Extendicare REIT
TSX : EXE.UN

Extendicare REIT

August 07, 2008 17:38 ET

Extendicare REIT Announces 2008 Second Quarter Results

MARKHAM, ONTARIO--(Marketwire - Aug. 7, 2008) - Extendicare Real Estate Investment Trust ("Extendicare REIT" or the "REIT") (TSX:EXE.UN) today reported 2008 second quarter results with the following highlights:

- Continued improvement in average Medicare Part A and HMO/CI rates, up 7.4% and 6.9%, respectively, from Q2 2007.

- Increase in same-facility skilled mix census to 25.3%.

- Performance of acquisitions continues to improve.

- Potentially favourable tax announcement concerning health care REITs.

- U.S. congress announces reversal of planned Medicare cuts and 3.4% increase October 1, 2008.

- Distributions remain unchanged at $0.0925 per month for 2008.


Earnings before interest, income taxes, depreciation, amortization, and accretion (EBITDA) for the 2008 second quarter totalled $45.5 million compared to $53.7 million in the same 2007 period. Earnings from continuing health care operations were $9.3 million ($0.13 per diluted unit) for the three months ended June 30, 2008, compared to $27.0 million ($0.39 per diluted unit) for the same period in 2007. Excluding separately reported gains and losses as outlined in Table 2, earnings from continuing health care operations in the 2008 second quarter were $7.4 million ($0.10 per diluted unit) compared to earnings in the 2007 second quarter of $14.1 million ($0.20 per diluted unit).

Tim Lukenda, President and CEO of Extendicare REIT, commented: "The effects of some of the challenges identified in the first quarter lingered into the second quarter. In addition, we experienced increased cost pressures in certain non-wage expenses. As a result, EBITDA was lower than desired despite top line growth from solid rate increases, skilled mix improvements and incremental earnings from our 2007 acquisitions. Our focus now is on improving EBITDA through growth in total census, with continued focus on our skilled mix, and exercising greater control of our non-wage related expenses. The recent decision by U.S. Congress to avert the planned Medicare cuts will have a positive impact on our results going forward. We are confident that our operating strategies will return our margins to more desirable levels in the second half of the year. Over the next several months we plan to review in detail the implications of the recent announcement in Canada involving the rollover rules for SIFT trusts to convert to corporations, and the relaxation of rules governing U.S. REITs to ensure that we are structured in a way that is in the best interests of our securityholders."

DISTRIBUTIONS

Our monthly distributions remain unchanged at $0.0925 per unit and the Board of Trustees of the REIT has indicated its intention to maintain this level of distributions through the balance of 2008.


ACQUISITIONS

Our efforts to improve the operating performance of Tendercare are paying off. We are seeing consistent improvement in our key performance metrics. Since we acquired Tendercare last fall, its skilled average daily census on a same-facility basis has grown by 20.5% or 90 ADC. Medicare rates have increased 10.2% or US$36.83 per Medicare day and twelve month trailing EBITDA has increased by 9% or US$2.0 million to US$24.0 million. The implementation of time-tracking software at the facilities in August 2008 will enhance our ability to manage labour.

We are also pleased with the results from the five other single senior care facility acquisitions in Wisconsin that have generated an unlevered return on our investment of 11.7% based upon their year-to-date performance. Their performance continues to improve as we make enhancements to the facilities and launch programs to attract a higher acuity clientele.

DEVELOPMENT PROJECTS

Our thirteen projects in Canada and the U.S. are in various stages of development and are on track for completion in 2009 and 2010. The successful completion of our $120.6 million financing in June of this year, together with construction financing from Canada Mortgage and Housing Corporation, will finance 100% of these projects. Our recently completed facilities in Washington and Michigan are filling up within our six-month projections and currently have occupancies of 70% and 69%, respectively. Construction projects in Okemos, Michigan and Red Deer, Alberta are underway and in the last half of 2008 we will begin construction in Kingston and Windsor, Ontario and Summit, Wisconsin. The leveraged return on net investment from the U.S., Alberta and Ontario projects are projected at over 30%, 30% and 14%, respectively.

EHSI SKILLED NURSING FACILITY REVENUE RATES

The average daily Medicare Part A rate for Extendicare Health Services, Inc. (EHSI) this quarter was US$417.81, an increase of 7.4% from US$389.04 in the same 2007 period, and an increase of 1.7% from US$410.84 in the 2008 first quarter. Approximately half of the increase from the 2007 second quarter related to a 3.3% market basket inflationary increase effective October 1, 2007, with the remainder primarily related to higher average acuity levels among Medicare patients served. The Centers for Medicare & Medicaid Services have announced a 3.4% market basket increase in Medicare Part A rates effective October 1, 2008, which is expected to increase EHSI's annual revenue by US$14.0 million. Excluding the Tendercare facilities, the percentage of Medicare residents in the nine highest Resource Utilization Groupings (RUGs) classifications increased to 38.1% this quarter from 37.6% in the 2007 second quarter, and from 37.7% in the 2008 first quarter. The percentage of Medicare residents receiving therapy services increased to 87.1% this quarter from 85.7% in the same 2007 period, and from 86.9% in the 2008 first quarter.

The average revenue rate for Health Maintenance Organization (HMO) and commercial insurance (CI) clients, an important revenue growth opportunity as it represents the second highest rate component of quality mix, increased 6.9% to US$358.45 this quarter from US$335.32 in the 2007 second quarter, and from US$335.38 in the 2008 first quarter.

EHSI'S SKILLED NURSING FACILITY AVERAGE DAILY CENSUS (ADC)

On a same-facility basis, EHSI's skilled mix ADC increased to 3,140 this quarter, or 1.9%, from the 2007 second quarter primarily due to growth in HMO/CI of 200 ADC, or 31.7%. In comparison to the 2008 first quarter, our skilled mix ADC declined slightly from 3,180, with a 7.9% increase in HMO/CI being offset by a decline of 4.2% in Medicare. The increase in our HMO/CI residents is due to our focus on the premium payor market segment and the number of Medicare beneficiaries opting out of traditional Medicare Part A benefits and selecting coverage through a Medicare HMO product. The decline in Medicare ADC this quarter from the 2008 first quarter is not unusual. Medicare admissions generally begin to decline during the latter portion of the second quarter, are at their lowest level during the summer months when fewer elective surgeries are performed, and begin to increase during the third quarter.

Our total ADC from same-facility skilled nursing facilities declined 313, or 2.5%, from the 2007 second quarter. Over a third of this decline, or 128 ADC, was due to clinical challenges we experienced at six facilities, primarily in the State of Washington, which resulted in a voluntary slowdown in admissions. In comparison to the 2008 first quarter, our ADC this quarter declined by 174, of which the six clinically challenged facilities accounted for 34.5% of the decline.

OPERATING FOCUS FOR THE SECOND HALF OF 2008

The management team has adopted a turnaround plan with a number of key initiatives focused on increasing overall occupancy and skilled mix census, and reducing costs. We are optimistic that these efforts will result in an improvement in our operating margins. In addition, we are looking at asset sales and intend to use some of the proceeds to buy back REIT units. We are continuing to invest in our development projects utilizing the proceeds from our recent offering. We are confident that these strategies will deliver enhanced value to our securityholders.



2008 SECOND QUARTER FINANCIAL REVIEW

TABLE 1 Q2 Q2 Q1
--------------------------------------------------------------------
2008 2007 2008
--------------------------------------------------------------------
(millions of dollars unless otherwise noted)
Revenue
U.S. operations (US$) 343.1 271.0 343.2
--------------------------------------------------------------------
U.S. operations (C$) 346.6 297.7 344.6
Canadian operations 151.4 141.4 142.4
--------------------------------------------------------------------
Total Revenue 497.9 439.1 487.0
--------------------------------------------------------------------
--------------------------------------------------------------------
EBITDA
U.S. operations (US$) 32.5 35.8 37.0
--------------------------------------------------------------------
U.S. operations (C$) 32.8 39.3 37.2
Canadian operations 12.7 14.4 9.4
--------------------------------------------------------------------
Total EBITDA 45.5 53.7 46.6
--------------------------------------------------------------------
--------------------------------------------------------------------
Average US/Canadian dollar
exchange rate 1.0102 1.0986 1.0042
--------------------------------------------------------------------
(1) Amounts may not add due to rounding.


Revenue Comparison to 2007 Second Quarter and 2008 First Quarter

Revenue for the 2008 second quarter grew 13.4% to $497.9 million from $439.1 million in the 2007 second quarter, and excluding the impact of the stronger Canadian dollar, revenue grew 20.3%. In comparison to the 2008 first quarter, revenue this quarter grew 2.2%.

EBITDA Comparison to 2007 Second Quarter

EBITDA for the 2008 second quarter was $45.5 million compared to $53.7 million for the 2007 second quarter. Excluding the impact of a stronger Canadian dollar, EBITDA declined $5.3 million.

EBITDA from U.S. operations in U.S. dollars declined US$3.3 million this quarter. New facilities contributed EBITDA of US$8.0 million this quarter and broke even in the 2007 second quarter, whereas same-facility EBITDA declined US$11.3 million and was impacted by the following items:

- start-up costs at two facilities and clinical challenges at six facilities of US$2.6 million;

- a decrease of US$1.6 million due to the 2007 second quarter release of actuarial reserve provisions and lower investment earnings in our captive insurance company;

- an increase in workers' compensation and property taxes of US$2.3 million, of which US$1.4 million pertains to prior years;

- an estimated increase in food, supplies and travel costs due to inflationary pressures of US$1.8 million; and

- a US$3.0 million decline in remaining operations, primarily due to lower total census.

EBITDA from Canadian operations declined $1.7 million to $12.7 million this quarter from $14.4 million in the 2007 second quarter. The 2008 second quarter results included a $2.4 million charge for our former CEO's compensation arrangements. If not for this charge, EBITDA would have improved by $0.7 million, primarily due to funding enhancements and timing of spending under the Ontario nursing home envelope system.

EBITDA Comparison to 2008 First Quarter

EBITDA for the 2008 second quarter was $45.5 million compared to $46.6 million in the 2008 first quarter.

EBITDA from U.S. operations this quarter was lower by US$4.5 million from the 2008 first quarter, with the improvement from new facilities of US$1.4 million offset by a decline in same-facility EBITDA of US$5.9 million, which was impacted by the following items:

- start-up costs at two facilities and clinical challenges at six facilities of US$0.6 million;

- an increase in workers' compensation and property taxes of US$2.4 million, of which US$1.2 million pertains to prior years;

- an estimated increase in food, supplies and travel costs due to inflationary pressures of US$0.8 million; and

- lower earnings of US$4.1 million from remaining operations; partially offset by

- an improvement of US$2.0 million due to lower bad debts and utility costs.

EBITDA from Canadian operations improved by $3.2 million this quarter despite the $2.4 million charge for compensation arrangements. Operations otherwise improved by $5.6 million between quarters primarily due to funding enhancements, timing of spending under the Ontario envelope system, a 3.2% increase in home health care volumes, and a seasonal decline in utility costs of $1.7 million.



Earnings from Continuing Operations

TABLE 2 Three months ended June 30
--------------------------------------------------------------------
2008 2007
--------------------------------------------------------------------
Per Per
Components of Earnings from After diluted After diluted
Continuing Operations (1) -tax unit -tax unit
--------------------------------------------------------------------
(thousands of Canadian dollars except per unit amounts)
Continuing Health Care Operations before Undernoted (1)
U.S. operations (US$) 4,932 10,522
--------------------------------------------------------------------
U.S. operations (C$) 4,992 11,526
Canadian operations 2,400 2,545
--------------------------------------------------------------------
7,392 $0.10 14,071 $0.20
Gain on derivative financial instruments
and foreign exchange 1,927 0.03 11,521 0.17
Gain from asset disposals and other items 1,428 0.02
--------------------------------------------------------------------
Earnings from continuing health
care operations 9,319 $0.13 27,020 $0.39
Share of equity accounted earnings 961 0.01
--------------------------------------------------------------------
Earnings from continuing
operations 9,319 $0.13 27,981 $0.40
--------------------------------------------------------------------
--------------------------------------------------------------------
(1) Refer to discussion of non-GAAP measures.


Earnings from continuing health care operations prior to separately reported items, as outlined in Table 2 above, were $7.4 million ($0.10 per diluted unit) in the 2008 second quarter compared to $14.1 million ($0.20 per diluted unit) in the 2007 second quarter. The $6.7 million decline in earnings was impacted by the following items:

- stronger Canadian dollar reduced earnings by $0.4 million;

- 2007 second quarter release of actuarial reserve provision and lower investment earnings in our captive insurance company of $1.8 million; and

- a $1.6 million after-tax charge for our former CEO's compensation arrangements; partially offset by

- additional SIFT tax included in the 2007 second quarter of $1.1 million related to the 2007 first quarter.

Exclusive of the above, health care net earnings declined by $4.0 million this quarter due to the previously discussed decline in EBITDA, and increases in depreciation and financing costs due primarily to acquisitions and capital expenditures.



2008 SIX MONTH FINANCIAL REVIEW

TABLE 3 Six months ended June 30
--------------------------------------------------------------------
2008 2007
--------------------------------------------------------------------
(millions of dollars unless otherwise noted)
Revenue
U.S. operations (US$) 686.2 539.4
--------------------------------------------------------------------
U.S. operations (C$) 691.2 612.2
Canadian operations 293.8 278.5
--------------------------------------------------------------------
Total Revenue 984.9 890.7
--------------------------------------------------------------------
--------------------------------------------------------------------
EBITDA
U.S. operations (US$) 69.5 70.9
--------------------------------------------------------------------
U.S. operations (C$) 70.0 80.5
Canadian operations 22.1 25.2
--------------------------------------------------------------------
Total EBITDA 92.1 105.7
--------------------------------------------------------------------
--------------------------------------------------------------------
Average US/Canadian dollar exchange rate 1.0072 1.1349
--------------------------------------------------------------------
(1) Amounts may not add due to rounding.


EBITDA Comparison to First Half of 2007

EBITDA for the first half of 2008 was $92.1 million compared to $105.7 million for the same 2007 period. Excluding the impact of a stronger Canadian dollar, EBITDA declined $4.7 million.

EBITDA from U.S. operations declined US$1.4 million in the first half of 2008. New facilities contributed EBITDA of US$14.6 million to EBITDA in the first half of 2008 and broke even in the same 2007 period, whereas same-facility EBITDA declined US$16.0 million and was impacted by the following items:

- start-up costs at two facilities and clinical challenges at six facilities of US$4.8 million;

- a decrease of US$3.4 million due to the 2007 release of actuarial reserve provisions and lower investment earnings in our captive insurance company, which is expected to have a similar impact in the latter half of 2008;

- an increase in bad debts of US$2.6 million, primarily due to specific facilities in Pennsylvania;

- an increase in workers' compensation and property taxes of US$3.6 million, of which US$1.7 million pertains to prior years; and

- an estimated increase in food, supplies and travel costs due to inflationary pressures of US$2.5 million; partially offset by

- a US$0.9 million improvement in remaining operations.

EBITDA from Canadian operations declined $3.1 million to $22.1 million in the first half of 2008 from $25.2 million in the first half of 2007, due to a $3.9 million increase in administrative costs, of which $2.4 million related to the compensation arrangements recorded this quarter. Prior to administrative costs, net operating income improved by $0.8 million due primarily to funding enhancements.



Earnings from Continuing Operations

TABLE 4 Six months ended June 30
--------------------------------------------------------------------
2008 2007
--------------------------------------------------------------------
Per Per
Components of Earnings from After diluted After diluted
Continuing Operations (1) -tax unit -tax unit
--------------------------------------------------------------------
(thousands of Canadian dollars except per unit amounts)
Continuing Health Care Operations before Undernoted (1)
U.S. operations (US$) 12,085 23,166
--------------------------------------------------------------------
U.S. operations (C$) 12,174 26,315
Canadian operations 2,331 5,272
--------------------------------------------------------------------
14,505 $0.20 31,587 $0.45
Gain(loss) on derivative financial instruments
and foreign exchange (1,602) (0.02) 12,418 0.18
Gain from asset disposals and other items 1,428 0.02
--------------------------------------------------------------------
Earnings from continuing health
care operations 12,903 $0.18 45,433 $0.65
Share of equity accounted earnings 1,541 0.02
--------------------------------------------------------------------
Earnings from continuing
operations 12,903 $0.18 46,974 $0.67
--------------------------------------------------------------------
--------------------------------------------------------------------
(1) Refer to discussion of non-GAAP measures.


Earnings from continuing health care operations prior to separately reported items, as outlined in Table 4 above, were $14.5 million ($0.20 per diluted unit) in the first half of 2008 compared to $31.6 million ($0.45 per diluted unit) in the same 2007 period. The $17.1 million decline in earnings was impacted by the following items:

- stronger Canadian dollar reduced earnings by $1.6 million;

- 2007 tax adjustment pertaining to the 2006 reorganization of $1.4 million;

- a decrease of $3.8 million due to the 2007 release of actuarial reserve provisions and lower investment earnings in our captive insurance company, which is expected to have a similar impact in the latter half of 2008;

- a $1.6 million after-tax charge for our former CEO's compensation arrangements; and

- interest costs associated with the March 2007 US$90.0 million financing for payment of taxes associated with the distribution of Assisted Living Concepts, Inc. of $0.7 million.

Exclusive of the above, health care net earnings declined by $8.0 million due to the previously discussed decline in EBITDA, and increases in depreciation and financing costs due primarily to acquisitions and capital expenditures.

ADJUSTED FUNDS FROM OPERATIONS

2008 Second Quarter AFFO

AFFO from continuing operations was $15.5 million ($0.217 per basic unit) in the 2008 second quarter compared to $21.6 million ($0.307 per basic unit) in the 2007 second quarter, representing a decline of $6.1 million ($0.09 per basic unit). The results were impacted by the following items:

- stronger Canadian dollar reduced AFFO by $1.0 million;

- a $1.6 million after-tax charge for our former CEO's compensation arrangements; and

- 2007 second quarter release of actuarial reserve provision and lower investment earnings in our captive insurance company of $1.8 million; partially offset by

- additional SIFT tax included in the 2007 second quarter of $1.1 million related to the 2007 first quarter.

Exclusive of the above, AFFO declined by $2.8 million due to a decline in EBITDA and an increase in financing costs.

In comparison to the 2008 first quarter, AFFO from continuing operations in the 2008 second quarter declined by $3.1 million, primarily due to timing of spending of the facility maintenance costs, which were $3.1 million more this quarter.

2008 Six Month AFFO

AFFO from continuing operations was $34.1 million ($0.481 per basic unit) in the first half of 2008 compared to $47.6 million ($0.677 per basic unit) in the first half of 2007, representing a decline of $13.5 million ($0.196 per basic unit). The results were impacted by the following items:

- stronger Canadian dollar reduced AFFO by $3.5 million;

- a $1.6 million after-tax charge for our former CEO's compensation arrangements;

- 2007 first quarter tax adjustment pertaining to the Reorganization of $1.4 million;

- 2007 first half release of actuarial reserve provision and lower investment earnings in our captive insurance company of $3.8 million; and

- interest costs associated with the March 2007 US$90.0 million financing for payment of taxes associated with the distribution of Assisted Living Concepts, Inc. of $0.7 million; partially offset by

- lower maintenance capital expenditures of $1.6 million between periods.

Exclusive of the above, AFFO declined by $4.1 million due to a decline in EBITDA and an increase in financing costs.

Annual facility maintenance costs are anticipated to be between 1.5% to 2% of revenue, which is consistent with our objective to maintain and upgrade our facilities.

The reported AFFO from continuing operations does not reflect the incremental benefit of our U.S. dollar distributions of US$4.0 million a month at the locked-in exchange rate of 1.1141 until November 2009. Based on an exchange rate of par and 74.1 million units outstanding, this amounts to approximately $0.046 per unit annually.

LIQUIDITY AND CAPITAL RESOURCES

At June 30, 2008, we had cash and cash equivalents of $116.3 million compared with $44.2 million at December 31, 2007. Cash provided by operating activities was $18.7 million in the first half of 2008 compared to $53.7 million in the first half of 2007. The decline reflected a reduction in earnings and an unfavourable change of $21.6 million in operating assets and liabilities between periods primarily related to an increase in accounts receivable and income taxes payable, partially offset by an increase in accounts payable. The 2008 increase in accounts receivable primarily resulted from trade receivables due to funding improvements and the number of HMO residents served. The comparability of changes in income taxes and accounts payable were impacted by a net income tax refund in 2007 related to 2006, and the payment in 2007 of a prior year Medicare settlement.

Capital additions to property and equipment, excluding acquisitions, were $30.3 million in the first half of 2008 compared to $35.1 million in the first half of 2007. Growth expenditures totalled $18.2 million in the first half of 2008 versus $21.3 million in the same 2007 period, while facility maintenance costs were $12.1 million and $13.8 million, respectively. These costs fluctuate on a quarterly basis with the timing of projects and seasonality.

Long-term debt, including current portion, was $1,170.6 million at June 30, 2008, and was net of $30.6 million of financing costs. At June 30, 2008, long-term debt (at face value and including current portion) represented 45.2% of adjusted gross book value (37.5% excluding the convertible debentures).

For 2008, we are confident that our cash from operating activities, together with available bank credit facilities, and debt refinancings in process, will be sufficient to fund the current requirements of our ongoing operations, including an expected $32.0 million of maintenance capital expenditures, as well as to meet debt obligations and pay declared distributions to unitholders. The REIT raises funds through debt financings and the capital markets to fund strategic acquisitions and growth capital expenditures, the latter of which are expected to total $50.0 million in 2008.

AUGUST DISTRIBUTION DECLARED

The Board of Trustees of the REIT today declared a cash distribution of $0.0925 per unit for the month of August 2008, payable to unitholders of record at the close of business on August 29, 2008, and will be paid on September 15, 2008.

Extendicare Limited Partnership (the "Partnership") also announced that it has declared a cash distribution of $0.0925 per Class B limited partnership unit for the month of August 2008, payable to unitholders of record at the close of business on August 29, 2008, and will be paid on September 15, 2008.

Management estimates that approximately 70% of the 2008 distributions of the REIT and Partnership will be characterized as tax deferred returns of capital for Canadian residents. The remaining 30% of distributions of the REIT paid in 2008 are expected to be taxed as dividends and those paid to Canadian residents are eligible dividends as per the Income Tax Act (Canada) (the "Act"). To the extent a portion of the remaining 30% of distributions of the Partnership allocated in 2008 is taxed as dividends, those paid to Canadian residents are eligible dividends as per the Act. Extendicare REIT is not required to, and does not, calculate its "earnings and profits" pursuant to the United States Internal Revenue Code of 1986, as amended (the "Code"), and therefore no portion of its distributions represent qualified dividend income for U.S. tax purposes.

ABOUT US

Extendicare REIT, through its wholly owned subsidiaries, is a major provider of short and long-term care services for seniors in North America. We operate 268 nursing and assisted living facilities in North America, with capacity for approximately 30,300 residents. As well, we offer medical specialty services such as subacute care and rehabilitative therapy services in the United States, and home health care services in Canada, and employ approximately 38,100 people in North America.

On August 8, 2008, at 10:00 a.m. (ET), we will hold a conference call to discuss our results for the 2008 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 1-877-323-2090 or 416-641-6140. A taped rebroadcast of the call will be available until midnight on August 22, 2008. To access the rebroadcast, dial 1-800-408-3053 or 416-695-5800, conference ID number 3266398. 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 sections.

Certain 2007 figures have been revised to conform to the presentation in 2008, mainly for discontinued operations.

Non-GAAP Measures

Extendicare REIT assesses and measures operating results and financial position based on performance measures referred to as "EBITDA","continuing health care operations before undernoted", "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 the REIT to make cash distributions; or (ii) certain ongoing rights and obligations of the 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 the REIT'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 the 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", "plan" or "objective" or other similar expressions. Forward-looking statements reflect management's beliefs and assumptions and are based on information currently available, and the REIT assumes no obligation to update any forward-looking statement. 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 the 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 the 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 the REIT's website at www.extendicare.com.



EXTENDICARE REIT
Condensed Consolidated Earnings
Three months ended Six months ended
June 30 June 30
-------------------------------------------------------------------
2008 2007 2008 2007
-------------------------------------------------------------------
(thousands of Canadian dollars except per unit amounts)
(revised) (revised)
Revenue
Nursing and assisted living centres
United States 334,949 284,726 667,938 585,141
Canada 108,763 104,114 214,337 203,674
Home health - Canada 39,503 35,023 73,814 70,403
Outpatient therapy
- United States 3,134 3,241 6,126 6,495
Other 11,593 11,995 22,734 25,002
-------------------------------------------------------------------
497,942 439,099 984,949 890,715
Operating expenses 429,057 366,461 849,306 745,758
Administrative costs 20,118 15,897 37,191 32,967
Lease costs 3,259 3,030 6,336 6,241
-------------------------------------------------------------------
EBITDA (1) 45,508 53,711 92,116 105,749
Depreciation and
amortization 14,456 12,152 28,358 24,640
Accretion expense 372 326 742 661
Interest expense 21,226 19,266 42,576 37,108
Interest income (1,434) (1,487) (2,885) (3,134)
Loss (gain) on derivative financial instruments
and foreign exchange (2,045) (15,557) 2,167 (17,054)
Gain from asset disposals and
other items (2,192) (2,192)
-------------------------------------------------------------------
Earnings from continuing health care operations
before income taxes 12,933 41,203 21,158 65,720
-------------------------------------------------------------------
Income tax expense (recovery)
Current 5,058 8,262 11,345 14,416
Future (1,444) 5,921 (3,090) 5,871
-------------------------------------------------------------------
3,614 14,183 8,255 20,287
-------------------------------------------------------------------
Earnings from continuing health
care operations 9,319 27,020 12,903 45,433
Share of equity accounted earnings 961 1,541
-------------------------------------------------------------------
Earnings from continuing
operations 9,319 27,981 12,903 46,974
Discontinued operations 1,358 328 1,352 (3,299)
-------------------------------------------------------------------
Net earnings 10,677 28,309 14,255 43,675
-------------------------------------------------------------------
-------------------------------------------------------------------
Basic and Diluted Earnings per Unit($)
Earnings from continuing
operations 0.13 0.40 0.18 0.67
Net earnings 0.15 0.40 0.20 0.62
-------------------------------------------------------------------
(1) Refer to discussion of non-GAAP measures.


EXTENDICARE REIT
Condensed Consolidated Cash Flows
Three months Six months
ended June 30 ended June 30
-------------------------------------------------------------------
2008 2007 2008 2007
-------------------------------------------------------------------
(thousands of Canadian dollars)

Operating Activities
Net earnings 10,677 28,309 14,255 43,675
Adjustments for:
Depreciation and amortization 14,593 12,335 28,656 25,123
Provision for self-
insured liabilities 3,207 3,790 7,114 6,054
Payments for self-
insured liabilities (10,108) (6,330) (14,322) (12,299)
Future income taxes (22) 3,527 (1,161) 3,499
Loss (gain) on derivative financial instruments
and foreign exchange (2,045) (15,557) 2,167 (17,054)
Gain from asset disposals
and other items (2,192) (2,192)
Loss (gain) from asset impairment,
disposals and other items
from discontinued operations (106) (170) (474) 5,675
Undistributed share of earnings from equity
accounted investments (961) (1,541)
Other 2,035 1,483 3,720 2,429
-------------------------------------------------------------------
18,231 24,234 39,955 53,369
Net change in operating assets and liabilities
Accounts receivable 7,385 3,815 (10,224) 4,694
Supplies and prepaid expenses 598 (663) (7,485) (5,527)
Accounts payable and
accrued liabilities (6,967) (626) 5,607 (15,187)
Income taxes (12,549) (3,426) (9,186) 16,332
-------------------------------------------------------------------
6,698 23,334 18,667 53,681
-------------------------------------------------------------------
Investing Activities
Capital additions (16,277) (19,746) (30,342) (35,089)
Acquisitions (2,796) (11,489)
Net proceeds from dispositions 1,041 2,569 2,228
Return of equity investment 41,637 41,637
Other assets 1,057 (2,012) 1,779 (2,666)
-------------------------------------------------------------------
(14,179) 17,083 (25,994) (5,379)
-------------------------------------------------------------------
Financing Activities
Issue of long-term debt 143,367 115,000 144,329 246,695
Repayment on line of credit (9,038) (19,917)
Repayment of long-term debt (53,305) (2,663) (62,378) (5,421)
Decrease in investments held
for self-insured liabilities 6,956 2,170 7,849 10,008
Distributions paid (18,929) (18,205) (37,846) (43,050)
Issue of units 34,580 34,580
Financial costs (9,100) (6,088) (9,410) (9,950)
Income taxes paid re: the distribution of ALC (120,220)
Other 1,002 3,162 1,921 2,323
-------------------------------------------------------------------
95,533 73,459 79,045 80,385
-------------------------------------------------------------------
Foreign exchange gain (loss) on cash
held in foreign currency 123 (4,835) 339 (4,845)
-------------------------------------------------------------------
Increase in cash and
cash equivalents 88,175 109,041 72,057 123,842
Cash and cash equivalents
at beginning of period 28,116 42,858 44,234 28,057
-------------------------------------------------------------------
Cash and cash equivalents
at end of period 116,291 151,899 116,291 151,899
-------------------------------------------------------------------
-------------------------------------------------------------------


EXTENDICARE REIT
Condensed Consolidated Balance Sheets
June 30 December 31
2008 2007
-------------------------------------------------------------------
(thousands of Canadian dollars, unless otherwise noted)
(revised)
Assets
Current assets
Cash and short-term investments 116,291 44,234
Invested assets 1,521 2,439
Accounts receivable, less allowances 228,111 214,305
Income taxes recoverable 12,174 2,640
Future income tax assets 29,518 27,504
Supplies and prepaid expenses 28,039 25,467
-------------------------------------------------------------------
415,654 316,589
Property and equipment 854,806 842,648
Goodwill and other intangible assets 169,259 162,481
Other assets 129,260 118,445
-------------------------------------------------------------------
1,568,979 1,440,163
-------------------------------------------------------------------
-------------------------------------------------------------------
Liabilities and Unitholders' Deficiency
Current liabilities
Accounts payable 36,839 35,963
Accrued liabilities 215,927 203,084
Accrual for self-insured liabilities 15,704 12,392
Current portion of long-term debt 19,433 75,241
-------------------------------------------------------------------
287,903 326,680
Accrual for self-insured liabilities 26,540 30,018
Long-term debt 1,151,153 996,470
Other long-term liabilities 65,563 63,978
Future income tax liabilities 47,428 46,595
-------------------------------------------------------------------
1,578,587 1,463,741
Unitholders' deficiency (9,608) (23,578)
-------------------------------------------------------------------
1,568,979 1,440,163
-------------------------------------------------------------------
-------------------------------------------------------------------
Closing US/Cdn. dollar exchange rate 1.0197 0.9913


EXTENDICARE REIT
Financial and Operating Statistics
(amounts in Canadian dollars, unless otherwise noted)
Three months Six months
ended June 30 ended June 30
--------------------------------------------------------------------
2008 2007 2008 2007
--------------------------------------------------------------------
Health Care Earnings from Continuing Operations (millions)
United States (US$) $5.8 $17.2 $8.8 $30.7
--------------------------------------------------------------------
United States $5.8 $19.0 $8.8 $34.7
Canada 3.5 8.0 4.1 10.8
--------------------------------------------------------------------
$9.3 $27.0 $12.9 $45.4
--------------------------------------------------------------------
--------------------------------------------------------------------
Health Care Net Earnings (millions)
United States (US$) $7.1 $17.5 $10.1 $27.8
--------------------------------------------------------------------
United States $7.2 $19.3 $10.2 $31.4
Canada 3.5 8.0 4.1 10.8
--------------------------------------------------------------------
$10.7 $27.3 $14.3 $42.1
--------------------------------------------------------------------
--------------------------------------------------------------------
U.S. Skilled Nursing Facility Statistics
Percent of Revenue by Payor Source (same-facility basis, excluding
prior period settlement adjustments)
Medicare (Part A and B) 35.8% 36.6% 36.3% 36.7%
HMO/CI 9.9 7.5 9.2 7.2
--------------------------------------------------------------------
Skilled mix 45.7 44.1 45.5 43.9
Private/other 8.6 9.4 8.7 9.6
--------------------------------------------------------------------
Quality mix 54.3 53.5 54.2 53.5
Medicaid 45.7 46.5 45.8 46.5
--------------------------------------------------------------------
Average Daily Census by Payor Source (same-facility basis)
Medicare 2,309 2,451 2,360 2,462
HMO/CI 831 631 800 633
--------------------------------------------------------------------
Skilled mix 3,140 3,082 3,160 3,095
Private/other 1,259 1,364 1,255 1,360
--------------------------------------------------------------------
Quality mix 4,399 4,446 4,415 4,455
Medicaid 8,045 8,311 8,116 8,328
--------------------------------------------------------------------
12,444 12,757 12,531 12,783
--------------------------------------------------------------------
--------------------------------------------------------------------
Average Revenue per Resident Day by Payor Source
(excluding prior period settlement adjustments)(US$)
Medicare Part A only $417.81 $389.04 $414.27 $388.43
Medicare (Part A and B) 453.68 423.00 450.80 422.99
HMO/CI 358.45 335.32 347.44 323.67
Private/other 200.09 194.51 204.03 200.10
Medicaid 166.59 158.52 165.98 158.18
Weighted average 234.03 221.92 232.82 221.82
--------------------------------------------------------------------
Average Occupancy (excluding managed facilities)
(same-facility basis)
U.S. skilled nursing
facilities 88.6% 90.6% 89.2% 90.8%
U.S. assisted living
facilities 84.5 82.7 83.2 81.8
Canadian facilities
average occupancy 97.9 98.3 97.8 98.0
--------------------------------------------------------------------
Capital Additions to Property and Equipment (thousands)
Growth expenditures 8,638 11,988 18,199 21,311
Facility maintenance 7,639 7,758 12,143 13,778
--------------------------------------------------------------------
Consolidated reported 16,277 19,746 30,342 35,089
--------------------------------------------------------------------
--------------------------------------------------------------------
Average US/Cdn. dollar
exchange rate 1.0102 1.0986 1.0072 1.1349
--------------------------------------------------------------------
(1) Amounts may not add due to rounding.


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, 2008 and
2007. (1)
Three months Six months
ended June 30 ended June 30
--------------------------------------------------------------------
2008 2007 2008 2007
--------------------------------------------------------------------
(thousands of Canadian dollars unless otherwise noted)
EBITDA from continuing
health care operations 45,508 53,711 92,116 105,749
Depreciation for furniture, fixtures,
equipment and computers (4,567) (3,509) (8,733) (7,040)
Interest expense, net (19,792) (17,779) (39,691) (33,974)
--------------------------------------------------------------------
21,149 32,423 43,692 64,735
Current income tax
expense (2) (4,779) (8,255) (10,486) (13,652)
--------------------------------------------------------------------
FFO (continuing operations) 16,370 24,168 33,206 51,083
Amortization of deferred
financing costs 1,622 1,159 3,184 2,238
Principal portion of government
capital funding payments 540 514 1,081 1,024
--------------------------------------------------------------------
DI (continuing operations) 18,532 25,841 37,471 54,345
Additional maintenance capital
expenditures (3) (3,072) (4,249) (3,410) (6,738)
--------------------------------------------------------------------
AFFO (continuing operations) 15,460 21,592 34,061 47,607
AFFO (discontinued
operations) (4) 1,265 439 1,093 662
--------------------------------------------------------------------
AFFO 16,725 22,031 35,154 48,269
--------------------------------------------------------------------
--------------------------------------------------------------------
Per Basic Unit ($)
FFO (continuing operations) 0.230 0.344 0.469 0.727
FFO 0.249 0.350 0.485 0.736
--------------------------------------------------------------------
Per Basic Unit ($)
AFFO (continuing operations) 0.217 0.307 0.481 0.677
AFFO 0.235 0.313 0.497 0.687
--------------------------------------------------------------------
Per Diluted Unit ($)
AFFO (continuing operations) 0.213 0.305 0.470 0.675
AFFO 0.229 0.310 0.484 0.684
--------------------------------------------------------------------
Distributions declared 19,902 19,519 39,460 39,012
Distributions declared
per unit ($) 0.2775 0.2775 0.5550 0.5550
--------------------------------------------------------------------
Basic weighted average number
of units (thousands ) 71,109 70,324 70,790 70,279
Diluted weighted average number of
units (thousands) 77,869 70,896 77,058 70,568
--------------------------------------------------------------------

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, restructuring
charges, asset 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. The impact of discontinued operations reduces FFO, DI and AFFO
by the same amount.

Reconciliation of Cash Provided by Operating Activities to DI
and AFFO
--------------------------------------------------------------------
Three months Six months
ended June 30 ended June 30
--------------------------------------------------------------------
2008 2007 2008 2007
--------------------------------------------------------------------
(thousands of Canadian dollars)
Cash provided by operating
activities 6,698 23,334 18,667 53,681
Add (Deduct):
Net change in operating assets
and liabilities 11,533 900 21,288 (312)
Current tax recovery on loss (gain) from
derivative financial instruments, foreign
exchange, asset impairment,
disposals and other items (1,272) 2,478 (1,168) 891
Net provisions and payments for
self-insured liabilities 6,901 2,540 7,208 6,245
Depreciation for furniture, fixtures,
equipment and computers (4,567) (3,509) (8,733) (7,040)
Other (36) 23 221 518
Principal portion of government capital
funding payments 540 514 1,081 1,024
--------------------------------------------------------------------
DI 19,797 26,280 38,564 55,007
Additional maintenance
capital expenditures (3,072) (4,249) (3,410) (6,738)
--------------------------------------------------------------------
AFFO 16,725 22,031 35,154 48,269
--------------------------------------------------------------------
--------------------------------------------------------------------


Contact Information