AlerisLife’s (Nasdaq: ALR) restructuring plan is well underway as the company continues to tighten and turn around its operations with its operating margins in mind.
The restructuring plan, which is expected to be completed in mid-2023, is aimed at reducing general and administrative costs, enhancing accountability and better supporting the company’s employees, according to management.
Part of that process has involved infusing the company with new leadership and fresh talent. The company’s recent hires include Heather Pereira as CFO and treasurer; and Philip Benjamson as senior vice president and COO. Pereira joined the Newton, Massachusetts-based company from Acushnet Holdings Corp. and Benjamson most recently worked for Trinity Health Senior Communities.
“Over the past few months, we’ve made two key leadership hires to bolster the strategies and continue delivering improvement across our portfolio,” said AlerisLife President and CEO Jeff Leer during a call with investors and analysts Thursday. “They will oversee the execution of our operational recovery strategy.”
Leer took the reins as permanent CEO in June following the resignation of former president and CEO Katie Potter in May.
Leer said that with these two new hires, AlerisLIfe has now fully-assembled its leadership team after months of change. AlerisLife also expects to incur additional restructuring costs in the fourth quarter, Pereira said.
“We expect to continue evaluating opportunities in our corporate structure, and have begun … to streamline our processes, and we anticipate a reduction in general and administrative costs going forward,” Pereira said during Thursday’s call.
AlerisLife in 3Q22 reported a net loss of $8.5 million, a slight decrease compared to a loss of $8.8 million in the second quarter of this year. Those two quarters are still an improvement from the $9.7 million recorded loss in 1Q2022.
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.
AlerisLife stock fell 3.11% at market close on Thursday to $0.93 per share.
Restructuring plan takes shape, yields results
As its restructuring plan continues, AlerisLife is also making progress on its operational improvement goals.
Occupancy for the company’s owned-community portfolio registered at 78.4% in the third quarter, representing a gain of 290 basis points compared to the second quarter of the year. The company’s management portfolio hit 77% in the quarter, a gain of 160 basis points from the second quarter of the year.
Diversified Healthcare Trust (DHC) communities managed by AlerisLife are expected to see an increase in occupancy and RevPar growth. Some of that growth could be partially offset by the impact of Hurricane Ian and the impact on a 380-unit managed IL and AL community in Fort Myers, Florida, Diversified Healthcare Trust executives said during the company’s third-quarter earnings call Thursday.
Revenue per available room (RevPAR) for AlerisLife-managed communities grew to $3,200 compared to $3,077 in the second quarter of 2022. RevPAR for the company’s owned communities was up to $2,801 compared to $2,560 in the second quarter of 2022, a 4% increase in the managed portfolio and 9.4% in its owned portfolio.
Leer said short-term RevPAR and occupancy gains were “directly attributable” to the company’s short-term focus and investments AlerisLife made in sales and marketing programs.
Those investments include an overhaul of the AlerisLife sales incentive program, which rewards teams for occupancy growth and expense management. AlerisLife also has started retooling its core marketing strategy, and established a “centralized sales function” to support the focus on sales and marketing efforts, Leer noted.
Operating expenses for AlerisLife communities increased by 12.9% in the third quarter, largely driven by wage compression, utilities and food cost inflation, Leer noted.
“The near term downside of increasing occupancy at our current pace often requires short term contract labor to backfill care requirements,” he said.
Employee turnover decreased to 17.6% from the second quarter, and open positions fell over 200 basis points to just over 11% by the end of the third quarter.
“As we focus on operational efficiencies and stabilize workforce to meet growth demands, we expect to see contract labor moderate in the fourth quarter, and decline more substantially in 2023,” Leer added.
Leer directly said the changes in strategy also have also led to elevated tour conversion rates, and have helped to shorten the sales closing process. Lead volumes jumped 9.3% from 2Q22, and the conversion rate improved over 200 basis points from 2Q2022.
“We appreciate the commitment and performance of our regional and corporate teams this quarter and expect continued execution on this front, which will position our company for long term success,” Leer told investors.
The company’s third-party review by Alvarez and Marsal earlier this year also helped identify ways to reduce labor costs, and also other key areas to “produce expense efficiencies over the next couple of quarters,” Leer said.
Recommendations made in the report will continue to be rolled out going forward, including alignment of sales, marketing, clinical and resident programming under a national operations support function.
AlerisLife deployed $29.3 million of capital for its managed portfolio in the third quarter for capital improvements, with the expectation to deploy approximately $33 million of capital on behalf of the managed communities in 4Q2022. Pereira also said AlerisLife expects to continue increasing net new locations over the “next few quarters.”