Good day, and welcome to the Capital Senior Living Second Quarter 2020 Earnings Release Conference Call. Today's conference is being recorded. All statements today, which are not historical facts may be deemed to be forward-looking statements within the meaning of the federal securities law. These statements are made as of today's date and the company expressly disclaims any obligation to update these statements in the future. Actual results and performance may differ materially from forward-looking statements. Certain of these factors that could cause actual results to differ are detailed in the earnings release the company issued earlier today as well as in the reports the company files within the SEC from time to time, including the risk factors contained in the annual report on Form 10-K and quarterly reports on Form 10-Q. Please see today's press release for the full safe harbor statements, which may be found at capitalsenior.com/investor-relations and was furnished in an 8-K filing this morning. Also, please note that during the call, the company will present non-GAAP financial measures. For reconciliations of each non-GAAP measures from the most comparable GAAP measure, please also see today's press release. At this time, I would like to turn the call over to Capital Senior Living, President and Chief Executive Officer, Ms. Kimberly Lody. Please go ahead.

Good morning, everyone. Thank you for joining us for Capital Senior Living's Second Quarter 2020 Investor and Analyst call. Joining me this morning is Carey Hendrickson, our Chief Financial Officer; and Brandon Ribar, our Chief Operating Officer. First and foremost, I want to highlight and recognize our 6,000-plus employees who have continued to diligently and heroically care for our residents' physical, cognitive and emotional well-being in the face of the COVID-19 pandemic. Their positive and profound impact each day on the lives of America's most vulnerable population is truly inspiring. As I mentioned on our first quarter call, we acted early and swiftly in the procurement of PPE, infection control systems, test kits and other supplies to fortify our reserves and ensure our preparedness for fighting COVID-19. We also expanded our existing comprehensive disease prevention protocols across our portfolio and implemented robust communication platforms to provide comprehensive operational and clinical support to our communities day and night. I want to thank our Capital Senior Living team, our residents, their families, our vendors and industry partners for their relentless commitment to the safety and well-being of everyone in our communities. These efforts have helped us mitigate the clinical, operational and financial impacts of the pandemic, and today, our resident infection rate across the portfolio is well below 1%. As of this morning, 48 of our 10,000 residents have an active COVID diagnosis. Brandon will provide additional insights to our COVID-19 response. Turning to our operating results. According to data published by NIC, occupancy for seniors' housing fell 280 basis points in the second quarter with the largest drop occurring in April and then lesser deteriorations in May and June. Our 118 same-store portfolio experienced a similar but better occupancy pattern, declining 230 basis points in the second quarter with most of…

Thank you, Kim, and good morning. More than 5 months into the COVID-19 pandemic, Capital Senior Living's preparation, response and ongoing efforts to ensure the safety of our residents and employees continues as the top priority of our operating team. In Q1, CSL prepared for a prolonged change in our operating environment by solidifying our staffing support, developing nationwide supply hubs, improving technology capabilities, and redesigning the dining and activities experience. While some weeks feel like running a marathon in the current environment, our clinical and operating results reflect the dedication and commitment to excellence in each one of our communities. Tireless and intense adherence to revised and improved clinical and infection control protocols, and consistent communication efforts with employees, residents and their loved ones continue to make the difference. Learning, adjusting and incorporating best practices as the national response to COVID-19 has evolved continues to drive our daily operating activity. Leadership stability has been constantly tested in the first half of 2020. The intensity of the senior living operating environment and the regulatory and customer communication needs have never been more demanding for our entire leadership team but especially our executive directors and wellness directors. Our leaders work daily to calm concerned and frustrated family members unable for many months to visit inside our communities. They share their stories and experiences with national and state legislators and regulators to ensure the true impact of this virus is heard. Their dedication, leadership and daily inspiration of frontline caregivers is reflected in our employee turnover numbers for the first half of 2020. Our total company turnover continues to show year-over-year improvement of more than 10 percentage points, and the retention of our key leadership roles remain strong. The strength, compassion and confidence of our local leadership teams and the frontline caregivers…

Thank you, Brandon, and good morning, everyone. Our second quarter 2020 results reflect the impacts of COVID-19 under occupancy revenue and expenses. However, our sales and operations team did an excellent job in marketing our communities to new residents in what was a very challenging environment and in managing the costs within their control to mitigate the impact of COVID-19 on our overall results. The second quarter also reflects positive impacts associated with the actions that we took in the first and second quarters related to our lease portfolio. As a result, even with the declines in our adjusted EBITDAR in the second quarter of 2020 as compared to the first quarter of 2020, our adjusted CFFO increased quarter-over-quarter. Looking at some of the details on our second quarter results. Our total consolidated revenues in the second quarter were $101.5 million, as you saw in the release, and that compares to $113 million in the second quarter of 2019. A good chunk of that difference, $5.8 million, was related to dispositions and conversions of assets since the first quarter of 2019, with the rest due to lower occupancy levels primarily related to the impacts of COVID-19 was slightly offset by a 3.3% increase that we had in our rate. The second quarter also includes $2 million of revenue related to our management of 6 Healthpeak communities, which were converted to management agreements in March of this year. Most of that revenue is related to the reimbursement of certain operating costs that we paid on behalf of those managed communities, and you'll see on the income statement that there's a corresponding expense there for the same amount. Our financial occupancy for all communities was 77.6% in the second quarter, which was a decline of 240 basis points from the first quarter…

[Operator Instructions]. And our first question is from the line of Steven Valiquette with Barclays.

I just want to follow up quickly on the facilities that were turned back to Fannie Mae. Yes, I looked in the 10-K and it discloses - I think you have 78 total facilities owned by the company, are encumbered by mortgage debt. I know you have 35 different mortgage loans with Fannie Mae. I don't know if that means 35 different properties. But I guess the questions are how'd you arrive at 18 as the proper number of properties to pull the trigger on this. And I guess the question is could there be additional properties in the near term that also can have sort of the same outcome. Just curious to get more color around that whole process.

Yes. Steve, this is Carey, and I'll start with that, and Kim can add in. We had 23 Fannie Mae communities that were under forbearance, and that was the beginning point of looking at those. Those were the ones - all of our other loans with Fannie Mae are performing well and are - have good debt service coverage ratios, and so there's - we just had those 23 that were eligible really for forbearance. And looking at that, there were 5 of those that have done pretty well through the COVID environment, and we made the decision that we could keep those. We brought those current at the end of July and made the August payment just like we would normally make as it relates to those 5. The other 18 were underperforming or they were in underperforming loan pools, and we had to look at the pool as a whole with Fannie Mae. So it was really based on looking at their leverage position, their contribution to cash flow from a levered cash flow standpoint and really determining that those were the 18 that we need to turn back. The rest of that Fannie portfolio is performing.

Okay. And then just shifting gears a little bit. I got on the call a little bit late, but I think I heard your comments that you had positive move-ins, net move-ins in June, but then it sounds like it reversed a little bit in July. I was just curious to hear more about that reversal, if that was just tied to maybe certain states where COVID cases are starting to spike up again. And was that - also as far as some of this shift that's going on, how much of this might be related to voluntary actions at the facilities on either not accepting new move-ins versus maybe the state government mandates that's forcing some of this? I just want to get more color around that as well.

Sure. We can certainly provide that. So we were really pleased with the performance in June and being able to achieve the positive net move-ins. And much of that has to do with our incredible safety protocols and the teams that we have there in the communities really managing that and our sales team in managing those prospects and helping them to be comfortable coming into our communities due to the safety protocols that we have in place and the actions that we've taken. In July, from an operating perspective, those things didn't change, right? We still have those same protocols in place, but unfortunately, as we saw the number of COVID cases surge in various parts of the country, in particular, in the south and southeast, we saw that the move-ins began to pull back as people postponed their decisions to really head into senior housing giving that resurgence.

[Operator Instructions]. Our next question, from the line of Morgan McCarthy with Barclays.

I guess my first question is, I guess, I'm wondering how you've been thinking about the trade-off between occupancy and rate for the remainder of the year. I know you previously discussed the preference towards maintaining rate, and I guess I'm just wondering if any of the current pressures related to COVID have changed your views heading into the second half of the year.

We're really looking at that balance between rate and occupancy pretty strategically and very focused in terms of the specific communities and the specific market conditions in which that community operates. So if there are situations where we can help people feel more comfortable moving in by providing some reduction or concession with respect to rate, then we may do that in particular places. I will say our business is very much a needs-based business. There is a fair amount of pent-up demand out there as seniors have been staying at home and feeling the impact of the isolation of COVID. So where we need to, we're - we will adjust rate in order to help those move-ins happen. But for the most part, our focus is on maintaining that balance. And we feel like if we can keep rates stable while maintaining a either reduction - a small reduction decline in occupancy, perhaps even stabilize here by the end of the year, that's really our focus, the balance of those two things together.

Okay. And then just one more question. Can you provide any more color on the difference in - between some of your more needs-based facilities such as the assisted living versus independent living in the quarter and then even in July, around either move-ins or leads or rep work?

We can - let me just get to that spot. So for independent living, the changes in occupancy were, I'd say, relatively moderate. Most of the changes that have occurred in occupancy have been more in the assisted living and memory care settings.

Yes. And Morgan, to provide a little color on that, the - this is Carey. The occupancy for our independent living quarter-over-quarter declined 170 basis points, but the occupancy for AL and Alzheimer's declined - and this is sequential, declined around 260 to 270 basis points. So there was obviously a less decline in IL than there was in AL.

Okay. Great. And then I just have one more final question. I guess I just want to see if you've heard any updates for senior housing industry to get any federal relief on a broader basis and how that's progressing with the trade associations.

Well, we're very grateful to the trade associations and all of our peers in the industry because, of course, this is a huge focus for the entire industry and something that is critical. We've been, as an industry on the front lines, fighting this pandemic, and there really has been very limited relief available to providers outside of the things that are starting to trickle in from the various states. We remain optimistic that there will be something in the upcoming bill that will provide relief to our industry. I think the industry is doing everything it can to encourage that and communicate and share data and make sure that the situation is well known. So we look forward to seeing how all of that develops here over the next several weeks.

I would now like to turn the call back to Kim Lody for her closing remarks. Please go ahead.

Thanks, France. Thank you to our shareholders, vendors, residents and employees for your trust in Capital Senior Living. This concludes today's conference. Thanks, everyone. Have a great day.

Thank you. this does conclude the conference call for today. We thank you all for your participation and kindly ask that you please disconnect your lines. Have a great day, everyone.

Thank you.