AlerisLife (Nasdaq: ALR) is cutting some corporate overhead positions and retooling its operations as part of a restructuring effort that is just getting underway.
The Newton, Massachusetts-based senior living operator announced the effort in its second-quarter earnings release this week. The restructuring plan, slated to wrap up in the middle of next year, is aimed at reducing general and administrative costs, enhancing accountability and better supporting the company’s employees.
The restructuring plan comes just months after AlerisLife tapped professional services firm Alvarez & Marsal to conduct an operational review, a process that concluded at the end of June. Leer took the reins as permanent CEO in June following the resignation of former president and CEO Katie Potter in May.
“We will continue to drive efficiencies in standardized processes that will enable us to better serve our residents and customers and stabilize our financial performance,” said CEO Jeff Leer during the company’s second-quarter earnings call Thursday. “This includes adjustments to the structure of operational support, meaningful reorganization of our sales and marketing programs, and continued investment in streamlining processes that will eliminate cost redundancies and enhance margins.”
Overall, AlerisLife reported a net loss of $8.8 million in the second quarter, an improvement over the company’s $9.7 million net loss reported in the first quarter of 2022.
Occupancy for the company’s owned-community portfolio registered at 75.5% in the second quarter, representing a gain of 340 basis points compared to the first quarter of the year. The company’s management portfolio similarly hit 75.4% in the quarter, a gain of 80 basis points from the first quarter of the year.
Revenue per available room (RevPAR) for AlerisLife-managed communities grew to $3,077 compared to $3,027 for the first quarter of 2022. RevPAR for the company’s owned communities was $2,560, representing a gain of 4.8% compared to the first quarter of 2022.
Operating expenses for AlerisLife decreased by $3.7 million, or 2.1% in the quarter while base wages were up 6% from the first quarter of 2022.
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 externally managed by Portnoy-led alternative asset management company The RMR Group.
At market close on Thursday AlerisLife shares rose 4.3% to rest at $1.19 per share.
Restructuring efforts kick off
AlerisLife’s restructuring efforts include a variety of moves meant to better position the company for the long-term.
The company is looking specifically to reduce annual costs by about $14.0 million by slashing redundant business processes and reducing investments in “non-core functions,” switching to information technology systems to better support the operator, and identifying new opportunities to trim general and administrative expenses.
“Earlier today, we began executing on a restructuring plan which includes reducing operating expenses by eliminating certain corporate overhead positions,” Leer said in the company’s second-quarter 2022 earnings report. “We also ended the quarter with sufficient liquidity to execute on our restructuring plan, with $83.5 million of cash and no debt maturities until 2025.”
AlerisLife is also planning to invest $4 million to aid the company’s restructuring efforts, including by hiring a COO to oversee operations and a CFO. The operator is also putting dollars toward investing in a national operations infrastructure and centralizing sales and marketing efforts.
“Many of these augmented targeting strategies and enhanced sales techniques were deployed within our own portfolio as a pilot program during the quarter,” Leer said during the company’s earnings call Thursday.
By making further investments in marketing and sales, Leer estimated performance numbers reported for June would carry into the current quarter. Sales lead volumes increased 6% compared to the first quarter of this year, driven by digital lead generation and an increase in the company’s tour-to-conversion rate to 27.3%.
“This highlights our immense focus on enhancing our sales tactics to improve occupancy on a consolidated basis,” Leer said.
AlerisLife made progress on other operational efforts in the quarter. For example, contract labor costs decreased about $500,000, or 12%, compared to the second quarter of last year. That is the result of the company’s focus on hiring key positions, Leer said.
Those efforts have resulted in a boon for AlerisLife landlord Diversified Healthcare Trust, which reported during its second-quarter earnings call Thursday that property expenses during the second quarter decreased slightly as a result of the AlerisLife initiatives. Overall, labor is stabilizing thanks to a decrease in the REIT’s turnover rate, the average time to fill vacant positions and the number of vacancies, according to President and CEO Jennifer Francis.
“While we were pleased with the progress made, accessing labor and wage inflation will continue to be the biggest challenges facing the senior living industry,” Francis told investors on Thursday’s earnings call.
Francis said she expects wages and benefit costs to increase as operators compete to attract and retain talent, calling it the “new normal for quite some time.”
AlerisLife expects to deploy $54 million in capital by the end of the year, Leer said.
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