Capital Senior Living Corporation
Q1 2021 Earnings Call Transcript

Published: 13 May 2021

[Operator:]

Good day, and welcome to Capital Senior Living's First Quarter 2021 Earnings Release Conference Call. Today's conference is being recorded. All statements today, which are not historical facts, may 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 in the future. Actual results and performance may differ materially from forward-looking statements. Some of these factors that could cause actual results to differ are detailed in the earnings release the Company issued earlier today as well as the reports the Company files with the SEC 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 capitalsenior.com/investor-relations, and was furnished in the 8-K filing this morning.

[Kimberly Lody:]

Thanks, Devon, and good afternoon, everyone. Welcome to our first quarter 2021 earnings call. Joining me today are Brandon Ribar, our Chief Operating Officer; and Tiffany Dutton, our Senior Vice President of Accounting and Finance. The 12 months from March 2020 to March 2021 were extraordinary and unprecedented as our company and our nation fought the ongoing impacts of the COVID-19 pandemic. Our experienced and decisive teams are rigorous, clinical and operational protocols, our comprehensive communication and most importantly, our collective relentless devotion to the safety and well-being of our residents is what supported and strengthened us through those incredibly difficult times. Our on-the-ground frontline community teams and their regional leaders have much to be proud of, and I could not be more humbled by and grateful for all that they do. I'm pleased to say the grips of the pandemic have eased considerably during the last few months, most notably upon achieving vaccination of 93% of the residents in our communities. We began to see signs of recovery in our business at nearly the same time as we began implementing vaccination activities. Lead volume started to improve in December of 2020, but with most of the country battling the height of the pandemic's third wave in January and February, meaningful improvement in tour and move-in volume across the portfolio began in March. Move-ins increased 33% from the fourth quarter to the first quarter, and move-ins in March and April were at the highest monthly levels in two years. Today, all of our communities are accepting visitors and new residents and all have safely resumed resident group activities and social events. Active cases of COVID-19 among our residents and employees are virtually nonexistent. Despite the last 12 months' difficult operating environment created by the COVID-19 pandemic, we have made great progress on our three-year strategy to stabilize, invest in, nurture and grow Capital Senior Living. We have redefined the portfolio and stabilized its performance. We have invested in our people, our communities, our processes and our resident programs. We have nurtured our lead generation and sales activities and now consistent with our three-year plan, we are beginning to grow.

[Brandon Ribar:]

Thank you, Kim, and good afternoon. The first quarter of 2021 provided many opportunities to recognize and celebrate the achievements of our communities, while in aggregate, producing the baseline for our post-COVID recovery from an operating metric perspective. Most important for the safety of our communities, more than 93% of our residents are now vaccinated, and COVID cases remain at extremely low levels, currently sitting at zero resident cases in our owned portfolio of communities. We continue to experience increased vaccination levels across our employee base, and our employee cases are also nearly 0. We attribute these outcomes to our local leadership and frontline care and service providers and recognize their consistent, compassionate and steadfast efforts to keep our residents and fellow staff safe and healthy. Throughout my travels in recent months, I have witnessed firsthand the renewed energy and many moments of joy and after that accompany the more open and active environment throughout all of our communities. We continue to adjust our operating model to accommodate increased in-person visits from family members and larger groups for communal dining and activities in a safe and enjoyable manner.

[Tiffany Dutton:]

Thank you, Brandon. Good afternoon, everyone. Although our first quarter 2021 results reflect the impact of the third wave of the COVID-19 pandemic on our occupancy and revenues, as we neared the end of the quarter, we began to see increases in traffic and move-ins as our country nears the end of the pandemic. The operating environment has remained challenging, but our operations team has continued to do an excellent job in managing the cost within their control and to mitigate the impact of COVID-19 on our overall results while continuing to prioritize the health and safety of our residents and staff members. We also benefited from the receipt of $8.7 million in CARES Act relief funding pursuant to the provider relief funds Phase 3 general distribution in January 2021. The first quarter also reflects continued positive impacts associated with actions we completed over the course of the past two years to stabilize our business, dispose of improve our balance sheet position.

[Operator:]

At this time, we will be conducting a question-and-answer session. Our first question comes from the line of Steven Valiquette with Barclays. Please proceed with your question.

[Steven Valiquette:]

Just have a few questions on Slide 9 in the slide deck. First, I think in the prepared comments, you talked about NOI trending upward from here. I wasn't sure if that was both NOI dollars and NOI margin. If we look at the, call it, roughly 20% in the first quarter of '21, but do you expect the margin and the dollars to both improve sequentially from here? And then I have a couple of follow-up questions on the same topic depending on the answer.

[Kimberly Lody:]

Yes. So I'll start and then Brandon can jump in. So one of the key items here, Steve, is really around the occupancy growth because it will provide incremental operating leverage to the business. I think we've mentioned before, as we went through the pandemic last year, we really maintained our labor model in our communities to ensure that we would have enough staffing. And so as you think about occupancy improvement, we feel like we have the labor in place to absorb that occupancy improvement. And about each point of occupancy is about $225,000 per month in incremental revenue. And given the operating leverage, we believe that the flow-through should be around 60%. And so on an annualized basis, we would expect that every 100 basis points would be about $2.7 million in incremental revenue and about $1.6 million in incremental NOI dollars.

[Steven Valiquette:]

Okay. Great. That's helpful. Also on Page 9 in the upper right-hand corner, the average rent -- you guys talked about some of the rent concessions in the first couple of months of the year. It sounded like March was trending better where it was up a little bit year-over-year. As we think about rent or even RevPOR for the rest of calendar '21, should we assume that, that could be growing year-over-year as we look at the numbers specifically versus a year ago in the upper right part of Slide 9?

[Brandon Ribar:]

Yes. Steven, I think it's going to -- it will be a bit market dependent. But because we do have in-place rate increases that are throughout the year on the anniversary date for the resident. We will see the continued increase on that front at approximately a 2% rate. And then as the concessions have begun to decline and the need for them have as well, our expectation is that we'll be able to recover the rate as we look at it versus 2020.

[Steven Valiquette:]

Okay. Great. Then final question. I might have missed some comments on this. So once we go below NOI, the G&A expense of around $7.2 million for the quarter, I know you talked about some increased marketing expenses, sales efforts, et cetera. But how should we think about the run rate of G&A expense on a quarterly basis going forward? Is that $7 million still a good run rate? Or could that trend perhaps lower or higher for other reasons?

[Kimberly Lody:]

Yes. Our expectation, Steve, is that the G&A run rate will continue to improve throughout the year. Q1 had some, we'll call it, extraordinary expenses in it really related to the transition of the communities, which we had anticipated being transitioned by the end of last year. And most of those transitions occurred here in the first quarter. And so there was quite a bit of work to get through the accounting of those transitions and get those finished off. So we would expect that the G&A will continue to sort of level down throughout the year and be at the run rate that we had put in our Q4 deck just a few weeks ago.

[Operator:]

There are no further questions on the queue. I would like to turn the floor back over to Ms. Lody for any closing comments.

[Kimberly Lody:]

That concludes our earnings call for today. Thank you, everyone, and have a great day.