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Investor Presentation January 2017
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Page 1: Investor Presentation

0

Investor Presentation January 2017

Page 2: Investor Presentation

Disclaimer.

THIS PRESENTATION CONTAINS FORWARD LOOKING STATEMENTS WITHIN THE

MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 AND OTHER

SECURITIES LAWS. ALSO, WHENEVER FIVE STAR USES WORDS SUCH AS "BELIEVE",

"EXPECT", "ANTICIPATE", "INTEND", "PLAN", "ESTIMATE", "WILL", "MAY" AND

NEGATIVES OR DERIVATIVES OF THESE OR SIMILAR EXPRESSIONS, FIVE STAR IS

MAKING FORWARD LOOKING STATEMENTS. THESE FORWARD LOOKING STATEMENTS

ARE BASED UPON OUR PRESENT INTENT, BELIEFS OR EXPECTATIONS. FORWARD

LOOKING STATEMENTS ARE NOT GUARANTEED TO OCCUR AND MAY NOT OCCUR.

ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE CONTAINED IN OR IMPLIED

BY OUR FORWARD LOOKING STATEMENTS AS A RESULT OF VARIOUS FACTORS. YOU

SHOULD NOT PLACE UNDUE RELIANCE UPON ANY FORWARD LOOKING STATEMENT.

EXCEPT AS REQUIRED BY APPLICABLE LAW, WE UNDERTAKE NO OBLIGATION TO

UPDATE OR REVISE ANY FORWARD LOOKING STATEMENT AS A RESULT OF NEW

INFORMATION, FUTURE EVENTS OR OTHERWISE.

1 Note: Data throughout this presentation is based on September 30, 2016 results, unless otherwise noted.

Page 3: Investor Presentation

Investment highlights.

2

One of the largest senior living operators in the U.S.

Private pay revenues account for 79% of total senior living revenues.

Industry demographics and supply/demand trends are favorable.

Internal and external growth opportunities.

Tuscany Villa of Naples Naples, FL 134 Units

Strong and well managed balance sheet.

Current valuation provides a compelling investment opportunity.

Page 4: Investor Presentation

Company Overview

Page 5: Investor Presentation

One of the largest operators of senior living communities in the U.S.

4

Five Star operates a total of 276 high quality senior living communities with over 31,000 units across the U.S.

• Leases 187 communities with 20,244 units.

• Owns 26 private pay communities with 2,703 units.

• Manages 63 senior living communities with 8,402 units.

CCRC 35%

SNF 15% Other

2%

IL/AL 48%

Senior Living Revenues

Managed 27%

Owned 9%

Leased 64%

Unit Breakdown

Medicare 10%

Medicaid 11%

Private Pay 79%

Private Pay Revenues

Villa Valencia Laguna Hills, CA 366 Units

(1)

(1) Other senior living revenue relates primarily to rehabilitation and other specialty service revenues provided at the senior living communities owned and leased by Five Star.

Page 6: Investor Presentation

Five Star across the senior living spectrum.

5

Independent Living

- Residents have a high degree of independence in large, private units. - Daily meals, housekeeping and social activities are provided.

Assisted Living

- One bedroom units with small kitchenettes. - Services include laundry, medication management and daily living assistance. - Nursing care available.

Alzheimer’s - Memory Care

- A dedicated, secure wing within assisted living or a stand alone community. - “Bridge to Rediscovery” program.

Skilled Nursing - CCRC

- Nursing care offered for IL / AL residents who require additional care. - Focus on short-term private pay and Medicare patients. - “Rehab to Home” units.

Skilled Nursing - Free Standing

- One or two beds per room. - Extensive nursing care to residents 24 hours per day. - Includes post-acute care and long-term chronic care.

Unit Type Leased Owned Managed Total

Independent Living 6,279 845 3,539 10,663

Assisted Living 7,212 1,511 3,615 12,338

Alzheimer’s / Memory Care 2,272 347 785 3,404

Skilled Nursing / CCRC 1,949 - 463 2,412

Skilled Nursing / Free Standing 2,532 - - 2,532

Total 20,244 2,703 8,402 31,349

AL 39%

IL 34% ALZ 11%

SNF 8%

SNF CCRC

8%

Page 7: Investor Presentation

Scale and diversification of operations.

6

Five Star operates across 32 states with a total unit capacity of 31,349.

1,775 6%

287

2,077 7%

1,243 4%

657

802

189

764

204

1,672 5%

1,288 4%

1,018

934

695 116

899

434

302

230

187

1,111

982

MA – 123 310

315

NJ – 1,037

DE – 1,000

MD – 1,281 4%

1,625 5%

1,921 6%

1,252 4%

FL – 4,619 15%

All other states where FVE operates

Top 10 states based on units

Page 8: Investor Presentation

Favorable industry demographics.

7

• Fragmented industry is positioned for consolidation.

In the U.S. there are approximately 22,100 senior housing properties with almost 2.85 million units.(1)

Total capitalization of the senior housing market is estimated at $304.6 billion (implied value).(1)

The 10 largest senior housing operators (both public and private) control 26.8% of units in the largest 100 metropolitan markets.(1)

• New supply is modest in comparison to aging population growth and overall penetration rates.

86%

87%

88%

89%

90%

91%

92%

01,0002,0003,0004,0005,0006,0007,0008,0009,000

10,000

Un

its

Senior Housing Supply-Demand Trends(1)

Inventory Growth Absorption Occupancy

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

0

4

8

12

16

20

Mill

ion

s

Age 85 + Population(2)

85+ Population Growth Rate (%)

(1) Source: National Investment Center for the Seniors Housing and Care Industry (NIC), as of September 30, 2016.

(2) Source: U.S. Census Bureau, “2014 National Population Projections”.

Page 9: Investor Presentation

Five Star continues to add private pay communities to its portfolio.

• Q4 2016: Entered into agreements to manage four additional senior living communities with a total of approximately 350 living units and to lease two senior living communities with a combined 126 living units.

• Q2 & Q3 2016: Entered into management agreements to manage three additional senior living communities: a 38 unit facility in Acworth, Georgia; an 87 unit building in Wilmington, North Carolina; and a 163 unit building in Birmingham, Alabama.

• Q4 2015: Acquired two 100% private pay senior living communities in Tennessee with 151 independent living units on our own balance sheet for $26 million.

Growth and diversification through management agreements and acquisitions.

8

Morningside of Pekin Pekin, IL 61 Units

Page 10: Investor Presentation

Managed new properties.

9

Park Place of Fountain City Knoxville , TN 68 IL/AL Units

Overlook at Cedarcrest Acworth, GA 38 IL/AL Units

Park Place of Knoxville Knoxville, TN 83 IL/AL Units

Morningside of Wilmington Wilmington, NC 87 IL/AL Units

Page 11: Investor Presentation

Program Driven Industry

Page 12: Investor Presentation

“Rehab to Home” initiative.

Note: Medicare revenue and NOI are based on annualized results since the project was completed compared to the prior period 11

• Impacts skilled nursing units within a CCRC.

Converting semi private units into private rooms with updated bathrooms, flat screen TV’s, high quality in-room dining services and refurbished private rehab areas.

Utilized by short-term Medicare patients needing rehab following a procedure like a hip or knee replacement.

• Five Star’s “Rehab to Home” Initiative.

Four projects completed with more slated to start in 2017.

Current projects in Arizona, Ohio and Indiana.

• CCRC conversion case study: Myrtle Beach, SC.

Units converted: 24. Open for nine months. Annualized Medicare A revenue growth: $900,000, or

33%. Annualized community NOI: $260,000 vs. negative NOI.

Page 13: Investor Presentation

Elevating the dining experience.

12

• Five Star has partnered with Celebrity Chef, Brad Miller, former contestant on Hell’s Kitchen and current restaurant owner (two locations in Santa Monica, CA).

Hosting community events and chef competitions around the country.

Incorporating new signature dishes in Five Star menus.

• Dining is a major consideration for residents when selecting a community; these initiatives set an unprecedented culinary standard.

Celebrity Chef Program awarded ‘Best of the Best’ award by ALFA in May 2015.

• Referral sources attend events, creating positive buzz at the communities and ultimately improve occupancy.

• In 2015, Brad Miller helped launch Five Star Culinary Institute. Over 100 community chefs attended.

Page 14: Investor Presentation

Lifestyle360: a new approach to resident wellness.

13

• Lifestyle360 is a holistic approach to active community living.

Research-based activities and wellness program predicated on ‘Maslow’s Hierarchy of Needs’.

Activities and events are based on five dimensions of wellness: intellectual, social, physical, emotional and spiritual.

Proven results and beneficial to the overall health and wellness of our residents.

• All Five Star communities will offer at least one activity or event that corresponds to each of the five dimensions.

• Programs resonate well with residents, increase referrals and further differentiate Five Star from the competition.

Page 15: Investor Presentation

Digital strategy.

14

• Focus on decreasing reliance on Third Parties for lead generation.

Third Party sources are less profitable, have shorter length of stay and higher cost of sale.

• Five Star’s Digital Strategy

Boost Search Engine Optimization efforts

Aggressive Search Engine Marketing

Rich Content

Video Testimonials

13%

8%

13%

17%

0%

5%

10%

15%

20%

25%

30%

Q3 2015 Q3 2016

% Business from FVE Website % Business from 3rd Parties

Page 16: Investor Presentation

Revenue management initiative.

15

• Creating a more scientific and proactive approach to pricing, informed by

internal sales and financial data combined

with external market data.

• Using RevPAR (Revenue per

Available Room) as a measure of

success.

• The RevPAR Index (comparing Five

Star’s RevPAR to that of the competition)

is an indication of whether or not Five Star is gaining an

advantage in a particular market faster than the competitors.

Page 17: Investor Presentation

Operations & Financials

Page 18: Investor Presentation

Operating performance.

17

• Significant opportunity to grow occupancy; third quarter senior living occupancy at 83.8% is below the company’s historical high of 92% achieved prior to the Recession.

IL/AL occupancy is 85.3%.

83.8%

85.3%

82.3%

80.2%

78%

80%

82%

84%

86%

88%

90%

Senior Living Occupancy(1)

Total Senior Living IL/AL CCRC SNF

$4,400

$4,450

$4,500

$4,550

$4,600

$4,650

$4,700

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

Senior Living Average Monthly Rate

Average Monthly Rate Year Over Year Growth

(1) For 2016, the calculation of occupancy includes in service living units only; prior period occupancy calculations included certain living units categorized as out of service.

Page 19: Investor Presentation

Growth in private pay revenues.

(1) Earnings before interest, taxes, depreciation, amortization and rent expense. Excludes non-recurring items.

(2) Includes revenues from leased and owned communities. (3) For the nine months ended September 30, 2016, annualized.

18

$190

$215 $224

$235 $233 $225 $234

$170

$227

68%

70%

72%

74%

76%

78%

80%

$0

$40

$80

$120

$160

$200

$240

2009 2010 2011 2012 2013 2014 2015 YTD 2016

Mill

ion

s

EBITDAR(1) and Private Pay Revenues(2)

EBITDAR Private Pay Revenues

Act

ual

Ann

ualiz

ed

• By focusing on increasing rate and controlling costs, Five Star has maintained EBITDAR levels during the recent downturn in industry occupancy.

• 79% of senior living revenues came from residents’ private sources, rather than Medicare and Medicaid.

(3)

Page 20: Investor Presentation

Culture focused on cost control.

(1) Excludes non-recurring items. (2) Other operating expenses include utilities, food expense, property taxes, general

maintenance and insurance expense.

19

49.1% 49.1% 48.6% 48.8% 48.3% 48.3% 48.9%

23.5% 23.9% 24.4% 24.7% 26.2% 25.5% 25.4%

0%

10%

20%

30%

40%

50%

60%

2010 2011 2012 2013 2014 2015 YTD 9/30/2016

Senior Living Expenses as a Percent of Senior Living Revenues(1)

Wages and Benefits (%) Other Operating Expenses (%)(2)

Morningside of Vestavia Hills Birmingham, AL

163 Units

Page 21: Investor Presentation

Conservative balance sheet.

20

As of September 30, 2016

Assets

Cash and cash equivalents $43,174

Accounts receivable, net 38,040

Property and equipment, net 352,561

Other assets 96,901

Total Assets $530,676

Liabilities and Shareholders Equity

Revolving credit facility $--

Mortgage notes 60,856

Total debt 60,856

Other Liabilities 299,730

Total Liabilities 360,586

Shareholders’ Equity 170,090

Total Liabilities and Shareholders’ Equity $530,676

$100 million available under one revolving credit facility as of September 30, 2016.

Debt as a percent of book capital is a conservative 26% as of September 30, 2016.

Property and equipment, net is $353 million and includes 26 communities owned by Five Star.

Page 22: Investor Presentation

$0

$10

$20

$30

$40

$50

$60

$70

2009 2010 2011 2012 2013 2014 2015 YTD 2016

Mill

ion

s

Capital Investments

FVE Funded Landlord Funded

Investment in communities.

21

• Five Star has consistently invested capital into its communities to remain competitive and provide residents with high quality amenities and services.

• On a per unit basis, capital expenditures exceeded $1,000 per annum since 2011.

2009 2010 2011 2012 2013 2014 2015 YTD 2016

Total owned and leased units 22,066 22,176 23,765 22,972 22,972 23,101 23,227 22,947

Gross capital investment ($M) $62.0 $54.0 $60.9 $51.8 $53.8 $49.9 $57.6 $54.4(1)

Five Star funded capital ($M) $16.8 $22.1 $27.7 $26.9 $29.1 $24.1 $36.2 $34.2(1)

Five Star funded capital, per unit $761 $997 $1,166 $1,171 $1,268 $1,043 $1,559 $1,490(1)

(1) For the nine months ended September 30, 2016, annualized.

(1)

Page 23: Investor Presentation

Investment highlights.

22

One of the largest senior living operators in the U.S.

Private pay revenues account for 79% of total senior living revenues.

Industry demographics and supply/demand trends are favorable.

Internal and external growth opportunities.

Tuscany Villa of Naples Naples, FL 134 Units

Strong and well managed balance sheet.

Current valuation provides a compelling investment opportunity.

Page 24: Investor Presentation

23

Investor Presentation January 2017


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