With New Interim CEO, AlerisLife Narrows Focus to Growing Occupancy, Managing Costs

With a new interim CEO leading the company, senior living operator AlerisLife (Nasdaq: ALR) is taking a narrower focus on driving occupancy growth and cutting costs for the year ahead.

Current interim president and CEO Jeff Leer took the reins following the recent resignation of former President and CEO Katie Potter. He laid out his vision for short-term improvement during the company’s first-quarter earnings call with investors and analysts Wednesday.

Although Leer said the company is not losing sight of its long-term strategy, he added that for now, the focus is on stabilization.

“This includes working with our sales teams across our markets to augment targeting strategies and enhance sales techniques to maximize revenues,” he said during the 1Q22 call Wednesday. “Additionally, we have made significant investments in our operational support functions that we expect will provide our operations team with the tools they need to face present challenges and adapt to the ever-changing environment.”

To help achieve that, the company has also forged a partnership with Alvarez & Marsal, a professional services firm, to conduct an operational review. Results from the review are expected by the end of the second quarter, with the board to hold off on a permanent CEO search in the meantime.

“We are excited to work closely with their team to improve our operational performance by driving efficiencies and standardizing processes,” Leer said.

AlerisLife manages 120 communities with 20 communities it owns across 27 states. The company, along with landlord and real estate investment trust partner Diversified Healthcare Trust (Nasdaq: DHC) — are both part of Portnoy-led alternative asset management company The RMR Group.

At market close on Wednesday, AlerisLife shares fell 5.71% to rest at $1.65 per share.

Focus on operations

AlerisLife reported a net loss of $9.7 million for 1Q22 compared to a net income of $3.3 million in the first quarter of last year.

Revenue per available room (RevPAR) for AlerisLife-managed communities grew last quarter from $2,946 in 1Q21 to $3,027 in 1Q22, an increase of 2.7%. Compared to the sequential quarter, RevPAR also increased 4.4% within AlerisLife-managed communities and 0.9% for AlerisLife-owned communities.

“Both rate increases and the continued rollback of concession packages offered in previous quarters helped drive these improvements and more than offset decreases in occupancy from the sequential quarter,” Leer said.

Demand from prospective residents in the first quarter was higher for needs-based services, although Leer noted that demand and lead volumes have improved for the company’s choice-based offerings in recent weeks.

Within its owned community portfolio, average occupancy was 71%, a decrease of 100 basis points from 4Q21; while occupancy for the company’s managed portfolio was 74.1%. Leer anticipated further occupancy gains in 2022 but he noted that the gains would not be “as aggressive as we would have originally anticipated.”

“As we continue to focus on rate in conjunction with occupancy, and as the aggressive concession and discount programs implemented in late 2021 expire, we expect to even further improve earnings,” Leer said.

Lifestyle services revenue declined $1.5 million compared to 4Q21 due to an approximate 2% Medicare fee schedule rate cut as well as a 15% Centers for Medicare and Medicaid Services (CMS) rate cut for therapy assistants.Less than 6% of the company’s gross revenues are derived from Medicare and Medicaid assistance payment programs.

Managed community operating revenues were down $1.5 million last quarter at $38.5 million primarily due to the reduction in lifestyle services revenue driven by the federal health rate cuts.

In the first quarter, AlerisLife deployed $25.7 million in capital for capital improvements across its portfolio’s communities, with plans to spend $78 million of capital on behalf of its managed communities for the remainder of 2022.

Looking ahead, Leer said the company continues to see clinic and daily visitation levels trend upward with an estimated $400,000 increase in lifestyles revenue in the second quarter. In the near-term, Leer added he expects the company will invest up to $16 million across the AlerisLife portfolio and between $2 million and $3 million for investments in technology.

“We expect that 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.

In January, the company entered into an agreement for a $95 million senior secured term loan ahead of the company’s credit line expiring in June. Leer said the company was evaluating its “best options for maximum liquidity opportunity.”

“It gave us the best financial stability and security and a stronger balance sheet,” he said. “It gave us the flexibility to look at long-term strategic acquisitions as well as reinvestment of our 20-owned communities.”

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