Q1 2021 Five Star Senior Living Inc Earnings Call
Good day and welcome to the five Star Senior living first quarter 2021 earnings Conference call. All participants will be in a listen only mode should you need assistance. Please signal conference specialist by pressing the star key followed by zero after today's presentation there'll be an opportunity.
That's question <unk>.
I asked a question you May press Star then one on your Touchtone phone and to withdraw your question. Please press Star then two please note. This event is being recorded I would now like to turn the conference over to Olivia Snyder manager of Investor Relations. Please go ahead ma'am.
Thank you welcome to five Star Senior Living's first quarter 2021 earnings call. The agenda for today's call includes a presentation by President and CEO, Katie Potter Executive Vice President and C. O O Margaret Wigglesworth, and executive Vice President and CFO and Treasurer, Jeff Leer.
Followed by a question and answer session with research and why.
I would like to note that the transcription recording our returns, Michigan and up todays conference call is strictly prohibited without the prior written consent of the company.
Today's conference call contains forward looking statements within the meaning of the private Securities Litigation Reform Act of banks, and 95 and other securities laws.
These forward looking statements are based on five star's present beliefs and expectations as of today Thursday may six 2021.
The company undertakes no obligation to revise or publicly release the results from any revision to the forward looking statements made in today's conference call other than through filings with the Securities and Exchange Commission or SEC regarding this reporting period.
Actual results may differ materially from those projected and any forward looking statements.
Additional information concerning factors that could cause could cause those differences is contained in our filings with the SEC <unk>.
Investors are cautioned not to place undue reliance upon any forward looking statements and.
In addition, this call may contain non-GAAP numbers, including EBITDA and adjusted EBITDA Reconciliations of net income to these non-GAAP figures and the components to calculate them are available and our quarterly results news release available on our website at five star senior living Dotcom and.
I'll now turn the call over to Keith.
Thanks, Olivia and thanks, everyone for joining us on our earnings call for the first quarter of 2021.
Few weeks ago, we announced the next step and the transformation of our business as a provider of senior living and rehabilitation and wellness services that support and rich and inspire and the lives of older adults as they age.
This transformation and builds on the initial restructuring of our business arrangements with diversified healthcare Trust and 2019, which provided financial stability and we'll know better position five star to capitalize on the growing population of older adults and their changing needs and preferences.
Our three pronged strategy reposition a ball and diversify begins with the repositioning of our senior living management services offering and the continued growth of our agility outpatient rehabilitation services to align with our areas of strength and favorable market opportunities.
And it continues by prioritizing the evolution of our choice based financially flexible resident experience and our shared services infrastructure to support improved operations five.
Finally, our strategy focuses our future growth and the diversification of our revenues by continuing to build out our services offering and reach a broader customer base.
The repositioning of our senior living management services is expected to be completed by the end of 2021 and involves transitioning 108 smaller senior living communities with approximately 7500 units to other operators.
Hosing, the healthcare units within our continuing care retirement communities or <unk> containing approximately 500 units and completing our exit from skilled nursing.
Over the past several years, we have strategically reduced our exposure to skilled nursing or line of business that has been subject to increasing regulation fluctuating reimbursement rates and ongoing labor challenges. The exit from this non core part of our business allows us to focus on the service lines that we believe can better leverage our scale and X.
13th to improve profitability as industry conditions stabilize.
Five star will continue to operate 144 senior living communities with over 20000 units located in 28 states.
These communities are strategically positioned to benefit from high demand and a growing population of older adults that fit our target consumer.
75 per cent of the communities that we will continue to manage for DHT are located in markets, where the median income of the over 65 population can afford and average monthly rent of $4000 and 70% are in markets with no current new competition under construction.
These communities outperformed the total managed portfolio and the first quarter of 2021 with 320 basis points higher average occupancy approximately 400 basis points higher EBITDA margin and a more efficient labor cost structure.
Following the completion of the repositioning as we are able to focus on our core portfolio, we expect to grow and expand our management services offering and reduce our concentration with one owner.
We are also working on centralizing certain functions to achieve greater efficiency as well as investing and our technological infrastructure to support and optimize the scalable platform.
In addition, we will continue to refine our senior living product to build our competitiveness and the market, while taking advantage of new opportunities beyond traditional senior living demand.
We find our emerging customer to be one that values of curated approach to meeting their care needs and lifestyle aspiration, especially one that enhances their ability to retain independence and improve quality of life.
As we focus our senior living management services, we will continue to grow our service offerings to enhance the resident experience and support longer lengths of stay as well as reach customers outside of our senior living communities.
We have shown success with our rehabilitation and wellness services segment, including agility, which over the last two years has become an integral part of our services platform and has achieved significant growth and scale and revenue.
Agility rehabilitation offer senior living communities, a turnkey solution clinically proven to improve physical conditioning for residents and drive positive business outcomes for the communities within which it operates and.
Agility rehabilitation and proactively address the health risks to improve mobility and functionality, which supports resident independence and inspires and active fulfilling lifestyle we.
We will continue to drive revenue growth through agility by expanding into additional communities both within the five star footprint and unaffiliated as well as actively engaging a broader client base outside the community setting.
Additionally, we are planning continued growth of our other service offerings, including fitness home health and Concierge services, which are all existing areas of organic growth for the company.
We will continue to incubate these business lines by piloting best in class programs internally and evaluate other growth opportunities through strategic partnerships per acquisition.
Our strong financial position, coupled with our plan to narrow and hone our senior living management services will allow us to make strategic proactive moves to grow our business and areas that we excel and and areas, we see strong market opportunity.
We will also focus on evolving our resident experience, improving our corporate infrastructure and expanding the services we offer older adults.
Five star is continuous care and growing platform of services are positioned to capture positive demographic and industry trends that will not only support our post COVID-19 occupancy recovery, but future growth.
We believe the repositioning of our senior living portfolio as part of our larger strategic plan is a critical step and capitalizing on the next frontier of market opportunities to serve the fastest growing demographic and the U S.
Before I turn the call over to Margaret to review, our senior living and rehabilitation and wellness operations for the quarter.
I would like to take a moment to acknowledge the entire five star organization for exceptional service and dedication through the unprecedented challenges of the past year.
Thank you for your steadfast commitment to safety and care and engagement with our residents clients and colleagues and we look forward to these exciting changes for our business and future success as an organization.
Thanks, Katie and good afternoon, everyone.
And as our senior living and rehabilitation and wellness services continued to adapt to the COVID-19 environment. We believe we have responded quickly to the changing needs of our residents and clients and have laid solid groundwork for our path to recovery.
Let me start with senior living.
In early April we successfully completed all scheduled vaccination clinics at our senior living communities and we believe this marks an important milestone and our recovery from the effects of the COVID-19 pandemic.
As of May one.
Overwhelming majority of our residents and about half of our team members are fully vaccinated and we are welcoming new residents and all of our communities.
Current active COVID-19 cases are low with only 12 active cases, and our population of approximately 21000 residents, which represents a 98% decline on a trailing two week basis from the peak rates and the fourth quarter.
As we continue to adhere to careful health protection protocols, we are happy to return to a robust resident experience by safely rolling out full dining programs extended programming social activities and tours.
Recent guidance from the bite and administration and the CDC around easing restrictions as a result of positive acceptance of the vaccine is also encouraging as we work to build confidence in safety and normalcy and our communities.
We are encouraged by the momentum of our sales leads and move in activity since the start of the year and are happy to report the first two consecutive month over month and spot occupancy growth since February 2019.
With a significant decline and COVID-19 cases broad accessibility to the vaccine and a return to pre pandemic lifestyles. We are seeing that customers are back and the market for senior living options. The.
And the picture is clear.
Serious and increased consumer interest and exploring senior living demonstrated by our web traffic and web leads both of which were up significantly quarter over quarter and year over year exceeding pre pandemic levels.
Resident referrals and professional referrals, both increased from the fourth quarter.
Not only did tour activity for the month of March meaningfully exceed February are repeat tour volume is also up significantly quarter over quarter.
We are optimistic to see that these positive leading indicators have also been reflected in our moving activity over the course of the first quarter.
We saw our conversion rate improved by 710 basis points from January to April and net moves have been improving since December and shifted to net positive gains in February.
While we continue to see and overall occupancy decline and the first quarter, we believe that in continuing our aggressive marketing and sales campaigns. We will begin to see positive movement in late Q2 and into Q3.
Average occupancy and our comparable community owned and leased portfolio decreased three 2% sequentially and 13% from the prior year.
Comparable community average occupancy and our managed communities decreased two 9% sequentially and 13, 3% from the prior year.
Since quarter end and adjusting to reflect only the retained managed portfolio following the repositioning and excluding the health care units, we expect to close and <unk>.
Occupancy at the end of April with 73, 8% and improvement of 60 basis points from March.
While we see Rev poor trending up slightly from the first quarter last year Revpar continues to be challenged due to occupancy declines with comparable community revpar for the owned and leased portfolio down 15, 4% from the same periods last year and comparable community Revpar.
And our managed portfolio down 15, 1%.
We have launched targeted concession programs and aggressive markets to regain market share where appropriate but remain committed to preserving rate, while focusing on safely and expeditiously reinstating the full resident experience.
Turning to our rehabilitation and wellness services.
We were able to successfully opened eight net new agility outpatient clinics and the first quarter exceeding our expectation of two to four clinics, which partially offset a decrease and overall revenues due to a reduction in inpatient and clinic visits as a result of COVID-19.
Outpatient revenues increased six 5% year over year and total segment revenues on a comparable basis increased slightly with operating margin improving by four 8%.
We are seeing recent improvements and clinic visit activity with a steady positive progression from January through March.
In addition to external growth beyond five star communities, we continue to focus on same store growth.
Our investment and evidence based clinical programming this yielded measurable outcomes for our clients, including reduced fall risk improved gait speed and increase mobility.
Communities that offer agility rehabilitation services also benefit by helping to prevent injuries that necessitate move to higher levels of care or more acute care settings and.
And supporting higher resident satisfaction and longer lengths of stay.
While it is difficult to predict a turnaround for our industry against the backdrop of the pandemic. We are hopeful that the completion of our vaccination program and the <unk>.
Positive trends with leads and tours and move ins as well as our demonstrated success with our ancillary services will lead us towards recovery.
I will now turn the call over to Jeff for a discussion of the financial results. Thank.
Thank you Margaret as kidney highlighted some recently announced repositioning of our senior living management business currently positive strategic change to drive long term growth and value creation.
And transitioning communities represent approximately 40% of our management fee revenues.
<unk> for the quarter ended March 31, but less and 15% of our total top line revenues, we expect to offset some of this revenue decline with cost savings and reductions and our G&A expense as we reorganize our corporate and regional functions.
The effect of the onetime costs attributable to the repositioning and other corporate infrastructure investments, we anticipate annual G&A savings of $12 million and a normalized basis.
We've provided information and our earnings release and the impact to revenues and communities, we manage on behalf of DC and and management fee paid to five star after execution of the repositioning.
And the cadence of the reduction of our management fees as uncertain as it is dependent on what the various communities transitioned to new operators.
But our general expectation is for the transition to be complete by year end.
We also expect to incur and nonrecurring cash expenses of up to $5 5 million.
After the effect of <unk> reimbursed amounts, which are primarily severance and retention costs.
We expect the majority of the cost to be recognized in Q2 and paid during the latter half of 2021 and early 2022.
Additionally, and connection with our strategic plan, we expect to close 37% and agility inpatient and clinics that generated $5 $4 million of revenue and Q1 or 27, 8% of total revenue for the rehabilitation and wellness services segment and the first quarter.
Our movement away from the inpatient rehabilitation services aligns with our overall strategy to exit the skilled nursing a lot of business.
In conjunction with the transition of our managed portfolio, we've agreed with duty to make the following changes to the management agreement.
First.
We are eliminating <unk> right to sell additional communities and terminate five star's management agreement without payment to five star and the termination fee.
And the original agreement from two and 2019 D C and the ability to sell communities of up to 775 million and value without any termination fees.
And with $682 million remaining as of March 31, 2021.
Second we are eliminating the company incentive fee. The five star can earn previously set at one 5% of gross community revenues.
Allowing five star greater opportunity to share and output performance achieved versus targeted EBITDA.
Third we are modifying dxp's performance termination rights, which and the current management agreement to provide value to the right beginning in 2023 to terminate up to 20% from the total managed portfolio revenue from any community that does not achieve at least 90% of budgeted EBITDA. These.
And these termination provisions will now begin in 2025, lower the maximum amount of communities that can be terminated per year, 10% of portfolio revenue and lower performance targets to 80% of budgeted EBITDA.
And lastly, we're also extending the term of our management agreement by two years to December 31, 2000 2036.
In terms to provide five star with greater flexibility and stability and its current managed portfolio.
We are confident and we are well positioned to execute the repositioning and our ongoing strategic initiatives with a strong foundation of financial liquidity and that continues to improve as of March 31, we had approximately $109 5 million of unrestricted cash and cash equivalents and only $7 $1 million of interest and debt.
<unk> and the form of one mortgage note maturing in 2032.
As of today, we do not have any borrowings outstanding on our credit facility.
Moving to our quarterly results last night, we reported net income of $3 3 million or <unk> 10 per diluted share for the first quarter of 2021 compared to a net loss of $17 2 million.
A <unk> 55 per share for the first quarter of 2020, which included $22 $9 million of one time and lease termination expense related to the 2020 restructuring transaction with UHC.
Net income for the first quarter of 2021 21 include $7 8 million of income recognized under the cares Act provider relief fund and.
Due to the ongoing impact of the COVID-19, pandemic, our senior living occupancy revenues and expenses.
Adjusted EBITDA from the first quarter was $6 9 million.
A decrease of $5 5 million or 44% from $12 $4 million and the prior year period.
First quarter management, and operating revenues were approximately $50 5 million.
A decrease of $9 million or 15, 1% from the prior year, primarily due to decreased occupancy and our senior living segment as a result of COVID-19, as well as the impact of the sale of nine senior living communities and the closure of <unk>.
2020, and we prudency minutes per D&C.
Our rehabilitation and wellness services segment reported revenues of $19 6 million.
A decrease of $1 8 million or eight 6% as compared to the prior year period, primarily due to a reduction of agility inpatient clinic visits as a result of COVID-19, partially offset by the opening of 21 net new outpatient clinics since January one 2020.
Our senior living segment reported total revenues of $249 5 million.
And of which $17 $1 million was derived from communities that we own or lease from third parties and $13 9 million.
Was attributable to management fees earned from COVID-19 using managed port PUC.
Total revenues, representing a nine 6% decline compared to the prior year period, and a six 1% declined on a sequential basis.
Of the $13 $9 million and management fees earned $830000 per attributable to construction management fees and managed communities construction.
And the projects managed on behalf of DHT totaled $27 8 million.
Of which $21 $9 million related to recurring maintenance capital.
Following the changes to our management agreement five star will continue to receive a 3% capital management fee on all recurring capital, which is expected to be $16 3 million for the remainder of 2021.
Now turning to operating expenses.
We incurred $273 2 million of total operating expenses and the first quarter, including $213 $2 million of reimbursed costs incurred on behalf of managed communities.
Excluding the impact of reimbursed expenses, our total operating expenses increased $3 3 million or five 7% from the same period last year, primarily due to increased labor and operating costs at our owned and leased communities as a result of the lingering effects from the COVID-19 pandemic.
Moving to COVID-19 related expenses.
During the first quarter, we spent $6 1 million, including $2 $9 million on PPE and medical supplies and we deployed $900000 of pre funded PBE reserves to communities and maintain a balance of $8 $8 million that we expect to further reduce throughout 2021.
As a reminder, the majority of this pre funded PPE will be reimbursed by <unk> as it is delivered to the communities we manage.
And the total first quarter COVID-19 related expenses $5 $8 million was absorbed by day.
Total costs represented 24% decline on a sequential basis due to the impact of our vaccination rollout and further reduction and confirmed COVID-19 cases.
As COVID-19 infection rates decline and vaccination levels increase and the communities state regulations on certain health and safety protocols are reduced and we anticipate decreased testing and treatment costs to benefit our operating costs and the coming quarters.
General and administrative expense for the first quarter was $22 6 million.
Which included $5 $5 million and reimbursed by the agency.
Our net G&A expense of $17 $2 million increased approximately $209000 or one 7% from the prior year period.
Primarily comprised of $250000 related to the repositioning as well as additional corporate funding to support communities through the COVID-19 pandemic.
That concludes our prepared remarks, operator, we are ready to open the line for questions.
We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone if youre using a speakerphone. Please pick up your handset before pressing the keys to withdraw your question. Please press Star then two and at this time, we will pause momentarily to assemble our roster.
And the first question will come from Cal Mingus with B Riley FBR. Please go ahead.
Hi, This is Kyle on for Brian and good afternoon.
Hey, Kyle.
So in your prepared remarks, you mentioned that you'd like to expand management of communities on behalf of others beside DHT.
And what kind of opportunities are you currently seeing to do that and what five portfolios and we make the most sense.
And I think right now, we're really focused on completing the repositioning and improving operations within that portfolio.
And when other owners can see the our operational strength coming through and that portfolio that we're going to be able to identify opportunities, but as I say right now we're prioritizing the repositioning and improving operations there.
Yes.
That makes sense.
And then I saw 85% of residents have been vaccinated.
If you take out those 108 communities viewpoint and the transition.
Is it still about that 85 per sign after you take those out.
Yes, Kyle this is Margaret it is about 85% across the board.
Okay. Thank you.
And then what percent of star.
And I have been vaccinated at this point and.
Do you think you could mandate that all staff get vaccinated and are you seeing that from other industry players.
We're just below 50% of our team members being vaccinated and we.
We do see other operators mandating the vaccine and we see the benefit of that.
At this particular point and time, we're continuing to evaluate whether or not that makes sense for us.
Great and then I was also curious.
100 day communities you plan to transition how many agility clinics are in that portfolio and then how many do you think you could possibly retain.
After those communities our transition.
And how there is 44 outpatient clinics and those communities.
And frankly, we expect to retain most if not all of them we've had.
We highlighted in our remarks agility spend and excellent area of growth for us and is really a benefit at the community. So we think the.
And the operators that DHT transitions to we will see that as well and so we're hopeful that all 44 remain intact.
Great. Thanks, that's all from me.
This concludes our question and answer session I would like to turn the conference back over to Katie Potter for any closing remarks. Please go ahead ma'am.
Thank you for joining us this afternoon.
As we embark on this strategy as discussed today, we are excited for what the future holds and confident that this sharpened focus will showcase five stores operational strength.
And with market opportunities and changing consumer preferences and evolve our services offering for continued growth. We look forward to updating you on our progress in the coming months.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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