AlerisLife (ALR) 22Q2 Update

AlerisLife reported a 22Q2 net loss of $8.8 million or $0.28 per share, better than the 22Q1 loss of $9.7 million or $0.31 per share and the 21Q2 loss of $12.3 million or $0.39 per share.  I had estimated a $0.28 loss.

Although performance essentially met my expectations, there were some positive notes.  Average occupancy at ALR’s owned senior living communities (SLCs) increased by 150 bp sequentially to 72.5%.  Owned portfolio occupancy rose by 160 bp in July (from June).  Average occupancy in the managed portfolio was flat sequentially.

Revenue per occupied room (RevPAR) was up 4.3% and 4.8% sequentially in the owned and managed portfolios, respectively.  RevPAR should continue to improve going forward as the rollover to higher rates continues and temporary rent concessions roll off.  ALR is now offering concessions only on a case-by-case basis.

With the improvement in occupancy and RevPAR, operating income (before allocated corporate costs) at owned and managed SLCs rose to $8.7 million from $6.1 in 22Q1.  The Lifestyle business posted operating income of $0.2 million, down from $0.8 million in 22Q1, as operating costs increased 430 bp sequentially to 98.6% of revenues.  (ALR is still rebuilding its Lifestyle platform following the loss of clinics in the 2021 transition of 120 senior living communities to other operators.)  Corporate general and administrative costs were $15.6 million, up 2% sequentially.  As a result, the company’s consolidated operating loss declined from $8.3 million to $6.6 million sequentially.

Based upon Alvarez & Marsal’s operational revenue, ALR expects to incur an additional $6.1 million of restructuring costs over the next 12 months to reduce operating expenses and improve the operating efficiency of its sales organization and IT operations.

My projections show that ALR will post slightly wider losses in 2022 and 2023 than previously expected, as improved performance in its business is more than offset by the added cost of the restructuring program.  EBITDA will be negative in 2022 but should turn positive in 2023.  Increases in occupancy and RevPAR are the key to improving profitability.  As 2022 comes to a close and I update and extend my model to 2024, there should be greater visibility to value the stock.  At that time, I intend to reinstate my performance rating and price target.

This is a summary of my recent report on AlerisLife Inc. (ALR). To receive a copy of the full report, please reach out to me using the contact information listed below.

August 12, 2022

Stephen P. Percoco
Lark Research
839 Dewitt Street
Linden, New Jersey 07036
(908) 975-0250

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