Industry headwinds caused some turbulence at Capital Senior Living (NYSE: CSU) this quarter, but the company has a plan to steer the ship into calmer waters, executives said during a third-quarter earnings call Tuesday. They are focused on strategic rate setting as discounting has dissipated in some markets, and more broadly on implementing a more efficient, centralized operating approach developed in response to recent challenges.
“While we achieved modest growth in occupancy and rates on a sequential basis in the quarter, we are disappointed to report decreases in other key financial metrics,” outgoing Capital Senior Living CEO Larry Cohen said during the call after market close on Tuesday. “As we continue to navigate difficult industry headwinds, we are addressing the issues head-on.”
The Dallas-based operator beat analysts’ expectations by $1.3 million when it logged a third-quarter total revenue of $115.7 million, a 1.4%, decrease from its revenue during the same period last year. That decrease is partly due to lower revenue from the operator’s two communities impacted by Hurricane Harvey last year. Capital Senior Living took a net loss of $11.1 million for the third quarter of 2018.
Meanwhile, occupancy for consolidated and same communities was 85.6% for the third quarter, representing an increase of 10 basis points from the second quarter of this year and a decrease of 130 basis points from the third quarter of 2017. And average monthly rent for those communities was $3,628, an increase of 0.6% compared to the same period last year.
Capital Senior Living currently operates 129 senior housing communities nationwide, placing it among the 10 largest providers in the senior living industry. The company is also entering uncharted waters with the looming exit of longtime CEO Cohen, who announced in August he will retire from the role on Jan. 1.
But, the company has a plan to put it on firmer footing during the choppy short- and medium-term outlook for the senior living industry, according to COO Brett Lee.
“We are taking strong, decisive actions to improve our short-term performance, while continuing to implement the foundational elements of a new operating platform that we believe will set the company up for sustained success and competitive differentiation as the industry emerges from the current mismatch of supply and demand,” Lee said.
The operator in the third quarter worked “strike a balance” between short-term pricing concessions in challenging markets while holding steady, and in some cases growing, fees in markets where the company feels it has a stronger hand, he continued. That strategy will likely continue into the fourth quarter — a time of year when lead volumes slow and competition sharpens due to industry seasonality — albeit at perhaps a slower pace.
“Over last couple months, we’ve actually seen a reduction of the percentage … of discounting in our markets, down from 20% in some of our hyper-competitive markets to an average of 13% or 15%,” Lee said. “So, we’ve seen some slowing.”
Throughout the year, Capital has also aimed to manage major expense categories such as food, utilities and medical supplies, as well as implement an operational and financial platform that will be in use companywide by the end of the year. Additionally, the operator is working with individual communities to develop detailed revenue growth and expense saving plans.
On the whole, Capital reported a 5% savings in food costs in the third quarter of 2018 compared to the same period last year, and has thus far finalized national business agreements for solid waste management, elevator services, laundry and pest control. It’s also working to secure a national cable TV agreement in the fourth quarter.
The company may also sell off some limited assets in the year ahead — some that aren’t core to the company’s senior living portfolio, and others still that might fetch an attractive price from a buyer.
“While we understand the industry may continue to face headwinds in short- to mid-term, we are confident that the actions we are taking today will allow us to emerge stronger and a more effective operating company,” Lee said.
Written by Tim Regan