Capital Senior Living is “addressing the issues head-on” after seeing “modest” growth in occupancy and rate in the third quarter compared with the previous quarter but being “disappointed” by decreases in other key metrics, President and CEO Larry Cohen said Tuesday during the company’s third-quarter earnings call.
Same-community financial occupancy was 85.6% in the third quarter, which was an increase of 10 basis points sequentially from the second quarter of 2018, Senior Vice President and Chief Financial Officer Carey Hendrickson said. “However, our September and October physical occupancy, which are key indicators for fourth-quarter financial occupancy, were weak relative to historical patterns for those months,” he added.
Other results relayed by Hendrickson:
- Same-community revenues decreased 0.8% in the third quarter of 2018 compared with the third quarter of 2017.
- Average monthly rent increased 0.6% year-over-year, whereas same-community occupancy was 130 basis points lower than in the third quarter of 2017.
- Same-community expenses in the third quarter of 2018 increased 3.2%.
- Employee labor costs increased 2.8% in the third quarter of 2018 versus the third quarter of 2017.
- Same-community net operating income decreased 7.6% in the third quarter of 2018 compared with the third quarter 2017.
“As we continue to navigate difficult industry headwinds, we are addressing the issues head-on,” Cohen said. He and other executives outlined initiatives undertaken by the organization:
- A centralized procurement platform implemented earlier this year is reducing costs as the use of group purchasing contracts and a “more prescriptive” supply formulary is used, Chief Operating Officer Brett Lee said. Food costs have decreased 5%, Lee said, and Hendrickson said Capital saw $500,000 in savings on food costs in the quarter. Costs for medical supplies have seen similar savings, Lee said. “When fully implemented, we expect these additional initiatives to produce approximately $750,000 in annualized savings,” he said.
- Regional and national contracts are replacing local service agreements to better leverage the company’s scale, Lee said. Contracts for solid waste management, elevator service, laundry service and pest control have been finalized, and Capital will be considering agreements for cable television service and utilities in the fourth quarter, he said. “We anticipate that these contracts will be key drivers of additional savings for 2019,” Lee said.
- Efforts to control operational expenses, especially wages, are being increased locally and companywide, Lee said. “Each community has developed a comprehensive expense savings plan to drive efficiencies in our operations for the remainder of the year,” he said. Capital plans to make some targeted investments to stabilize turnover and expects to see an associated reduction in the use of contract labor and overtime pay, Lee said.
- Sales efforts are being improved by providing data to sales personnel more quickly through a new CRM system, Lee said. Sales team members have been re-trained on core sales tactics, and partnerships with healthcare organizations and other community resources are increasing the sources of leads, he added. “Each community has developed a detailed revenue growth plan that includes increased community outreach, a focused effort to enhance lead conversions and, in certain markets, increased spending on digital marketing and social media outreach, all in an effort to drive a greater number of leads to the facilities,” Lee said. “These plans are reviewed daily with the community leaderships and will serve as the guide post for our local growth strategies through the remainder of the year.”
- Short-term pricing concessions are being used in markets deemed to be challenging, whereas rates and care fees are being maintained or increased in other markets where Capital has a competitive position, Lee said. “We anticipate that we will continue with the selective use of incentives in the fourth quarter as the industry enters a time of year in which lead volume typically slows and competition for move-ins becomes more pronounced,” he said. Cohen said, “Every discount request is reviewed up through the vice president of operations and the vice president of sales, and if there is anything that is above what would be considered our historical run rate, that’s something that comes up to me and to Carey for review.” Over the past few months, he said, Capital has seen a reduction in terms of overall percentage of discounting in the markets in which it operates, down from 20% in some “hyper-competitive” markets to an average of 13% to 15%.
Potential community sales in 2019
Capital also is looking to sell a “limited” number of communities in 2019, Cohen said, adding that the number of communities, which ones in particular and a specific timetable for the sales have not been determined.
“This is not a large number of assets,” he said, adding that the potential sales would be part of “the normal, ongoing optimization of our portfolio.”