Five Star Senior Living Inc.

Good day, and welcome to the Five Star Senior Living First Quarter 2021 Earnings Conference Call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your touchtone phone. And 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, ma'am.

Thank you. Welcome to Five Star Senior Living's first quarter 2021 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, May 6, 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 and adjusted 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 first quarter of 2021. A few weeks ago, we announced the next step in the transformation of our business as a provider of senior living and rehabilitation and wellness services that support, enrich, and inspire the lives of older adults as they age. This transformation builds on the initial restructuring of our business arrangements with Diversified Healthcare Trust in 2019, which provided financial stability and will now better position Five Star to capitalize on the growing population of older adults and their changing needs and preferences. Our three-pronged strategy, reposition, evolve, and diversify, begins with the repositioning of our senior living management services offering and the continued growth of our agility outpatient rehabilitation services to align with our areas of strength and favorable market opportunities. It continues by prioritizing the evolution of our choice-based, financially flexible resident experience and our shared services infrastructure to support improved operations. Finally, our strategy focuses our future growth on the diversification of our revenues by continuing to build out our services offering and reach a broader customer base. The repositioning of our senior living management services is expected to be completed by the end of 2021 and involves transitioning 108 smaller senior living communities with approximately 7,500 units to other operators, closing the healthcare units within our continuing care retirement communities, or CCRCs, containing approximately 1,500 units, and completing our exit from skilled nursing. Over the past several years, we have strategically reduced our exposure to skilled nursing, a line of business that has been subject to increasing regulation, fluctuating reimbursement rates, and ongoing labor challenges. The exit from this non-core part of our business allows us to focus on the service lines that we believe can better leverage our scale and expertise to improve profitability as industry conditions stabilize. Five Star will continue to operate 144 senior living communities with over 20,000 units located in 28 states. These communities are strategically positioned to benefit from high demand and a growing population of older adults that fit our target consumer. 75% of the communities that we will continue to manage for DHC are located in markets where the median income of the over 65 population can afford an average monthly rent of $4,000. and 70% are in markets with no current new competition under construction. These communities outperformed the total managed portfolio in the first quarter of 2021 with 320 basis points higher average occupancy, approximately 400 basis points higher EBITDA margin, and a more efficient labor cost structure. Following the completion of the repositioning, as we are able to focus on our core portfolio, we expect to grow and expand our management services offering and reduce our concentration with one owner. We are also working on centralizing certain functions to achieve greater efficiency, as well as investing in our technological infrastructure to support an optimized and scalable platform. In addition, we will continue to refine our senior living product to build our competitiveness in the market while taking advantage of new opportunities beyond traditional senior living demand. We find our emerging customer to be one that values a curated approach to meeting their care needs and lifestyle aspirations, especially one that enhances their ability to retain independence and improve quality of life. As we focus our senior living management services, we will continue to grow our service offerings to enhance the resident experience and support longer lengths of stay, as well as reach customers outside of our senior living communities. We have shown success with our rehabilitation and wellness services segment, including agility, which over the last two years has become an integral part of our services platform and has achieved significant growth in scale and revenue. Agility rehabilitation offers senior living communities a turnkey solution clinically proven to improve physical conditioning for residents and drive positive business outcomes for the communities within which it operates. Agility rehabilitation proactively addresses health risks to improve mobility and functionality, which supports resident independence and inspires an active, fulfilling lifestyle. We will continue to drive revenue growth through agility by expanding into additional communities, both within the five-star footprint and unaffiliated, as well as actively engaging a broader client base outside the community setting. Additionally, we are planning continued growth of our other service offerings, including fitness, home health, and concierge services, which are all existing areas of organic growth for the company. We will continue to incubate these business lines by piloting best-in-class programs internally and evaluate other growth opportunities through strategic partnerships or acquisitions. Our strong financial position, coupled with our plan to narrow and hone our senior living management services, will allow us to make strategic, proactive moves to grow our business in areas that we excel and in areas we see strong market opportunity. We will also focus on evolving our resident experience, improving our corporate infrastructure, and expanding the services we offer older adults. Five Star's continuum of care and growing platform of services are positioned to capture positive demographic and industry trends that will not only support a post-COVID-19 occupancy recovery, but future growth. We believe the repositioning of our senior living portfolio as part of our larger strategic plans is a critical step in capitalizing on the next frontier of market opportunities to serve the fastest growing demographic in the U.S. Before I turn the call over to Margaret to review our senior living and rehabilitation and wellness operations for the quarter, I would like to take a moment to acknowledge the entire five-star organization for exceptional service and dedication through the unprecedented challenges of the past year. Thank you for your steadfast commitment to safety, care, and engagement with all residents, clients, and colleagues. We look forward to these exciting changes for our business and future success as an organization.