As Pandemic Pressures Ease, Capital Senior Living Focuses on New Programs and Rate Growth

For Capital Senior Living (NYSE: CSU), the pandemic’s pressures are easing, and CEO Kim Lody is optimistic that the company will see more improvement in the months ahead.

Occupancy ticked up in the first quarter of 2021 — today standing at 77.7% — and in March and April, the Dallas-based provider saw its highest level of move-ins in more than two years, representing a 64% growth in move-ins since February.

Capital Senior Living also has a new memory care program and a growing partnership with Frisco, Texas-based Aegis Therapies to implement wellness programming. And active cases of Covid-19 are “virtually nonexistent” in the company’s 60 owned and 8 managed communities, Lody said.

Like other leaders of publicly traded senior housing companies, Lody held off from predicting the trajectory of the recovery during Thursday’s first-quarter earnings call with investors and analysts. But she struck an optimistic tone when discussing the company’s census and net operating income (NOI).

“We expect occupancy growth and NOI improvement to continue in the months ahead,” Lody said. “We are confident that [with] the steady improvement in the operating environment, lower construction starts, strong affordability factors in our markets and the accelerating demographic tailwind, demand for our services will continue to improve.”

The company first began seeing signs of “meaningful improvement” in March, Lody noted. Flash forward to today, and 93% of the company’s residents have been fully vaccinated, with growing signs that a recovery is taking hold.

“The grips of the pandemic have eased considerably during the last few months” she said.

‘Early results are promising’

Thanks to the company’s three-year turnaround strategy — dubbed “SING,” for stabilize, invest, nurture and grow — Capital Senior Living now has a “redefined” portfolio that is almost half the size of what it was just two years ago, Lody said.

The provider’s leaders are also engaging in an “accelerated rollout” of the company’s new Magnolia Trails memory care program, and expect it to be operational in more than a third of Capital Senior Living communities by the end of May.

“Early results are promising in terms of positive occupancy and rate development, and the programming positions our communities to provide a higher level of memory care services,” Lody said.

The provider’s wellness programming with Aegis Therapies is also bearing fruit, and 78% of Capital Senior Living’s residents are participating in the new wellness offerings where implemented, according to Lody.

Capital Senior Living still has ground to make up in its NOI margin at its 60 owned communities, which as of the first quarter of 2021 stood at just over 20% — down sharply from the 31% NOI margin the company logged in the first quarter of 2020.

The company’s average asking rate dipped to $3,531 in the first quarter of 2021, representing a sequential decline of 1.5% from the previous quarter, due to one-time concessions offered in December, January and February.

But the company’s leaders plan to enact rate increases for residents of about 2% annually, and expect to return to 2020 average asking rates in the remainder of 2021.

Lody believes that Capital Senior Living’s margin will improve with gains in occupancy, and that the company won’t have to immediately hire additional staff, which would weigh on the bottom line. 

Labor costs declined 2.5% between the fourth quarter of 2020 and the first quarter of 2021.

“We really maintained our labor model in our communities to ensure that we would have enough staffing, and … we feel like we have the labor in place to absorb that occupancy improvement,” Lody said. “We would expect that every 100 basis points [added to occupancy] would be about $2.7 million in incremental revenue, and about $1.6 million in incremental NOI dollars.”

Capital Senior Living’s share price had risen 6.84% to land at $49.96 by the time financial markets closed Thursday.

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