Capital Senior Living CEO: Increase in Voluntary Move-Outs is Likely Temporary

Capital Senior Living (NYSE: CSU) experienced an uptick in move-outs during the third quarter of 2020, but CEO Kim Lody believes that the factors at play are temporary.

“In Q3, as certain markets across the United States experienced escalating Covid-19 cases, the level of move-outs attributable to home- or self-care increased in our portfolio,” she said Thursday on the company’s third-quarter earnings call. “We believe this is a short-term situation due to families’ fatigue with Covid-related state restrictions on visitation in assisted living facilities.”

Meanwhile, the Dallas-based provider continued on its restructuring efforts, and is zeroing in on a portfolio of about 60 communities that are historically high performers.


Move-outs on the upswing

Like other senior living providers, Dallas-based Capital did see positive move-in trends in Q3, as communities were able to safely accept more new residents. In the second quarter of this year, move-ins for the company were at about 75% of 2019 levels, and that increased to 88% in the third quarter.

But occupancy still declined 150 basis points in Q3 compared to Q2, coming in at 76.1%. Move-outs were a larger part of the occupancy story than they have been since the Covid-19 pandemic began to sweep across the United States in the spring.

“Move-outs were elevated in the third quarter after several months of being well below pre-Covid levels,” Lody observed.


Families have had very limited opportunities to visit loved ones in senior living during the pandemic, which she believes is behind the increase in residents moving back in with family members.

“We view that as very temporary and short term,” Lody said.

This belief is grounded in the fact that senior living — particularly assisted living and memory care — are needs-based offerings. So, the demand will be enduring and lead people to return once they are comfortable and confident. Likely, this will occur when a Covid-19 vaccine becomes available, Lody said.

Capital Senior Living is not the only company to flag increased move-outs in the third quarter. New York City-based real estate investment trust New Senior (NYSE: SNR) also observed accelerated move-outs.

Portfolio of the future

Since taking over as CEO last year, Lody has been overseeing an operational turnaround at Capital Senior Living. That turnaround has included a portfolio restructuring effort, which has continued in the midst of Covid-19 and nearing completion.

By the end of the year, Lody anticipates that Capital will have exited substantially all of its triple-net leases, most of which were underperforming. Most buildings will transition to other operators, but Capital Senior Living will stay on under management contracts in about 15% to 20% of them.

In August, Capital Senior Living announced that it would be handing back 18 communities with non-recourse mortgage debt to Fannie Mae. The provider currently is operating these buildings for Fannie Mae on a management fee basis, and will continue under this arrangement until other operators are secured.

After all the planned transitions are completed, the remaining Capital Senior Living portfolio will consist of 60 owned assets, all of which are high performers, Lody said.

“In 2019, occupancy in this group of assets ranged between 84.4% and 85.7%, with a quarterly NOI margin ranging from 28.9% to 33.1%,” she said. “I see no reason why these communities cannot begin to return at least to the same level of performance as the operating environment stabilizes.”

In addition to right-sizing its portfolio, the company has addressed its corporate structure at the Dallas support center. By downsizing that center, Capital is poised to realize $450,000 in annual savings related to office lease expense. As the portfolio becomes smaller, the corporate support team also will become leaner. For 2021, general and administrative (G&A) expenses are estimated to be $7.5 million less than annualized G&A costs for 2020.

The turnaround strategy for Capital was dubbed SING, standing for stabilize, invest, nurture and grow. While Covid-19 is continuing to place unique demands on the company, it has honed its operations to keep the virus largely at bay, with only 86 out of about 9,000 residents currently having a positive diagnosis. 

Going forward, the priority will be to maintain this pandemic footing while investing in resident programming, sales and physical plant improvements to prime the pump for the “growth” phase of the turnaround, COO Brandon Ribar said Thursday.

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