Release Date: August 12, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Highest occupancy in the company's operating history, with same-store portfolio occupancy reaching 86.2% for the quarter.
- Year-over-year rate growth of 8.4% for the quarter, driven by annual rate increases and positive re-leasing spreads.
- Same-store net operating income increased by 31% from Q2 2023 and 19% sequentially.
- Significant reduction in move-outs, contributing to occupancy gains.
- Successful acquisitions of nine communities, enhancing market presence and providing opportunities for performance improvement.
Negative Points
- Labor costs increased by 3.3% year-over-year, despite a sequential decline.
- Dependence on third-party referral agencies, although reduced, still impacts overall expense profile.
- Non-labor operating expenses remain a challenge, despite improvements.
- The company still has two communities with less than 75% occupancy, indicating areas needing further improvement.
- Debt restructuring and deleveraging efforts are ongoing, with significant principal payments required.
Q & A Highlights
Q: Can you provide more details on the occupancy trends and what drove the improvements this quarter?
A: (Brandon Ribar, President, CEO, & Director) The same-store portfolio achieved its highest occupancy in operating history, averaging 86.2% for the quarter, with June reaching nearly 87%. This improvement was driven by a reduction in move-outs and strong performance across all operating regions. We aim for a portfolio-wide occupancy of 90% in the near future.
Q: What factors contributed to the year-over-year rate growth of 8.4%?
A: (Kevin Detz, Chief Financial Officer, Executive Vice President) The rate growth was driven by our annual rate increases implemented on March 1st and positive re-leasing spreads on new move-ins. Additionally, our revised level of care program and increased Medicaid rates in Indiana contributed to the rate improvements.
Q: How did labor costs trend this quarter, and what measures are being taken to manage them?
A: (Brandon Ribar, President, CEO, & Director) Total labor costs declined sequentially by 2% from Q1, with premium labor costs improving. Year-over-year, labor costs increased by 3.3%. We are focusing on stabilizing labor costs through better management of overtime and reducing dependence on third-party referral agencies.
Q: Can you elaborate on the recent acquisitions and their expected impact?
A: (Brandon Ribar, President, CEO, & Director) We acquired nine communities, deploying approximately $50 million of equity at an average basis of less than $125,000 per unit. These acquisitions are expected to stabilize at a double-digit cap rate, driven by occupancy growth, rate improvements, and effective expense management.
Q: What are the key areas of focus for the second half of 2024?
A: (Brandon Ribar, President, CEO, & Director) Our focus will be on improving organic portfolio performance to achieve positive all-in cash flow by year-end, delivering expected performance improvements in recently acquired communities, and leveraging our network to identify attractive acquisitions.
Q: How is the company addressing the integration of new acquisitions?
A: (Brandon Ribar, President, CEO, & Director) We introduced an operational excellence team led by our Chief Clinical Officer to focus on integrating new acquisitions. This team provides training and development on best practices and technology support systems to drive recovery in underperforming communities.
Q: What is the company's strategy for external growth?
A: (Brandon Ribar, President, CEO, & Director) We focus on identifying high-quality, recently constructed communities with significant value-add opportunities. Our strategy includes outright purchases, strategic joint ventures, and recapitalizations, aiming to create a high-quality, low-leverage, regionally focused real estate portfolio.
Q: Can you discuss the company's financial position and recent debt restructuring?
A: (Kevin Detz, Chief Financial Officer, Executive Vice President) We entered into loan modification agreements, including a discounted payoff option, reducing our principal balance by $10 million. Our total debt is 71% fixed-rate notes, with a weighted average interest rate just below 5%. We continue to focus on deleveraging the portfolio.
Q: How are non-labor operating expenses trending?
A: (Kevin Detz, Chief Financial Officer, Executive Vice President) Non-labor operating expenses improved as a percentage of revenue, decreasing nearly $800,000 sequentially. This improvement is driven by reduced commissions on third-party referrals and better management of food costs and real estate taxes.
Q: What are the company's expectations for future acquisitions?
A: (Brandon Ribar, President, CEO, & Director) We have a clear line of sight to additional external growth investments and continue to target opportunities to purchase assets outright or through joint ventures. The current market conditions provide a robust pipeline of growth opportunities that we are well-positioned to access.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
