The shareholders of AlerisLife Inc., formerly known as Five Star Senior Living, just can’t catch a break. They completed a major review of their corporate structure and operations over the past few years, which resulted in cutting the company in half in terms of the number of properties operated and shifting from leases to management contracts. That seemed to work for a while, but the pandemic interrupted the progress.
Now, just before the first quarter earnings results were released, the company announced that its CEO, Katie Potter, resigned effective April 30 (a Saturday, no less). Given the timing, we assume she was asked to resign. Jeff Leer, who has been EVP, CFO and Treasurer since 2019, is taking over as interim CEO, but will keep his previous responsibilities. But the firm has engaged Alvarez & Marsal to conduct “a comprehensive operational review.” We suppose this will be a post-pandemic review of what went right and what went wrong, and how to move forward. But it seems every year or so they come up with a new plan. For shareholders, none of these changes are working. The share price hit a 52-week low of $1.36 last week, compared with a 52-week high of $6.52.
The current problem, we presume, was the significant loss posted in the first quarter, a surprise when compared to the profitable first quarter of 2021 when they were exiting the skilled nursing business. Perhaps Ms. Potter was the scapegoat. But we would place the blame on the board of directors, who have not been good fiduciaries for their shareholders for many years. Three of the directors have been there in one way or another for about 20 years each, and a fourth for 12 years. If anyone should be replaced, it is these directors, who in theory have been guiding senior management. That’s a laugh. Where is Jonathan Litt when we need him? Not worth his time. The Thomas brothers and Senior Star can thank their lucky stars (no pun intended) that they got out when they did.
So, AlerisLife reported a net loss of $9.7 million in the first quarter, and negative EBITDA of $(5.5) million, compared with positive EBITDA of $6.8 million in the year-ago quarter. Its owned and leased portfolio of 20 communities with 2,100 units had a negative operating margin of (25.6)% and average occupancy in the quarter dropped sequentially by 100 basis points to 71.0%, while quarter-end occupancy fell sequentially by 60 basis points to 72.1%. These are about the lowest numbers we have seen in the industry. At least the 120 managed communities (17,899 units) are doing a little better, with average occupancy in the quarter of 74.1% and quarter-end occupancy of 74.6%, down sequentially by 20 basis points. But they need to see huge improvements this year. That is not very likely.
One of the problems with the owned communities is their average age. All but three had their most recent renovation more than 20 years ago, with eight of them more than 25 years ago. In today’s world, that is quite old and means they are probably not competitive in their local markets (thus, the low census). The gross carrying value of them is only about $122,000 per unit. The company likes to talk about how it is one of the largest assisted living companies in the country, but its performance is nothing to brag about. The company should not be publicly traded, but the decisions are basically made by Diversified Healthcare Trust, which owns more than 30% of the stock, as well as most of the properties, and the Portnoy family. This is a sad, sad story of mismanagement if we ever saw one, and we are not talking about Ms. Potter.
