President and CEO Katie Potter
As Five Star Senior Living executives prioritize finding a long-term solution to the company’s current financial issues, the company also is focused on three initiatives to improve operations in 2019, President and CEO Katherine “Katie” Potter said Wednesday during the company’s fourth-quarter and full-year 2018 earnings call.
“I’m excited for what I believe we can accomplish in the months and years ahead,” she said, predicting that 2019 will be “transformational” for the company.
“There’s a strong foundation at Five Star, and we are well-positioned to capitalize on a number of opportunities as the senior living industry evolves,” Potter added.
It was her first time leading the company’s quarterly calls; Potter assuming her current roles at the Newton, MA-based company Jan. 1. She succeeded Bruce Mackey, who in November had said that Five Star’s financial situation raised “substantial doubt on our ability to continue as a going concern.”
The net loss for the fourth quarter of 2018 was $23.7 million, and the net loss for the year was $74.1 million, the company reported Wednesday.
Commenting on the the company’s status, Potter repeated the message that Senior Housing Properties Trust President and Chief Operating Officer Jennifer Francis had shared Friday on the real estate investment trust’s earnings call, that the REIT and Five Star are “actively engaged in discussions” about a possible restructuring to address the issues and would have no additional comment for now.
Francis said an announcement could be coming by the end of April. Five Star, the country’s fourth-largest operator of senior living communities, according to 2018 lists compiled by Argentum and the American Seniors Housing Association, is a former subsidiary and currently the REIT’s largest tenant and operator.
Liquidity
Five Star had $29.5 million of cash and cash equivalents and $51.5 million outstanding on a revolving credit facility as of Dec. 31, Executive Vice President, Chief Financial Officer and Treasurer Rick Doyle said during the call.
“We are currently evaluating options to refinance the credit facility, which is scheduled to expire in June 2019,” he said. “We cannot be sure that we will obtain any renewed or restructured credit facility, and our ability to do so will likely depend on lenders’ belief that our operating leverage and expected future operating results will improve.”
At the end of the fourth quarter, the company we had approximately $244 million of net property and equipment, including 20 communities that it owns, with one mortgage note of $7.9 million at a 6.2% interest rate, Doyle said.
Operational initiatives
The three initiatives outlined by Potter:
- Continue to participate in J.D. Power’s senior living certification program, with the goal of having more communities certified by the end of the year. Three Five Star communities recently became the first ever to be certified under the program. “This evaluation process will become the basis from which we will internally evaluate all of our senior living communities at regular intervals,” she said.
- Implement the company’s revenue management program at all communities in 2019 and improve it so that the company can respond even more quickly to pricing changes in the market. The revenue management program was in use at 160 communities as of the end of February, and it will be installed at eight to 10 communities every month, Potter said. “This program is used to continuously adjust pricing either up or down to match the demand for specific products in specific markets with the goal of maximizing occupancy,” she said.
- Define operational segments by certain attributes unique to Five Star’s product lines and community types. “As one of the largest senior living operators in the country, we provide resident experiences that represent vastly differing needs and preferences,” Potter said. “By defining operational segments and associated quality standards, we intend to provide a consistent resident experience across each segment and add value by creating brand recognition.”
Occupancy improvement
Occupancy across independent living, assisted living, continuing care retirement communities and skilled nursing was up sequentially in the fourth quarter for the second consecutive quarter, and Potter credited the revenue management program for the improvement.
CCRCs led the way, with a 160-basis-point increase over the third quarter, putting CCRC occupancy is at its highest level since the first quarter of 2017, the CEO said.
Occupancy increased by 100 basis points at leased stand-alone skilled nursing facilities, 80 basis points at owned senior living communities and 50 basis points at leased independent living / assisted living communities, she said
Total occupancy was 82.9%, up 30 basis points compared with the same quarter last year and up 90 basis points sequentially, Potter said. Revenue also increased “slightly” on a comparable community basis in the fourth quarter compared with the same quarter last year, Doyle said.
Adjusted earnings before interest, tax, depreciation and amortization were a negative $12.9 million for the fourth quarter of 2018, down from $2 million for the same quarter last year, he said. “This decrease is mainly a result of comparable community operating performance,” primarily due to wages and benefits, Doyle said.
“From a labor perspective, our main goals heading into 2019 are to decrease employee turnover and eliminate the use of contract labor,” he said.
