Q4 2019 Earnings Call
Good day and welcome to the capital Senior living 2019, Q4, and your and earnings announcement Conference call. Today's conference is being recorded.
Statements today, which are not historical facts may be deemed to be forward looking statements within the meaning of the federal securities laws.
Statements made as of today's date and the company expressly disclaims any obligation to update these statements in the future actual results and performance may differ materially from forward looking statements certain of these factors that could cause actual results to differ detailed in the earnings release the company issued earlier today.
As well as reports that the company files.
As you see from time to time, including the risks factors contained in the annual report on form 10-K, and quarterly reports on form 10-Q.
Today's press release for the full safe Harbor statement, which may be found.
Capital Senior Dot Com forward Slash Investor Dash relations.
It was furnished in an 8-K filing this morning.
Please note that during this call the company will present non-GAAP financial measures.
We conciliations of each non-GAAP measure from the most comparable GAAP measure. Please also see today's press release at this time I would like to turn the call over capital senior living as President and CEO Ms. Kimberly.
Thank you and good morning to our shareholders analysts employees. Another participant welcome to capital Senior living fourth quarter 2019 earnings call. Joining me for today's call is Carey Hendrickson or Chief financial officer in branded rebar, our Chief operating officer.
2019, with a reset year for capital senior living as we focus the organization and our activities on the steps necessary to strengthen the business and establish a foundation for long term success, well also navigating industry headwinds of oversupply changing demographics, and a very tight labor market.
We've now completed the first of our three year strategy of stabilized in bad nurture and grow and we expect that the hard work in investments made in 2019 will begin to pay off in 2020 with improved employee retention stable or improved occupancy in revenue improved net operating income and improved cash flow of course.
There's uncertainty now as a result of covered 19 and it is difficult to predict when the overall operating environment will return to a more normal state.
Nevertheless, we've already delivered some of these improvements in Q1, which we will talk more about throughout this call.
First I will address our Q4 operating performance focusing on the full portfolio of 126 communities, which includes four communities excluded from the same store numbers in 2019, but that will be coming back on line and 2020.
Revenue for the 126 communities stabilized in the fourth quarter at $108.7 million consistent with a third quarter.
Occupancy was down 40 basis points sequentially from the third quarter due primarily to a decline of 26 occupied units in independent living occupied units in assisted living and memory care remained consistent with a third quarter.
As we've mentioned on our previous calls me invested heavily in certain operational areas. During the second half of 2019 to improve the quality of our product offerings across the portfolio. Some of these investments included wage increases in certain markets. So we could reduce more expensive contract labor to a minimal level by the end of 2019 and maintain that.
No were level going forward I'm pleased to say, we accomplished this objective reducing contract labor expenses by more than 50% from Q3 to Q4 enriching normalized levels in both November and December.
Investments were also made in certain aesthetic aspects of our communities through repairs maintenance and service contracts will collectively these investments along with some incremental advertising and promotion costs increased operating expenses sequentially in 126 communities. They were necessary short term investments to improve the company competitive positioning.
The long term.
Regarding sales and marketing our focus was first to get the REIT structure in people in place to ensure incentives were aligned in understood that our product with competitive and rent ready and that our teams have the tools to support the process, all while maintaining rate and minimizing discounts and concessions we accomplished all of these things.
At the time in circumstances under which we operated in 2019 I'm satisfied that the Q4 financial performance. Its confirmation that the latter month of 2019 represented the bottom of the trough in that the business has stabilized. In addition through the first two months of 2020, our net operating income continued to improve as compared to.
Q4 2019.
And you worry in a lie with approximately $250000 better than our average monthly in Hawaii in the fourth quarter in February with more than a million dollars better than January.
Indicates that our plan is working.
Now, let's turn to another one of our top priorities, which is improving the financial foundation of the company. Shortly after my arrival last year as CEO, we began discussions with our landlords to address the high cost of the triple net leases that had been in place for more than a decade.
As recently announced we were able to successfully reach mutually beneficial agreements with all of our landlord to reduce our short and long term lease liabilities. Every one of these leases had been generating negative annual cash flow since at least 2017.
It was clear that the economics of these leases were significant and growing burden on the financial performance of the company and had to be addressed during the last several months. We have successfully concluded negotiations and announced lease termination immediately reduce our rent in capex obligations by approximately $1.8 million per month through the end of.
2020.
Annual cash flow improved by approximately $22 million and when the transitions are complete all related lease liabilities, which were approximately $253 million at December 31st 2009 team will be eliminated.
I want to highlight that this yes, that's all from the consolidated leased assets in the portfolio was approximately negative $4 million or negative 14 cents per share in the fourth quarter, while our owned portfolio communities delivered CFO of approximately $3 million one nine cents per share in the same period.
Clearly the termination of the leases is a significant accomplishment that will be meaningfully accretive to the long term performance of the company.
Lastly, I wanted to touch upon the current market conditions, and specifically cobot 19.
In short because a challenging times not only for us in our industry that for nearly every industry in every geography, while the situation is fluid and we are operating under the assumption, but this infectious disease will be present in every market in the U.S. It is clear that the work we did during 2019 to strengthen the operational foundation of become public company.
Prepared our business for the current environment.
For the past 15 months, we've been operating with laser focused precision and urgency on five key areas of stabilization for improving the quality of our product and services by investing in our people in communities clarifying and streamlining our operational processes and implementing new sales and marketing initiatives across the portfolio.
Second establishing robust systems and analytics to provide real time insights to the business and achieve sustainable forecast accuracy.
Third enhancing and upgrading or operational leadership.
Implementing programs and tools to attract retain and develop high quality talent, while dramatically, reducing the utilization of agency staffing.
Instead, utilizing our unique scale and best practices to drive sustainable long term operational efficiencies through operating standards and expense control. We have an excellent leadership team across the company. We have well trained community team detailed operational protocols, it's all its supply chain and define communication tools all day.
To support our communities residents and employees at the onset of the pandemic, we swiftly implemented comprehensive protocols and best practices based on federal state and local guidance as well as their own expertise and proven disease prevention protocols all communities, our operating with restricted access robust sanitation protocol.
Called social dispensing and other measures designed to keep our residents and employee base.
I'm extremely proud of how our teams have embraced the call to action with care confidence and leadership random will provide additional detail on or covert kobin 19 actions in his prepared remarks.
I'll close my initial comments by saying that we firmly believe our turnaround plan has taken hold it businesses stabilizing and we're in a much better operating position today than we were a year ago, our fourth quarter revenue was consistent with a third quarter and we view that as a positive development. The recent improvements in in Hawaii is another positive development I did.
Finally, as I mentioned previously.
While the impact of Cobra 19, it's difficult to predict we are encouraged to see the financial improvement during the first several weeks of 2020.
So a lot of work to do and I'm confident that we will navigate through the current environment with excellent and continue our path of incremental improvement once the overall environment stabilizes now I'll turn the call over to brand into provided detailed review of our operations.
Thank you Kim and good morning.
I continue to be inspired everyday but the efforts of our front line care givers, local and regional leadership and our support seen throughout the country.
I want to recognize their efforts to keep our residents.
And their families and loved ones engaged and confident through these challenging circumstances.
I have confidence in our ability to continue delivering great service in a warm carrying environments where residents.
And as we've made significant adjustments in our operating model in response to this pandemic.
And your instability of highly valued local leadership teams in the improving operating results in Q4, and Q1 reinforce our ability to generate stable operating performance in these uncertain and turbulent times.
Typically from October 2019 through February 2020, we experienced continued stability with retention of our executive directors in 94% of our communities.
Total employee turnover decreased six percentage points in the second half of 2019 that improvement continued in January and February of this year.
Believed the strong level of retention position CSL to maintain stability in the coming month and continue our improvement as and when the market returns to its stable state.
One key indicator of operating improvement for CSL is the number communities delivering revenue one in Hawaii improvements on a quarter over quarter basis. This measure provides insight around the time to stabilization and the impact divorcing strategy. The number of communities with sequential revenue growth in Q4 was 27% higher than Q3.
And the number of communities with sequential and why growth in Q4 nearly doubled over Q3.
As we entered Q1 with performance improving at a growing number of our communities or region North Central leadership teams were able to increased focus on a more limited number of communities with challenges in either revenue or expense management processes.
Our focus in 2020 is the consistent application of those operational systems that will deliver improved results across all 125 of our ongoing communities.
The operate 43 communities with occupancy at or above 90% and utilize best practices and learnings from this group to improve results across the portfolio.
Weve segmented our operating portfolio into four categories based on trended financial metrics and leadership stability. This approach allows for a more tailored support model and visibility around performance trajectory.
Our communities, we recognize a stabilized represent strong consistent performers in both occupancy and I know why with little to no turnover in key leadership positions. These communities average occupancy in the low to mid Ninetys and I know what percentage is north of 35%.
Our second category momentum includes communities with consistent improvement across the trailing six months in revenue went into one.
It's been teams that have stabilized or key strategic change is taking hold or typical operating characteristics of these communities.
The remaining two categories include communities, requiring greater strategic and tactical support for more central and regional leadership teams or third category baseline communities are those with moderate near term growth expectations unexpected stabilization periods of nine to 12 months.
The final category challenged communities are those with recent leadership turnover, we're operating metrics significantly below expectations. We currently operate 19 communities with occupancy less than 70%.
Operations represent significant upside opportunity for performance with the appropriate development of strong local leadership and application of increased sales and business development resources.
Now I would like to spend a few minutes highlighting the results from Q4 in early Q1 in the context of the five key areas of stabilization Kim referenced earlier.
2019, we invested nearly $25 million in capital on expense related to physical plant improvements across our communities.
Additionally, we invested $1.3 billion in market wage adjustments to ensure our ability to hire and retain its stable workforce.
In partnership with Mike Fryer, or Chief revenue Officer, we've implemented foundational sales metrics, including lead response time lead to to work and tour to move in conversion ratios that allow our local and regional leadership to drive revenue opportunities.
In addition increased communication of the services provided to our existing residents will support in place rate improvement.
The retention of our key leadership positions in investment in market wage adjustments continues to deliver improvement in our premium and contract labor spend on her last earnings discussion I referenced the opportunity to materially reduce contract labor utilization from Q3 to Q4, we reduced contract labor by nearly $1 million from one point.
8 million in Q3 to $860000 in the fourth quarter based on January and February results. We expect this downward trend to continue in Q1.
Let me close my comments with a real time update on our operations related to cope with 19.
Throughout the year, we conduct training on infectious disease protocols clinical practices in safeguards for our residents and stuff in each of our communities to limit the risk of influenza and other contagious.
We've implemented all cobot 19 government recommended in required changes to clinical and operating procedures to maximize resident and stuff safety all persons entering a CSL community are required to complete a screening process consistent with recommendations and requirements from the CDC and state health departments.
Dave we have three of our 125 communities, where a resident or residents have tested positive for cold at 19.
We continue to diligently monitor all residents and stuff through our screening protocols for signs or symptoms and respond immediately should they occur.
Each community, we have worked closely with local health departments and state regulatory agencies and receive feedback that all appropriate protocols are in place.
We continue to monitor and support all of our communities on a real time basis and implement all appropriate response protocols as necessary with changes in the local market or within our own communities.
In closing we are so fortunate to have an incredible group of care givers employees and leaders across our 125 communities their day to day focus and dedication to our residents is the foundation of capital senior living.
Now I'll turn the call over to carry to provide a detailed review of our financial performance.
Thank you Brandon in my remarks, this morning, I'll discuss our non-GAAP measures, which exclude two communities that have been undrawn lease up after significant renovation that conversion consistent with the prior quarters in 2019.
Starting in the first quarter 2020, so that you will know all communities will be included in all of our metrics going forward.
In 2019 and into first quarter of 2020, we've taken significant steps to go to platform for growth in long term value creation. For example, during 2019, we made important capital investments to refresh high impact areas within certain communities.
We increased our spending on repairs and maintenance to make sure. The critical systems that are communities are working well for residents and that our communities present, well at all times.
Mark wage adjustments in certain markets and improved our benefits programs to attract retain talent.
We've disposed of three noncore communities for the fourth scheduled to close today.
Holding at approximately $23 million in total net cash proceeds and eliminating $48.4 million of debt.
And importantly, we've reached agreements with all three of our wheat partners, but the early termination of all of our leases by December 31st of 2020 at the latest through the release of our existing security deposits and letters of credits with these respectively.
I will see meaningful reductions that are rent payments until that time.
With all the lease terminations are complete or cash flow will improve by approximately $22 million on an annual basis and the related lease liabilities on our balance sheet, which were approximately $253 million at December 31st of 2019 will be eliminated.
This is a major step forward in the transformation of capital senior living.
We're further encouraged by the stabilization of our revenues in the fourth quarter. Our total consolidated revenues in the fourth quarter $108.7 million consistent with the revenue contribution of the like portfolio of communities and the third quarter 2019.
Or $108.7 million and total revenues in the fourth quarter 2019, compared to $115.1 million on a reported basis in the fourth quarter 2018.
Half of that $6.4 million decline from the fourth.
Turning to 18 was related to the disposition of the three communities that we disposed of in 2019 with the other half related the occupancy declines that occurred during 2019.
Financial occupancy for all communities was 80.7% into fourth quarter, a decline of 60 basis points from the third quarter 2019.
A significant portion of which was related the full impact of occupancy declines occurred during the fourth quarter.
Excuse me during the third quarter, we had increases in net move ins in two of the three loves the fourth quarter October in December.
Our operating expenses in the fourth quarter of 2019 were $78.7 million.
An increase of $2.7 million or 3.5% than the fourth quarter 2018.
As we did throughout 2019, we made investments in advertising and promotion and repairs and maintenance in the fourth quarter and we had an increase in our employee vacation expense that was related to an update to our paid time off policy.
<unk> expenses were $1.8 million lower in the fourth quarter 2019, due to the disposition of the three noncore communities.
Also of note, we did not have any business interruption credits in the fourth quarter 2019 related to our two communities impacted by Hurricane Harvey, but we have had zero point $7 million of such credits in the fourth quarter 2018.
General and administrative expenses for the fourth quarter of 2019 were $5.8 million compared to 9.6 million in the fourth quarter 2019.
Excluding transaction costs from both years, including approximately $4 million and separation and placement cost in the fourth quarter 2018, primarily associated with the company's former CEO or gionee expense increased approximately $800000 in the fourth quarter of 2019.
That's compared to the fourth quarter 2018.
<unk> expense as a percentage of revenue under management was 5.5% in the fourth quarter 2019.
As a result of the changes in revenue operating expense and DNA that I've discussed our adjusted EBITDAR was $25.7 billion in the fourth quarter 2019, compared to $35.2 billion. The fourth quarter 2018, and our adjusted see AFFO was negative $1.4 million in the fourth quarter 2019 compared to six.
$9 million in the fourth quarter 2018.
Also of note see itself over the fourth quarter 2019 included a negative impact to CFO of approximately $500000 related to the adoption of the new lease accounting standard which was effective January the first of 2019.
Looking at our same community results, our same community revenues decreased 3.6% as compared to fourth quarter 2018.
And community occupancy was 81.4% in the fourth quarter 2019, a decrease of 290 basis points from the fourth quarter 2018.
Average monthly rent was down slightly 0.2%.
And then community expenses in the fourth quarter 2019 increased 5% as compared to the fourth quarter 2018, our employee labor costs increased 2.7% or food costs increased 1.9%.
Utilities increase 0.7%.
The previously mentioned investments that we made and repairs and maintenance and advertising promotion and the increase in vacation expense related to the update to our P.T. O policy, where the primary other contributors to our same community expenses increase.
Of note our contract labor costs, which peaked in the second quarter 2019 at almost $2 million for the second quarter decreased to 1.6 million in the third quarter declined only 715 about $750000.
Fourth quarter on a same community basis due to our disciplined management of this category.
As I noted earlier, we closed on to sell to noncore communities in Springfield, Missouri in Peoria, Illinois on October the first.
Price of $64.8 million, resulting in $14.8 million in net cash proceeds.
Communities had combined CFO of two and a half million dollars in the first nine months of 2019.
We would it significant near term capital expenditures and we eliminated $44.4 billion debt with the sale of these communities and today, we expect to close on the sale of our community in Merrillville, Indiana, which resulted in net cash proceeds of approximately $6.9 million.
That community had seasons, though contribution of approximately $200000 in 2019.
We continue to be engaged in and look for opportunities to strengthen our financial foundation and optimize our portfolio, including considering the divestiture of a limited number of noncore assets.
Looking briefly the balance sheet, we ended the quarter with $24 million of available cash, including restricted cash or cash balance was $31.7 million at December 31 2019.
During the fourth quarter, we continue to invest in our product for future growth spending $6 million on capital expenditures.
Mortgage debt balance at December 31, 2019 was $926.5 million at a weighted average interest rate up 4.8%.
During the fourth quarter 2019, we obtained to bridge loan for $31.5 million on two communities with the maturity date of December 2021, and we amended one of our existing bridge loans, reducing the amount of the alone and its extending the maturity from July 2020.
Number of 2021.
Payments on both of these bridge loans or interest only.
At December 31, 2019, the majority of our debt was fixed interest rates, except for three bridge loans that totaled approximately $83 million.
$50 million of long term variable rate debt under our master credit facility.
As noted in his remarks by Kim and branded our financial performance. The first two months of 2020 were in line with our expectations are in Hawaii increased in January versus December and in February in Hawaii improved over January.
Our occupied units in January and February were stable with where we ended December that'll move into March prior to the Coke 19 outbreak in the United States, we're trending positively.
Absolutely business conditions have changed due to cope with dock team. So we're uncertain how the first quarter will end.
New residents have continued to be the interrupting it through the end of the month, but at lower rate than in recent months move out to also slowed somewhat.
In March and as we move board, we expect to experience increases on labor costs due to the need to supplement our staff of premium pay labor.
And we'll have increased costs related to medical supplies.
To offset these kobin related expenditures, we've reduced spending on or not a central supplies travel costs and all other discretionary items and we've reduced our capital spending to only the most critical projects.
Monitoring the impacts on our revenues and expenses.
Update you as we are able.
Well the current environment is challenging we're very pleased with the important steps we've taken over the last year to establish a strong foundation for the company's future growth.
We're working diligently to build a company that will have a consistent high quality product across its portfolio.
No the hard work and spending over the last year will service well for this current challenge as we emerge from the Cobot 19 crisis.
Now I'll turn it back over to Kim.
Thank you carry as the business begins to exit the trough, we're in a much better position operationally and financially today than we were one year ago. This is due to our relentless focus to improve our execution and stabilize our operational performance.
As the business continues to show consistency and predictability, we will reinforce these actions while also investing in key areas for future growth.
Buckminster do not involve large capital expenditures and our about taking specific actions in specific communities to effectuate predictable and timely improvement in performance.
Our focus continues to be on executing the key elements of our strategy of stabilize in bad nurture and grow to drive long term value for all of our stakeholders I'll now open the line for questions.
Thank you.
He would like to ask a question. Please signal by pressing star one on your telephone keypad.
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On the phone line will indicate when your line is open. Please state your name before posing a question again press star one to ask the question.
Just a moment hello, everyone and opportunity casino for questions. Thank you.
And well take our first question from Joanna Gajuk from Bank of America. Please go ahead.
Thank you good morning, So a couple of questions I'm still the comment about the more on that move outs actually also oh someone trading lower into second half in March so any color. There is it because there are no voluntary MAU trends, maybe residents prefer to stay in or maybe just a skilled nursing a so.
These are not able to take them, if that's where normally that would go up so any color you might give that will be helpful.
Yeah happy to do that good morning Joanna.
I'll start and brand name can can jump in what we're seeing in terms of move out to see they're trending lower because people are choosing to stay in place and it's very.
Very much what you described and they believe that our communities are a great option for them and a good place for them to continue to stay first is going to.
Any other environment in the community and health care system is as you know at somewhat overwhelmed by the Kobe situation. So.
Moving to stay in our community.
It's just.
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I would I would just echo what Kevin said is that people at this point in time or not seeking any any level of disruption in their care and services that their.
Receiving and have a high level of confidence and the services and the protocols that we have in place to keep them. So.
Right. So just to give can seem to perspective.
I guess in normal situation outside of you know where you're now when you think about you know didn't kind of their natural.
There.
No two and a half years or so on average right. So is it fair to say that natural attrition is kind of 10%.
Oh, and then you know when you think about it stop you know case their way to think about the kinda buckets of because pockets on what the percent of two small lots are related to that's versus other reasons.
And as well.
Sometimes in the latter part of your question Joanna.
When you look at overall moves out.
You know.
By corridor generally about 40% of those are.
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Another 20% or medical reason, though they need to go to a different type of care setting.
And then the remainder are either.
Locating to be close.
Family members.
Or their health improved or things like that but generally those there, but the four main categories that would make I've moved out by reason.
Okay that makes sense, but it is my math correct welfare thinking apologists, you know Oh I'm, just I guess, that's exciting doesn't move ins outside you know I start and thinking about yes, you know if there are no move and seen or how should we think about just the natural kind of attrition in that business given that you know the length of stay on Affleck chips.
25 years, maybe two years I'm sure it's fair to say, that's 10% sort of.
I'm not sure attrition you'd have to overcome the quarter almost.
10% seems a little bit high Joanna but.
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And I'd also say that we you know you're saying no movement I don't think we don't anticipate that there will be no move ins.
You've actually we has continued to see people in them in the market in every market where communicator operating continues.
But is it at a lower volume than I had certainly than we thought the beginning of the quarters, but there you know what they need based business in a lot of cases and people do continue to seek out those services.
So we are continuing to have moved in that we're being very selective about those move ins and also very careful with them there our strict protocols in place.
And those new residents also must be willing and able to self quarantine for 14 days upon moving into one of our communities.
All right now so just generally that that is that it's really early in this process to really think about trends and what they really occur with move into Moveouts. There's just too much unknown right. Now we haven't had enough time to you know in this process to really gauge.
Correct on that.
Right and then the other piece I guess figure to talk about the press release.
Sorry remarks about I'm supposed to costs you try to all of which is because you expect you know some office thinks that are gonna be Oh, you know increasing cost labor and supply. So [laughter] anyway to think about you know sort of.
What is the kind of going forward I'd say no G.N. NAIC, excluding any off your discretionary spending items you know, what's the kind of on wait for for GE at night, and I guess to that and you know you also talking about you know.
But do saying Oh heck, so what's the outlook I guess for the year I've just fine.
Yeah, I'll start backwards and I'll start with of last question that go backwards from a Capex standpoint, you know going we spend about $20.3 million in 2019 in 2020, I would say, we probably where we were looking to spend 15 to.
18, maybe $20 million of capital expenditures in 2020.
But with the cold and 19 situation. That's occurred we are we have cut back and I think what we actually spend on on capital Capex. This next year is going to depend on the extended the duration of the Coke at 19 situation. So I cant.
I would say we were going to spend 15 to 20, we'll just have to see relates to that from a gionee standpoint. It really on our expenses. We are we're monitoring that very closely and and we're going to work to mitigate the potential impact.
The additional expenses.
But.
Again it is too early we don't have enough time here yet to have really determine how much the increase you're gonna be at the community level DNA I think.
You know, we will largely be relatively the same amount because we're continuing to support our communities and the same manner.
So the run rate for DNA I would expect to be pretty similar to what you saw in the fourth quarter, perhaps a bit lower because we are looking to reduce.
Travel and.
Some of those kinds of things to do a bare minimum and so you will probably be a little bit of a decrease was hard to say just how much yet.
No I appreciate it that's helpful. And then does that affect on self obvious potential offsets you mentioned in the press release put on the call you I guess it wasn't mentioned in terms of the stimulus package.
So.
No what is your understanding of your ability because your business outside of Korea saw all private pay off would you be April odd to provide it off a healthcare services to access the $10 billion. That's something that's been created out, but there's still the stimulus package or you're more targeting dystopic pieces sometimes.
Just sloan sort out or other venue. So any color you know in terms of how you understand your ability to access that funding will be great.
Yeah. So julianna, we've we've analyzed the the carry back in our financial and legal teams continue to work on that I given that you know it was just released late last week.
But we believe that there are several items that can be helpful to us I mean, certainly exists deferral of the 6.2% social security tax would be an important one.
There are potential mortgage debt square Barents programs included in that package for that that's backed by Fannie or Freddie and then as you mentioned the possible access to capital to help with the incremental expenses and the operations and in the environment.
We don't have the specifics on.
Jeff, Yes, we're working through those.
We would you know what can be applicable to our business and what will be able to comes alive. We intend to utilize a as many of the provisions as that act as possible and we'll know more in the coming days.
Its great East <unk> seven just squeeze since our last follow up.
I think unless I missed some of the commentary about the entrant carry in terms of the markets for question and I know why so she could you repeat that and also like us as it relates to that Oh, because it will come a time about January and February So I guess as it relates to that or how should we think about the French ah. So theres other she got caught.
From your landlords. So if I think about kind of though you know that's called it you know after I guess picture quality [laughter] expenses is Oh, you know Robbie 11 million dollar wouldn't be a good number for the quality gets expensed going forward. Thank you.
So so let me turn to start with it you know why progression in December our average monthly.
Why was somewhere around just north of $10 million and that bumped up by about.
Half a million dollars I believe in January and then bumped up by about them close to a million dollars.
In February.
Versus January so we've kind of kind of had that nice progression in Hawaii increases and you know all that's been a difficult times a year to its really it was really about some really disciplined management of our expenses that we continue to do in the first quarters that was has been an improvement as as you think about the impacts of the lease transactions.
Believed that was your next question.
You know we've we've noted in the in the release that we that and in our.
Believes that we did a couple of weeks ago about the transactions all combined that we expect our cash flow to improve about $22 million on and on an annual basis as a result of those lease transactions.
From and promote.
Revenue from an expense standpoint, it's you know it's it's a it's a.
Yes, I you know.
Nice chunk of expenses our rent expense.
Well, we'll be probably about.
You know.
12, 12 to 14.
Actually been a little bit more than about $15 million less and rent expense going forward and.
So we'll have a nice increase and our see if it though as it has resulted as Jim noted that the CFO increase well see if a FFO contribution of the lease of the leases in the fourth the fourth quarter was negative $4 million I believe right for.
Okay. So just to refresh so you're saying that Oh you. All these expense was 15 million less or the quality.
Daniel.
Okay, Great I'll hop back into queue. Thank you.
Thank you.
Well take our next question from Steven Valiquette from Barclays. Please go ahead.
Okay, great good morning, everyone.
Taking my question warnings <unk>.
Oh, probably similar to Joanne.
Conversations with investors right now are also dominated by questions around occupancy trends for yourselves and really for the industry going forward from here.
And just to kind of set the stage.
In my mind I feel like based on historical trends in the senior living industry it'd be a major deal of occupancy change by let's say 500 basis points, either up or down that's up to move into pretty rare, but I've been pretty surprised at the number of discussions I've had with investors over the past few months, where there seems to be some notion that occupancy could fall by as much is.
2000, 2500 basis points down into like 60% range for some operators this year and maybe even for the industry.
And this potential level occupancy falloff is actually pretty hard for me to wrap my head around so I wonder if you can maybe just perhaps spend a minute or two and address whether these types of occupancy declines are within the realm of possibility for this year.
Yourselves or for the industry.
Hopefully an attempt.
Calm down.
Stream downside scenarios that are sort of floating around in the investment community right now I will start with that thanks.
Yes, Steve It as you know where early in the in this situation with the pandemic, so it's pretty difficult to predict what the impact will be.
What I can say is that you know through the first through the middle of March.
We really weren't seeing much change at all in terms of lead volume tour volume, we're moving in the last couple of weeks as more of the stay at home or you know Ah stay in place kind of regulations and guidelines has come out across the United States.
We had seen those volumes decline.
You know lead as well is in person tours and the movement declined or they have slowed I guess is a better way of saying it. What we've done is we have we're utilizing our electronic in virtual I mean to really continue to engage with those families and though.
Respective residents.
And where there is an interest in a desire to continue through that process with us we are certainly happy to do that.
So at this point in time, what we're seeing some flowing in that volume I don't see any indication of the kinds of numbers that you just put forward, but again you know we're early on so.
Nicole to predict what it might look like here in the coming weeks and months.
Okay and other color you want and I would just a the one outcome of what's going on right now and in the overall market is a.
A willingness to engage with our local leadership in discussion around our services.
On a more consistent basis again with people being in their homes and not necessarily out and about we are getting increased dialogue with individuals asking about our services or having discussions around just senior living in general So when we talk to our local leadership in our local I'm kind of business development.
They are engaging and quite a few conversations over the phone and conducting virtual tours as well, which you might expect given the fact that people are spending a ton of time right now at home and so we will see how that impacts overall to the opportunities for us as the you know we learn more about.
Timelines around cope with my team.
Across the country.
Okay.
Let's just say theoretically you know if we fast forward, let's just say I don't know nine months from now.
And some facilities.
Dip down in <unk>.
60% range again, all theoretical how much flexibility is there more cost.
And still be profitable.
Yeah.
That's the levels.
I haven't done.
Money.
And if there are certain rule of thumb are talking with you as a certain for you.
At this facility.
Much money.
On that.
Our operation.
Oh, well I'll start and carrying brand it can jump in you know one or they see elements of the cod equation in any community is the size of that community and the physical layout of that community.
And the ability to service resident you know with that particular community environment.
So you know our portfolio is.
Not homogenous so we have a number of different floor plan across the portfolio I.
I would say for our smaller community.
And there is absolutely flexibility I think strong flexibility to withstand a those kinds as occupancy challenges.
And for the you know where a handful with communities that we have that are really quite large and has more of a.
Diverse and lay out or footprint. It it's more difficult because there's simply more difficult to have the staff and the right places. When you know you may have that lower occupancy and have been disbursed around the community. What we would do in those cases is certainly bring those.
Residents together, so that we could and you know be flexible on the cost side of things and continue to to serve them as we go about regenerating that top line and a improving the occupancy.
Okay.
Last question as I guess I'm, just curious around your thoughts around pricing strategy.
And you know what may or may not work in a sort of environment I mean does it make sense to offer extra incentive.
For potential move ins or do you feel like in this environment. If there is just fear factor.
Moving into some facility in general maybe doesn't make sense.
People are going up.
So what are your thoughts on the line on pricing in this environment versus.
Correct.
Yeah, well you know we worked very hard during 2019 to reduce the level of discounting and concessions that we.
Well utilized in the organization because they had gotten quite high in 2018, and we're not really while they were delivering some occupancy they were not delivering the quality of revenue or long term sustainable types of occupancy for the organization, we worked hard to really bring that down.
Yeah.
And in fact, we reduced the level of concessions.
And by about 60% year over year from from 18 through 2019. So in this environment I don't think that reigniting the discounts in the concessions are are the right strategy.
I think people are.
If they haven't me they are continuing to explore that need and come into senior living and if it's not such an immediate need we might see them waiting a little bit longer, but a discount or you know additional financial.
Incentives for them, probably are not going to encourage them to move in you know in the current environment, if they're not comfortable doing so.
Okay. All right appreciate all the color. Thanks.
Yep.
Thanks, Steve.
Once again participants if he would like to ask a question press star one on your telephone keypad.
Okay.
I think Oh, we have no additional question on the line.
So in closing I'd like to thank our shareholders vendors and residents for their support I'd also like to think or 6600 dedicated employees for all that they do each day to enhancing enrich the lives of our residents. This concludes today's conference. Thanks, everyone and have great day [noise].
Thank you for your participation you may now disconnect.
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