Five Star Senior Living Inc.

Good day and welcome to the Five Star Senior Living Fourth Quarter 2020 Financial Results Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing star then zero on your telephone keypad. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Olivia Snyder, Manager of Investor Relations. Please go ahead.

Thank you. Welcome to Five Star Senior Living's fourth quarter 2020 earnings call. The agenda for today's call includes a presentation by President and CEO Katie Potter, Executive Vice President and COO Margaret Wigglesworth, and Executive Vice President, CFO, and Treasurer, Jeff Lear, followed by a question and answer session with research analysts. I would like to note that the transcription, recording, or retransmission of today's conference call is strictly prohibited without the prior written consent of the company. Today's conference call contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and other securities laws. These forward-looking statements are based on five-star's present beliefs and expectations as of today, Thursday, February 25th, 2021. The company undertakes no obligation to revise or publicly release the results of any revision to the forward-looking statements made in today's conference call, other than through filings with the Securities and Exchange Commission, or SEC, regarding this reporting period. Actual results may differ materially from those projected in any forward-looking statements. Additional information concerning factors that could cause those differences is contained in our filings with the SEC. Investors are cautioned not to place undue reliance upon any forward-looking statements. In addition, this call may contain non-GAAP numbers, including EBITDA, adjusted EBITDA, and pro forma EBITDA. Reconciliations of net income to these non-GAAP figures and the components to calculate them are available in our quarterly results news release, available on our website at 5starseniorliving.com. I will now turn the call over to Katie. Thanks, Olivia, and thanks everyone for joining us on our earnings call for the fourth quarter of 2020. 2020 was a year we will likely never forget. I am truly proud of what Five Star has been able to accomplish despite the challenges of the pandemic and of the resilience that the industry has shown as a whole. Above all, I am truly grateful for the courage and spirit that our team members have shown through this time and their unending dedication to our residents, clients, and each other. 2020 was also a year that marked an important turnaround in Five Star's business. On January 1st, we completed the restructuring of our business arrangements with Diversified Healthcare Trust, a transaction that had an immediate positive impact on our financial stability, allowed us to focus on optimizing our senior living operations, and provided us with the liquidity to make strategic investments in our business to support new initiatives and future growth. Now more than ever before, attracting, inspiring, and retaining top talent remains the biggest challenge and opportunity in the senior living industry. Our team members are and have always been our most important asset. In the work environment presented by the COVID-19 pandemic, their commitment to our shared mission has been integral to the safety and well-being of our residents and clients. Sustaining the resident experience through the pandemic has been no easy task. but it has remained central to our strategy throughout our COVID-19 response. Whether it is technology for virtual programming and family connection, outdoor programming and events, resourceful yet safe opportunities for social connection, and socially distanced dining, our unwavering focus on our customer will support the recovery of our business as the impacts of the pandemic subside. Investments in our shared services platform have allowed us to continue leveraging our scale to improve cost structure, drive revenue, and achieve maximum operational efficiency, despite the challenges of the pandemic. This has been especially important during the period of declining occupancy in 2020. In addition to targeted cost controls implemented to align with unexpected lower occupancy levels, Our centralized sourcing programs have resulted in $2.4 million of annualized cost savings over the last year. And we anticipate that upon a complete implementation of these initiatives, we will achieve $46 million of cost savings annually in our senior living segments. Our revenue management program, which utilizes dynamic pricing models to drive rate optimization, has also helped support our stable REVCOR performance throughout the year. With a focus on continued growth, we are always seeking and evaluating opportunities to grow our senior management business, as well as expand our offerings into other areas to meet the changing demands of older adults. Our commitment to our rehabilitation and wellness services segment continues to serve us well. It now represents 38% of our total management and operating revenues, up 5% from a year ago. Consistent revenue growth in this segment has provided stability to our financial results in a challenging operating environment, a testament to the benefit of our revenue diversification strategy. Demand for rehabilitation services remains high, and we are continuing to open new clinics where we can, given the restrictions across senior living communities that have persisted through the fourth quarter and into the first quarter of 2021. As restrictions are listed alongside widespread availability of a COVID-19 vaccine, we are confident in the expansion of our agility footprint within the current networks and with new partnerships. Turning to the fourth quarter, the near-term impacts of the COVID-19 pandemic remain challenging across the senior living industry. The second wave of COVID cases across the country following the fall and winter holidays has been severe, and our industry at large is seeing the effect of continuing continued occupancy deterioration, revenue pressure, and operational headwinds as a result. The health and wellness of our residents, clients, and team members remains our highest priority and adherence to our safety and testing protocols unchanged. However, we are encouraged by a new step in our ever-evolving response. On December 19th, we began hosting vaccination clinics for our residents and team members at our communities. Margaret will provide more detail on our activity to date, but we are making strong progress and anticipate that vaccination clinics will be substantially complete across all of our eligible communities by the end of the first quarter. Adoption of the vaccine is an important step towards the industry returning to pre-pandemic fundamentals. Occupancy recovery will take some time, But the increase in sales leads that has already started to build across our portfolio shows positive momentum, and we are hopeful to see the pace of move-ins begin to accelerate. As the latest NIC data showed, senior living inventory growth continued throughout 2020 as a result of investment that was made 18 to 24 months ago. However, construction starts have slowed, so inventory growth should taper off in 2021. Increasingly positive demographic trends also reinforce our confidence in the enduring demand for senior living. The U.S. 80-plus population is projected to grow by 18% from 2020 to 2025, more than five times the rate for the overall population. As a result, we expect to see favorable supplies and demand dynamics to support our business as we look out past the impact of COVID-19 into a more stabilized environment. Despite the industry-wide challenges I've discussed, our financial position in the fourth quarter has remained profitable. We have continued to generate net income, reinforcing our focus on revenue diversification and expense management. For the fourth quarter of 2020, we reported adjusted EBITDA of $5.2 million, net income of $0.09 per diluted share, and a 9% increase in our rehabilitation and wellness services segment revenues over the prior year pro forma results. Our balance sheet and liquidity remain healthy and provide a foundation for continued profitability as well as future growth, including investment in our own and lead senior living portfolio to remain a strong competitor in the market, in agility and other ancillary services to differentiate our service offering and diversify our revenue, and in the people and technologies that support our shared services platform. We believe our operating model and financial resources will allow Five Star to endure the continuing effects of the pandemic. and position as well as the vaccination program is completed and the underlying drivers of our business stabilized. As always, our success centers around our talented and committed team members who every day are delivering a safe and fulfilling experience in our communities and clinics. Now I'd like to turn the call over to Margaret to review our senior living operations for the quarter.

Thanks, Katie, and good afternoon, everyone. As we begin 2021, we are encouraged by the outlook for our vaccination program and inspired by the commitment we see across our team member and resident populations to stand together and make this coming year better than our last. As Katie noted, we began hosting COVID-19 vaccination clinics at our communities on December 19th. As of February 20th, more than 25,000 residents and team members have received the first dose of a vaccine. of which more than 15,000 residents and team members have also received the second dose, averaging more than 630 vaccinations a day. We have conducted 672 vaccination clinics across 249 of our 251 eligible communities. Our COVID-19 task force has moved seamlessly to coordinate the logistics of our clinics And as Katie mentioned, we anticipate that all clinics will be substantially complete by the end of the first quarter. We expect to host three clinics at each eligible community, scheduled according to the requirements for the two doses of a vaccine. This ensures that any resident or team member who missed their community's first clinic would still be able to receive the full dosage. We are heartened to see how our residents and team members have responded with optimism and a very hopeful outlook for a sense of normalcy to return. Gaining momentum with the program took patients in consideration of logistic challenges, as we've seen across the industry and beyond. Without a federal mandate, we're working with the individual states, each of which has adopted its own protocols for vaccine distribution, which include different timelines and prioritizations by age group or type of senior living community resident. Another challenge we've seen industry-wide is addressing concerns among team members in our communities who are evaluating whether to receive a vaccine. Various strategies have been used across the industry to motivate and gain widespread acceptance by employees. At Five Star, we've focused on education, including regular communication from our chief medical officer about the benefits and risks so that each team member has the ability to make an informed decision. We're happy to see that vaccine adoption has improved as concerns are alleviated. We believe widespread acceptance of the vaccine is what is best for our company, our residents and clients, and our team members. As was the case with our initial pandemic response and implementation of an effective infection control protocol, it is an evolutionary process and we're gaining ground every day. Now, an update on community response to COVID-19. As of February 20th, 98% of our communities are accepting new residents in at least one line of business, which we attribute to our thoughtful and comprehensive COVID-19 response strategy. We have maintained our strict testing and screening protocols, including routine surveillance testing, and our communities have seen a steady decline in infection rates. Over the course of the pandemic, we have administered more than 290,000 resident and team member tests, which have resulted in a low confirmed case rate of only 3.1%. Resident cases on a trailing two-week basis rose during the fourth quarter to above prior peak levels from July, but our most recent numbers show a 72% decline from the fourth quarter average. Our current resident infection levels are the lowest we've seen in our communities since early October. We believe that our regimented protocols have helped to mitigate widespread exposure, but the pandemic continued to put pressure on our senior living segment with further occupancy decline in the fourth quarter. Average occupancy in our comparable community owned in lease portfolio decreased 3.2% from last quarter and 9.9% from the prior year. Comparable community average occupancy in our managed communities decreased 3% from last quarter and 10.8% from the prior year. We expect to see continued deterioration through the first quarter of this year, but are hopeful that completion of our vaccination program will support our efforts to drive new admissions and recover lost occupancy. We have remained focused on our sales and marketing efforts and are encouraged to see positive trends emerging. Rolling four-week sales leads as of February 20th were up 83% from the start of the fourth quarter, and as a historic leading indicator of future move-in activity, this significant increase in leads is a key step in our recovery. We remain focused on evaluating lead quality and driving our conversion rate. REVPAR continues to be challenged because of occupancy declines, with comparable community REVPAR for the owned and leased portfolio down 11.7% from the same period last year, and comparable community REVPAR in our managed portfolio down 12.3%. We are seeing competitors offering deep concessions to attract new residents and have considered targeted concessions at Five Star in certain markets or community types where demand dynamics are less favorable. On a REVPOR basis, the fourth quarter showed slight increases over the prior year and sequentially in both our owned and leased and managed portfolios. In conjunction with our focus on optimized revenue management programs that Katie mentioned earlier, we believe that our commitment to preserving rate in most cases despite pressure on near-term occupancy in the COVID environment, avoids long-term revenue deterioration, and better positions our senior living operations for recovery. Most importantly for us today, the implementation of our vaccination plan is a significant step in that recovery. We're making great progress toward our goal, thanks to the dedication and determination of our residents and team members. We will use the knowledge we have gained along with rigorous safety protocols and unwavering focus on the resident experience to drive a thoughtful and measured approach to recovering occupancy and advancing Five Star's business. I will now turn the call over to Jeff for a discussion of the financial results.