Alerislife Inc (ALR) 2018 Q2 法說會逐字稿

Good day, and welcome to the Five Star Senior Living Second Quarter 2018 Financial Results Conference Call. (Operator Instructions) Please note this event is being recorded.

I would now like to turn the conference over to Mr. Brad Shepherd, Director of Investor Relations. Please go ahead.

Thank you. Welcome to Five Star Senior Living's call covering the Second Quarter 2018 Results. The agenda for today's call includes a presentation by: Bruce MacKey, President and CEO; and Rick Doyle, CFO and Treasurer. Following this presentation, the management team will open the floor to a question-and-answer session with research analysts. I would like to note that the transcription, recording and retransmission of today's conference call is strictly prohibited without the prior written consent of Five Star.

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, Thursday, August 9, 2018. 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 the filings with the Securities and Exchange Commission, or SEC, regarding this reporting period. Actual results may differ materially from those projected in any forward-looking statements. 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 statements.

I will now turn the call over to Bruce MacKey, Five Star's President and CEO.

Thanks, Brad. And thanks, everyone, for joining us on our second quarter 2018 earnings call. We reported negative $12.2 million of adjusted EBITDA for the second quarter of 2018, which was down from $3 million for the same quarter last year. This decrease is a result of comparable community EBITDA decreasing $13 million and a $2 million reduction in EBITDA due to the sales of 1 leased skilled nursing community sold in the second quarter as well as the 6 communities we sold in the previously announced sale/manage-back transaction with Senior Housing Properties Trust.

Senior living revenue for the second quarter for 2018 decreased 3.5% to $270.9 million from $280.9 million as compared to the same quarter last year. From a senior living revenue perspective, the biggest driver of our comparable community revenue decrease year-over-year was the skilled nursing revenue originating from our stand-alone skilled nursing communities as well as our continuing care retirement communities. Together, our comparable stand-alone SNF and CCRCs were down $6.4 million or 8.1% in skilled nursing revenue compared to the same quarter last year.

Occupancy at our leased SNF was down 500 basis point from the second quarter of 2017 to 74.7%, and we are seeing a similar trend in the skilled units at our CCRCs.

As we discussed in the past, [adverts] being led accountable care organizations and managed Medicare programs are resulting in decreased lengths of stay and increasingly require people to bypass skilled nursing providers and go home for care as a lower-cost alternative. This is causing not only a decrease in occupancy but also a shift in our payer mix from high-reimbursement Medicare to lower-reimbursement Medicaid.

It is an ongoing initiative of ours to recognize and serve the ongoing demand changes in our markets. Accordingly, we are in the process of evaluating all of our skilled nursing units within our CCRCs and examining the feasibility and profitability of re-purposing some or all of these units. We've talked about our Rehab to Home program in the past, but in addition to that, we will determine if skilled units will be more profitable as other types of senior living operations where demand is evident.

On the private pay side of the business, independent living and assisted revenues combined were flat in the comparable communities as decreases in occupancy were offset with increases in rates.

Memory Care was a portion of the private pay business where we were not able to overcome occupancy loss with increased rates, as it has been consistently one of the fiercest sources of competition in our markets. Memory Care revenues were down 6.3% or $1.8 million on a comparable community basis in the second quarter compared to the same quarter last year.

Ageility Physical Therapy Solutions, our Rehab and Wellness division, continued to produce solid growth. Revenues for the second quarter were $8.7 million, which was a $1.3 million increase or 17.2% more than the second quarter of 2017.

In the second quarter, we opened a 3 outpatient clinics. At the end of the quarter, we now operate a total of 111 outpatient clinics, 10 of which are not affiliated with a Five Star community.

July was a busy month for Ageility as we opened 4 clinics located in the state of Washington. Washington is a new state for us, and all these clinics are located in communities not affiliated with Five Star. We continue to see high demand for the service amenity, and we'll look to add more outpatient clinics to our platform.

Total occupancy was 81.4% in the second quarter, down 170 basis points compared to the second quarter of last year. While occupancy was down 30 basis points sequentially, we saw an encouraging turnaround in occupancy as the second quarter progressed. After falling from March to April, total occupancy remained flat from April to May and increased 30 basis points from May to June.

Looking at our portfolios individually: Our owned, independent and assisted living communities saw an increase in occupancy from 80.7% in the first quarter of 2018 to 81.1% in the second quarter of 2018. We also saw an increase in our leased independent and assisted living communities in the same period from 83.4% to 83.6%.

We did experience a decrease in our stand-alone skilled nursing facilities during the same period from 75.7% to 74.7%.

Our CCRC communities saw a decrease as well, going from 81.5% to 80.6%. The drop in our CCRCs was primarily driven by decrease in skilled nursing occupancy, offset by an increase in occupancy at our independent and assisted living units.

This positive momentum has continued into July as well. Move-ins for the month of July were up 8.7% over July of 2017. We believe this a direct result of our increasing use of our revenue-management program. On average, we are adding 8 to 10 communities per month to the revenue-management program. At the end of June, we now have 100 communities, with 35% actively using this program, with another 27 that have begun the process of being revenue-managed. We initially have been focused on implementing this system at lower-occupied communities, but have recently started to focus on the communities with greater than 98% occupancy where we can begin to push our rates. We are pleased with the results of the program so far, as this has been the second quarter in a row our revenue-managed community have shown a substantial increase in move-ins compared to those not using the program.

In the second quarter, our revenue-managed communities' move-ins increased 7% year-over-year compared to those not on the system, in which move-ins decreased 3% year-over-year.

Finally, before I turn it over to Rick, I would like to give an update on our 5 owned Indiana communities in which we have recently finished converting 450 senior living units from independent to assisted living. One community is currently operating a full assisted living license, 2 communities received their provisional licenses in July and will likely have full licenses by the end of the third quarter. The 2 remaining communities are awaiting inspection to be completed in the next few weeks and, upon approval, will be operating on a provisional license. The 4 properties not yet operating on full licenses had an occupancy of 76.5% in the second quarter, well below what is considered stabilized occupancy for their markets. The fully licensed community has seen an occupancy increase of approximately 500 basis points, and we expect to see a similar result when the remaining 4 obtain their licenses.

I will now turn the call over to Rick Doyle, our Chief Financial Officer.

Thank you, Bruce, and good morning, everyone. I'm first going to touch on some of the second quarter financial highlights beyond what Bruce just covered. Our managed fee -- management fee revenue was $3.8 million for the second quarter, an increase of 6.3% compared to the same quarter last year. We now manage 75 communities containing over 9,500 units.

Senior living wages and benefits for the second quarter were $141 million or 51.9% of senior living revenue. On a comparable community basis senior living wages and benefits increased $5.9 million or 4.5% compared to the same quarter last year. The increase is due to higher employee health insurance expense, wage increases and higher overtime costs.

During the second quarter of 2018 we experienced higher claims in our health insurance compared to the same period in 2017 of approximately $2.5 million. This increase, however, is largely related to timing as our health insurance cost over the trailing 12 months of both periods decreased 5.7%. Also, this year, new minimum wages were implemented [in] 10 states we operate: Florida, California and Arizona. Additionally, the record-low unemployment rate has made it more challenging to find qualified help, which has driven up wages and overtime costs.

Other senior living operating expenses for the quarter were $76 million or 28% of senior living revenue. On a comparable community basis, operating expenses increased approximately $2.2 million or 3%. The increase is primarily due to an increase in repairs and maintenance resulting from unit turnover costs associated with new move-ins spread across the entire portfolio.

General and administrative expenses were $18.5 million for the second quarter, a decrease of 4.5% compared to the same quarter last year. G&A as a percentage of all revenue from communities we own, lease and manage was 5.1%.

Rent expense for the quarter was $52.1 million, an increase of 1.2% compared to the same period last year. The increase primarily relates to rent increases from capital improvements that were sold back to our landlord at our leased communities. In June, SNH sold a skilled nursing facilities located in California, which we previously leased for a gross sales price of $6.5 million. As of result of this sale, our annual minimum rent payable to SNH decreased by 10% of the net proceeds.

Turning now to our capital investments and expansion opportunities. We spent approximately $14.1 million in capital expenditures in the second quarter and sold $8.5 million of capital expenditures back to our landlord from our leased communities. At one of our larger recent capital projects, The Forum at Park Lane in Dallas, Texas, we expect to have a license from the state to operate the newly converted assistant living units in September. These 47 units have been out of service since the middle of 2016, and we will have 35 units occupied once we have the license. And we expect the remaining units to lease quickly.

We continue to evaluate other expansion and conversion projects to take advantage of opportunities in individual markets. We have 3 expansion projects estimated to start later this year that will add units to communities where demand dictates.

Turning to our liquidity, cash flows and selected balance items. At June 30, we had $22 million of cash and cash equivalents and nothing outstanding on our revolving credit facility secured by 10 of our owned senior living communities.

During the second quarter, we sold the remaining 2 senior living communities from the sale/manage-back transaction with SNH for an aggregate sales price of approximately $23.3 million. This included the assumption of approximately $16.6 million of mortgage debt. As a result, at June 30, we had approximately $248 million of net property and equipment, including 20 communities we own with 1 mortgage note of $8 million with an interest rate of 6.2%.

With that, I will turn the call back to Bruce for closing remarks.

Thanks, Rick. Obviously, this was a difficult quarter for Five Star and the senior living industry, as new units flood the market as a result of record new construction starts over the past year or 2. That, combined with the decline in the growth rate of the 85-and-above age demographic, has created an operating environment that has not been seen in this industry for quite some time. Our efforts over this time to create liquidity for the company have helped us navigate this challenging environment. However, we still have a way to go. There are some recent positive signs, as new construction starts are down significantly over the past year, and we are encouraged by our recent gains in occupancy in some of our operating segments. Our revenue-management program is gaining traction, and we will continue to transition more communities to this platform every month. Our capital investment program is also working, and we will continue to invest in our communities to ensure that they are the community of choice in their markets. Most importantly, we will continue to invest in our people and our programs because those are what will make us the most successful in the long term.

I will now turn it back over to our operator for questions.

(Operator Instructions) And at this time, as I am not showing any questions, we will conclude our question-and-answer session. And I'll turn the conference back over to Mr. Bruce MacKey, President and Chief Executive Officer, for closing remarks.

Thank you. I'd like to thank everyone for joining us on our second quarter earnings call, and we'll look forward to updating you on our future progress in future calls. Thank you. Bye.

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