Alerislife Inc (ALR) 2015 Q2 法說會逐字稿

Good day and welcome to the Five Star Quality Care's second quarter 2015 earnings conference call.

(Operator Instructions)

Please note this event is being recorded.

I would now like to turn the conference over to Kim Brown, Director of Investor Relations. Please go ahead.

Thank you and good morning, everyone. Joining me on today's call are Bruce Mackey, President and CEO, Paul Hoagland, Treasurer and CFO, and Scott Herzig, Chief Operating Officer. The agenda for today's call includes a presentation by Management followed by a question-and-answer session. I would also note that the transcription, recording and retransmission of today's conference call are strictly prohibited without the prior written consent of Five Star.

Before we begin I would like to state that today's conference call contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and other Securities laws. These forward-looking statements are based on Five Star's present beliefs and expectations as of today, August 10, 2015. The Company undertakes no obligation to revise or publicly release the results of any revision to the forward-looking statements made in today's conference call other than through filings with the Securities and Exchange Commission regarding this reporting period. Actual results may differ materially from those projected in any forward-looking statement. Additional information concerning factors that could cause those differences is contained in our filings with the SEC. Investors are cautioned not to place undue reliance upon any forward-looking statement. Now I would like to turn the call over to Bruce.

Great. Thanks, Kim, and thanks, everyone, for joining us on our second-quarter earnings call. Second-quarter revenue increased 2.8% primarily due to new acquisitions as well as rate increases. Overall rate increased 1.2% with positive contribution coming from all property types, and in particular, from our private pay residents which increased at or above our target range of 2% to 3%. However, our top-line growth and bottom-line results were muted as occupancy challenges remained throughout the quarter.

Overall occupancy of 85.1% declined 70 basis points quarter over quarter and 40 basis points sequentially. The sequential decline was in line with NIC data and is seasonally typical following the difficult flu season we experienced this year. Consistent with our first quarter and industry trends, we continue to experience high mortality rates and move-outs related to residents' need for a higher level of care. Skilled nursing in particular adversely affected our overall results and was the only property type to post a revenue decline year over year. Even with the declines in occupancy, we were still able to achieve slight increases quarter over quarter in community level operating results before rent from our owned and leased independent and assisted living communities as well as our continuing care retirement communities.

Our recurring EBITDA for the quarter was $7.1 million, and recurring EBITDAR was $56.8 million. While this is a slight decline from the trajectory we were on, we expect to return to a more normal run rate given our expectations that occupancy will rebound in the second half of 2015. At June 30, the percentage of private pay revenues was 77.6%, an increase of 50 basis points compared to the second quarter of 2014. Our private pay acquisitions, coupled with our strategic dispositions program, has enabled us to drive this percentage higher over the years.

Since the beginning of 2015 we have been very active on the acquisitions front. On May 1, we began to manage 14 high-quality private pay Senior Living communities. These high-end communities are part of a larger acquisition by Senior Housing Properties Trust of the Senior Living component of CNL Lifestyle Properties. The 14 communities have approximately 900 assisted living units and are located across four states. This is the largest management deal Five Star has done with SNH since 2011 and we expect additional management fee revenues of approximately $1 million per annum. Since taking these communities over, our rebranding efforts are well underway, we've retained key employees and we began rolling out Five Star programming.

In addition to these 14 properties, at the end of May we began to manage another community SNH acquired in Georgia. This particular community has 40 brand-new private pay independent living units and is adjacent to an assisted living and memory care community we currently manage which will create positive synergies.

And finally, we completed our diligence on an acquisition we expect to close in our own balance sheet during the third quarter. This acquisition is comprised of two communities with a combined total of 152 private pay independent living units located in Tennessee for approximately $26 million. Annual revenue is expected to be approximately $3.9 million, with a healthy EBITDA contribution of approximately $2 million. We plan to remain active in sourcing private pay deals in 2015.

We continue to make progress on our dispositions program as well. To date we have sold nine communities, the majority of which were skilled nursing and we expect to sell the remaining two facilities in the second half of 2015.

Now turning to an update on our rehab to home and expansion projects. As you recall, rehab to home converts existing skilled nursing beds in our CCRCs to high-end private rehab suites. The two projects we have underway are scheduled to open during the second half of the year, one is in Kentucky and the other is in South Carolina.

On the expansion front we inherited two projects for an additional 38 units from the CNL communities we began to manage on May 1. Both of these expansions came on line in July and should provide additional management fee revenues. We have three other projects in process which I've mentioned on previous calls which are expected to wrap up soon, one in September and the other two at the start of 2016. These three projects will add a combined total of approximately 70 units split between assisted living and memory care. We currently operate high occupancies at these communities, and as a result of our expansion investments, they will be better able to accommodate the market demand and drive EBITDAR at these communities. We are actively evaluating additional rehab to home and expansion opportunities throughout our portfolio and would expect to break ground on additional projects in the near term.

In summary, although following a tough flu season which ultimately impacted our adjusted EBITDA and EBITDAR during the second quarter, we expect to regain our momentum and return to year-over-year growth in the second half of 2015. As Scott will outline in his prepared remarks, we continue to see robust move-in activity, and assuming move outs dissipate as we would expect, we'll see solid improvement in our occupancy. Driving occupancy, pushing rates, maximizing the ROI in our programming and controlling costs continue to be underlying drivers to our strategy and ultimately our success. I would like now like to turn the call over to Scott.

Thank you, Bruce. I'll start off with a review of rates before turning to occupancy. Overall senior living average monthly rates increased 1.2% year over year in the second quarter. Looking at each portfolio, our private pay independent and assisted living provided the greatest contribution to rate growth as second-quarter average monthly rates increased 3.8% at our owned Senior Living communities and increased 2% at our leased senior living communities. Our CCRCs experienced very modest rate growth of 0.2% and skilled nursing increased 0.7%. We will continue to push rates throughout 2015 and expect our overall rate increases to come in at our target of 2% to 3% for the year.

Now turning to our second-quarter occupancy results, I'll provide a sequential comparison for each portfolio. For the second quarter of 2015, total Senior Living occupancy declined 40 basis points to 85.1%. Occupancy at our owned, independent and assisted living communities declined 80 basis points to 87.1%. Independent assisted living occupancy at our leased communities decreased 30 basis points to 87.7%. Total CCRC occupancy declined 50 basis points to 83.3%. Our managed occupancy increased 10 basis points to 88.1%. And finally our skilled nursing facilities reported occupancy of 78.4%, down 20 basis points.

Given the difficult flu season we and others in the industry have experienced this year, occupancy was challenging across all of our portfolio during the second quarter. Although move-in activity continued to be robust, up 3% year over year, it was not enough to offset our move-outs which were up 4%. Mortality rates and move-outs due to a need for a higher level of care were once again the biggest factors impacting our occupancy.

We continue to see more of our resident move-ins come to us at higher level of acuity, and as such, staying for shorter periods of time. We're seeing third-party Internet lead aggregators driving this higher acuity resident and this is precisely why we're so focused on increasing our website leads and resident and professional referrals through our digital investments and marketing programs. These leads tend to stay with us longer and have the lowest acquisition costs. And the good news is that year to date approximately 55% of our move-ins came from either our own website or resident and professional referrals.

And our goal is to continue drive this percentage even higher. How do we tactically do this? As an example, on our last call I discussed Lifestyle 360, our new activities program in which every Five Star community will offer daily activities or events which have been thoroughly researched to ensure they have a positive outcome for the residents. The obvious outcome here is that our residents will enjoy a better quality of life which leads to more resident referrals.

Our sales force loves this program because it gives them yet another tool to help differentiate ourselves from the competition, demonstrate our dedication to the wellness of our residents and ultimately create and convert more leads. And finally the sales force is tasked with taking this a step further, calling on his or her network of professional referrals, educating them about the new program and inviting them to one of the events or activities at the communities. Early feedback has been extremely positive and we've seen healthy turnouts at the events by our professional networks. Again this is just one example of the many things Five Star can do to go after the best possible leads. Our digital investments, celebrity chef food and dining programs, and signature experienced training are a number of other ways we are improving our leads and overall resident satisfaction.

And these efforts are having a positive impact. On a same-store basis, we are able move in 3.5% more residents in the second quarter of 2015 compared to the first quarter of 2015. And we had our best month of move-ins this July. Our same-store move-ins hit an all-time high and were up 10% over July of 2014. And as a result, our occupancy at the end of July was 20 basis points higher than the second quarter of 2015. We are encouraged by our sales numbers which clearly showed that our programming and sales efforts are paying off. I will now turn the call over to Paul.

Thank you, Scott, and thank you for joining us today. For the second quarter, Senior Living revenues grew slightly to $277.9 million in the second quarter of 2015, an increase of $2.5 million compared to the second quarter of 2014, primarily as a result of a 2.4% increase in private pay rates in our IL/AL communities.

Total Senior Living management fee revenues were $2.7 million for the second quarter, an increase of 11% compared to the second quarter of 2014 primarily due to the increase in the number of communities we manage, which increased from 44 to 60. As a reminder, we added 14 managed communities on May 1 and received two months contribution to revenues during the quarter. We are pleased that our management fees continue to grow and we expect to generate approximately $11 million annually of management fee revenues.

Senior Living wages and benefits for the quarter were $136.4 million, an increase of 1.6% compared to the second quarter of 2014, primarily due to annual wage increases and increases in employee health insurance costs during the period. At 49.1% of comparative Senior Living revenues, Senior Living wages and benefits were in line with our expectations and remain well controlled.

Other Senior Living operating expenses were $71.2 million, which included $1.3 million of legal and consulting costs incurred related to the skilled nursing compliance matter at one of our communities. When adjusted for that, they were 25.2%, a decrease of 30 basis points from the second quarter of 2014, primarily due to decreased costs associated with reduced utility expense and reduced bad debt expense. The Company continues to experience good results from its focus on reducing its bad debt exposure.

General and administrative expenses were $18.2 million for the quarter, and included $500,000 of nonrecurring legal and compliance costs. There was also $400,000 in Board expenses which occurred during the second quarter of 2015 versus the third quarter in 2014. G&A costs remain well controlled and for the second quarter were 4.7% when adjusted for the above of total revenues under management. Rent expense for the quarter was $49.7 million, or 17.9% of comparative Senior Living revenues, and is the same percentage as last year during the second quarter. Interest expense was $1.1 million and depreciation and amortization was $8.1 million for the quarter.

EBITDA excluding nonrecurring items was $7.1 million for the quarter compared to $8.9 million in the second quarter 2014. The decline was primarily related to the 70 basis point decline in overall occupancy. Recurring EBITDAR was $56.8 million for the quarter and is $116 million for the first half of 2015, a 6% increase compared to last year.

Now I'll review our liquidity, cash flow and selected balance sheet items. Cash flow from operating activities was $8 million for the second quarter of 2015. We invested $13.6 million of capital into our communities and sold $4.8 million of long-term capital improvements. At quarter end we had $22 million of cash and cash equivalents.

At quarter end we had $357.1 million of net property and equipment, which includes 31 properties directly owned by Five Star, 12 of which are unencumbered by debt. At quarter end we had $35 million outstanding on our two credit facilities and $44.7 million of mortgage notes payable. During the quarter we repaid an outstanding mortgage balance of $4.9 million that had an 8.99% interest rate on one of our communities. We're currently at $30 million outstanding out of our total availability of $175 million. In April, we extended our $150 million facility for one year and in our option can extend it for one more year to April of 2017.

At the end of the quarter our leverage was 27% of booked capital and 15% of assets. We believe we are in compliance with all material terms of our credit, note and mortgage agreements. With that, Bruce Scott and I are happy to take your questions. Thank you.

(Operator Instructions)

Seeing that there are no questions, this concludes our question-and-answer session. I would like to turn the conference back over to Management for any closing remarks.

Great. I'd like to thank all for joining us on our second-quarter earnings call. We forward to updating you on our progress on future calls.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.