Alerislife Inc (ALR) 2018 Q3 法說會逐字稿

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

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

Thank you. Welcome to Five Star Senior Living's Call covering the Third 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, Wednesday, November 14, 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 over the call to Bruce MacKey, Five Star's President and CEO.

Thanks, Brad. And thanks, everyone, for joining us on our third quarter 2018 earnings call. Before I turn to our operating performance for this quarter, I'd like to comment on 2 disclosure items. First, a few weeks ago, we filed an 8-K disclosing that NASDAQ informed us that the bid price of our common stock had closed below $1 per common share for 30 consecutive days. If we do not regain compliance within the allotted grace period, which could be up to 360 days, NASDAQ may delist our common shares. Five Star's low share price is a reflection of our low public float, coupled with industry headwinds and our resulting financial performance.

Second, as we stated in our earnings release and will include in our 10-Q that we will file later today, there are conditions that raise substantial doubt about our ability to continue as a going concern. Specifically, based on our cash balance at September 30, 2018, and projected cash needs for next year, we need to pursue a planned action to fund our operating and capital requirements and meet our debt obligations. We do have options available to us to raise capital based on the strength of our balance sheet, including selling some of the senior living communities that we own.

Despite having some success with recently implemented growth strategies, the impact of these strategies has not been enough to significantly improve our near-term financial performance. We recognize that more needs to be done. For example, there have been informal discussions with senior management of Senior Housing Properties Trust, or SNH, our primary senior living community owner, on how we can work together to improve Five Star's long-term stability. However, these discussions have been preliminary to this point and they may or may not result in anything being done with SNH.

Moving on to the third quarter performance. Early this morning, we reported negative $12.4 million of adjusted EBITDA for the third quarter of 2018, which was down from $3.3 million for the same quarter last year. This decrease is a result of comparable community adjusted EBITDA decreasing $14.4 million and a $1.7 million reduction in adjusted EBITDA due to the sale of 7 senior living communities over the last year.

Senior living revenue for the third quarter of 2018 decreased 2.5% or approximately $7 million as compared to the same quarter last year. However, most of this decrease was a result of the sold communities as our comparable community ceiling revenue only decreased 40 basis points.

Similar to last quarter, the biggest negative drivers of our comparable community revenue year-over-year were a 1.7% decrease in skilled nursing revenue and a 5.2% decrease in Memory Care revenue. These decreases were offset by an increase in independent living revenue of 1.5%.

We continue to see pressure at our stand-alone skilled nursing facilities and the skilled nursing units at our CCRCs. Skilled nursing revenue at our comparable communities was down $1.3 million, primarily due to a decrease in occupancy. Occupancy at our leased SNFs was down 320 basis points from the third quarter last year to 76.9%, and we are seeing a similar trend in the skilled units at our CCRCs.

As we've discussed in the past, efforts being led by accountable care organizations and managed Medicare programs are resulting in decreased lengths of stay, causing a decrease in occupancy and lower rates. 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 repurposing some or all of these units.

Memory Care revenues were down $1.4 million on a comparable community basis in the third quarter compared to the same quarter last year due to decrease in occupancy. Memory Care continues to be the fiercest source of new competition in our markets. These decreases were offset by an increase in independent living revenue. While our independent living occupancy decreased from last year, we were able to drive larger rate increases to offset this.

Ageility Physical Therapy Solutions, our Rehab and Wellness division, continued to produce solid growth. Revenues for the third quarter were $8.6 million, which was [a $1 million] increase or 13% more than the third quarter of 2017. This group had a very active third quarter, opening 9 additional outpatient clinics, including 4 in Washington state, a new state for us and one where we do not operate any Five Star senior living communities. As of the end of the third quarter, we operated a total of 120 outpatient clinics, 14 of which are not affiliated with the Five Star community, and have opened a total of 28 so far in 2018. We continue to see high demand for the service amenity and look to add more outpatient clinics to our platform.

Total occupancy was 82% in the third quarter, down 100 basis points compared to the third quarter of last year. While occupancy decreased year-over-year, we had 60 basis point increase sequentially from all of our portfolio segments. Looking at these portfolios individually, our own communities increased 40 basis points, our leased IL/AL communities increased 10 basis points, our leased CCRCs increased 70 basis points and our leased stand-alone skilled nursing facilities increased 220 basis points sequentially in the third quarter. We contribute a good portion of the growth to the increased use of our revenue management program at our private pay communities where pricing is adjusted continuously, either up or down, to match the demand for specific products in specific markets.

Concurrent with occupancy, we saw an increase in quarterly move-ins of almost 3%, both sequentially and year-over-year, which is at the high end of where we have seen this percentage over the past 2 years. On average, we are adding 8 to 10 communities per month to the revenue management program. At the end of October, we had 135 communities, while 53% of our private pay communities actively using this program. We added 35 communities to the program since June, and we are on schedule to have all of our communities revenue managed by the end of the first quarter of 2019.

Subsequent to quarter end in November, we started managing a senior living community for SNH with approximately 238 senior living units. The community is 100% private pay and is located in Colorado with a strong presence. This community should generate approximately $400,000 of additional annual management fee revenues going forward.

I would be remiss if I do not address the recent hurricanes in the southeast. Overall, our senior living communities fared very well. We evacuated approximately 10 communities in North Carolina and South Carolina. We are very fortunate to have incredible team members and regional management teams, and I'd like to recognize them for their efforts, their emergency preparedness and execution in protecting our residents and our communities against the devastating storms, allowing us to quickly resume operations and return our residents to their homes.

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

Thanks, Bruce, and good morning, everyone. Our management fee revenue was $4 million for the third quarter, an increase of 17.4% compared to the same quarter last year. This increase was driven primarily by the base management fee from the sale/manage-back of 6 communities sold to SNH. We also saw an increase in construction management fee revenue as a result of ongoing projects at 2 managed communities located in Tennessee. We now manage 76 communities containing over 9,700 units.

Senior living wages and benefits for the third quarter were $142 million or 52.1% of senior living revenue. On a comparable community basis, senior living wages and benefits increased $6 million or 4.4% compared to the same quarter last year. The increase was primarily due to overtime expenses and annual wage increases. Low record unemployment in the United States has made it more challenging to find qualified help, driving up overtime costs. This, combined with a competitive labor market within the senior living industry, are driving up wages and increasing our employment costs overall.

Other senior living operating expenses for the quarter were $76.8 million or 28.1% of senior living revenue. On a comparable community basis, operating expenses increased approximately $7.6 million or 11%. The increase is primarily due to an increase in repairs and maintenance resulting from unit turnover costs and interior and exterior repairs and maintenance across our entire portfolio. In order to raise occupancy and bring in new residents, we are making sure our communities and our units are up to the standard of today's senior living products.

General and administrative expenses were $19 million for the third quarter, an increase of 6.2% compared to the same quarter last year. The largest increase in G&A expenses came from consulting and other purchase services as compared with the same quarter last year. G&A as a percentage of all revenue from communities we own, lease and manage was 5%.

Rent expense for the third quarter was $52.3 million, an increase of 1% compared to the same period last year. The increase primarily relates to capital improvements we sold to SNH since January 1, 2017. This was partially offset by the rent reduction related to the sale of one skilled nursing community we leased from SNH in which our rent payable decreased by 10% of the net proceeds.

Interest expense for the third quarter was $466,000, a decrease of 59% compared to the same period last year. The decrease is due to our prepayment of 2 mortgage notes and the assumption of 2 mortgage notes in connection with 3 senior living communities as part of the sale/manage-back with SNH.

Turning now to our capital investments and expansion opportunities. We spent approximately [$13 million] in capital expenditures in the third quarter and sold $6 million of capital expenditures back to our landlord from our leased communities. At one of -- our largest recent capital project, The Forum at Park Lane in Dallas, Texas, our newly converted and renovated 46-unit assisted living wing recently opened. As of today, we have 38 operational units, of which 32 are occupied. And early 2019, we will begin converting the old assisted living units at Park Lane into Memory Care, which will allow us to care for existing residents rather than them leaving for higher level of care. We continue to evaluate other expansion and conversion projects to take advantage of opportunities in individual markets.

Turning to our liquidity, cash flows and selected balance sheet items. At September 30, we had $13 million of cash and cash equivalents and nothing outstanding on our revolving credit facility secured by 10 of our owned senior living communities. At quarter end, we also had approximately $245 million of net property and equipment, including 20 communities we own with only one 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. Despite the ongoing industry challenges, we are dedicated to providing the highest-quality care and service for our residents. Our award-winning programs, signature dining services and ability to create warmth and hospitality at our communities is unmatched in the industry. Our investment in our people, programs and communities are what set Five Star apart and will continue to help us grow our reputation and success as one of the largest and best senior housing operators in the country. Our commitment to senior care is unwavering, and we'll continue to work to develop a long-term sustainable solution.

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

(Operator Instructions) And with no questions being shown, we will conclude today's question-and-answer session and also conclude today's conference. We want to thank everyone for attending today's presentation. And at this time, you may now disconnect.