AlerisLife reported a 22Q3 net loss of $8.5 million or $0.27 per share, better than the 22Q2 loss of $8.8 million or $0.28 per share and the 21Q3 loss of $10.2 million or $0.32 per share. I had estimated a loss of $7.5 million or $0.24 per share.
Average occupancy at ALR’s owned senior living communities (SLCs) increased by 350 bp sequentially to 76.0%. Average occupancy in the managed portfolio rose 120 bp to 75.3%.
Revenue per occupied room (RevPOR) was up 3.2% and 1.2% sequentially in the owned and managed portfolios, respectively. The rate of improvement slowed from 22Q2, but RevPOR should still increase going forward as the rollover to higher rates continues and rent concessions roll off.
Despite the gains in occupancy and RevPOR, the operating loss (before allocated corporate costs) in the SLC business was flat sequentially at $8.7 million and down slightly from 21Q3.
Lifestyle Services posted an operating loss of $0.1 million, its first ever. The loss of clinics in the 108 smaller SLCs transitioned to other operators by DHC combined with a cut in Medicare and Medicaid reimbursement has put additional pressure on the business. Although ALR has strategies to improve operating efficiency and grow the business, the Lifestyle business may not be viable as currently structured.
Corporate general and administrative costs were $15.6 million, up 2% sequentially. They included $1.6 million of restructuring costs vs. $0.5 million in 22Q2. ALR has apparently reduced the anticipated cost of its new restructuring program from $6.1 million to $3.0 million. It therefore has another $1.4 million left to go, most of which will likely show up in 22Q4.
Taken together, ALR’s consolidated 22Q3 operating loss widened sequentially from $6.6 million to $7.2 million. My projections anticipate an operating loss of $6.6 million in 22Q4, with more significant improvement in 2023 (but not a return to profitability). I now project a net loss of $34.5 million or $1.08 per share for 2022 and a loss of $15.0 million or $0.47 for 2023. EBITDA is projected to be negative at -$15.9 million in 2022, improving to +1.8 million in 2023. With occupancy and RevPOR clearly on the mend, reducing SLC operating costs is the key to a return to profitability. The stock remains not rated. Improved performance over the next few quarters may provide sufficient visibility for a projected return to sustainable profitability late in 2023 or in 2024. With the stock now trading well below $1, there is a high risk that it could be delisted. That said, with a $15.4 million market float, if DHC and RMR group had any confidence in ALR’s future and its ability to avoid a debt restructuring or bankruptcy, they would put more capital into the business or take it private.
This is a summary of my recent update report on AlerisLife Inc. (ALR). To obtain a copy of the full report, please reach out to me using the contact information provided below.
November 16, 2022
Stephen P. Percoco
Lark Research
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