Good day, and welcome to the Capital Senior Living Third 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 laws. 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 in the company files with 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 statement, which may be found at capitalsenior.com/investorrelations (sic) [ capitalsenior.com/investor-relations ] and was furnished in the 8-K filing this morning. Also, please note that during this call, the company will present non-GAAP financial measures. For reconciliation of each non-GAAP measure 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's President and CEO, Ms. Kimberly Lody.

Thank you, Hector, and good afternoon, everyone. First and foremost, I hope you and your families are safe and healthy. Before I get into the accomplishments for the quarter as well as a strategy update, I want to personally thank Carey Hendrickson, our Chief Financial Officer, for his service to the company over the last 6 years. As we've announced a few weeks ago, Carey will be leaving the company at the close of business tomorrow. I appreciate his standing by my side for the last 7 quarters and for his instrumental role in the transformation of Capital Senior Living. He will be missed, and we wish him well in his future endeavors. We have a strong accounting and finance team currently led by Tiffany Dutton, our Vice President of Accounting and Financial Reporting. Tiffany joined the company in January and has reshaped our finance and accounting functions to upgrade talent, streamline processes, shorten close cycles and improve the collaboration between operations and finance. The near-term operating environment and smaller footprint of the company will inform our short- and long-term financial needs as well as the ideal skill sets for the CFO role. In the interim, Tiffany and I will continue working closely together to lead our accounting and finance functions. Turning to our strategy. Today, we're about 60% through our 3-year plan to improve the company's operating performance and financial foundation. This strategy has 3 main goals: to stabilize operations, to completely restructure the company's portfolio of assets and to improve our balance sheet. The work we've done since the beginning of 2019 continues to serve us well during the COVID pandemic and corresponding challenging operating environment. As a reminder, our turnaround plan was taking hold and beginning to show results prior to the pandemic. In January and February,…

Thank you, Kim, and good afternoon. As we near the end of 2020 and enter what promises to be a challenging winter season across the nation, I want to again recognize the tireless efforts and dedication of our community teams. We entered the pandemic more than 8 months ago and the health and safety of our residents and staff remains the primary focus every day. The stable operating performance CSL has produced relative to peers and adjacent sectors during this pandemic reflects ongoing confidence in our operating model in spite of continued occupancy pressure industry-wide. Same community revenue at 97% of 2019 on a year-to-date basis and the achievement of nearly 90% of prior year net operating income compare favorably with publicly reported competitive data. Most recently, revenue in September remained stable on a same community basis, with a minimal sequential decline of $100,000 from August. Recent move-in and move-out activity indicate a similar expected change in October revenue. These results reflect the ongoing commitment to focused operating and clinical excellence across the local and regional leadership teams. Our leadership retention and employee turnover metrics continue to trend favorably on a year-over-year basis. Our total company turnover year-over-year improved nearly 10 percentage points, and the retention of our key leadership roles remained strong. Our leadership stability in the face of the prolonged COVID-19 pandemic is paramount to operating results in Q4 and beyond. Local adherence to strong infection control and resident safety protocols depends on strong Executive Director and Wellness Director presence and engaged relationships with our frontline caregivers and service providers. Additionally, ongoing partnership with local regulators and an understanding of often fluid operating guidelines imposed at the state level, require focused and dedicated leadership in each community. Let me now take a few minutes to review the current…

Great. Thank you, Brandon, and good afternoon to everyone on the call. Our third quarter 2020 results reflect the impacts of COVID-19 on our occupancy revenue and expenses, however, as they did in the second quarter, our operations team did an excellent job in managing the cost within their control to mitigate the impact of COVID-19 on our overall results and eliminating the declines in occupancy during the quarter. The third quarter also reflects positive impacts associated with the actions we've taken in recent months related to our lease portfolio and the transition of our 18 underperforming communities to Fannie Mae. Looking at our third quarter results. Our total consolidated revenues in the third quarter were $96.3 million, which compares to $111.1 million on a reported basis in the third quarter of 2019. This $14.8 million decline is mostly related to communities that we've transitioned in one way or another since the third quarter of last year. The company had 33 less communities for all or part of the third quarter of 2020 than it had in the third quarter of 2019. The 18 communities that we've transitioned to Fannie Mae effective August 1, 2020, represented $9.8 million of the revenue decline, 3 communities sold since the third quarter of last year represented $4.1 million, 6 formerly leased communities transitioned to new operators contributed $2.9 million to the revenue decline and then 6 formerly leased communities transitioned to management agreements represented a decline of $3.2 million. The decline in revenues from these transition communities was partially offset by $10.2 million of revenue related to our management of 24 communities for part or all of the third quarter, the 6 Healthpeak communities that we've been managing since February of this year and in the 18 Fannie Mae communities that we began…

[Operator Instructions] Your first question comes from the line of Steven Valiquette with Barclays.

So I guess I'm just curious, some investors are trying to figure out that if we do get a COVID vaccine, how much that could really impact the occupancy within various business models including senior housing. So I'm curious if you have any thoughts on whether this is something that you think can move the needle materially, perhaps right away, maybe in the first month or first quarter as far as your occupancy, et cetera, once that comes out. And how does senior housing stack up on the availability to get vaccines versus other sectors? Or is it something that might take a little bit longer to play out as far as how much it really helped the business? Just want to get more color around how you're thinking about that.

Brandon?

Steve, happy to kind of go into some thoughts around that. So first, to address the end of that question, which was around the availability. And based on what we've learned from HHS, we will be at the front of the line in terms of the availability of those vaccines for our residents and for our employees as well. So a lot of -- I guess, a lot of the outcome will depend on how quickly that is available, which markets it rolls into first and what the overall kind of, again, time to get all interested parties vaccinated. So we do know that, that has been a consistent apprehension from people seeking senior services over -- throughout the pandemic. So in terms of the immediate impact on our occupancy, I think it's likely to take a few months for that to really play out. But it will be a very positive, I think, event for our industry to have access to that, again, towards the front of the line when it does become available.

Okay. Maybe just a quick follow-up. I guess aside from the vaccine, what else do you think is the most critical piece of the puzzle or the biggest delta that will drive occupancy to the higher end or lower end of a range for internal budgeting purposes as you think about calendar 2021?

Hey, Steve, it's Kim.

And I know you're not supposed to give any guidance, obviously, but just for your internal thoughts as you're trying to map out the next year or so, how are you thinking about what else is the most critical?

Yes. I think one of the most critical things is really consumer confidence in not only in our product, but in the overall assisted living segment. The vaccine, I think, will help quite a bit with that. I also think that as data becomes available from the various operating partners in the sector about how they have handled COVID-19, what impact it has had on their occupancy and on revenues, that will help build that confidence. That's one of the things that we are really focused on is educating the broader market through our sales outreach as well as folks who reach out to us and contact our communities about all of the work that we have done to implement the infection control protocols and the changes to the operating model that we've instituted to help mitigate the effects of COVID and keep our residents safe. I mentioned earlier that we have seen in the third quarter, an uptick in the number of folks like as a percentage of move-outs that have selected the reason as home care or self-care, meaning they're likely moving back in with a family member. We view that as very temporary and short term. We believe that it will -- those same folks and others like them will continue to have the need for senior living, especially assisted living and memory care, which are very need-based. And once they have that confidence that people know how to operate in a COVID environment and that there is a vaccine that they will begin to return to senior housing again.

Okay. Great. Another question for me. I might have missed some of the prepared comments around this. But just want to get a little more color on just overall PPE and operating cost. It feels like maybe the worst is behind us and maybe we're coming down the other end of that bell-shaped curve. Just wanted to kind of confirm that. And just if there's any extra color you could add or any [ comment ] from that would be helpful as well.

Yes. I would just say from an operating perspective, the driver of the additional expense really is around the cost of labor. And so as we see the case numbers ultimately begin to decline and subside when a vaccine is introduced, I think there'll be a corresponding reduction. And we've actually seen a reduction in our cost of labor in Q3 versus Q2 when the pandemic was first impacting the industry. So on the staffing front, we look forward to the continued reduction of that cost. And then on the PPE side of the world, we will continue to be purchasing all those supplies that have been required throughout the pandemic. So I expect that will -- that supply cost will stay pretty consistent as we ensure that all of our staff have everything needed, which is a bit of a less -- a bit of a lower expense but still definitely considered.

Ladies and gentlemen, we have reached the end of the question-and-answer session, and I would like to turn the call back to Ms. Kimberly Lody for closing remarks.

Okay. Great. Well, this concludes today's conference. Thank you, everyone, and have a great day.

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