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spk02: growth phase over the next 18 to 24 months. Kevin will provide greater detail on our operating results and key financial achievements in 2023. Most important to our strategic plan, we continue to invest and develop leadership across each of our disciplines. Over the past year and a half, we've changed the culture of the organization by empowering key regional and local leaders. This cultural transformation has resulted in 100% retention of our regional operations and sales leaders, and improved our community leadership retention by nearly 10% year over year. Our business only thrives with, first and foremost, the support and buy-in of our team. We completed significant investments in our real estate portfolio and expanded the number of units to meet an increasing demand for memory care services in two key markets. Additionally, we invested in multiple technology solutions to support ongoing improvement in resident safety and experience. while enhancing our operational efficiency to manage the cost of operations moving forward. All of these efforts are foundational to our plan to build a differentiated operating platform that delivers value through operations, real estate ownership, and meaningful investment opportunities in the senior living space. Let's now look at the various levers for Sunita's organic and inorganic growth in 2024 and beyond, detailed on pages 19 through 22 of the investor presentation. Within our existing portfolio, which remains our primary focus, further margin expansion through rate and occupancy growth stand at the forefront. Our rate increases on existing rental contracts were effective for nearly 80% of our private pay residents on March 1st of 2024, and thus far, attrition rates related to affordability remain in line with expectations. One of our 2024 goals centers around driving occupancy improvement in a handful of underperforming assets that account for 40% of all vacant units. A combination of shifting sales focus, further capital investment where appropriate, and heightened outbound marketing are being deployed to accelerate the recovery of these communities. Our team is not only focused on addressing lower performing communities, but also enabling our strongest performing communities to reach their full potential. During the fourth quarter, more than half of our portfolio averaged occupancy of 90% or greater. with these communities consistently achieving the highest marks in customer experience and employee engagement. We believe that over time, we can drive portfolio-wide occupancy in excess of 90%. These expectations align well with current industry trends, new supply at a 10-year low, high construction costs, and the constrained availability of affordable financing. Continued investment on our clinical and resident programming will further support these growth efforts. Our clinical teams and residents have recognized immediate benefit with the arrival of our Chief Clinical Officer in Q4. The addition of a talented, experienced leader will further expand our clinical offerings and tailor our services to the needs of our residents. Our clinical focus in 2024 is highlighted by retention and further development of our local clinical leadership and ensuring the effectiveness and consistency of our local processes to proactively identify changes in resident health requiring action. We expect further margin expansion driven by continued operational improvements, specifically additional rate and occupancy growth combined with utilization of our labor management technology and protocols to contain cost inflation. Additional capital investments in the $3 to $4 million range will fund conversion or opening of approximately 100 additional units in 2024. We anticipate a 12 to 18 month payback on these investments based on our experience with similar capital projects over the last two years. Shifting to external growth opportunities on slides 20 through 22 of our investor presentation, we highlight the profile of communities targeted for acquisition, the various sourcing channels currently offering accretive investment opportunities, and the versatility we bring as a balance sheet investor, JV partner, and premier operator. We continue to focus on the Midwest, Southeast, and the South as primary markets to further densify our existing footprint, targeting newer construction, multi-product communities serving the upper middle and high-income resident base. Our programming created to bring joyful living to our independent and assisted living residents and our trademark Magnolia Trails memory care program will support operational improvement in newly acquired communities. In the current environment, we see opportunistic investments as most compelling and are focusing largely on underperforming but quality assets at significant discounts to replacement costs. While these assets may be cash flow neutral or negative up front, Sunita identifies situations where our systems and processes can structurally improve margin as well as quality of care and resident experience, and we anticipate stabilizing at double-digit NOI yields on cost. We believe that the financial success of a community is first and foremost dependent on having a strong local leadership team, and key to our success is the hiring and retention of great talent that, together with Sunita's tools and programs, are able to stabilize challenged assets. We expect to capitalize on three primary avenues of inorganic growth, acquisitions, joint ventures, and third-party management. We will enter into third-party management agreements selectively and strategically to and on acquisitions and joint ventures are focused on discipline deployment of balance sheet capital at high rates of return and in assets that have strategic or qualitative benefits to our portfolio. We see a growing opportunity set to partner with lenders and existing asset owners who are seeking fresh capital and new operators to enhance recovery value on their portfolios. One core principle is focusing on regional densification where we are able to benefit from our scale, implement our full suite of labor management tools, and thus grow our portfolio without costly recruiting and without meaningful changes to GNA. Market volatility continues with owners, operators, and capital providers reaching key decision points, and Sunita continues to engage in discussions to identify potential near-term opportunities. With approximately $18 billion in senior living debt maturing in 2024 and 2025, Based on the latest NIC data and capital availability remaining tight, Sunita is positioned to provide value as an operator, owner, and investor in the current market. As of today, we have clear visibility on transactions including more than 700 units with expected closing dates in the second quarter of 2024. These potential transactions include outright purchase, joint venture ownership, and third-party management, all in key markets targeted for expansion. We look forward to sharing additional details as the transactions are finalized in the coming weeks and months. The Sunita transformation, driven by operational improvement and significant balance sheet restructuring and delevering efforts, can best be summarized on slide 10 of our supplemental investor information. The pro forma capitalization table reflects a debt structure with attractive interest rates and minimal debt maturing until the end of 2026, combined with significant equity value in the business. In summarizing our year-end 2023 performance and 2024 outlook, we remain optimistic about the industry as a whole and the Sunita platform. The ongoing retention and development of our leadership teams and the effective rollout of new resident programming and technology remain paramount to continuing the growth trends achieved in 2023. Our team is excited to continue building a best-in-class operating platform to achieve the full potential in each of our 71 communities while expanding our footprint through strategic and accretive growth opportunities. I'll now turn it over to Kevin for discussion of the financial results.
spk04: Thanks, Brandon. Expanding the discussion around the company's performance and balance sheet, let's jump back to slide six of the investor presentation. Before I dive into the numbers, I want to take a moment to recognize the incredible work and commitment by the team over the last 18 months. In early 22, the company was at a critical inflection point and having just recapitalized and still working out of the devastating impact from COVID-19. In less than two years, the company has carefully rebuilt its corporate support team and culture with the injection of new contributors and leaders to write the next chapter of the company. The company's finance and accounting functions have quickly evolved from a group of hired contractors to best-in-class professionals serving as business partners to our incredible operations team. I am extremely proud of the collective success attained and look forward to continued evolution as the company executes on its strategic growth plans. Finally, I would be remiss if I did not thank our business partners and lenders, particularly Fannie Mae and Ally Bank, for all their support, creativity, and temporary flexibility as the company is poised to soon realize all-in cash flow generation. Over the course of the last nine months, we have made incredible strides in addressing our debt and overall capitalization. To summarize, the company temporarily modified its liquidity covenants under the allied term loan to provide runway required to execute a material restructuring of the economic terms in its Fannie Mae mortgages. During the fourth quarter, the company entered into a purchase and sale agreement to acquire all remaining loans on its protective life portfolio. The purchase price represented a 48% discount of the total indebtedness of $77.4 million. In February 2024, the company closed on this transaction and concurrently financed $24.8 million of the loan purchase price as part of its existing term loan with Ally Bank. As a result of the modifications made to 56 of the company's 60 community loans, management has meaningfully improved cash flow leverage ratios and term across its debt portfolio. Specifically, the company extended its average remaining loan term to 3.7 years and delivered the company by $55 million since January of 23, including a $5 million pay down in connection with the Fannie Mae modification. The foundational work on the company's debt, which is further highlighted on slides 10 through 12, instilled confidence in Sunita's largest investors leading to the offensive private placement raise executed last month, which in large part has been earmarked for growth in 2024. From a financial reporting perspective, the debt and equity transactions have allowed the company to address any risk associated with its end-of-year cash balance and its ability to continue as a going concern. As further disclosed in today's 10-K and accompanying auditor opinion on the financial statements. Despite continued macroinflationary pressures, management reduced G&A as a percentage of revenue and adjusted to include stock comp and one-time transaction costs from 11.8% to 10.5% on a year-over-year basis. Rounding out slide 6 and addressing some of our performance highlights on slide 8 and 9, I'm pleased to report continued occupancy and rate growth. Beyond the year-over-year occupancy increase of 160 basis points and with an eye towards 2024, we are encouraged by achieving an average occupancy of nearly 86% for the last quarter of the year. On the rate side, we realized the benefit of aggressive but responsible rate optimization. REVPOR increased 10% year-over-year and should further expand in 2024 with the company having successfully migrated to a resident-wide March 1st rate renewal anniversary. Comparing year-over-year margins, the company expanded its NOI margin by 520 basis points or 460 basis points on an adjusted NOI margin basis, which excludes the one-time impact from state grant receipts. For the fourth quarter of 23, annualized NOI and margin were 66.8 million and 27.4% respectively. These figures include non-recurring credits recognized in connection with one-time real estate tax settlements, and workers' comp true-ups as a result of the most recent actuarial reports. Excluding these non-recurring credits, effective NOI margin for the quarter was 25.7%. Diving deeper into revenue growth drivers, we move to slide 14. The company identified two primary initiatives as part of its revamped revenue management process aimed at better aligning our revenue model with the increasing cost of care for our residents. First, we successfully raised base resident rates by 8.3% year over year. Second, through the simplification and formalization of our assisted living level of care program, we were able to capture an additional 1.9 million in care revenue. Expansion of tech-based clinical labor productivity pilots in 23 will set up the company to further capture the true clinical cost of resident care and related revenue in 2024. Diving into more of the margin drivers, we'll move ahead to slide 15 to discuss year-over-year labor trends. We are extremely pleased that in this tight labor market and hyperinflationary period, we have been able to control our labor costs. Total labor, excluding benefits, moved from a 22 high mark of 47.5% of revenues to just under 46% in 23. Contract labor, which decreased nearly $6 million year-over-year, continues to be limited to a handful of communities where market-specific labor constraints persist. In 2024, the company is focused on optimizing labor hours to meet the real-time needs of our residents amidst higher occupancy levels, which should support a lower incremental cost per resident. Through our technology partnerships and internally developed labor dashboards, we are also focused on addressing the premium labor cost base, which remains an industry headwind coming out of COVID. premium labor was $9.5 million for the year and includes the cost of shift bonuses, overtime, and spot bonuses that would otherwise be replacements for lower rated employee salaries and wages. Moving ahead to all other expenses on slide 16. As a percentage of revenue, our non-labor expenses have decreased 300 basis points from 30.5% in 22 to 27.5% in 23. Despite the headwinds of elevated inflation over the same period, management implemented various strategic and tactical initiatives discussed on previous calls to create a non-labor base that should provide for incremental margin on both expanded occupancy for same-store communities as well as inorganic community acquisitions. Moving on to slide 17, you'll see some presentation changes from prior earnings calls to reflect the favorable pro forma impact on our leverage profile as a result of the protective life loan purchase completed last month. As a result of the February 2nd transaction, our debt is comprised of 72% fixed rate debt, with the remaining variable rate debt fully hedged, yielding a weighted average interest rate of 5% for the portfolio. Most importantly, the company continues to execute on its long-term strategy of de-levering the balance sheet. Finally, as of today, the company is in compliance with all financial covenants required under its mortgages. In summary, the company continues to be encouraged by the consistent improvement across all significant KPIs over the last 12 months. The expected continuation of revenue and margin growth, combined with the company's modified debt structure, has Sunita firmly positioned to take advantage of both organic and inorganic opportunities in the marketplace to drive shareholder value in 2024, as Brandon detailed in his comments.
spk02: Back to you, Brandon. Thanks, Kevin. 2023 was a transformational year for Sunita. We achieved significant performance milestones while accomplishing key strategic objectives and delivering industry-leading care and services to our residents. These achievements included balance sheet optimization through the comprehensive restructuring and modification of our debt and culminating in the $47.75 million equity private placement that closed in the first quarter of 2024. The operational developments and greatly strengthened balance sheet established Sunita as a differentiated operator, owner, and investor in senior living and positioned the company to capitalize on near-term dislocation, which will drive the next chapter of value creation for our shareholders. Rob, please open the line for questions at this time. Thank you.
spk03: Thank you. At this time, we'll be conducting a question and answer session. If you'd like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
spk00: One moment, please, while we poll for questions.
spk03: As a reminder, if you'd like to ask a question, please press star 1 on your telephone keypad. One moment, please, while we poll for questions.
spk00: I am waiting for the queue and it'll be another moment. We do have a question from Steve Monroe with Levin.
spk03: Please proceed with your question.
spk01: Hey, guys. Good going, great progress. I might have missed it, but did you say what your current occupancy is as of today as opposed to end of fourth quarter?
spk04: We did not, Steve.
spk01: Okay. Can you disclose that or no?
spk04: We can't at this time.
spk01: Okay. All right. And any kind of forecast of where you think it might be at the end of the year, which you're hoping to get to?
spk02: Yeah, Steve, we're not providing guidance at this time. I think, you know, we are, our goal is to continue to see progress similar to, you know, as we did in 2023. So, you know, we think that, as we referenced, the March increases came through without any material concerns around attrition on that front. I think we'll be in a position to provide additional numbers here in the near future just around how Q1 is playing out as well.
spk01: Okay. And then the Q2 acquisitions or joint ventures or whatever that you're expecting to close in Q2, is there anything in the pipeline for the rest of the year after that?
spk02: There's a significant pipeline at this point in time, Steve. We're excited about all the opportunities that we're taking a look at. So those units represent just things that we have under LOI currently, and that excludes all the other things in the pipeline that we're looking at for the remainder of the year, as well as the second quarter.
spk01: Okay. And then for any acquisitions, do you have any lenders in mind that you're working with or not that far yet?
spk02: I think we have a couple of different options. And so there are cases where the lenders want to continue to stay in the transaction and are offering financing that's based on the existing structure. And then we also have relationships with our existing banking partners and others interested in what Sunita has been accomplishing that are building a relationship with us that also are offering financing. opportunities to finance deals moving forward. So it's both seller financing and existing banks staying in and then new opportunities as well.
spk01: Okay. And how did you get your real estate taxes to go down by a million dollars? That doesn't happen with me.
spk04: Yeah, I think that was all part of the tactical process. the tactical initiatives that we rolled out when the new management team got here. And so that was just kind of a hard scrubbing of all the accounts. And part of what we did was consolidate our vendor relationships and look for favorable pricing that way. And so I think it was really aggressive monitoring and even litigation at some point that ultimately got us all those one-time credits that will effectively run rate in the form of lower taxes moving forward in the out years.
spk01: Well, that's good. That's all I got. Thank you.
spk04: Thank you, Steve. Thanks, Steve.
spk03: There are no further questions at this time.
spk02: This concludes today's conference. Thank you all for participating.
spk03: This concludes today's conference. You may disconnect your lines at this time, and we thank you for your participation.
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