Reporting a first-quarter net loss of $9.7 million, AlerisLife executives said Wednesday that they have a short-term focus on stabilizing the company’s senior living portfolio by standardizing processes and driving efficiencies.
Interim President and CEO Jeffrey Leer, also the Newton, MA-based company’s chief financial officer, called this a “pivotal time” for the senior living industry and the company during AlerisLife’s first-quarter earnings call. The company’s goal, he added, is to narrow its focus to realizing occupancy growth and cost efficiencies.
Monday, the company announced the resignation of former President and CEO Katie Potter and the hiring of healthcare consulting group Alvarez & Marsal to conduct a comprehensive operational review. Recommendations are expected by the end of the second quarter.
Under a separation agreement, Potter will remain with the company through Dec. 31 to assist in the transitioning of her duties and responsibilities. She will receive $12,000 monthly from May until December, as well as a lump sum cash payment of $483,333 in May, with a potential additional identical lump sum payment Dec. 31.
Earlier Wednesday, during real estate investment trust Diversified Healthcare Trust’s first-quarter earnings call, DHC President and CEO Jennifer Francis addressed the AlerisLife news, indicating that she expects that the operational review and resulting plan will accelerate improvement in the communities Five Star Senior Living manages on DHC’s behalf. Five Star changed its name to AlerisLife in January, but the Five Star name continues to be used for AlerisLife’s senior living division.
DHC currently is AlerisLife’s largest stockholder, the REIT said in a quarterly report filed Tuesday with the Securities and Exchange Commission. As of March 31, DHC owned approximately 32.8% of AlerisLife’s outstanding common shares. In the first quarter, DHC recorded unrealized losses of more than $8.5 million related to its investment in the company.
$9.7 million net loss
In the first quarter, AlerisLife reported a net loss of $9.7 million compared with net income of $3.3 million in the first quarter of 2021. Earnings were down $5.5 million in the first quarter, compared with a gain of $6.8 million for the first quarter of 2021.
During Wednesday’s call, Leer said that AlerisLife is working with its sales teams to augment targeting strategies and enhanced sales techniques to maximize revenues for its senior living portfolio.
“We’ve made significant investments in operational support functions that will provide our operation teams with the tools they need to meet the present challenges and adapt to the ever-changing environment,” he said.
Leer said that the company also has decreased general and administrative expenses by $1.4 million (9%) from the first quarter. Since the second quarter of 2021, the company has reduced gross general administrative costs by $4.6 million, or $18 million on an annualized basis, which is above its original $12 million target.
“While we continue to evaluate opportunities to reduce our general administrative costs, we are committed to streamlining our processes and making the necessary investments in our people,” Leer said.
Occupancy
AlerisLife reported that average occupancy in the portfolio of communities that it owns was 71%, a decrease of 100 basis points (1%) from the fourth quarter of 2021. Average occupancy in the communities it manages for DHC was 74.1%.
Five Star, the senior living division of AlerisLife, by far has the largest concentration of senior living communities in DHC’s senior housing operating portfolio, managing 120 communities with a total of 17,899 units for DHC as of Dec. 31, when the SHOP had a total of 227 communities with 25,239 units, according to a March presentation posted on DHC’s website. That means that Five Star manages 53% of the properties and 71% of the units in the portfolio.
Independent and assisted living collectively represented 23% of net operating income for the REIT as of the fourth quarter of 2021, according to the presentation.
Leer said that as aggressive concessions and discount programs from previous quarters begin to expire, he expects further improvement in occupancy and revenues.
During the fourth quarter of 2021, DHC had completed the transition of 107 senior living communities from Five Star to 10 new third-party managers. Occupancy rates for those transitioned communities rose 100 basis points (1%) from the fourth quarter to the first quarter, with eight of the 10 new operators reporting occupancy increases and seven of the new operators raising rates this quarter.
Francis said the operators have not seen resident pushback on rate increases, because alternatives to senior living, including home care, also are reporting rate increases. She added that operators are using rate concessions as a closing tool, offering one month of free rent at most to drive occupancy.
“Following the completion of these transitions, we believe we have the right operator mix and are starting to see the benefits from both our capital spend and from the investment our operators are making in their communities and in their corporate and marketing teams,” she said.
Francis said she is “confident in DHC’s growth trajectory moving forward” and is optimistic its SHOP segment operators will continue to see improvement as industry fundamentals recover.
AlerisLife and DHC spending
DHC CFO Richard Siedel said the REIT spent $60.4 million on capital expenditures across all property types in the first quarter, with $36 million of that in its SHOP segment. Overall, DHC expects capital expenditures in 2022 to be close to $400 million, with $125 million spent in its medical office building segment and the rest dedicated to its SHOP portfolio.
DHC noted that The RMR Group, which provides management services to AlerisLife, is making “significant” investments in its senior living asset management team, focusing on “high-impact deliverables” to improve operations at underperforming properties.
The RMR Group is working with AlerisLife on 58 capital projects that will be completed or will kick off in 2022. Eight “sizable” projects are underway or in permitting, 14 are in the design phase, and 29 are building refreshes that will complete by the end of the year. In total, Francis said, $110 million in capital investments will be made this year.
AlerisLife spent $25.7 million on behalf of its managed portfolio for routine community capital improvements in the quarter. Leer said the company expects to spend $78 million in its managed communities for the remainder of the year. The company also expects to invest $16 million on the communities it owns and $2 to $3 million on technology, he added.
