides nursing care and other forms of assistance to clients who remain in their own homes.
In May 2022, Extendicare completed the sale of its retirement living operations—comprised of 1,048 retirement living suites across 11 retirement communities in Ontario and Saskatchewan—to Sienna-Sabra LP. It’s a partnership formed between Sienna Senior Living Inc. (Toronto symbol SIA) and California-based Sabra Healthcare REIT (Nasdaq symbol SBRA). The sale price was $307.5 million.
Extendicare made the sale to 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.
Meanwhile, the company recently announced that it has entered into an agreement with Revera Inc. and certain of its affiliates to acquire nine Class C long-term care homes located in Ontario and Manitoba and one parcel of vacant land located in Ontario.
The purchase price is $60.3 million.
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The acquired homes encompass 1,396 beds in nine homes, seven of which consist of a mix of 361 funded LTC beds and 574 private pay retirement beds. The LTC beds in these seven homes are all Class-C beds, which Extendicare intends to redevelop and replace with six new LTC homes comprising a proposed 361 replacement beds and 727 new beds.
Also included in the 1,396 beds is the 250 bed Class C Carlingview Manor home in Ottawa, which is in the process of being redeveloped into a new LTC home that is owned by its joint venture with Axium.
At the same time, Extendicare has been advised by Revera that Revera has entered into a sale agreement with a third party pursuant to which that third party will acquire 21 of Revera’s Class C LTC homes located in Ontario. They are currently managed by Extendicare. Upon closing of the two transactions, Extendicare’s existing management agreements with Revera in respect of the 30 homes, as well as related redevelopment arrangement agreements, will end.
Dividend Stocks: Ontario funding adds to Extendicare’s annual revenue stream
Effective April 1, 2024, the Ontario Ministry of Long-Term Care implemented a 6.6% blended funding increase. The hike added $21.3 million to Extendicare’s annual revenue of $1.35 billion.
In the quarter ended September 30, 2024, revenue rose 11.3%, to $359.1 million from $322.5 million a year earlier. Revenue was higher due to the funding increase and the home healthcare business’s ADV (average daily volume) and managed services growth. The average occupancy in its long-term care (LTC) homes increased to 98.4% from 97.8%. Cash flow per share doubled, to $0.28 from $0.14.
Extendicare keeps buying back shares. Under approval from the TSX for the period from June 30, 2023, until expiry on June 29, 2024, the company repurchased 1.1 million of its shares at an average price of $6.23. Over the next year, it plans to keep buying back more of its stock.
Extendicare continues to pay monthly distributions of $0.04 a share; the annual rate of $0.48 yields a high 4.7%.
Recommendation in Dividend Advisor: Extendicare Inc. is a buy.
