Capital Senior Living plans to transfer operations and ownership of 18 senior living communities to Fannie Mae, the company announced Thursday in conjunction with an earnings call.
“While a difficult decision, turning back these communities to improve our operating performance and liquidity is in the best interest of the company and its shareholders,” President and CEO Kim Lody said.
The communities are either underperforming or are in underperforming loan pools and have been “heavily impacted” by COVID-19, executives said.
Capital had 23 Fannie Mae communities under forbearance, and five were performing well in the pandemic, Chief Financial Officer Carey Hendrickson said. “We brought those [five] current at the end of July and made the August payment just like we would normally make,” he said.
Details and timing of the transfer of the 18 communities have not been finalized, but Capital said that the transfer will reduce the company’s debt by $216.3 million and improve annual cash flow by approximately $10 million.
The move follows several steps Capital announced in May “to improve its liquidity position and address uncertainty about its ability to continue as a going concern.”
In the second quarter, the company entered into short-term forbearance agreements to defer $5.7 million in debt service payments. Also, agreements reached with real estate investment trusts Healthpeak, Ventas and Welltower in the first quarter reduced facility lease expenses, resulting in a smaller net loss for the second quarter — $(12.8) million in the second quarter compared with $(47.2) million in the first quarter.
Across Capital’s portfolio, the pandemic has affected occupancy, which declined 240 basis points in the second quarter compared with the first quarter. June move-ins, however, returned to pre-COVID levels and exceeded move-outs for the month. Occupancy as of June 30 had increased to 77.7%, Capital said.
Lody said that the COVID-19 infection rate across the portfolio now is “well below 1%,” with only 48 out of approximately 10,000 residents having active COVID diagnoses. But the company incurred $2.9 million in COVID-related costs in the second quarter — for items such as personal protective equipment, cleaning and disposable food service supplies, enhanced cleaning, infection control, environmental sanitation costs and increased labor expenses for hazard pay at some communities with COVID-19-positive residents, and testing. The company expects to continue incurring such costs until the pandemic subsides.
Chief Operating Officer Brandon Ribar said that Capital has administered more than 10,000 tests across the company’s communities. “However, until testing results are accurate and available on a real-time basis, wide-scale, point-in-time testing does not prevent exposure,” he said. “However, our experience has shown that diligent infection control practices, including PPE, comprehensive screening of all visitors and staff and extensive disinfecting protocols, greatly limits both exposure and transmission for residents and stuff.”
Capital said it received $500,000 in COVID-19 relief funds from a North Carolina state Medicaid program in the second quarter and that the same program also provided $100,000 to offset some COVID-related expenses. The company anticipates receiving funds from state Medicaid programs in Wisconsin and Nebraska in the third quarter, but does not know what that amounts will be.
Capital also has applied for assistance from the Coronavirus Aid, Relief, and Economic Security (CARES) Act Provider Relief Fund for eligible Medicaid providers but does not know whether the company will receive assistance. The company also is taking advantage of the CARES Act payroll tax deferral program and received debt service payment relief of $5.7 million in the second quarter.
Lody said she is grateful that industry trade associations and operators are making a case that senior living should receive assistance from the federal government in the next pandemic relief legislation.
“We remain optimistic that there will be something in the upcoming bill that will provide relief to our industry.”Capital Senior Living President and CEO Kim Lody
“We’ve been, as an industry, on the front lines, fighting this pandemic, and there really has been very limited relief available to providers outside of the things that are starting to trickle in from the various states,” she said. “We remain optimistic that there will be something in the upcoming bill that will provide relief to our industry. I think the industry is doing everything it can to encourage that and communicate and share data and make sure that the situation is well known.”
Capital’s net loss for the second quarter was $12.8 million compared with $12.5 million for the same quarter last year.
“While we expect our financial results will continue to be impacted by the pandemic for the next several months, we believe that the strength of our operations teams, coupled with actions to improve our financial foundation, will further facilitate our operational turnaround as market conditions stabilize,” Lody said.
See McKnight’s coverage of other earnings releases on Thursday: Diversicare, Diversified Healthcare Trust, The Ensign Group, Five Star Senior Living, National HealthCare Corp., Omega Healthcare Investors, Sabra Health Care REIT and Welltower.