Capital Senior Living has made “significant adjustments” to its operating model in response to the COVID-19 pandemic, Chief Operating Officer Brandon Ribar said Tuesday on the company’s fourth-quarter and full-year 2019 earnings call.
One or more residents in three of the company’s 125 senior living communities have tested positive for COVID-19, he noted.
The company conducts training on infectious disease protocols and safeguards throughout the year to limit the flu and other contagions, Ribar said. And since the coronavirus, he added, Capital has implemented all COVID-19-related recommendations from the government, including the screening of anyone who enters a community.
“In each community, we have worked closely with local health departments and state regulatory agencies and received feedback that all appropriate protocols are in place,” Ribar said. “We continue to monitor and support all of our communities on a real-time basis and implement all appropriate response protocols as necessary with changes in the local market or within our own communities.”
Chief Financial Officer Carey Hendrickson said it’s too soon to predict the effect the disease had on first-quarter 2020 numbers. “In March and as we move forward, we expect to experience increases in labor costs due to the need to supplement our staff with premium paid labor, and we’ll have increased costs related to medical supplies,” he said.
To offset COVID-related expenses, Hendrickson said, Capital has reduced spending on non-essential supplies, travel costs and all other discretionary items. “And we’ve reduced our capital spending to only the most critical projects,” he added.
On Monday, the company’s board of directors approved a temporary suspension of equity awards for directors and officers.
Net operating income increased in January compared with December, and February NOI improved over January, Hendrickson said. “Our occupied units in January and February were stable with where we ended December and moving into March, prior to the COVID-19 outbreak in the U.S., were trending positively,” he said.
Now, President and CEO Kimberly Lody said, the company is seeing fewer move-outs than typical “because people are choosing to stay in place. …They believe that our communities are a great option for them and a good place for them to continue to stay versus going to any other environment in the community.”
Move-ins have slowed but are continuing, she said. Virtual tours are increasing, Ribar noted.
“People in every market where our communities are operating continue to seek services,” Lody said. “It’s at a lower volume than certainly we saw at the beginning of the quarter, but it’s a need-based business in a lot of cases, and people do continue to seek out those services.”
Capital is being “very selective” with prospective residents, the CEO said. “There are strict protocols in place, and those new residents also must be willing and able to self-quarantine for 14 days upon moving into one of our communities,” she said.
One thing the company doesn’t plan to do is offer discounting or concessions to try to entice prospective residents, Lody said. Capital reduced the level of concessions it offered by approximately 60% year-over-year from 2018 through 2019, she noted, adding that the use of discounting and concessions “had gotten quite high in 2018.”
“In this environment, I don’t think that reigniting the discounts and the concessions is the right strategy,” Lody said. “I think people are — if they have a need, they are continuing to explore that need and come into senior living. If it’s not such an immediate need, we might see them waiting a little bit longer, but a discount or additional financial incentives to them probably are not going to encourage them to move in, in the current environment, if they’re not comfortable doing so.”
Occupancy at 43 communities is at least 90%, and it is less than 70% at 19 communities, Ribar said.
The company’s financial and legal teams are reviewing the Coronavirus Aid, Relief, and Economic Security Act, or CARES Act, the CEO said.
“We believe that there are several items that can be helpful to us,” including the deferral of social security taxes, mortgage debt forgiveness programs and access to capital to help with incremental operational expenses, she said.
“We’re working through those and exactly what can be applicable to our business and what we’ll be able to utilize,” Lody said. “We intend to utilize as many of the provisions of that act as possible, and we’ll know more in the coming days.”
The pandemic hit as Capital completed what Lody called “a reset year” for which it reported a net loss of $36 million. Revenue, however, stabilized in the fourth quarter, at $108.7 million, an amount consistent with the revenue contributions for like communities in the third quarter 2019.
“It is clear that the work we did during 2019 to strengthen the operational foundation of the company prepared our business for the current environment,” the CEO said.
“While the impact of COVID-19 is difficult to predict, we’re encouraged to see the financial improvement during the first several weeks of 2020,” Lody said. “We still have a lot of work to do, and I’m confident that we will navigate through the current environment with excellence and continue our path of incremental improvement once the overall environment stabilizes.”
