Q4 2020 Capital Senior Living Corp Earnings Call
Good day, and welcome to capital senior living fourth quarter, 2020 earnings release.
It's cool.
Today's conference call is being recorded.
All statements today, which are not historical facts may be deemed to be forward looking statements within the meaning of the federal securities laws.
These statements are made as of today's date.
And the company expressly disclaims any obligation to update these statements and the future.
Actual results and performance may differ materially from forward looking statements.
Certain of these factors that could cause actual results to differ are detailed and the earnings release.
The company issued earlier today as well and the reports the company files with debt as you see from time to time income.
And the risk factors contained.
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 on capital senior Dot Com slash of Investor Relations.
And was furnished and an 8-K filing this morning.
Also please note that during this call the company.
Is that non-GAAP financial measures for reconciliation of each non-GAAP measure for 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 Living's, President and CEO Ms. Kimberly Lodi.
Thanks, Devin and good afternoon, everyone.
Well, thank you for joining our fourth quarter and full year, 2020 earnings call before I get into the accomplishments for the quarter as well as the strategy update I want to thank our team of talented colleagues across the company for their relentless dedication during the last 12 months and managing the safety and wellbeing of our resident.
<unk> themselves and one another and I am grateful for your steadfast presence caring operational scale as each of you make a remarkable difference and the lives of so many every single day I truly can't thank you enough.
Turning to our strategy.
We are now on the third year of our three year plan.
Plan to improve the company's operating performance and financial Foundation.
I'm pleased to say that the actions we've taken during the last 24 months have stabilized the company's operations enabled our transition to a more focused and agile portfolio at 60 assets with a history of strong performance.
Reduced our liabilities and improved our cash flow.
The detailed work has centered on securing top talent throughout the organization, establishing a new scalable and efficient operating strategy exiting all triple net leases and over Levered and underperforming owned assets to reduce.
Our liabilities and stabilize our balance sheet and beginning to streamline our G&A.
We've made significant progress on every front, although operating during the difficult conditions of the COVID-19 pandemic.
These strategic actions along with tremendous operating discipline allowed us to adjust our operating model.
And as needed throughout 2020 and resulted in capital senior living outperforming many of our senior living peers in terms of mitigating occupancy declines brought on by the pandemic.
Comparing publicly available data for year over year decline and average occupancy and our 60 pro forma owned communities was.
130 basis points, while that of others in the industry declined on average by 658 basis points, making our performance approximately 35 per cent better by comparison.
We also performed better with respect to maintaining net operating income and that our year over year NOI decline.
And was just under 13%, while our peers declined on average more than 20 per cent.
In late December of 2020, we began vaccination clinics at our communities and as of today, 87% of our residents are fully vaccinated and the incidents of active COVID-19 cases across our portfolio is.
Nearly zero.
100% of our communities have completed their second rounds of vaccinate shouldn't clinics and 85% have completed all three rounds.
We expect to complete all clinics across all of our communities in the next two weeks.
We continue to work hard to inform and educate our employees about the benefits.
Benefits of the vaccine and we believe we can continue to improve upon our current employee vaccination rate of 41 per cent.
Since beginning vaccination activities and late December of 2020, the operating environment has improved significantly low.
Leading indicators of leads and tours began to rebound in December.
<unk> and moving and move out trends began to stabilize and improve and the first quarter of 2021.
Based on preliminary information that may be subject to change monthly average occupancy and our current portfolio of 60 owned assets was 75, 7% in January.
And Europe 75, 2% in February and we expect March average occupancy to be consistent with February and.
March move ins are tracking to be at the highest monthly level and more than two years, indicating that demand for senior living housing and services is beginning to rebound.
Today's spot occupancy for our 60 owned assets is $76 one per cent.
These 61 assets have performed well historically and are strategically positioned in attractive high growth markets and.
97% are in markets, where the expected five year growth and the 17th.
75, plus age demographic is 10% or more now.
And 99% of the communities are in markets, where the average household income in the 75 plus age demographic can readily afford our average monthly rent of approximately $3600.
85% of the owned communities have no.
No current competing projects under construction within a five mile radius for.
For the full year of 2020 average occupancy and this group of assets was 85 per cent and NOI margin was 28% in recent years before the COVID-19 pandemic. These same assets had occupancy.
<unk> in the mid to high Eighty's and margins in the mid 30% range. We expect these communities to begin returning to at least the same level of performance as the operating environment stabilizes.
In addition to the 60 owned assets. We currently also manage seven ventas communities for health.
Peak assets for.
For well tower assets to Fannie Mae assets, and one asset and Canton, Ohio that we previously owned we expect that the health peak, well tower and Fannie Mae assets will transition to other operators by the end of the second quarter, resulting in eight managed communities and our portfolio.
In summary, despite the last 12 months difficult operating environment created by the COVID-19 pandemic, we have made great progress on our three year strategy called thing for stabilize invest nurture and grow.
We have stabilized the portfolio and the business we have invested in our communities are.
Our processes and our resident programs, we have nurtured our lead generation and sales processes and now we are ready to grow we feel good about our team of colleagues are restructured portfolio, our improving balance sheet and the improving post COVID-19 operating environment I'll now turn the call over to Brandon to discuss.
Our 2021 operating priorities.
Thank you Tim and good afternoon.
As we close out our first quarter of 2021, marking approximately one year of operating through the challenges presented by COVID-19, I want to highlight and thank our local leadership and frontline care and service providers for their consistent.
And compassionate and steadfast efforts to keep our residents and fellows staff safe and healthy.
Earlier this month, we realized a prolonged period of zero employee and resident and COVID-19 cases on milestone worth celebrating.
Our CSL communities have remained COVID-19 free for nearly all of March with only two resident and COVID-19.
And then cases reported throughout the month and nearly 90% of our residents are fully vaccinated with.
We continue to adjust our operating model to accommodate increased in person visits from family members and larger groups for communal dining and activities and a safe and enjoyable manner.
Moving forward, we are encouraged by the tailwind both.
Italy, and externally that drive near and long term recovery for stability and competency of our leadership at the community level continued to be a point of differentiation for CSL.
Leadership retention and overall staff turnover improved significantly in 2020, ending the year with total annualized turnover for percentage points improved over previous year.
<unk> and early trends in 2021 show further progress with a people centered culture at the core of our sales strategy.
On the revenue front sales and marketing capabilities developed and implemented in 2019 and 2020 remain the foundation for our growth expectations.
And <unk> of 96% of prior year revenue and our 60 on.
On communities demonstrates the stability of the portfolio revenue declined $1 $1 million or two 3% from Q3 for Q4, excluding any COVID-19 relief funds and rates remained flat.
Currently 25% of our portfolio is operating at or above 90% occupancy we.
We continue to focus on recovery efforts and the segment of the portfolio with near term occupancy upside as the COVID-19 operating environment begins to ease.
Strategic growth priorities moving forward include providing differentiated resident services and programs in conjunction with comprehensive sales outreach efforts to rebuild occupancy across each.
Each of our service levels were.
We are also confident that our community has strong reputation for excellent service and care will continue to drive quality lead traffic the expansion of our inside sales team and robust sales training and development programs have also delivered improvement and tour to move and conversion ratios and 2021, a key indicator of improved.
Proved sales capabilities and lead quality.
After investing and our website and social media platforms throughout 2020, our local teams continue to focus on expanding lead and tour volume and early 2021 lead and tour volume in Q1 have reached their highest levels. Since Q1 of 2020 and move in volume has followed suit.
Suit moving volume for Q1, 2021 will exceed the first quarters of both 2020 and 2019, a strong indicator that our efforts are producing positive results for the community operating level.
The results related to move outs and Q1 are also positive from a health and wellness perspective, the diligent monitoring of our residents health.
And wellbeing and access to therapy services are key components of preventing move outs the ongoing rollout of additional clinical and wellness programs in partnership with our third party therapy and home health providers also plays a key role and the reduction of move outs.
We expect our move out volume for Q1 to remain consistent with 2000, 2020 and 'twenty.
And 2019 first quarter levels and has trended down more than 20% from January to March this year.
Expanding further on our efforts related to programming, we completed implementation of our newly introduced Magnolia trails memory care programming and six of our community is beginning in December of 2020 with.
And expectation of further program expansion across the remainder of our memory care units throughout 2021.
We believe our portfolio is well positioned to provide memory care services based on the 16% projected increase and the number of individuals with Alzheimers disease on average in our four largest states between 2020 and.
And 2025.
On the expense front ongoing cost management efforts and initiatives provide opportunity in 2021 for margin recovery in conjunction with revenue recovery.
We were pleased with cost management efforts throughout 2020 in spite of significant ongoing investment and compensation for our frontline care and service providers and recognize.
Recognition of their efforts throughout the pandemic and the increased cost of supplies related to COVID-19 prevention efforts.
Expenses inclusive of additional labor expense associated with COVID-19 staff pay declined on a year over year basis by nearly $1 million for 6%.
These costs exclude.
And any COVID-19 relief funds received as offset to increased operating costs.
Total operating expenses were flat sequentially from Q3 to Q4 and results through the first two months of Q1 'twenty one are trending favorably due to reductions in variable operating expenses. Additionally use of stack pay and the current.
Operating environment is no longer a material component of our labor compensation model due to the nearly complete elimination of COVID-19 cases, and our communities throughout March our.
Our local operating teams continued to diligently adjust their operating model to address changes and occupancy while ensuring the safety and wellbeing of our residents and staff.
These real time adjustments and the ability to share staff between communities are being further supported by the ongoing rollout of real time scheduling technology across the portfolio and Q2 and Q3.
While the impacts of COVID-19 on near term revenue growth expectations remain uncertain and early indicators suggest the operating.
And sales environment, improving with the presence of the vaccine throughout senior living and the nation.
What is certain is the energy and excitement of each of our communities has reached the highest point since the challenges of COVID-19 arrived in March 2020.
Our goal is to continue expanding our outreach efforts and ensure our resident base programming delivers and.
And enjoyable and safe experience to attract future residents and grow occupancy and the second half of 2021 the.
And the combination of positive leading indicators on the revenue front the gradual return to a pre pandemic operating environment and consumers with increased confidence and interest and senior living all fuel a cautious optum.
<unk> net recovery is within reach and 2021 and 2022 I am excited and thankful that CSL has the leadership teams in the field to lead us on the road to recovery.
Now I'll turn the call over to Tiffany to provide a detailed review of our financials.
Thank you, Brian and good afternoon, everyone, our fourth quarter 2020.
Results reflect the continued impacts of COVID-19 on our occupancy revenues and expenses.
However, as they did throughout 2020, our operations teams did an excellent job on managing the costs within their control to mitigate the impact of COVID-19 on our overall results and and limiting the declines in occupancy during the quarter.
And we also benefit from their IC of $8 1 million and cares Act relief funding pursuant to the provider at Lee funds Phase two general distribution and November 2020. So.
Fourth quarter also reflects continued positive impacts associated with actions, we completed over the course of 2020 to prove our balance sheet position as we successfully.
Exited all triple net leases and continue the transition of 18 under performing communities to Fannie Mae.
Our reported revenues for the fourth quarter were $80 2 million compared to $108 7 million and the fourth quarter of 2019, $38 6 million of the decrease was related to the sales or conversions of 50 for property.
Properties since the end of 2019, partially offset by an increase and management fees and community reimbursement revenue of $14 1 million most of the revenue associated with these managed communities $13 1 million was related to the reimbursement of certain operating costs that we paid on their behalf you'll see that there is a corresponding expense.
On our income statement for the same $13 1 million or a management fee revenue and the fourth quarter was approximately 1 million and the remainder of the decrease is due to lower occupancy levels and a decrease and rate.
Financial occupancy for the consolidated portfolio and the fourth quarter of 2020 was 74, 2% and a decline of 190.
90 basis points from the third quarter of 2020, and a decline of 720 basis points compared to the fourth quarter of 2019. The decrease in total occupancy was primarily due to reduced moving activity, which began in the second half of March 2020, and continued through the end of 2020 related primarily to the COVID-19 pandemic.
Mike.
Turning to collections and our overall collections as a percentage of revenue during the pandemic period have remained consistent with their prepayment stomach period. Most of our collections are via a C. H and ACTH collections have continued to be and the high 80 per cent range as a percent of total revenue collected we have seen an increase and credit.
Card usage for rent payments, but that still remains a very small percentage of our overall collections and our return on amounts have been very consistent with the pre pandemic period.
Operating expenses and the fourth quarter of 2020, or $42 8 million and decrease of $37 5 million and when compared to the fourth quarter of 2019.
As I mentioned when discussing our decline in revenue, we had 54 fewer communities for all or part of the fourth quarter of 2020 than we had on the fourth quarter of 2019, there's.
And 54 community has accounted for the majority of the decrease in expenses on a combined basis.
Our fourth quarter 2020, operating expenses were positively impacted by the RAC.
And $8 1 million and relief funds from phase two of the provider relief fund.
And I discussed earlier, which are which were recognized as a reduction and year to date COVID-19 expenses, including $4 8 million of costs that were incurred and recognized during the fourth quarter, which primarily include employee hazard pay specialized sterilization services personal protect.
<unk> equipment and disposable foodservice supplies.
And as Ken mentioned, our continuing community portfolio consists of the 60 on communities that will comprise our go forward portfolio. Once all transitions have been completed and are continuing community as revenue decreased $4 7 million or seven seven per cent and the fourth quarter of 2000.
And 'twenty compared to the fourth quarter of 2019 compared to the third quarter of this year revenue decreased $1 2 million or $2. One per cent continuing community occupancy was 76, 5%, which is 700 basis points lower than the fourth quarter on 2019, and is 200 basis points lower than the third quarter of 2020.
Well, we are certainly not pleased with any occupancy decline on operations and sales teams have done an admirable job and an unprecedented and challenging marketplace. Our average monthly rent increased <unk>, 8% to 3005 hundred $73 and the fourth quarter of 2020 over the fourth quarter on 2019, as well as increasing slightly <unk>, 4%.
As compared to the third quarter of 2020.
Continuing community expenses, which exclude COVID-19 related cost of $2 1 million and the application of Covid relief funding decreased $3 3 million or eight per cent and the fourth quarter of 2020 as compared to the fourth quarter of last year due to our operations teams focus on and success.
And managing cost to offset the impact of incremental COVID-19 costs are and employee labor cost decreased <unk> 9 million or three 5%, while all of our other expense categories combined to decrease $2 4 million or one 9% with our two other major cost categories food and utilities down.
On six 3% and for 1% respectively are continuing community net operating income was $11 1 million and and and our NOI margin, which we define as revenues less operating expenses exclusive of COVID-19 relief funding and costs with premium labor and clear with 23, 6%.
Our general and administrative expenses for the fourth quarter of 2020 were $6 9 million compared to $5 8 million and the fourth quarter of 2019. The increase of approximately $1 1 million is primarily due to consulting expenses and our dollar support center and increase and corporate insurance premiums, resulting from a challenging market and increases in transaction and conversion.
<unk> and costs.
During the fourth quarter, we completed the sale of living community located in Canton, Ohio, which resulted in net cash proceeds of $6 4 million, we recorded a $2 million noncash gain on this transaction.
In addition, we have been retained by the new owner to manage the community on its behalf, which is expected to contribute approximately 300.
<unk> thoughts on dollars and annualized 2021 revenue.
Adjusted EBITDAR for the fourth quarter of 2020 was $25 million adjusted EBITDA, Excluding COVID-19 expenses and really funding was $16 9 million.
Adjusted <unk> was a negative $4 million and the fourth quarter of 2020, when Covid relief funds.
And expenses are excluded adjusted <unk> and negative $3 7 million and the fourth quarter of 2020.
Turning now to liquidity, we note and the release that we had $17 9 million of unrestricted cash at December 31, 2000, and 'twenty as we announced our third quarter earnings we received approximately $8 1 million.
Please funding pursuant to the provider relief funds phase two general distribution and November 2020, we are pleased to announce that we and received an additional $8 7 million and funding and our phase three of the same program during the first quarter and Additionally, we received approximately $900000 of really fun to offset COVID-19 expenses for our state.
Programs, and and in Wisconsin, and Ohio, and the fourth quarter. We have also received approximately $1 1 million and distributions and the second and fourth quarters from the Ohio Bureau of Workers' compensation to help companies doing business and hold Ohio during Covid in a day.
And we deferred and an additional $2 4 million and payroll taxes under the cares Act.
And the fourth quarter, we deferred a total of $7 4 million and payroll taxes under that program. We continue to progress with the transfer of ownership of 18 underperforming properties to Fannie Mae at December 31st we included $218 4 million and current notes payable and $8 7 million and accrued interest on our balance sheet.
Once the legal ownership of the properties transferred to Fannie Mae, which is expected to occur throughout 2021, we expect to recognize a gain on the extinguishment of debt and related accrued interest.
In October we extended and enhanced our forbearance agreement with one of our lenders that resulted in three additional months of full principal principal and.
Interest relief on 10 communities and three additional months of interest only which amount to approximately $2 8 million of additional relief. We are also and active discussions with two of our lenders regarding the extension or refinancing of two of our bridge loans totaling $72 5 million that are currently scheduled to mature on December 2021.
Yeah.
Although the operating environment will remain challenging in the months ahead, we are pleased with the and improvements for our financial foundation, resulting from exiting all triple net leases transitioning the ownership of 18 underperforming assets and Fannie Mae and the significant improvements made to the company's operating platform. During the first two years of executing our.
<unk> strategy as.
As we move into the third and final year of thing. We went to we continue to work diligently and to create value, while strengthening our company and providing consistent high quality services and programs to residents across our portfolio that concludes our prepared remarks I will now ask our operator, Devon to open the line for questions.
And just so we will be conducting a question and answer session. If you would like to ask a question. Please for star one on your telephone keypad and.
Confirmation total indicate your luggage and the question queue.
UE per store to if you would like to remove your question for the Q2.
And for participants using speaker equipment, and even this year to pick up your handset.
And Mr. Keith one moment, please as we poll for questions.
Our first question comes from the line of Steven Valiquette with Barclays. Please proceed with your question.
Great. Thanks, and good afternoon, and thanks for taking the question so.
Couple of questions here.
For first.
60 container and community. That's certainly helpful and it can also to draw conclusions on the trends from here.
And just given that a lot of your financials, where and what I would call a transition mode from December 31, 2020 into the forward run rate for continuing operations. That's got a few questions.
Cash flow and balance sheet, and particular, if youre able to address any of these.
Just first on total debt.
Do you know where that.
Will shake out as 2021 for Greg.
And right now on March 31st for just relative to the 910 million total debt that was on the balance sheet on December 31st because on the start with that question.
First.
Well, the and 900 plus million, a large chunk of that and $218 4 million and as it related to the Fannie Mae properties. So as those fall off and our formerly the ownership, it's formally transferred to Fannie Mae and we will be derecognize and the liability and.
Recognizing a gain and so we and anticipate that will happen throughout 2020. We also have approximately $72 5 million and that is maturing at the end of this year and we are and current and.
And discussions with our lenders to refinance or extend the maturities of those notes.
Okay.
Okay.
And then for the 60 community is going forward.
2021 guidance.
And given what's going on.
Yeah.
And the pandemic, but is there any color just on what we should expect on the ratio of annualized operating cash flow relative to EBITDA.
And that ratio.
And for those 60 assets going forward.
The annualized Capex will be for those 60 for on rate.
And I'll start with the Capex, and then Tiffany and Brandon can jump in on.
On the cash flow with respect to Capex, if you recall.
Paul and our third quarter Investor.
Investor deck, we anticipate spending about $200 per unit and Capex are in that 60 community portfolio.
And we think that that's the right amount of Capex and when you think about.
That portfolio those communities are.
And they are in secondary and tertiary markets and as I mentioned and the script, we focus very much on the middle market and so they are they're warm there are comfortable they're clean.
And they're up to date.
And so we don't have a lot of projects that would require and we don't have any projects that would require a significant repositioning or significant construction or re freshmen and reconstruction of the portfolio.
So Steve I think the good assumption on that is the 1200.
Hundred per unit.
Okay.
Alright.
And that ratio of cash flow to EBITDA, if you don't have and.
You know right now and that's fine David can always.
And track that down weighted.
Yes.
Well good luck for you on that one.
Maybe in the meantime.
Question I had was.
On.
In relation to the management fees and how that might progress through 2020, one, especially in light of the 16th formerly leased communities that are now under interim management agreements is there just any range of what to expect for management fees for.
Okay.
Yeah.
Well I think well do you want and go on for and I think two to two and a half million dollars and.
And management fee revenue is our target for.
For a run rate basis on the go forward.
And you should see the majority of the.
And as I said.
40 of that managed portfolio outside of the eight quarter manage and.
Transition by the end of Q2, so and the second half for sure and we'd be at the at the eight managed communities.
Okay got it.
Okay, and then final.
And then engineer on financials.
Probably you gave around the additional.
And laser relief payments coming in.
Really helpful. I was just curious.
And that's what kind of balance of two of those components together.
If you have any color on what youre expecting in relation to just COVID-19 related expenses in 2020, one and total vs.
Quick question.
And that you incurred in 2020.
And in 'twenty, and 'twenty are and Covid expenses, a large component of that was the hero pay and so and that was approximately 40 person on the total number and so as the number of cases and our portfolio nears.
Zero the number of demo and stop he has declined as well we anticipate that we will and we will incur additional direct expenses just the P. P and items of that nature, but thought it will be decreasing over time.
Yeah, I would just add Steve that we're very we've been very pleased.
And the impact of the nearly zero Covid cases on the portfolio from an expense standpoint and.
We're confident that that trend should continue and hopefully will continue we.
We will see a meaningful impact on the expense profile on a year over year basis related to Covid expenses.
With the right Okay alright.
Alright, I appreciate the update thanks.
Alright, Thanks, Steve.
And once again, if you would like to ask a question. Please press star one on your telephone keypad. Once again, if you'd like to ask a question. Please press star one on your telephone keypad one moment. Please.
There seems to be no further questions at this time, so I'd like to turn the call back over to MS. Lewis for any closing comments.
Alright. Thanks, Devin. This concludes today's conference. Thank you, everyone and have a great day.
This concludes today's teleconference. You may now disconnect your lines at.
At this time, thank you for your participation and have a wonderful day.
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And.
Okay.
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