Capital Senior Living Sees Huge Occupancy Gains from Unit Conversions

Converting units to serve higher acuity residents can help senior living providers move the occupancy needle and generate significant revenue growth at underperforming communities. And one Dallas-based operator is proof of the success that can be achieved.

Whether it is transforming units from assisted living to skilled nursing or assisted living to memory care, conversions enable senior housing providers to adapt to the changing needs of their residents and respond to demand shifts in their markets.

For Capital Senior Living Corporation (NYSE: CSU), converting units from independent to assisted living at some of its communities has started to reap meaningful rewards as both an occupancy generator and a near 20% revenue booster, particularly among the first four communities to undergo conversions in the last six months.

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The impact on those communities—which were converted by the end of the third quarter of 2014—has been outstanding and clear to see, said Capital Senior Living’s Senior Vice President and Chief Financial Officer Carey Hendrickson during a first quarter earnings call Wednesday morning.

Occupancy at one community, the whereabouts of which were not disclosed, increased from 69% prior to conversion to 93.1% at the first quarter’s close at March 31, 2015, Hendrickson noted. Another community saw occupancy grow from 84.5% to 95.7% as a result of its conversion.

“At another community, when we acquired it, it did not have the proper license for AL, so we had to move residents out and the occupancy dropped to the mid-50s,” Hendrickson said during the call. “Now, approximately six months after the conversion, it’s at 80% occupancy.”

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For the fourth property that underwent unit conversions, the prospect of expanded assisted living and memory care coming to the community propelled occupancy to 95% before the conversion was even complete.

“That community is currently 96% occupancy and the number of IL residents at the community is decreasing and the number of AL residents is increasing,” said Hendrickson.

So far, the conversions have translated into higher revenues at the communities that upgraded licensing on their units.

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Combined, those four properties generated revenue that was 19% higher in the first quarter of 2015, compared to the first quarter of 2014 before conversions took place.

Overall, the company reported revenue of $98.6 million during the first quarter of 2015, an increase of $6.8 million, or 7.4%, from the comparable period in 2014.

By the end of the second quarter of 2015, Capital Senior Living will have upgraded the licenses on more than 400 units from independent living to assisted living and memory care. Beyond that, the company expects to have an additional 90 incremental conversions done in the second half of 2015, with another 200 conversions in 2016.

“The conversions will further enhance our operations and are expected to add approximately $0.05 to 2015 CFFO [Cash From Facility Operations], with much of that coming in the back half of the year,” said Hendrickson.

Occupancy for Capital Senior Living’s consolidated communities was 87.3% in the first quarter of 2015, an increase of 20 basis points from the first quarter of 2014. Meanwhile, same-community occupancy fell to 87.1%, a drop of 30 basis points compared to the same quarter a year ago.

Same-community operating results, however, exclude the four communities undergoing repositioning, the company stated in its earnings filing.

“We are successfully executing on our strategic plan, and believe that we are well positioned to make meaningful gains in shareholder value as a substantially all private-pay business in an industry that benefits from need-driven demand, limited new supply , and an improving economy and housing market,” said Capital Senior Living CEO Lawrence Cohen during Wednesday’s earnings call.

Written by Jason Oliva

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