Q3 2020 Capital Senior Living Corp Earnings Call
The reports in the company files with the FCC from time to time, including the risk factors contained in the annual report on form 10-K, and quarterly reports on form 10-Q.
Please see today's press release for the full Safe Harbor statement.
Which may be found at capital senior Dotcom forward Slash Investor Relations.
And was furnished in the 8-K filing this morning.
Also please note that during this call the company will present non-GAAP financial measures for a reconciliation 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 to capital Senior Livings, President and CEO Ms. Kimberly loading.
Thank you Hector and good afternoon, everyone first and foremost I hope you and your families are safe and healthy.
Before I get into the accomplishments for the quarter as well as a strategy update I want to personally thank Carey Hendrickson, our chief financial Officer for his service to the company over the last six years as we've announced a few weeks ago Kerry will be leaving the company at the close of business Tomorrow.
I appreciate his standing by my side for the last seven quarters and for his instrumental role in the transformation of capital senior living he will be missed and we wish him well in his future endeavors.
We have a strong accounting and finance team currently led by Tiffany Dunn, our vice president of accounting and financial reporting.
Joining the company in January and has reshaped, our finance and accounting functions to upgrade talent streamline processes shorten close cycle.
The collaboration between operations and finance.
The near term operating environment and smaller footprint of the company will inform our short and long term financial goals as.
As well as the ideal skill set for the CFO role in the interim tipping yet.
And I will continue working closely together to lead our accounting and finance functions.
Turning to our strategy today, we're about 60% through our three year plan to improve the company's operating performance and financial Foundation. This strategy has three main goals to stabilize operations to completely restructure the company portfolio of assets and to improve our balance sheet. The work we've done since the beginning of 2019.
Continues to serve us well during the cobot pandemic and corresponding challenging operating environment.
As a reminder, our turnaround plan with taking hold and beginning to show results prior to the pandemic in January and February are 95 same store communities. Our move ins were up 6.9% and move outs were down 5% compared to the same period in the prior year, We also reported $2.7 million.
Sequential margin expansion in the first quarter of this year.
When the pandemic set end during March we continue to operate with discipline and diligence and in Q2, we were pleased to report less occupancy deterioration lower percentage revenue decline.
Better expense control and better margin protection than most of our industry peers and while operating conditions remained challenging throughout the third quarter. The company has continued to perform well in the face of this pandemic.
The Nic map Q3, 2020 data shows occupancy for seniors housing secondary markets dropped 250 basis points from the second to the third quarter.
Our 95 same community portfolio, which operates mostly in secondary markets experienced a similar but less pronounced downturn with occupancy declining 190 basis points from the second to the third quarter and with declines decelerating each month of the quarter.
Our volume metrics continue to improve during the third quarter leads improved 8% tours increased 28%.
And move ins increased 18% as compared to the second quarter of this year.
Additionally, our same store portfolio recaptured 87% of the move in volume for the same period in the prior year pages.
Pages, seven and eight of the disclosure presentation released today shows more information about these trends.
This is very good progress in protecting our occupancy and revenue as much as possible in the challenging operating environment, while helping prospective residents at their families received the senior living services. They are seeking as our care in services are needed now more than ever move.
Move outs were elevated in the third quarter after several months of being well below pre cobot levels.
We track move outs carefully and in Q3 as zero markets across the United States experienced escalating totaled 19 cases, the level of move outs attributable to home or self care increased in our portfolio. We believe this is a short term situation due to family fatigue.
Cove it related state restrictions on visitation in assisted living facilities.
While our leading indicators continue to improve each quarter, we expect occupancy recovery to take some time due to the prolonged duration of the pandemic and unique challenges that creates for families seeking senior living services.
With respect to liquidity, we continue to manage cash very carefully we have applied for the federal Cares Act phase two and phase three funds. Our phase two application was approved and we were recently notified that we will receive approximately $8 million in the next day or so when received these funds are grants to offset.
The revenue losses, and incremental expenses attributable to COVID-19, and do not need to be repaid.
We have also received various amounts of relief from select states in which we operate and expect to receive additional state relief funds by the end of the year.
As we reported in prior periods, we took several actions this year to restructure the portfolio address the company's leverage and improved liquidity.
By the end of the year, which is just eight weeks away. We will have exited substantially all of our triple net leases most of which were underperforming this will significantly improve the company's cash flow and readers reduce our long term liabilities. While most of the currently leased communities will transition to other operators, we expect to retain.
15% to 20% of these communities under management agreements.
In August we announced the turn back of 18 communities with non recourse mortgage debt Fannie Mae. This decision immediately improved our cash flow and when the transitions are complete the debt associated with these communities will be eliminated.
Since August we have continued operating these communities on Fannie Mae's behalf in exchange for a management fee and we will continue to do so until such time as they can be transitioned to other operators.
When all transitions are complete our portfolio will consist of 60 owned communities. Its own portfolio is comprised of assets with our strongest historical operating performance in 2019 occupancy in this group of assets ranged between 84.4% and 80.
<unk> percent quarterly NOI margin range from 28.9% to 33.
I see no reason why these communities cannot begin to return to at least the same level of performance as the operating environment stabilizes pages 19 to 22 of the of the disclosure presentation released. This morning includes additional information about the future portfolio.
Lastly, as we adjust the size of our portfolio. We have also taken action to reduce our DNA expenses first we downsized, our Dallas support center, which will save us approximately $450000 annually in office is expressed.
Also completely restructured our operations leadership teams to reduce overhead and more closely aligned all business units and field support functions directly to.
And lastly, we have restructured our Dallas support center teams, so that our DNA cost declines as our community portfolio becomes smaller through the rest of this year and into the first half of next year, we expect our 2021 and DNA to be approximately seven and a half million dollars less.
Lies today costs 2020.
We feel good about our restructure portfolio, our improving balance sheet and our path to stabilize operations. We also remain cognizant of the operating environment and the cobot pandemic as we continue to focus on our number one priority of providing the best care possible People's lives and our commitment.
I will now turn the call over to Brandon provide more detail on the actions weve taken and continue to take to adjust our operating model for the current environment.
Thank you Kim and good afternoon.
As we near the end of 2020 and enter what promises to be a challenging winter season across the nation I want to again recognize tireless efforts and dedication of our communities.
We entered the pandemic more than eight months ago, and the health and safety of our residents and staff remains the primary focus everyday.
The stable operating performance CSL is produced relative to peers and adjacent sectors. During this pandemic reflects ongoing confidence in our operating model in spite of continued occupancy pressure industry wide.
Same community revenue at 97% of 2019 on a year to date basis and the achievement of nearly 90% of prior year net operating income compare favorably with publicly reported competitive data most.
Most recently revenue in September remained stable on a same community basis with a minimal sequential decline of $100000 from August right.
Recent move in and move out activity indicate a similar expected change in October revenue.
These results reflect the ongoing commitment to focused operating and clinical excellence across for local and regional leadership teams.
Our leadership retention and employee turnover metrics continued to trend favorably on a year over year basis, our total company turnover year over year improved nearly 10 percentage points and the retention of our key leadership roles remains strong.
Peter some stability in the face of a prolonged opened 19 pandemic is paramount to operating results in Q4 and beyond local adherence to strong infection control and residence safety protocols depends on strong executive director and wellness director presence and engaged relationships with our frontline caregivers and service providers addition.
Only ongoing partnership with local regulators and an understanding of often fluid operating guidelines imposed at the state level required focused and dedicated leadership in each community.
Let me now take a few minutes to review the current status of our operational response to COVID-19 and operating protocols across the portfolio.
We continue dillards and infection control practices, including use of pp comprehensive screening of all visitors in staff and extensive disinfecting protocols are.
Our communities consistently obtain or administer COVID-19 testing for new residents and those returning from high risk environment, such as hospitals are skilled nursing facilities.
In accordance with state and CSL guidelines broad testing of staff through third Party lab partners and state provided resources continues on a day to day basis.
We currently have 86 residents with active COVID-19 cases in our population of approximately 9000 residents.
All communities are currently open for new resident move ins and tour volume continues to improve both through virtual and onsite auctions.
From a health and wellness perspective, CSL continues to work diligently with our therapy and wellness partners to address the ongoing needs and interests.
Of our residents the diligent monitoring of our residents health and wellbeing and access to recovery services should decline begin to occur are key components of preventing move outs are.
Our move out volume in October decreased 11% from our Q3 average.
Shifting to our operating results on a same community basis sequential revenue decline of $2.3 million or 2.9% was driven by the 190 point reduction in occupancy from Q2 to Q3, the Tim referenced earlier.
Rate held steady with a slight sequential decrease of 0.4% when excluding COVID-19 relief dollars year over year rates have increased 8.6% for Q3 versus prior year quarter.
And for Q3 discounting of rates for new residents remains strategic disciplined and focused in markets, where competition continues to materials materially discount rent increase concessions to offset occupancy pressures.
On the expense front Q3 expenses, excluding $1.3 million of COVID-19 costs increased only point 1 million, 4.1% compared to Q3 of last year.
Quench, Italy, and including COVID-19 costs controllable operating expenses increased $8.3 million or 0.5% from Q2.
The increase was due to additional sales and marketing costs associated with our increased move in volume and outreach efforts. In addition investments in our communities physical plant and seasonal utility increases also construed contributed to the change labor costs decreased $400000 from Q2, including co bid 19 here.
Sure Okay for frontline caregivers.
Our local operating teams continue to diligently adjust their operating model to address changes in occupancy, while ensuring the safety and well being of our residents and staff on a day to day basis, our net operating margin percentage for Q3 was 29% in spite of the prolonged COVID-19 operating environment.
As Tim mentioned, our revenue key performance indicators improved throughout the third quarter with Q3 move ins, reaching 87% of normal.
Over the last two core with excuse me over the next two quarters, we will continue investing in our sales process resident programming and physical product to ensure we remain highly competitive and well positioned to grow revenue as the impacts of COVID-19 subsides.
Ongoing rollout of differentiated programming for residents with shorter term stay expectations and those with memory care needs. In addition to the expansion of inside sales capabilities will support the growth phase of our things strategy.
While the impacts of COVID-19 on near term revenue growth expectations remain uncertain. We continue to utilize strong operating practices and protocols to responsibly manage business performance and maintain stable financial results.
We remain confident in our leadership teams across our individual communities and our regional teams and navigate the always changing environment and continue providing a safe and enjoyable environment for current and future residents.
Now I'll turn the call over to carry to provide a detailed review of our financials, Greg. Thank you Brandon and good afternoon to everyone on the call.
Our third quarter 2020 results reflect the impacts of COVID-19 on our occupancy revenue and expenses. However, as they did in the second quarter. Our operations team did an excellent job in managing the cost within their control to mitigate the impact of global 19 on our overall results and eliminated the declines in occupancy during the quarter third.
Third quarter also reflects positive impacts associated with the actions we've taken recent months related to our lease portfolio and the transition of our 18 underperforming communities to Fannie Mae.
Looking at our third quarter results. Our total consolidated revenues in the third quarter were $96.3 million, which compares to $111.1 million on a reported basis in the third quarter of 2019.
This $14.8 million dollar decline is mostly related to communities that weve transitioned in one way or another since the third quarter of last year the.
The company had 33 last communities for all or part of the third quarter of 2020 than it had in the third quarter of 2019.
The 18 communities that we transitioned the Fannie Mae effective August one 2020 represented $9.8 million or the revenue decline three communities sold since the third quarter of last year represented $4.1 million.
Six formula and lease communities transitioned to new operators contributed $2.9 million for the revenue decline and then six feminine leased communities transitioned the management agreements represent a decline of $3.2 million.
The decline in revenues from these transition communities was partially offset by $10.2 million of revenue related to our management of 24 communities for part or all of the third quarter. The six healthy communities that weve been managing since February of this year and an 18 Fannie Mae communities that we began managing in August and will continue to manage until theyre fully transfer.
For the new operators most.
Most of the revenue associated with these managed communities $9.6 million of it was related to the reimbursement of certain operating costs that we paid on their behalf and you will see there is a corresponding expense on our income statement for the same amount are.
Our management fee revenue in the third quarter was $600000, but.
The financial occupancy for our consolidated communities was 76.1% in the third quarter, a decline of 150 basis points from the second quarter of 2020, and a decline of 520 basis points from the third quarter of 2019.
As for collections, our overall collections as a percent of revenue through the pandemic period have remained consistent with the pre pandemic period.
Most of our collections or be a CH and associates collections have continued to be in the high 80 percents as a percent of total revenues collected we have seen an increase in credit card usage for rent payments, but that still remains a very small percentage of our overall collections on a return amounts have been very consistent with the pre pandemic period.
Operating expenses in the third quarter of 2020 were $65.2 million, a decrease of $15.2 million when compared to the third quarter of 2019.
As I mentioned when discussing our decline in revenue, we had 33 less communities for all or part of the third quarter of 2020 than we had in the third quarter of 219 2019. These.
These 33 communities accounted for $14.3 million a decrease in expenses on a combined basis.
Our third quarter 2020, operating expenses included $1.4 million of costs directly related to cope with 19, primarily for employee hazard pay specialized sterilization services personal protective equipment and disposable foodservice supplies.
The same community results noted in our earnings release in which I'm about to discuss exclude these covered cost.
Our same community revenues decreased $3.9 million or 4.8% in third quarter 2020, compared to the third quarter of 2019 compare.
Compared to the second quarter of this year revenue decreased $2.3 million or 2.9%.
Our same community occupancy was 78.0%, which is 460 basis points lower than the third quarter of 19 and is 190 basis points lower than the second quarter of 2020.
Based on the reported results of our peer companies and compared to Nic map results as Kim noted it appears that our sequential decline in occupancy from the second quarter to the third quarter is again considerably less than our peers as it was in the second quarter. When our same community occupancy declined 230 basis points versus an average decline of 450 basis point.
Most of our peers.
Our combined second quarter, and third quarter declines totaled 420 basis points, which is less than our peers average decline for the second quarter alone.
We're certainly not pleased with any occupancy decline our operations and sales teams have done an admirable job in an unprecedented challenging marketplace.
On a month by month basis same community occupancy was 79.2% in June 78% in July seven.
77.8% in August and 77.3% in September.
Our average monthly rent increased 0.6% to $3731 in the third quarter of 2020 over the third quarter of 2019, and a decreased slightly 0.4% as compared to the second quarter of 2020.
Same community expenses, which exclude covered cost of $1.3 million increased only $100000 or 1%, 4.1% in the third quarter of 2020 as compared to the third quarter of last year due to our operations teams focus on and success in managing cost to offset the impact of incremental carbonite.
Teen cost.
Our employee labor cost increased $500000 or 1.4%, while all of our other expense categories combined decreased zero point $4 million or 1.9% with our two other major cost categories, food and utilities down 6.5% from 1.5% respectively.
Our same community net operating income was $22.3 million and are in a wide margin was 29%.
Our general and administrative expenses for the third quarter of 2020 were $8.1 million compared to $7.6 million in the third quarter of 2019.
Excluding transaction costs for both years, our Gina expense decreased approximately $300000 in the third quarter of 2020 as compared to the third quarter of 2019 due to lower health care claims expense associated with our self insured health plans.
Our adjusted EBITDA in the third quarter of 2020 was $15.7 million and after excluding COVID-19 impacts it was $17.2 million.
Our adjusted CFO was negative $5.2 million in the third quarter of 2020 and again when Pope at 19 impacts are excluded adjusted CFO was negative $3.8 million.
We noted in the release that we had $18.3 million of cash at September 30, including restricted cash as Kim noted in his remarks, we have been approved for approximately $8 million or relief funding under the cares Act from HHS, which we expect to receive in the next few days and we've applied for additional relief funds based on estimated loss revenues in incremental increase.
Rental expenses under the same program.
We received approximately $100000 of relief funds to offset posted 19 expenses from state programs in Wisconsin in Ohio in the third quarter with approximately $800000 of additional funds expected to be received under these programs in the fourth quarter. We've.
We've also received approximately $1.1 million and distributions in the second and third quarters from new or how work Bureau of workers compensation to help companies doing business in Ohio during the cobot and we expect to receive another even more significant distribution from them in the fourth quarter.
In October we extended and enhanced our forbearance agreement with one of our lenders that resulted in three additional months of full principal and interest relief on 10 communities and three additional months of interest only on these 210 communities, which amounts to approximately $2.8 million of additional relief.
We also deferred payroll taxes of $2.3 million of the cares act in the third quarter and so far this year, we have deferred a total of $5 million.
The operating environment will remain challenging in the months ahead, but significant improvements made to the company's operating platform over the past 18 months that we believe will provide a path to growth and long term value creation.
The company's management team is working diligently to build a company that will have a consistent high quality product across its portfolio and I'm confident that the hard work that has already been done and the strong efforts that continued to be made will serve the company well through this current challenge and as it emerges from the COVID-19 crisis.
Moving onto another opportunity, but I strongly believe in this company and its dedicated employees in our Dallas support center and across our portfolio as Kim noted, we have a strong finance and accounting team that will provide excellent support to the team for.
From my perspective, the company is stronger in many aspects than it's been in the six and a half years that I've been with the company, particularly in sales and operations I think tempur support during our time together capital senior and I know she will very capably lead the team forward that concludes our prepared remarks, and I will ask our operator Hector to open the line for questions.
Thank you.
And if you'd like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May Press Star two if you would like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star key one moment. Please while we poll for questions.
Your first question comes from the line.
Steven Valiquette with Barclays. Please proceed with your question.
Hi, Thanks, Good afternoon, everyone. Thanks for taking the question.
So I guess I'm just curious.
Some investors are trying to figure out that if we do get a co bid vaccine.
How much that could really impact the occupancy within various business models, including senior housing. So I'm curious if you have any thoughts on whether this is something that you think it moves the needle materially perhaps right away and maybe in the first month or first quarter as far as your occupancy et cetera.
Once that comes out and how to senior housing stack up on the availability to get vaccines.
Versus other sectors or is it something that might take a little bit longer to play out as far as how much. It really helped the business just trying to get more color on how you're thinking about that thanks.
Brandon.
Hey, Steve Good afternoon happy to kind of go into some thoughts around that so far.
First to address the the end of that question, which was around the availability and based on what we've learned from HHS, we will be at the front of the line in terms of the availability of those vaccines for our residents.
And for our employees as well.
So you know a lot of I guess, a lot of the outcome will depend on how quickly that is available which markets. It rolls into first and what the overall.
Hi, again time to get all interested parties vaccinated so.
We do we do know that that has been a consistent apprehension from people seeking senior services over the throughout the pandemic. So.
In terms of the immediate impact on our occupancy I think it's.
It's likely to take a few months for that to really play out.
But it will be.
Very positive I.
I think event for our industry to have access to that again towards the front of the line when it does become available.
Okay.
Just a quick follow up.
I guess aside from the vaccine what else do you think is the most critical piece.
Piece of the puzzle for the biggest delta that will drive occupancy to the higher end or lower end of a range for internal budgeting purposes. As you think about calendar 2021.
Hey, Steve I know, you're not seeing any guide obviously, but just.
For your internal thoughts as you're trying to map out the next year or so how are you thinking about what else is the most critical.
Yeah, I think one of the most critical thing is is really consumer confidence.
And not only in our product, but in the overall assisted living.
Yes segment, the vaccine I think will help quite a bit with that.
I also think that as data becomes available from the various operating partners.
The sector about how they have handled COVID-19, and what impact it has had on their occupancy and on revenues.
That will help build that confidence that's one of the things that we are really focused on is educating the broader market.
Through our sales outreach as well as.
Folks who reach out to us and contact.
Contact our communities about all of the work that we have done to implement the infection control protocols and the changes to the operating model that weve instituted to help mitigate the effects of Cove, it and keep our residence, Dave and I mentioned earlier that we have seen in the third quarter and up.
Rick in the number of folks like.
As a percentage of move outs that has selected the the reason as homecare or self care, meaning they're likely moving back in with a family member we view that as very temporary and short term. We believe that it will those same folks and others like them, we'll continue to have the need for.
Senior living, especially assisted living and memory care, which are bearing the base.
And once they have that confidence that.
That people know how to operate in a covert environment and that there is a vaccine that they will begin to refer to senior housing again.
Okay, great on the question for me.
I missed some of their prepared comments around this but.
Just trying to get a little more color just overall PE and operating cost it feels like maybe the worst is behind us and make sure we're coming down the.
The other end of that bell shaped curve just wanted to kind of.
From that and just any other color you can add around any bad for on that that'd be helpful as well. Thanks.
Yes, I would just say from an operating perspective that the driver of the additional expense really is around the cost of labor.
And so as we see that the case numbers.
Ultimately begin to decline in subside.
When one of vaccine has introduced I think there'll be a corresponding reduction and we've actually seen a reduction in our cost of labor in Q3 versus Q2, one of the pandemic was first.
Impacting the industry. So on the staffing front, we look forward to the continued reduction of that cost and then on the pp side of the world. We will continue to be purchasing all those supplies that have been.
Required throughout the pandemic, so I expect that will that supply costs will stay pretty consistent.
As we ensure that all of our staff have everything needed.
Which is a bit of a less a bit of a lower expense, but still.
Definitely consider.
Okay got it okay I appreciate all the color. Thanks.
Thanks, Steve.
Ladies and gentlemen, we have reached the end of the question and answer session and I would like to turn the call back to Ms. Kimberly loading for closing remarks.
Okay, Great well. This concludes today's conference. Thank you, everyone and have a great day.
You may disconnect your phone lines at this time, thank you for your participation.
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