Good day, and welcome to Capital Senior Living's Fourth Quarter 2020 Earnings Release Conference Call. Today's conference call 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 in the reports 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 and was furnished in an 8-K filing this morning. Also, please note that during this call, the company will present non-GAAP financial measures. For a reconciliation of each non-GAAP measure to 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.

Thanks, Devin, and good afternoon, everyone. Thank you for joining our fourth quarter and full year 2020 earnings call. Before I get into the accomplishments for the quarter as well as the strategy update, I want to thank our team of talented colleagues across the company for their relentless dedication during the last 12 months in managing the safety and well-being of our residents, themselves and one another. I am grateful for your steadfast presence, caring operational skill as each of you make a remarkable difference in the lives of so many every single day. I truly can't thank you enough. Turning to our strategy. We are now in the third year of our 3-year plan to improve the company's operating performance and financial foundation. I'm pleased to say that the actions we've taken during the last 24 months have stabilized the company's operations, enabled our transition to a more focused and agile portfolio of 60 assets with a history of strong performance, reduced our liabilities and improved our cash flow. The detailed work has centered on securing top talent throughout the organization, establishing a new, scalable and efficient operating strategy, exiting all triple net leases and over-levered and underperforming owned assets to reduce our liabilities and stabilize our balance sheet and beginning to streamline our G&A. We've made significant progress on every front, all while operating during the difficult conditions of the COVID-19 pandemic. These strategic actions, along with tremendous operating discipline allowed us to adjust our operating model as needed throughout 2020 and resulted in Capital Senior Living outperforming many of our senior living peers in terms of mitigating occupancy declines brought on by the pandemic. Comparing publicly available data, the year-over-year decline in average occupancy in our 60 pro forma-owned communities was 430 basis points, while that…

Thank you, Kim, and good afternoon. As we close out our first quarter of 2021, marking approximately 1 year of operating through the challenges presented by COVID-19, I want to highlight and thank our local leadership and frontline care and service providers for their consistent, compassionate and steadfast efforts to keep our residents and fellow staff safe and healthy. Earlier this month, we realized a prolonged period of 0 employee and resident COVID-19 cases, a milestone worth celebrating. Our CSL communities have remained COVID-free for nearly all of March with only 2 resident COVID-19 cases reported throughout the month, and nearly 90% of our residents are fully vaccinated. We continue to adjust our operating model to accommodate increased in-person visits from family members, larger groups for communal dining and activities in a safe and enjoyable manner. Moving forward, we are encouraged by the tailwinds, both internally and externally that drive near and long term recovery. The stability and competency of our leadership at the community level continue to be a point of differentiation for CSL. Leadership retention and overall staff turnover improved significantly in 2020, ending the year with total annualized turnover 4 percentage points improved over previous year, and early trends in 2021 show further progress with a people-centered culture at the core of our SING strategy. On the revenue front, sales and marketing capabilities developed and implemented in 2019 and 2020 remain the foundation for our growth expectations. The achievement of 96% of prior year revenue in our 60 owned communities demonstrates the stability of the portfolio. Revenue declined $1.1 million or 2.3% from Q3 to Q4, excluding any COVID-19 relief funds and rates remained flat. Currently, 25% of our portfolio is operating at or above 90% occupancy. We continue to focus our recovery efforts in this segment…

Thank you, Brandon. Good afternoon, everyone. Our fourth quarter 2020 results reflect the continued impacts of COVID-19 on our occupancy, revenues and expenses. However, as I did throughout 2020, 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 in limiting the declines in occupancy during the quarter. We also benefited from the receipt of $8.1 million in CARES Act relief funding pursuant to the Provider Relief Funds Phase 2 general distribution in November 2020. The fourth quarter also reflects continued positive impacts associated with options we completed over the course of 2020 to improve our balance sheet position as we successfully exited all triple debt leases and continues the transition of 18 underperforming communities to Fannie Mae. Our reported revenues for the fourth quarter were $80.2 million compared to $108.7 million in the fourth quarter of 2019. $38.6 million of the decrease was related to the sales or conversions of 54 properties since the end of 2019, partially offset by an increase in management fees and community reimbursement revenue of $14.1 million. Most of the revenue associated with these managed communities, $13.1 million, was related to the reimbursement of certain operating costs that we paid on their behalf. You'll see that there is a corresponding expense on our income statement for the same $13.1 million. Our management fee revenue in the fourth quarter was approximately $1 million. The remainder of the decrease is due to lower occupancy levels and a decrease in rate. Financial occupancy for the consolidated portfolio in the fourth quarter of 2020 was 74.2%, a decline of 190 basis points from the third quarter of 2020 and a decline of 720 basis points compared to the fourth quarter of 2019. The…

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

Great. So a couple of questions here. First, the data around the 60 continuing communities is certainly helpful, and we can also draw our conclusions on the trends from here. But I guess, just given that a lot of your financials were in, what I would call transition mode from December 31, 2020, to the forward run rates for continued operations. I just got a few questions, cash flow and balance sheet, in particular, if you're able to address any of these. I guess just first on total debt. Do you know where that will shake out as 2021 progresses or even where it stands right now on March 31 just relative to the $910 million total debt that was on the balance sheet on December 31? I guess I'll just start with that question first.

Well, of the $900 plus million, a large chunk of that, $218.4 million is related to the Fannie Mae properties. So as those fall off in our formally -- the ownership is formally transferred to Fannie Mae, we will be derecognizing the liability and recognizing a gain. And so we anticipate that will happen throughout 2020. We also have approximately $72.5 million that is maturing at the end of this year, and we are in current -- active discussions with our lenders to refinance or extend the maturities of those notes.

Okay. That's perfect. Okay. And then for the 60 communities going forward. Obviously, you're not really giving any 2021 guidance today, which is not too surprising given what's going on still around the pandemic. But is there any color just on what we should expect on the ratio of annualized operating cash flow relative to EBITDA, just that ratio for those 60 assets going forward as well as what the annualized CapEx will be for those 60 properties?

I'll start with the CapEx and then Tiffany or Brandon can jump in on the cash flow. With respect to CapEx, if you recall in our third quarter investor deck, we anticipate spending about $1,200 per unit in CapEx in that 60 community portfolio. And we think that, that's the right amount of CapEx. When you think about that portfolio, those communities are -- they are in secondary and tertiary markets. As I mentioned in the script, we focus very much on the middle market. So they are -- they're warm, they're comfortable, they're clean, they're up to date. So we don't have a lot of projects that would require -- we don't have any projects that would require significant repositioning or significant construction or refreshment, reconstruction of the portfolio. So Steve, I think that a good assumption on that is the $1,200 per unit.

Okay. All right. Then that ratio of cash flow to EBITDA. If you don't have that handy right now, that's fine. We can always track that down later if you don't have any references, that's fine.

We'll get back to you on that one.

Maybe in the meantime, another question I had was just on -- in relation to the management fees and how that might progress through 2021, especially in light of the 16 formerly leased communities that are now under those interim management agreements. Is there just any range of what they expect for management fees for the full year?

Well, I think -- well, do you want to go in, Brandon?

Yes. I think $2 million to $2.5 million in management fee revenue is our target for a run rate basis on the go forward.

And you should see the majority of the -- as I said, the majority of that managed portfolio outside of the 8 core managed transition by the end of Q2. So in the second half, for sure, we'd be at the 8 managed communities.

Got it. Okay. And then final quick question here around financials. The comment you gave around the additional stimulus or relief payments coming in, certainly helpful. I was just curious, as we kind of balance the 2 of those components together, if you have any color on what you're expecting in relation to just COVID-related expenses in 2021 in total versus the $9.5 million that you incurred in 2020?

In 2020, our COVID expenses, a large component of that was the hero pay. And so that was approximately 40% of the total number. And so as the number of cases in our portfolio nears 0, the number of the annual stat pay has declined as well. We anticipate that we will incur additional direct expenses, just the PPE and items of that nature, but it will be decreasing over time.

Yes. I would just add, Steve, that we're very -- we've been very pleased with the impact of the nearly 0 COVID cases on the portfolio from an expense standpoint, and are confident that as that trend should continue and hopefully will continue, we'll see a meaningful impact on the expense profile on a year-over-year basis related to COVID expenses.

[Operator Instructions] There seems to be no further questions at this time. So I'd like to turn the call back over to Ms. Lody for any closing comments.

All right. Thanks, Devin. This concludes today's conference. Thank you, everyone, and have a great day.

This concludes today's teleconference. You may now disconnect your lines at this time. Thank you for your participation, and have a wonderful day.