22Q1 Loss of $0.30 in Line with Expectations; Katie Potter Steps Down as CEO; ALR Hires Alvarez & Marsal to Conduct a Comprehensive Operational Review
AlerisLife reported a 22Q1 net loss of $9.7 million or $0.31 per diluted share, slightly better than its 21Q4 loss of $10.6 million or $0.34 per share. I had estimated a $0.28 loss.
Although ALR’s performance was essentially in line with my expectations, there were a few surprises. Quarter-end occupancy declined sequentially in both owned and managed senior living communities for the second consecutive quarter. However, this was offset by solid increases in revenue per occupied room (RevPOR). Operating costs were higher than anticipated, but general and administrative costs were lower. Amounts due from Diversified Healthcare Trust (DHC), ALR’s affiliate and owner of its 120 managed communities increased, as did self-insurance liabilities.
Prior to the earnings release, ALR announced that CEO Katie Potter has resigned. Jeffrey Leer, ALR’s CFO, has become its interim CEO. The Board of Directors has hired the healthcare consulting practice of Alvarez & Marsal (A&M), a professional services firm known primarily for financial restructuring, to conduct a comprehensive operational view. Following ALR’s issuance of $63 million of secured debt, which was largely a defensive move intended to assure its liquidity during what is likely to be an extended period of operating losses, the resignation of Ms. Potter and hiring of A&M probably signal a likely scaling back of ALR’s expansion strategy.
With the continuing losses, the management transition and the hiring of A&M, ALR’s share price has suffered another steep decline, falling 41% since my last report to $1.27, far worse than the 12.0% decline in the S&P SmallCap 600 Index. The decline reflects the concern that changes implemented as a result of A&M’s operational review may permanently impair the value of ALR’s common equity. Although other possible strategic shifts could allow ALR shareholders to recover some of those losses, ALR remains a highly speculative bet.
Based upon the 22Q1 results, my projections for 2022 and 2023 are little changed. I anticipate that ALR will report a loss of $1.02 in 2022, narrowing to a loss of $0.46 in 2023. At this time, I am refraining from reinstating a performance rating and price target on ALR’s stock; probably at least until A&M’s conclusions and recommendations from its operational review are disclosed. Those result will probably be discussed when ALR releases its 22Q2 earnings report in August.
This is a summary of my latest update report on AlerisLife (ALR). For a copy of the full report, please reach out to me.
May 12, 2022
Stephen P. Percoco
Lark Research
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