Capital Senior Living Corporation
Q4 2020 Earnings Call Transcript

Published: 31 Mar 2021

[Operator:]

Good day and welcome to the Capital Senior Living Fourth Quarter 2020 Earnings Release Conference Call. 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 in the future. Actual results and performance may differ materially from forward-looking statements. Certain of these factors that could cause actual results to differ 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 an 8-K filing this morning. Also, please note that during this call, the Company will present non-GAAP financial measures. For reconciliation of each non-GAAP measure from the most comparable GAAP measure, please also see today's press release.

[Kimberly Lody:]

Thanks, Devin, and good afternoon, everyone. 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 in managing the safety and well-being of our residents, themselves and one another. I am grateful for your steadfast presence, carrying operational skill as each of you make a remarkable difference in the lives of so many every single day. I truly can't thank you enough. Turning to our strategy; we are now in the third year of our three-year plan to improve the Company's operating performance and financial foundation. I am 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 of 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 under-performing 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, all while 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 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, the year-over-year decline in average occupancy in our 60 pro forma owned communities was 430 basis points. While that of others in the industry declined on average by 658 basis points, making our performance approximately 35% better by comparison. We also performed better with respect to maintaining net operating income in that -- our year-over-year NOI decline was just under 13% while our peers declined on average more than 20%. 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 incidence of active COVID-19 cases across our portfolio is nearly zero. 100% of our communities have completed their second rounds of vaccination 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 of the vaccine as we believe we can continue to improve upon our current employee vaccination rate of 41%.

[Brandon Ribar:]

Thank you, Kim, 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, compassionate and steadfast efforts to keep our residents and fellow staff safe and healthy. Earlier this month, we realized a prolonged period of zero employee and resident COVID-19 cases, a milestone worth celebrating. Our CSL communities have remained COVID-free for nearly all of March with only two resident COVID-19 cases reported throughout the month and nearly 90% of our residents are fully vaccinated. We continue to adjust our operating model to accommodate increased in-person visits from family members, larger groups for communal dining and activities in a safe and enjoyable manner. Moving forward, we are encouraged by the tailwinds both internally and externally that drive near and long-term recovery. The stability and competency of our leadership at the community level continue 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 4 percentage points improved over previous year and early trends in 2021 show further progress with a people-centered culture at the core of our SING strategy. On the revenue front, sales and marketing capabilities developed and implemented in 2019 and 2020 remain the foundation for our growth expectations. The achievement of 96% of prior year revenue in our 60 owned communities demonstrates the stability of the portfolio. Revenue declined $1.1 million or 2.3% from Q3 to Q4, excluding any COVID-19 relief funds and rates remained flat. Currently, 25% of our portfolio is operating at or above 90% occupancy. We continue to focus our recovery efforts in 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 of our service levels. We are also confident that our community's strong reputations 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 in tour to move-in conversion ratios in 2021, a key indicator of improved sales capabilities and lead quality. After investing in our website and social media platforms throughout 2020, our local teams continue to focus on expanding lead and tour volume in early 2021. Lead and tour volume in Q1 have reached their highest levels since Q1 of 2020 and move-in volume has followed suit.

[Tiffany Dutton:]

Thank you, Brandon. Good afternoon, everyone. Our fourth quarter 2020 results reflect the continued impacts of COVID-19 on our occupancy revenues and expenses. However, as I did throughout 2020, our operations teams did an excellent job in managing the cost within their control to mitigate the impact of COVID-19 on our overall results and then limiting the declines in occupancy during the quarter. We also benefited from $8.1 million in CARES Act relief funding pursuant to the Provider Relief Funds Phase 2 General Distribution in November 2020. The fourth quarter also reflects continued positive impacts associated with actions we completed over the course of 2020 to improve our balance sheet position as we successfully exited all triple-net leases and continued the transition of 18 underperforming communities to Fannie Mae. Our reported revenues for the fourth quarter were $80.2 million compared to $108.7 million in the fourth quarter of 2019. $38.6 million of the decrease was related to the sales or conversions of 54 properties since the end of 2019, partially offset by an increase in management fees and community reimbursement revenue of $14.1 million. Most of the revenue associated with the -- 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. Our management fee revenue in the fourth quarter was approximately $1 million. The remainder of the decrease is due to lower occupancy levels and then decrease in rates.

[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:]

Great, thanks. Good afternoon and thanks for taking the question. So a couple of questions here. First, data around the 60 continuing communities is certainly helpful and we can also draw conclusions on the trends from here. But I guess just given that a lot of your financials wherein what I would call transition mode from December 31, 2020 to the forward run rates for continued operation, just got a few questions. Cash flow and balance sheet in particular if you're able to address any of these. And I guess just first on total debt, you know where that will shake out as 2021 progresses or even where it stands right now on March 31 just relative to the $910 million total debt that was on the balance sheet on December 31? Guess, I would start with that question first.

[Kimberly Lody:]

Well, of the $900 million-plus, a large chunk of that, $218.4 million is related to the Fannie Mae properties. So as those fall off in our formerly -- the ownership is formally transferred to Fannie Mae, we will be derecognizing the liability and recognizing a gain. And so we anticipate that will happen throughout 2020. We also have approximately $72.5 million that is maturing at the end of this year and we are in current cognitive and discussions with our lenders to refinance or extend the maturities of those notes.

[Steven Valiquette:]

Okay, that's perfect. Okay. And then, for the 60 communities going forward, obviously, you're not really giving any 2021 guidance today, which not too surprising given what's going on. Still around the pandemic, but is there any color just on what we should expect on the ratio of annualized operating cash flow relative to EBITDA, just that ratio for those 60 assets going forward as well as what the annualized CapEx will be for those 60 properties ?

[Kimberly Lody:]

I'll start with the CapEx, and then, Tiffany or Brandon can jump in on the cash flow. With respect to the CapEx, if you recall in our third quarter Investor deck, we anticipate spending about $1,200 per unit in CapEx in that 60 community portfolio. And we think that that's the right amount of CapEx. When you think about that portfolio, those communities are -- they are in secondary and tertiary markets. As I mentioned in the script, we focus very much on the middle market. So they are -- they're warm, they're comfortable, they're clean, they're up to date. So we don't have a lot of projects that would require -- we don't have any projects that would require significant repositioning or significant construction or refreshment reconstruction of the portfolio. So Steve, I think the good assumption on that is the $1,200 per unit.

[Steven Valiquette:]

All right. Then that ratio of cash flow to EBITDA, if you don't have that handy right now, that's fine too, we can always track that down later if you don't have a lucrative plan.

[Kimberly Lody:]

We'll get back to you on that one.

[Steven Valiquette:]

I mean, in the meantime, the other question I had was just on -- in relation to the management fees and how that might progress through 2021, especially in light of the 16 formerly leased communities that are now under those interim management agreements, so is there just any range of what to expect for management fees here ?

[Kimberly Lody:]

Well, I think -- do you want to go in Brandon?

[Brandon Ribar:]

Yes, I think $2 million to $2.5 million in management fee revenue is our target for our run-rate basis on the go forward.

[Kimberly Lody:]

And you should see the majority of the -- as I said, the majority of that managed portfolio outside of the eight quarter managed transition by the end of Q2. So in the second half, for sure, we'd be at the eight managed communities.

[Steven Valiquette:]

Got it. Okay. And then final quick question here on financials . The color you gave around the additional stimulus or relief payments coming in certainly helpful. I was just curious as we kind of balance the -- two of those components together, if you have any color on what you're expecting in relation to just COVID-related expenses in 2021 in total versus the $9.5 million of 2020?

[Kimberly Lody:]

In 2020, our COVID expenses, a large component of that was the hero pay. And so -- and that was approximately 40% of the total number. And so as the number of cases in our portfolio nears zero, the number of pay has declined as well. We anticipate that we will incur additional direct expenses just the PPE and items of that nature, but that -- it will be decreasing overtime.

[Brandon Ribar:]

Yes, I would just add, Steve, that we're very -- we've been very pleased with the impact of the nearly zero COVID cases on the portfolio from an expense standpoint and are confident that as that trend should continue and hopefully, will continue, we'll see a meaningful impact on the expense profile on a year-over-year basis related to COVID expenses.

[Steven Valiquette:]

Perfect. Okay. All right, appreciate the update. Thanks.

[Kimberly Lody:]

All right. Thanks, Steve.

[Operator:]

There seem to be no further questions at this time. So, I'd like to turn the call back over to Ms. Lody for any closing comments.

[Kimberly Lody:]

All right. Thanks, Devin. This concludes today's conference. Thank you everyone, and have a great day.

[Operator:]

This concludes today's teleconference. You may now disconnect your lines at this time. Thank you for your participation, and have a wonderful day.