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Capital Senior Living Corporation (CSU) CEO Kimberly Lody on Q4 2018 Results - Earnings Call Transcript

About: Capital Senior Living Corporation (CSU)
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Capital Senior Living Corporation (NYSE:CSU) Q4 2018 Earnings Conference Call February 28, 2019 9:00 AM ET

Company Participants

Kimberly Lody - President and Chief Executive Officer

Carey Hendrickson - Senior Vice President, Chief Financial Officer

Conference Call Participants

Chad Vanacore - Stifel


Good day, and welcome to the Capital Senior Living, Fourth Quarter and Full Year 2018 Earnings Release Conference Call. Today's conference is being recorded.

The forward-looking statements in this release are subject to certain risks and uncertainties that could cause results to differ materially, including but not to the company's ability to generate sufficient cash flow to satisfy its debt and lease obligation and to fund the company's capital improvement projects to expand, redevelop or reposition it senior living community, the company's ability to obtain additional capital on terms acceptable to it, the company's ability to extend or refinance existing debt as such debt matures, the company's compliance with its debt and lease agreements, the company's ability to complete acquisition and disposition upon favorable terms to all, the risk of oversupply and increased competition in the markets which the company operates, the risk of increased competition for skilled workers due to wage pressure and changes in regulatory requirement. The departure of the company's key officers and personnel, the cost and difficulty of complying with applicable licensure, legislative oversight or regulatory changes, the risk associated with a decline in economic conditions generally, the adequacy and continued availability of the companies insurance policies, and the company's ability to recover any losses it sustains under such policy. Changes in accounting principles and interpretations and the other risks and factors identified from time to time in the company's reports filed with the Securities and Exchange Commission.

At this time, I would like to turn the call over to Capital Senior Living's President and CEO, Ms. Kimberly Lody. Please go ahead.

Kimberly Lody

Thank you and good morning everyone. Welcome to capital Senior Living's conference call to discuss our fourth quarter and your end 2018 results. As many of you know, I joined the company about eight weeks ago on January 7, and in our communications about my appointment as CEO, we heavily emphasized the top priorities as improving the company's operating performance and strengthening its financial foundation. Back in January, many of you had questions about specific initiatives to accomplish these objectives and we indicated that those details would be shared on today's call.

Therefore, while we will certainly report on the company's fourth quarter and full year performance, most of my comments today will be focused on our go forward plans to drive more consistent and predictable operating performance. I'd like to reflect for a moment on the industry as a backdrop of the operating environment. On previous earnings calls, management has described the challenging macroeconomic headwinds prevalent in today's Senior Living industry.

Throughout 2018 supply continued to outpace demand and this put pressure on occupancy and rates, at the same time, low unemployment drove higher labor costs. Because we expect these conditions to continue during the next 12 to 18 months. Our number one priority continues to be strengthening our operating performance and doing so with precision and urgency. Our plan and subsequent actions can be summarized under four key strategies, they are stabilize, invest, nurture and grow or SING, S-I-N-G for short. So let's take these one at a time

First is stabilize, this is the main focus of our transformational efforts at this time, as you read in this morning's press release and Carey will describe in more detail, we are deeply disappointed in the company's 2018 operating performance, particularly with respect to the primary driver of our revenue, which is occupancy. In my assessment, we took too long to respond to emerging market conditions, and we have now taken a number of actions to address these deficiencies.

First, we have instituted a robust management system that uses detailed analytics to drive organizational discipline and accountability. The recurring nature of these new management reports, discussions, status indicators and forecasting activities, while early in their efficacy have already improved our enterprise wide analytical competency and accelerated corrective action.

The next item under our stabilized strategy is a change in our operations leadership. As indicated in this morning's press release effective immediately, Brett Lee is no longer with the company. The search for a new COO is already underway. And I'm very pleased with the quality of candidates with whom we've engaged. While we continue that search, I have assumed the COO responsibilities and have been working directly with our operations team to ensure that we are structured and operating in ways that allow our field team to be more deeply involved with each community and to have information at their fingertips, authority to make decisions and accountability for results.

At the same time, while we empower our regional management team. We will also bring them closer to one another as well as to senior management. It is important to note that our regional leadership team has 96 years of collective experience with Capital Senior Living and even more senior living experience when you include their total tenure in the industry. Because of this, while any change of leadership could be disruptive. I am confident that our field operations leaders are skilled, experienced, and now focused on the right activities to improve performance.

The third element of our stabilized strategy is focused on optimizing our labor utilization. Earlier this month, we implemented community centered staffing standards and labor utilization targets that are based on a combination of national standards as well as each community's business mix and resident needs. This initiative allowed us to reduce our organization by approximately 250 positions, none of whom were caregivers. As the business develops will continue to apply these labor standards and monitor utilization through our recently implemented labor management tool.

The fourth item under the stabilized strategy is related to sales and sales management. We have restructured our sales and sales management approach by eliminating the corporate layer of regional sales managers, and redeploying those resources into our communities. We have also changed the reporting structure, so that sales is no longer a separate vertical organization alongside of operations, but instead is directly aligned with our communities and reporting to our local community leaders, our Executive Directors.

The Sales Director position is a key member of each community's leadership team responsible for providing exceptional customer experiences, from initial contact with our communities to moving in and experiencing our facilities, programming, dining, transportation and care. A critical element of our plan is ensuring that our community leadership teams are cohesive and focused on winning together with aligned operational goals, activities and incentives. Establishing strong community based leadership teams is not only an element of the strategies to stabilize the business, but will also play a leading role in the execution of our future plans.

Fifth, at the end of 2018, we completed the enterprise wide implementations of two major business systems, UltiPro and Yardi. Consistent utilization of these systems across our communities will provide greater transparency, insights, tracking and actions related to the initiatives I just described.

Lastly, to stabilize our business and strengthen our financial foundation, in the fourth quarter we closed on a master credit facility to address our near term maturities and limit our interest rate risk. Carey will discuss more of the details related to this transaction. We also continue to analyze our portfolio as part of our normal business operations and plan to selectively divest certain communities that no longer fit with our overall portfolio strategy. This activity is part of a regular recurring evaluation of our business, and something we will continue going forward.

We are also focused on improving our balance sheet to ensure that we have a sustainable capital structure that will allow us to make appropriate investments in our business. I can't overstate the importance of having the flexibility to invest in our long-term growth. As we chart a course for the next several quarters addressing our balance sheet will be a top priority. That provides a nice transition to the next pillar of our strategy, which is invest.

First and foremost, we are investing in our talent. For quite some time the company has highlighted various sales and marketing initiatives. But few of these initiatives have gained traction and they certainly haven't produced the occupancy and revenue results that we want. This is because there's not been the right level of commercial expertise or experience to successfully drive these developments in our execution.

As noted in this morning's release, we hired a Chief Revenue Officer, Mike Fryar to lead our marketing, sales support, corporate partnerships and commercial excellence activities. Under Mike's leadership we'll optimize our digital and traditional marketing strategies, improve CRM analytics, elevate the training and sales support of our communities and further enhance our resident's experiences. Capital, Senior Living's marketing and sales functions previously reported to the company COO and will now permanently report directly to me.

Investing in our growth on the top line is absolutely critical going forward and establishing a Chief Revenue Officer will improve the company's focus in this regard. I have firsthand experience with Mike's extensive track record identifying and executing revenue generating opportunities which will be important component to our strategy moving forward.

With respect to our broader employee base of 7500, we have streamlined and restructured our health and wellness benefits to be more attractive and affordable all around. The new plan designs most efficiently utilize employee premium contributions to provide affordable and competitive care benefits focus on wellness while minimizing claims. The plans were made available in January. The response has been in line with our plan and fulfills a need for competitive benefit offerings to drive improved recruitment and retention of our people.

We have also redesigned and deployed new compensation programs for our field teams to better align each person's role, key business objectives, activities and performance with our overall company goals. We expect these changes will allow us to compete more effectively for top talent as well as reduce employee turnover.

The second element of our invest strategy relates to the care we provide to our residents. I touched on this briefly when talking earlier about the resident experience. The average age of a resident in senior living communities is now 87. And with that rising age also comes more complex health conditions and higher levels of acuity. Providing industry leading health and wellness programming to our residents will continue to be a part of our differentiation strategy. We already have a strong offering based on our internal health and wellness expertise, as well as through partnerships with high quality providers for nursing care, physical therapy, memory care, exercise science, help with activities of daily living and more. We expect to continue expanding these offerings.

Lastly, as you know, our business requires ongoing capital investments in our real estate, not only to maintain the physical plans, but also to upgrade and transition units to different levels of care or to improve the experience for all residents in a community. We have prioritized these investments and are allocating capital resources in a disciplined and consistent manner to improve our competitive offering.

The last two elements of our plan or nurture and grow. While we are engaged in the detailed activities I just mentioned to stabilize and invest in our business, we are also executing in parallel on activities to nurture and grow each of our communities. These activities include robust analysis of our CRM data, as well as data from third party sources to ensure we identify and nurture leads in a timely and effective manner. Enabling these leads to turn into tours and subsequently move in. Many of the initiatives that will come out of our focus on commercial excellence will drive how we execute on our nurture and grow strategies.

We are already engaged in many successful impactful activities that provide significant value to our residents in each of our 129 communities. And we expect initial commercial excellence activities to focus on leveraging these existing best practices across our portfolio. While we expect to witness tough industry conditions for the next 12 to 18 months, we're taking the necessary steps to stabilize Capital Senior Living and strengthen our foundation. It's been a busy first eight weeks of the year and we will continue to act with diligence and urgency to affect sustainable improved operating performance as quickly as possible.

I will now turn the call over to our Chief Financial Officer, Carey Hendrickson.

Carey Hendrickson

Thank you, Kim. And the results I'll discuss and as we noted in the press release or non-GAAP measures exclude two communities that are undergoing lease up after significant renovation and conversion. The non-GAAP measures continue to include the Houston communities impacted by Hurricane Harvey since our business interruption insurance restores the economic loss.

However, the statistical measures that we include in the release exclude the results of these two keys Houston communities since they're in lease up and to include them would make the statistical measures less meaningful. As Kim noted, we're very disappointed in our fourth quarter and full year 2018 operating results, particularly as it relates to the key drivers of our top line occupancy and rate.

The company reported total consolidated revenue of $115.1 million for the fourth quarter of 2018, a decrease of $1.9 million or 1.6% over the fourth quarter of 2017. The decrease is related to lower financial occupancy partially offset by a nominal increase in average rent.

Operating expenses increased $4.7 million or 6.6% in the fourth quarter of 2018 to $76.1 million. Casualty expenses which are not included in our non-GAAP results were $1 million higher than the prior year. Another $1 million of increase is related to having a lesser business interruption credit associated with our two Hurricane impacted communities, now that those communities are back and service. Both communities began admitting residents in July 2018 and are making steady progress.

General and administrative expenses for the fourth quarter of 2018 were $9.6 million, compared to $5.9 million in the fourth quarter of 2017. The fourth quarter of 2018 includes approximately $4 million in incremental cost associated with the retirement of our previous CEO and the transition to and placement of our new CEO.

Excluding these and other transaction costs from both years, our G&A expense decreased $200,000 in the fourth quarter as compared to the fourth quarter of 2017 with lower bonus accruals. G&A expense as a percentage of revenue under management was 4.7% in the fourth quarter of 2018, compared to 4.8% in the fourth quarter of 2017.

Our adjusted EBITDA was $35.2 million in the fourth quarter of 2018, compared to $39.4 million in the fourth quarter of 2017. And our adjusted CFFO was $6.9 million in the fourth quarter of 2018 compared to $12.3 million in the fourth quarter of 2017.

Looking at our same community results, our same community revenues decrease 2.3% as compared to the fourth quarter of 2017. We had a modest increase in average monthly rent of 0.7%, but our same community occupancy declined 270 basis points as compared to the fourth quarter of 2017 to 284.5% and declined 110 basis points on a sequential basis from the third quarter of 2018.

The declines in the third quarter to the fourth quarter was driven by slow moving months in September and October. In November, we implemented lower rates for new residents in communities where our pricing was above prevailing market rates and we did see some improvement in November and December.

There were variations in occupancy performance across our portfolio in 2018 based on the supply demand dynamics in those markets and our competitive position in those markets. In the Dallas market, where we have our largest concentration of communities with 17 communities, our financial occupancy declined in the fourth quarter of 2018 as compared to the fourth quarter of 2017, at the same rate as our overall portfolio down approximately 270 basis points.

We have three other markets where we have four or more communities in the market; Indianapolis, which showed a greater decline in our overall portfolio, Cincinnati, where occupancy was relatively flat year-over-year and Omaha, where occupancy increased significantly year-over-year, growing from 85.7% in the fourth quarter of 2017 to 92.8% in the fourth quarter of 2018.

Looking at our three largest states, occupancy declined at a greater rate than our overall portfolio in Indiana, occupancy for Texas and Ohio declined at a lesser rate than our overall portfolio. While occupancy declined to Dallas by approximately 270 basis points as I noted, occupancy at our 19 Texas communities that are not in the Dallas market, increased approximately 70 basis points in the fourth quarter of 2018, as compared to the fourth quarter of 2017.

Our same community expenses in the fourth quarter of 2018 increased 3.2%. Our employee labor costs increased 3.9% in the fourth quarter of 2018 versus the fourth quarter of 2017. We are experiencing wage pressure in certain markets, particularly for caregivers. We address this at a select number of communities that have the most significant wage pressure in the fourth quarter. These communities also had the greatest amount of premium pay and contract labor. So expect reductions in those costs categories to offset much of the increase in direct labor costs related to the wage adjustments.

We're investing in 25 additional communities in 2019, but we also expect reductions in overtime and contract labor to cover most of the wage adjustments implemented, although the savings may slightly lag the investment. As Kim noted, we eliminated approximately 250 positions across our field operations this month to better match our labor expense to current revenue levels. No caregiver positions were eliminated. We expect the labor savings associated with this reduction in force to lessen the increase in our labor costs in 2019.

Our food cost decrease 4.2% in the fourth quarter due to the centralized procurement platform that we implemented in April of 2018. We executed additional refinements to the food program in the fourth quarter of 2018 that we expect to result in incremental savings going forward. Utilities increased 2.5% over the fourth quarter of last year. With that our same community net operating income decreased 10.9% in the fourth quarter of 2018, as compared to the fourth quarter of 2017.

Looking briefly at the balance sheet, we ended the quarter with $44.3 million of cash and cash equivalents including restricted cash. During the fourth quarter, we spent $4 million on capital expenditures and we spent approximately $22 million in capital expenditures for the full year of 2018.

Our mortgage debt balance at December 31, 2018, was $981.6 million at a weighted average interest rate of approximately 4.8%. At December 31, the majority of our debt was at fixed interest rates except for three bridge loans that total approximately $80 million and then $50 million of long-term variable rate debt under our new master credit facility.

Speaking of the master credit facility, in December 2018, we closed on this facility that refinanced the fixed rate debt on 19 of our communities, including all of our 2021 maturities, which are our earliest fixed rate debt maturities, and the majority of our 2022 and 2023 maturities. The new mortgage debt in the master credit facility is $201 million, with approximately $151 million of the debt at a fixed interest rate of 5.13% and the remaining $50 million at a long-term variable interest rate of LIBOR plus 2.14%.

The initial variable interest rate on this variable rate debt was approximately 4.6%. All the debt in the master credit facility has a 10 year term and our debt service payment is interest only for the first 36 months. As part of the transaction, we also repaid the debt of two additional communities being considered for divestiture that were previously cross collateralized with communities that we refinance under the master credit facility.

One of the two communities has a $3.5 million bridge loan with an 18 month term and the other community is now unencumbered. GAAP accounting required us to record a $12.6 million charge related to the extinguishment of our previous debt on the 21 communities and the right off of certain deferred loan costs. All things considered, the transaction resulted in net cash proceeds of approximately $20.3 million.

With the completion of the master credit facility, the average duration of our debt is now approximately 6.5 years, which is up from 5.6 years prior to the master credit facility with our earliest maturity date for the company's fixed rate debt in 2022 and 92% of our debt maturing in 2022 and after. The master credit facility was part of an ongoing effort to strengthen our financial foundation.

Similarly, as we noted in the release, and Kim mentioned in her remarks, we're also considering ways to rationalize our asset portfolio. We're actively marketing a handful of communities that we did not consider to be core to our portfolio for the long-term for which we expect to generate strong value. As Kim noted in her opening comments, our focus in 2019 will be on stabilizing and investing in our operations as we create a platform for growth in the years ahead.

We expect these actions to drive stronger results. But we can't predict the timing of that improved performance, particularly in an environment that remains challenging. So we don't think providing guidance would be in the best interest of the company or its shareholders at this juncture and for the foreseeable future. Also, our intention is to focus our conversations on the long-term drivers of our business.

Generally, as we look at 2019, we expect our operating and financial results to reflect the occupancy declines that we experienced in 2018. We finished 2018 with financial occupancy of 84.5% in December of 2018, which is our starting point, as we go into 2019. The starting point coming into 2018 was considerably higher at 87%. Also, the market rate adjustments that we implemented at many of our communities in late 2018 to place our communities in a more competitive position dampens our ability to grow our average rent in 2019.

We expect to be able to manage our operating expenses to increase in the 2% to 3% range in 2019. With the occupancy and rate challenges we expect and a moderate increasing expenses, we expect comparisons to the prior year to be difficult throughout 2019. However, as we enter 2020, we expect to be in a position to begin growing our financial results. We have a lot of work to do, but we firmly believe that the changes we're making organizationally and operationally will result in better and more predictable results in the years ahead.

And now I'll turn the call back over to Kim.

Kimberly Lody

Thanks, Carey. In closing, I want to reiterate our sense of urgency; diligence and precision in executing our strategy of stabilize, invest, nurture and grow to significantly improve the company's operating performance. While many performance focused initiatives have been implemented, it will take time for these efforts to take hold across the portfolio to become anchored in the enterprise and to produce results. We look forward to keeping you apprised of our developments. Thank you.

Carey Hendrickson

And Jeff we'll now open the call for questions.

Question-and-Answer Session


Thank you. [Operator Instructions] We will take our first question from Chad Vanacore from Stifel. Please go ahead.

Chad Vanacore

Thanks. Good morning Kim and Carey. So just looking at your performances -

Carey Hendrickson

Good morning Chad.

Chad Vanacore

Hey, how are you? Looking at performance this quarter, occupancy was a drop that's more severe than we thought .Are there any particular areas of concern, were there loss of Sales Directors or EDs or this more new competition and then whether issue is spread out across the company or concentrated in a few communities?

Carey Hendrickson

Yeah, Chad, I'll take the first stab at this and I'd say that we certainly - the environment is challenging, but we did not execute well and we have to execute better going forward. There was some variation in our results as I noted in my comments, Dallas was down 270 basis points, but the rest of Texas was up 70 basis points. Indianapolis is another market that we've had a lot of competition in and it was down greater than 270 basis points. So it was really a lot of decline in Dallas and in Indianapolis markets, but there was variation across our portfolio. Kim, anything else you want to add?

Kimberly Lody

Yeah and I'll just add Chad, that in my assessment we were slow to respond with clear direction to changing market conditions. And this resulted in poor and inconsistent execution. And our lens forward is on this exact issue. The systems and processes that we've already put in place and that we'll continue to implement really are about improving that transparency into the business and improving our skills with respect to execution and discipline along with holding ourselves accountable for the results. So it is a top priority for us.

Chad Vanacore

So when you look at you say, slow to respond and poor and consistent execution, what did you learn from that? And what's the low hanging fruit that's going to change in the next 12 months per say?

Kimberly Lody

Yeah, I think there are a couple of things. One is, and as I mentioned in my remarks, we really have not had the depth of competency in terms of sales and marketing expertise to really drive that execution. And so, with the addition of the Chief Revenue Officer, Mike Fryar, as I mentioned, will have much greater focus on that across the organization. Within each of the communities, each one operates in a unique market environment and the situation or the scenario and each community is different. I mean, we do have communities, they're doing quite well and for them it's continuing to do exactly what they're doing today. In other places it is about making sure that we've got strong solid leadership in place at those communities and that that leadership team is working together to really generate those leads, nurture those leads and that engagement with families and prospective residents and existing residents through that conversation so that the choices that they make is to come with Capital Senior Living.

Chad Vanacore

Alright, so you mentioned in your prepared remarks on when thinking about outlook about maybe pricing rate being constrained, should we think about that as holding the line on rate or we should we think about that as more concessions coming through 2019?

Carey Hendrickson

Chad, I wouldn't say more concessions. It's just - what we did in November of 2018 was we did a complete kind of look at all of our market pricing and adjusted our market pricing to where we - in certain markets where we felt like we were above the prevailing market rates. As you know, we did discount quite a bit during the year, at different points during the year. But with the new –with the lower rates in certain markets we're going to have - where it will be difficult for us to grow rate at tremendous amount in 2019. Certainly our existing residents when they come up for renewal, we have rate increases for them that will go into place just as normal and that's probably around the 3% kind of level for those existing residences they renew, but that will dampen our ability to grow our rate the fact that we've put these market pricing adjustments in place.

Chad Vanacore

Alright, then, just one more question for me. You mentioned limited number of dispositions in 2019. I think you kind of highlighted two companies that or two communities that you are encumbered. So how many should we expect to be disposed in 2019? Maybe give us an idea of expected proceeding or changes in EBITDAR?

Carey Hendrickson

Yeah, Chad, I don't know exactly how many. Our marketing dominance is going to end on how that process goes. It's a handful of assets that we're marketing and the CFFO and EBITDAR impacts can depend on which of those communities we do end up divesting it, but I do not currently expected to be a significant impact on those measures, more to come on that as we move forward.

Chad Vanacore

Alright, thank you for taking the questions. I'll hop back in the queue.

Carey Hendrickson

You bet.


Thank you. We can now take our next question from Joanna Gajuk from Bank of America. Please go ahead.

Unidentified Analyst

Yeah. Hi, so this is Bradley on for Joanna actually. I was just wondering if you could provide a little bit more color on cost cutting initiatives. So I know you had reorganized the sales force and reduced field labor by the 250 positions. But is there any way to quantify that impact?

Carey Hendrickson

Bradley, the reduction in force, how we've characterized, it's going to help minimize the increase on our labor cost in 2018, so some of the savings will be redeployed to the market wage adjustments that we need to make it certain communities for caregivers and other key community personnel. But we also expect savings as I noted overtime in contract labor to offset a portion of the wage adjustments. But it's a meaningful number from the reduction in force, but not one that we're wanting to quantify at this point. But there are other initiatives, Bradley there are other initiatives in place well. In 2019, we expect to continue to benefit from the food procurement initiative we put in place. We have one more full quarter of those savings, because we started that in April of 2018. And those have been, as I noted brought our food costs down 5% in 2018.

And so we'll have another savings similar to that in the first quarter. And then we put other initiatives in place to continue to have some savings and food. Obviously, it won't be as great as this first year of implementation of the initiative. But we do expect additional savings in 2019 related to those refinements. And then also we're continuing to nationalize our regional hires, our vendor contracts across multiple services. And most notably, and I don't have a quantification of this yet, but we hope to be in a position to face and changes related to telecom, television and internet during 2019. We expect those savings to be meaningful, but we don't have the final details worked out yet. So as I said, I can't quantify that at this point.

Unidentified Analyst

All right, that makes sense. Thanks for the color. I guess, so then you had previously mentioned about three quarters a million in annualized cost savings? Is that kind of what this is including or is that no longer employed?

Carey Hendrickson

I'm not sure to what you're referencing Bradley, but that was for the full, probably for the first full year of implementation. It's about for that food initiative. It's about $250,000 to $300,000 per quarter. So it was about 750 in 2018, and there'll be another 250 to 300 in the first quarter.

Unidentified Analyst

Okay, got it. That makes sense. So I guess just trying to get to where you were starting to see CFFO grow again, you had mentioned 2020 is sort of a target where you're starting to grow the - have some more financial health there, is that is that the way to look at it?

Carey Hendrickson

It's going to depend on the timing and the traction of some of the initiatives that we're putting in place. We're certainly working with a sense of urgency. And I think we have to emphasize that, but as we enter 2020 is when we currently expect to be in a position to begin growing our financial results, as I noted in my remarks.

Kimberly Lody

And I would just jump in here and say, while we're confident in the initiatives that we have put in place and the initiatives that we will put in place, it is still early days and enterprise wide change does take time to take hold and gain traction. So it's a little premature for us to predict the exact timing and the exact impact of those activities.

Carey Hendrickson

All right, I appreciate that. Thank you.


Thank you. [Operator Instructions] We can take our next question from Dana Hambly from Stephens. Please go ahead.

Unidentified Analyst

Hey, thanks. This is Jacob on for Dana and welcome, Kim. I guess the first question here is on the new Chief Revenue Officer. Can you just elaborate on some of the areas that the position focus on initially, and maybe following up on that your prior COO made some changes to sales efforts and looks like you're now revamping them again, can you just talk about how perhaps the new strategy will differ?

Kimberly Lody

Yeah, happy to do that, I think when you think about the umbrella of activities that Mike will lead as our Chief Revenue Officer, I would categorize those as commercial excellence. So that includes everything from our go-to-market strategy to the detailed execution of plans about developing those leads and then taking them through the resident experience to improve the business. I really can't emphasize enough the resident experience piece of that. We have thousands of touch points every single day with residents and their families. And as I mentioned earlier, each one of our communities operates in a unique market and has a unique community mix and sort of feel to it. So making sure that we are capturing those local differences and leveraging those in the communities is really important. So Carey mentioned some of the activities that were engaged in, in terms of reducing costs around technology and internet and television and things like that.

That's one of the areas where we expect to make some - have some significant opportunities. So not only will we save money with those initiatives, but we will also have a greater resident experience across the enterprise as a result of them. The reason that we took the sales management focus in a different direction is simply because what we were doing wasn't working. And it is critical to more closely align those sales resources with those individual communities and those individual market conditions to make sure that that team is focused on executing in the best way possible given those conditions. I feel like decision making really needs to be made as close as possible to the local community and that Sales Director is a key element of that, but they're not the only element, they're part of the overall team to deliver.

Unidentified Analyst

Got it and maybe just following up on that, I guess the concern here is a lot of changes in a short period of time. Can you just talk about or give any color around the turnover on some of the key positions in your facility levels? I guess it does sound like you're sort of empowering the local leader. So I'm guessing this is a positive for that, but just anything you can share there?

Kimberly Lody

Yeah, our employee turnover is generally in line with the industry, which is higher than we would like it to be. I think that that's pretty consistent across the industry. And so there's not a lot of color, a lot of additional color to provide on that. Other than that we are executing on a number of initiatives to really improve the hiring, the recruiting, hiring and retention of our employees really focused on that turnover. When I look at this plan and at the actions that we've taken in a really short period of time and I wanted to just emphasize for everyone, I was on the board and also part of a three person executive team that was working with management, which really allowed me to hit ground running fast when I joined the organization. And that's the reason why we're able to make a lot of these changes very quickly. I don't view them as disruptive, I mean, it is change for sure. But we have a strong solid field management team, field leadership team and I am very confident in their ability to execute on the new direction going forward.

Unidentified Analyst

Great and then thinking about sort of the invest part of thing on CapEx. I don't know if you want to share kind of how we should think about it in 2019? And following up on that, have you done a review of your facilities? And should we expect a large CapEx program at some point sort of as part of the new path forward?

Carey Hendrickson

This is Carey, Thanks. Yeah, we are currently planning to spend around approximately $25 million to $30 million in total CapEx in 2019, so a little bit elevated from 2018. This allows $15 million to $20 million for the necessary physical infrastructure needs of our communities, roofs, HVAC, elevators, nurse call systems, fire alarm, sprinkler systems, and all those kinds of things that are necessary. And then about $10 million to $15 million per room turns and upgrades and select improvements at certain communities to sustain and improve their competitive position and the experience of our residents. We did go through a process to identify our current and our future CapEx needs for the next five years. And we believe that the $30 million we're allocating to CapEx this year is sufficient to cover most pressing physical infrastructure needs and to make improvements at the communities like I noted and so we feel like that's the right amount for this year and then - but we do have - you always have other needs and we'll be looking at that as we go forward.

Unidentified Analyst

Great, I'll leave it there. Thank you, Kim, and Carey.

Carey Hendrickson

Thank you.


Thank you. [Operator Instructions] It appears there are no further questions at this time. So I'd like to hand the call back to our hosts for any additional or closing remarks.

Kimberly Lody

Well, I want to thank everyone for joining us for our conference call this morning. And we will look forward to keeping you updated on our progress going forward. Thank you.

A - Carey Hendrickson

Thank you.


This concludes today's call. Thank you for your participation. Ladies and gentlemen, you may now disconnect.