ALERISLIFE INC. The following discussion should be read in conjunction with the condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q, or Quarterly Report, and with our Annual Report on Form 10-K for the year endedDecember 31, 2021 , or Annual Report.
Summary of Senior Living Communities and Outpatient Rehabilitation Locations
Presented below is a summary of the units owned and managed by us as ofSeptember 30, 2022 : Total Units (1) Independent living 10,422 Assisted living 7,734 Memory care 1,817 Total 19,973
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(1) The units operated as of
Presented below is a summary of the communities, units, average occupancy, quarter end occupancy, revenues and residential management fees for the Five Star senior living communities we manage for DHC, as of and for the three and nine months endedSeptember 30, 2022 (dollars in thousands): As of and for the Three Months Ended September 30, 2022 Community Communities Units Average Occupancy Quarter End Occupancy Revenues (1) Management Fees Independent and assisted $ 9,477 living communities 120 17,889 75.3% 77.0%$ 171,684 As of and for the Nine Months Ended September 30, 2022 Community Communities Units Average Occupancy Quarter End Occupancy Revenues (1) Management Fees Independent and assisted $ 27,380 living communities 120 17,889 74.5% 77.0%$ 499,415
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(1) Managed senior living communities' revenues do not represent our revenues and are included to provide supplemental information regarding the operating results of the Five Star senior living communities from which we earn residential management fees. Presented below is a summary of our Ageility outpatient rehabilitation locations we operated as of and for the three and nine months endedSeptember 30, 2022 (dollars in thousands): As of and for the Three Months EndedSeptember 30, 2022 Number of
Total Revenue Caseload as a % of
Locations (1)(2) occupancy (3) EBITDA Margin
Outpatient Locations in DHC Owned Communities
Managed by Five Star 94 $ 7,789 25.9 % (0.2)%
Outpatient Locations at AlerisLife Inc. Owned 4.6%
Communities 15 868 29.9 %
Outpatient Locations at Other Communities (4) 94 4,124 21.7 % (8.3)%
Total Outpatient Locations 203 $ 12,781 24.3 % (2.5)%
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(1) Excludes revenue of$1,590 earned during the three months endedSeptember 30, 2022 for ten Ageility inpatient rehabilitation clinics (inclusive of two inpatient rehabilitation clinics that were closed during the three months endedSeptember 30, 2022 ). (2) Total Ageility revenue includes fitness revenue. Total Ageility revenue excludes home health care services, which is part of the lifestyle services segment. (3) Represents the average number of Ageility customers divided by average total occupancy at each of the senior living communities where we operate Ageility outpatient rehabilitation locations. Occupancy is defined as the average total number of residents residing at the senior living communities. (4) Other communities include outpatient rehabilitation locations at senior living communities not owned or managed by us. 23
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As of and for the
Nine Months Ended September 30, 2022
Number of Total Revenue Caseload as a % of
Locations (1)(2) occupancy (3) EBITDA Margin
Outpatient Locations in DHC Owned Communities
Managed by Five Star 94 $ 22,927 25.6 % 0.9%
Outpatient Locations at AlerisLife Inc. Owned 1.8%
Communities 15 2,412 28.3 %
Outpatient Locations at Other Communities (4) 94 12,180 22.1 % (3.4)%
Total Outpatient Locations 203 $ 37,519 24.2 % (0.4)%
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(1) Excludes revenue of$5,242 earned during the nine months endedSeptember 30, 2022 for ten Ageility inpatient rehabilitation clinics (inclusive of two inpatient rehabilitation clinics that were closed during the nine months endedSeptember 30, 2022 ). (2) Total Ageility revenue includes fitness revenue. Total Ageility revenue excludes home health care services, which is part of the lifestyle services segment. (3) Represents the average number of Ageility customers divided by average total occupancy at each of the senior living communities where we operate Ageility outpatient rehabilitation locations. Occupancy is defined as the average total number of residents residing at the senior living communities. (4) Other communities include outpatient rehabilitation locations at senior living communities not owned or managed by us. We currently expect to continue to diversify revenue through growth of our lifestyle service offerings, including opening new outpatient rehabilitation locations and expanding our fitness and other home-based service offerings within and outside of Five Star senior living communities. With respect to outpatient rehabilitation locations, sinceJanuary 1, 2021 we have opened 13 net new Ageility outpatient rehabilitation locations, 15 of which were opened in 2021 (exclusive of the closure of 17 Ageility outpatient rehabilitation locations inDecember 2021 in Five Star senior living communities that were transitioned to new operators or closed).
Operational Review
During the quarter endedJune 30, 2022 , we engaged the healthcare consulting arm of Alvarez & Marsal, or A&M, to provide a comprehensive operational review of our business and make recommendations to our Board of Directors. The recommendations made by A&M included general and administrative cost reductions, a corporate reorganization that is designed to enhance accountability and certain operational changes to support team members to ensure the delivery of high-quality experiences to residents and customers and to increase occupancy at our senior living communities, as further described below:
•Reduce costs annually by a target of approximately
•Streamlining redundant business processes and reducing investments in non-core functions,
•rationalizing information technology systems to those that directly support core business functions, ensuring their optimal utilization,
•continually assessing general and administrative expenses to identify cost savings opportunities.
•Invest approximately$3.3 million to refocus on our core business and invest strategically in projects, processes and systems that will enhance our ability to successfully operate our residential and lifestyle services businesses, including:
•Enhancing the executive leadership team with a Chief Operating Officer to oversee field and national operations and a Chief Financial Officer,
•investing in a scalable and agile national operations infrastructure to drive operational excellence and results, and
•establishing a centralized sales function with reinstituted regional sales support to focus on both sales and marketing efforts.
Based on A&M's operational review, onAugust 3, 2022 , we announced a restructuring plan which includes the elimination of certain positions in our corporate team. We expect to complete this restructuring by the middle of 2023. As of the date of this Form 10-Q, we made the following progress with respect to the restructuring plan: 24
-------------------------------------------------------------------------------- Table of Contents •Aligned several functions, including sales, marketing, clinical and resident programming, under the national operations support function;
•Deployed sales support functions to directly support community level sales directors to focus on improved tour to move-in conversion rate;
•Appointed a Chief Financial Officer, effectiveSeptember 19, 2022 , and a Chief Operating Officer, effectiveOctober 17, 2022 . In addition, we continue to invest in the sales and marketing function, including hiring a Vice President of Marketing, effectiveOctober 3, 2022 , and five sales directors; and
•Implemented approximately
In addition to the restructuring plan, management achieved further cost savings
of
In connection with implementing our restructuring plan, we expect to incur non-recurring cash expenses of up to$3.0 million . These expenses are expected to include up to$0.4 million of retention payments, up to$2.0 million of severance, benefits and transition expenses and up to$0.6 million of other restructuring expenses. For the three and nine months endedSeptember 30, 2022 , we recognized$1.6 million of expenses related to the restructuring plan, including$0.1 million of retention payments,$1.4 million of severance, benefits and transition expenses, and$0.1 million of other restructuring expenses, which was recorded in restructuring expenses in our condensed consolidated statements of operations. Additionally, we recognized costs of$0.6 million and$1.3 million , respectively, related to the implementation of the A&M operational review for the three and nine months endedSeptember 30, 2022 , which are recorded in general and administrative expenses in our condensed consolidated statements of operations.
General Industry Trends
We believe that, inthe United States , the current primary market for services to older adults is focused on individuals age 75 and older. As a result of medical advances, adults are living longer and expanding their options as to where they choose to reside as they age. The aging of the Baby Boomers and their increasing life expectancy are leading to a fundamental demographic shift. TheU.S. age profile reflects a 27.2% rise in the 75+ demographic in the last ten years. This is expected to rise even more significantly by 2030 (as evidenced by the aging boomers in the 65-74 age category)(1). Due to these demographic trends, service providers are evolving to serve the growing number of older adults and we expect the demand for these services to increase in future years regardless of where the older adults may reside. As we continuously evaluate market opportunities related to older adults, we are cognizant of the demographic trends and projections that indicate that the age 65 and older demographic will represent the largest growth population inthe United States over the next decade and beyond. We believe that increased longevity, coupled with evolving consumer preferences, will heighten demand for physical and recreational activities, as well as lifestyle-enhancing services, as older adults seek quality of life, ongoing engagement and sustained independence. The senior living industry has been materially adversely impacted by the novel coronavirus SARS-CoV-2, or COVID-19, pandemic, or the Pandemic, and its economic impact, including the changes in market and older adults' practices during and in response to the Pandemic. While the senior living industry conditions have improved from a low point during the Pandemic, they remain below pre-Pandemic levels. In addition,U.S. economic conditions are currently experiencing significant challenges, including inflation, increasing interest rates, geopolitical risks, labor availability and supply chain issues, that many economic forecasters expect will result in an economic recession. Occupancy. As a result of the Pandemic and changed market practices in response to, arising from or accelerated during, the Pandemic, we have experienced overall declines in average occupancy at our owned and leased senior living communities. However, we have experienced increases in our owned community average occupancy from 69.9% for the three months endedSeptember 30, 2021 to 76.0% for the three months endedSeptember 30, 2022 . Consistent with our owned and leased portfolio, the senior living communities we manage for DHC also have experienced increases in average occupancy from 72.2% for the three months endedSeptember 30, 2021 to 75.3% for the three months endedSeptember 30, 2022 .
1) Source: Bureau of labor statistics, 2021.
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In order to drive occupancy growth, we recently have launched several initiatives, including i) adding regional staffing positions focused on revenue growth through sales, marketing and rate management, ii) launching a sales training and sales best practices program that we successfully piloted earlier in 2022, and iii) launching a sales incentive program that provides the leadership teams at our senior living communities an opportunity to share in the revenue growth at their communities, with the intent of increasing occupancy at each senior living community. Despite these initiatives, there is a possibility of occupancy declines in the near term, due to possible surges of COVID variant viruses, or other public health issues that may emerge, current residents leaving our senior living communities, restrictions on new residents moving into and/or touring our senior living communities, older adults continuing the trend of aging at home and the possibility that older adults forego or delay moving into senior living communities because of perceived safety issues associated with the Pandemic or other public health safety concerns. Our revenues are largely dependent on occupancy at our senior living communities and any decline in occupancy adversely impacts these revenues, unless we are able to offset those lost revenues with increased rates we charge our residents and clients or other sources of increased revenues. Expenses. Our labor costs have been negatively impacted as a result of increased labor costs for community based team members due to competitive market conditions and high levels of inflation. While health insurance costs have decreased as a result of the reduction in the number of team members, there is a possibility that these costs will rise again in the future as a result of claims made related to possible surges of COVID variant viruses or other public health issues that may emerge. The Pandemic and other current economic and market challenges have disrupted the global supply chain, including many of our medical and technological suppliers, due to factory closures and reduced manufacturing output. We believe that our current supplies and supplies we currently have on order should be sufficient to support our needs for the reasonably foreseeable future. We have undertaken efforts to mitigate potential future impacts on the supply chain by increasing our stock of critical materials to meet our expected increased needs for the reasonably foreseeable future and by identifying and engaging alternative suppliers. Both labor costs and the costs of supplies and materials, in particular food and gasoline costs, have risen over the past year due to either theRussia -Ukraine war or from inflation. While inflation rates have eased slightly from their highest levels inJune 2022 , they are still running significantly higher than historical averages. We expect these increased costs to continue to impact our results of operations for the foreseeable future. We incur these costs for our owned senior living communities, rehabilitation services locations and corporate and regional operations. Although DHC is responsible for these costs at the senior living communities we manage for DHC, increases in these costs would reduce earnings before interest, taxes, depreciation and amortization, or EBITDA, realized at these communities and, hence, negatively impact our ability to earn, and the amount of, any incentive fees, as well as possibly impact other aspects of our management arrangements. Results of Operations. We have experienced negative impacts on our operating results and on the operating results for those senior living communities we manage for DHC as a result of the Pandemic as well as economic, market and industry conditions since the onset of the Pandemic. Although, as noted above, conditions have improved from the lows experienced during the Pandemic, the senior living industry continues to be below pre-Pandemic levels. Although we believe that our business and operating results will improve as the Pandemic further wanes, we expect that it may take an extended period for our business to return to pre-Pandemic levels, if at all, and our business remains subject to decline if Pandemic conditions worsen or for other reasons including the challenging current and forecasted economic and market conditions which may result in an economic recession. Going forward, the amounts and type of revenue, expense and cash flow impacts resulting from the Pandemic will be dependent on a number of factors, including: the speed, depth, geographic reach and duration of the spread of new variants or surges of the disease or other public safety developments; the effectiveness of therapeutic treatments; the impact of the current and forecasted economic and market conditions, including the depth and length of any economic recession; consumer confidence and the demand for our senior living communities and services. An increase in labor costs due to worker shortages as well as a general increase in costs due to rising inflation have resulted in negative impacts on our operating results and on the operating results for those senior living communities we manage for DHC. We also expect that other direct and indirect impacts of the Pandemic or other public health issues that may arise, potential economic recession, lower levels of consumer confidence, stock market volatility, inflation, rising interest rates and/or changes in demographics could adversely affect the ability of older adults and their families to afford our services. 26 -------------------------------------------------------------------------------- Table of ContentsSenior Living Development . In the years prior to the Pandemic, increased access to capital and low-interest rates encouraged increased senior living development, particularly in areas where existing senior living communities have historically experienced high occupancy. This has resulted in a significant increase in new senior living community inventory entering the market in recent years, increasing competitive pressures on us, particularly in certain of our geographic markets. Although new development had been slowing prior to the onset of the Pandemic, and the impact of the Pandemic and current and forecasted economic and market conditions have further impacted new development, we expect that the new inventory that entered the market will continue to have a competitive effect on our business for at least the next few years; these challenges may be intensified if older adults' demand for senior living communities declines or fails to sufficiently grow its impact on the senior living community industry. Labor Market. We have increased the rates paid to community based team members in order to be competitive with the increasing rates in the market for these front line team members. We also have increased staffing needs at the senior living communities we operate, for which we continue to use temporary staffing through our arrangements with staffing agencies to accommodate staffing shortages due to a tight labor market. The market for skilled front line workers within and outside of the senior living industry continues to be very competitive, and the current demand for those workers remains strong. As ofSeptember 30, 2022 , there are approximately 10.1 million(1) jobs available inthe United States , with only approximately 5.8 million(1) available workers. Our current rate of open positions is approximately 15.0%, a rate which will continue to result in increased expenses from temporary staffing, and increased rates and overtime paid to our community based team members, and may restrict our ability to fully operate our senior living communities.
Management Arrangements with DHC
As part of the repositioning of our residential management business in 2021, we and DHC amended our management arrangements. For more information on the amendments to our management arrangements with DHC, see Note 11 to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report or "Properties--Our Leases and Management Agreements with DHC" in Part I, Item 2 and Notes 1 and 10 included in Part IV, Item 15 of our Annual Report. Debt Financing OnJanuary 27, 2022 , we entered into a$95.0 million senior secured term loan, or the Loan,$63.0 million of which was funded upon effectiveness of a credit and security agreement, or the Credit Agreement, that we entered into withMidCap Funding VIII Trust , or MidCap, including approximately$3.2 million in closing costs. Upon entering into the Loan, we terminated our$65.0 million secured revolving facility, or our Credit Facility, that we had with a syndicate of lenders and was available for us to use for general business purposes. AtSeptember 30, 2022 , we had one mortgage note outstanding totaling$6.7 million . For more information about the Loan, our previous Credit Facility and our mortgage note, see Note 10 to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report.
Our Revenues
Our revenues are derived from the services we provide to residents at our senior living communities and to older adults through our lifestyle services, and these revenues are our primary source of cash to fund our operating expenses, including capital expenditures at the senior living communities we own and principal and interest payments on our debt. Medicare and Medicaid programs provide operating revenues for lifestyle services and certain of our former skilled nursing facility, or SNF, units. We derived approximately 5.6% and 4.3% of our consolidated revenues from these government-funded programs during the nine months endedSeptember 30, 2022 and 2021, respectively. Revenues from Medicare programs totaled$28.6 million and$31.4 million during the nine months endedSeptember 30, 2022 and 2021, respectively. Revenues from Medicaid programs totaled$0.8 million and$0.9 million during the nine months endedSeptember 30, 2022 and 2021, respectively. The concentration of revenues derived from Medicare and Medicaid is principally earned in connection with our lifestyle services. In connection with the repositioning of our residential management business, we transitioned 107 senior living communities that we managed for DHC with approximately 7,400 living units to new operators, of which 69 senior living communities with approximately 4,800 living units were transitioned during the three months endedSeptember 30, 2021 , and closed one senior living community with approximately 100 living units. In addition, we and DHC closed all 1,532 SNF living units in 27 managed continuing care retirement communities, or CCRCs that we continue to manage for DHC as independent or assisted living communities, of which 1,473 and 59 living units were closed during the second and third quarters of 2021, respectively.
1) Source: Bureau of labor statistics, 2021.
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For the three and nine months ended September 30, 2021 , we recognized $2.7
million and $12.3 million of residential management fees related to these senior
living communities and living units, respectively. Through September 30, 2022 ,
we also closed 29 of the 37 Ageility inpatient rehabilitation clinics. For the
three and nine months ended September 30, 2021 , we recognized $1.5 million and
$9.6 million of revenue related to all 37 inpatient rehabilitation clinics,
respectively. For the three and nine months ended September 30, 2022 , we
recognized $1.6 million and $5.2 million of revenue related to the ten inpatient
rehabilitation clinics we continue to operate (inclusive of revenue earned from
two inpatient rehabilitation clinics that were closed during the three months
ended September 30, 2022 ).
Effective September 30, 2021 , we terminated our lease for four communities with
approximately 200 living units, which had residential revenues of $1.5 million
and $4.9 million for the three and nine months ended September 30, 2021 ,
respectively. For more information regarding the termination of these leases,
see Note 12 to our condensed consolidated financial statements in Part I, Item I
of this Quarterly Report.
Federal and state governments have taken a number of actions to respond to the
Pandemic. Certain of these actions may increase our operational costs or reduce
our revenue, while others are designed to alleviate the adverse operational and
financial consequences related to the Pandemic on operators of long-term care
and senior living communities like us.
For further information regarding federal actions in response to the Pandemic,
government healthcare funding and regulation and their possible impact on us and
our business, revenues and operations, see the sections captioned
"Business-Government Regulation and Reimbursement" in Part I, Item I of our
Annual Report.
Results of Operations
We operate in two reportable segments: (1) residential and (2) lifestyle services. In the residential segment, we manage for others and operate, respectively, primarily independent living communities and assisted living communities that are subject to centralized oversight and provide housing and services to older adults. Included in the results of the assisted living communities are memory care living units. In the lifestyle services segment, we provide a comprehensive suite of rehabilitation and wellness services, including physical, occupational, speech and other specialized therapy services, in inpatient clinics and outpatient locations as well as home health and fitness services. For the three and nine months endedSeptember 30, 2021 , we recognized$2.7 million and$12.3 million , respectively, of residential management fees related to the senior living communities and living units that we previously managed for DHC, that have been transitioned to other operators or were closed pursuant to the repositioning of our residential management business. We recognized lifestyle services revenue of$1.6 million and$1.5 million for the three months endedSeptember 30, 2022 and 2021, respectively, and$5.2 million and$9.6 million for the nine months endedSeptember 30, 2022 and 2021, respectively, related to the inpatient rehabilitation clinics. The decrease from the nine months endedSeptember 30, 2022 as compared to the nine months endedSeptember 30, 2021 was due to the closure of 27 inpatient clinics in the prior year. The information in the Key Statistical Data table below includes those senior living communities, living units and rehabilitation clinics in the results reported. All of our operations and assets are located inthe United States , except for the operations of ourCayman Islands organized captive insurance company subsidiary, which participates in our workers' compensation, professional and general liability and certain automobile insurance programs.
Key Statistical Data For the Three Months Ended
The following tables present a summary of our operations for the three months
ended
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Three Months Ended September 30, Increase/(Decrease)
2022 2021(1) Amount Percent
REVENUES
Lifestyle services $ 14,546 $ 15,382 $ (836) (5.4) %
Residential 17,514 16,320 1,194 7.3 %
Residential management fees 9,477 11,220 (1,743) (15.5) %
Total management and operating revenues 41,537 42,922 (1,385) (3.2) %
Reimbursed community-level costs incurred on behalf of
managed communities 137,768 177,231 (39,463) (22.3) %
Other reimbursed expenses 3,354 5,678 (2,324) (40.9) %
Total revenues 182,659 225,831 (43,172) (19.1) %
Other operating income 2 - 2 n/m
OPERATING EXPENSES
Lifestyle services expenses 14,562 13,536 1,026 7.6 %
Residential wages and benefits 10,156 8,547 1,609 18.8 %
Other residential operating expenses 5,804 7,184 (1,380) (19.2) % Community-level costs incurred on behalf of managed communities 137,768 177,231 (39,463) (22.3) % General and administrative 17,015 21,817 (4,802) (22.0) % Restructuring expenses 1,570 1,220 350 28.7 % Depreciation and amortization 3,088 2,983 105 3.5 % Total operating expenses 189,963 232,518 (42,555) (18.3) % Operating loss (7,302) (6,687) (615) 9.2 % Interest, dividend and other income 225 84 141 n/m Interest and other expense (1,474) (507) (967) n/m Unrealized (loss) gain on equity investments (1,997) 22 (2,019)
n/m
Realized gain on sale of debt and equity investments 1,573 - 1,573
n/m
Gain (loss) on termination of leases 498 (3,277) 3,775 n/m Loss before income taxes (8,477) (10,365) 1,888 (18.2) % (Provision) benefit for income taxes (31) 164 (195) n/m Net loss$ (8,508) $ (10,201) $ 1,693 (16.6) % Owned and leased communities: Number of communities (end of period) 20 20 - - % Number of living units (end of period) (2) 2,084 2,099 (15) (0.7) % Quarter end occupancy at September 30, 78.4 % 72.9 % 550 bps 7.5 % Average occupancy 76.0 % 69.9 % 610 bps 8.7 % RevPAR (3)$ 2,801 $ 2,411 $ 390 16.2 % RevPOR (4)$ 3,604 $ 3,375 $ 229 6.8 % Managed communities: Number of communities (end of period) 120 159 (39) (24.5) % Number of living units (end of period) (2) 17,889 20,669 (2,780) (13.5) % Quarter end occupancy at September 30, 77.0 % 73.8 % 320 bps 4.3 % Average occupancy 75.3 % 72.2 % 310 bps 4.3 % RevPAR (3)$ 3,200 $ 3,046 $ 154 5.1 % RevPOR (4)$ 4,158 $ 4,129 $ 29 0.7 % Lifestyle services: Caseload as a % of Occupancy (5) 24.3 % 24.7 % (40) bps 1.6 % Number of visits at outpatient locations 156 147 9 6.1 % Number of inpatient clinics (end of period) 8 10 (2) (20.0) % Number of outpatient locations (end of period) 203 223 (20) (9.0) % Total clinics and locations 211 233 (22) (9.4) %
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n/m - not meaningful (1) The following were included in the summary of operations for the three months endedSeptember 30, 2021 that were not included for the three months endedSeptember 30, 2022 : (i) 107 senior living communities we managed for DHC with approximately 7,400 living units that were transitioned to new operators during the third and fourth quarters of 2021 (of which 69 senior living communities with approximately 4,800 living units were transitioned to new operators during the three months endedSeptember 30, 2021 ), and one senior living community with approximately 100 living units that we 29 -------------------------------------------------------------------------------- Table of Contents managed for DHC that was closed inFebruary 2022 , (ii) 59 SNF living units that were closed in one CCRC during the three months endedSeptember 30, 2021 , (iii) 17 Ageility outpatient rehabilitation locations that were closed during the fourth quarter of 2021 in senior living communities that were transitioned to a new operator or closed and (iv) four leased communities with approximately 200 living units where the leases were terminated onSeptember 30, 2021 . (2) Includes only living units categorized as in service. As a result, the number of living units may change from period to period for reasons other than the acquisition or disposition of senior living communities. (3) RevPAR is defined by us as resident fee revenues for the corresponding portfolio for the period divided by the average number of available units for the corresponding portfolio for the period, divided by the number of months in the period. Data for the three months endedSeptember 30, 2022 and 2021 exclude income received by senior living communities under theProvider Relief Fund of the Coronavirus Aid , Relief, and Economic Security Act, or CARES Act, and other governmental grants. (4) RevPOR is defined by us as resident fee revenues for the corresponding portfolio for the period divided by the average number of occupied units for the corresponding portfolio for the period, divided by the number of months in the period. Data for the three months endedSeptember 30, 2022 and 2021 exclude income received by senior living communities under theProvider Relief Fund of the CARES Act and other governmental grants. (5) Represents the average number of Ageility customers divided by average total occupancy at each of the senior living communities where we operate Ageility outpatient rehabilitation locations. Occupancy is defined as the average total number of residents residing at the senior living communities.
Comparable Communities and Outpatient Locations
Comparable senior living communities and outpatient rehabilitation locations (senior living communities and outpatient rehabilitation locations that we have continually operated or managed sinceJuly 1, 2021 , excluding inpatient rehabilitation clinics) results for the three months endedSeptember 30, 2022 , compared to the three months endedSeptember 30, 2021 , are listed below (dollars in thousands, except RevPOR and RevPAR): Three Months Ended September 30, Increase/(Decrease) 2022(1) 2021(1) Amount Percent REVENUES Lifestyle services$ 12,183 $ 12,823 $ (640) (5.0) % Residential 17,519 14,829 2,690 18.1 % Residential management fees 9,478 8,510 968 11.4 % Other operating income 2 - 2 n/m OPERATING EXPENSES Lifestyle services expenses 12,211 11,479 732 6.4 % Residential wages and benefits 10,149 7,760 2,389 30.8 % Other residential operating expenses 5,939 5,763 176 3.1 % Owned communities: Number of communities (end of period) 20 20 - - % Number of living units (end of period) (2) 2,084 2,099 (15) (0.7) % Quarter end occupancy at September 30, 78.4 % 72.9 % 550 bps 7.5 % Average occupancy 76.0 % 70.4 % 560 bps 8.0 % RevPAR (3)$ 2,801 $ 2,354 $ 447 19.0 % RevPOR (4)$ 3,604 $ 3,270 $ 334 10.2 % Managed communities: Number of communities (end of period) 120 120 - - % Number of living units (end of period) (2) 17,889 17,899 (10) (0.1) % Quarter end occupancy at September 30, 77.0 % 74.6 % 240 bps 3.2 % Average occupancy 75.3 % 73.4 % 190 bps 2.6 % RevPAR (3)$ 3,200 $ 2,941 $ 259 8.8 % RevPOR (4)$ 4,158 $ 3,922 $ 236 6.0 % Lifestyle services: Caseload as a % of occupancy (5) 24.6 % 24.6 % - - % Number of visits at outpatient locations 146 135 11 8.1 % Number of outpatient locations (end of period) 185 185 - - %
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n/m - not meaningful
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(1) The three months ended September 30, 2022 and 2021 include data for 20
owned senior living communities, 120 managed senior living communities and 185
outpatient rehabilitation locations that we have continuously owned or managed
since July 1, 2021 . The summary of operations for comparable communities and
locations excludes (i) 59 SNF living units that were closed in one CCRC and (ii)
eight Ageility inpatient rehabilitation clinics.
(2) Includes only living units categorized as in service. As a result, the
number of living units may change from period to period for reasons other than
the acquisition or disposition of senior living communities.
(3) RevPAR is defined by us as resident fee revenues for the corresponding
portfolio for the period divided by the average number of available units for
the corresponding portfolio for the period, divided by the number of months in
the period. Data for the three months ended September 30, 2022 and 2021 exclude
income received by senior living communities under the Provider Relief Fund of
the CARES Act and other governmental grants.
(4) RevPOR is defined by us as resident fee revenues for the corresponding
portfolio for the period divided by the average number of occupied units for the
corresponding portfolio for the period, divided by the number of months in the
period. Data for the three months ended September 30, 2022 and 2021 exclude
income received by senior living communities under the Provider Relief Fund of
the CARES Act and other governmental grants.
(5) Represents the average number of Ageility customers divided by average
total occupancy at each of the senior living communities where we operate
Ageility outpatient rehabilitation locations. Occupancy is defined as the
average total number of residents residing at the senior living communities.
The following is a discussion of our operating results for the three months
ended
Lifestyle services revenues. The decrease in lifestyle services revenues is primarily due to a decrease in outpatient rehabilitation location revenues of$0.8 million , primarily resulting from the$0.4 million impact of the closure of 17 outpatient rehabilitation locations inDecember 2021 in senior living communities that were transitioned to new operators or closed, as well as the$0.5 million impact of a Medicare fee schedule rate cut in 2022, partially offset by an increase in outpatient clinic visits. The decrease in lifestyle services revenues at our comparable locations is primarily due to the$0.5 million impact of a Medicare fee schedule rate cut in 2022 for the three months endedSeptember 30, 2022 . Residential revenues. The increase in residential revenues is primarily due to an increase in average occupancy from 69.9% for the three months endedSeptember 30, 2021 to 76.0% for the three months endedSeptember 30, 2022 at our owned and leased senior living communities, as well as a slight increase in average rates. This increase was partially offset by the termination of a lease for four communities onSeptember 30, 2021 . The discontinuation of these four communities resulted in a decrease in revenues of$1.5 million . The increase in residential revenues at our comparable communities is primarily due to the increase in average occupancy from 70.4% for the three months endedSeptember 30, 2021 to 76.0% for the three months endedSeptember 30, 2022 as well as a slight increase in average rates. Residential management fees. The decrease in residential management fees is due to declines in gross revenues at the senior living communities we manage, primarily caused by the transitioning of approximately 7,400 living units to new operators in 2021, of which approximately 4,800 living units transitioned during the three months endedSeptember 30, 2021 , and the closure of approximately 100 living units subsequent toSeptember 30, 2021 , resulting in a decrease in residential management fees of$2.7 million . These declines in gross revenues as a result of the repositioning of the residential management business have been partially offset with the improvement in average occupancy from 72.2% for the three months endedSeptember 30, 2021 to 75.3% for the three months endedSeptember 30, 2022 , as well as a slight increase in residential construction management fees we earn on construction projects we manage. The increase in residential management fees at our comparable senior living communities was primarily due to the improvement in gross revenues at the senior living communities we manage related to the increase in average occupancy from 73.4% for the three months endedSeptember 30, 2021 to 75.3% for the three months endedSeptember 30, 2022 , as well as due to an increase in residential construction management fees we earn on construction projects we manage.
Reimbursed community-level costs incurred on behalf of managed communities. The
decrease in reimbursed community-level costs incurred on behalf of managed
communities was primarily due to the transitioning of the management of
approximately 7,400 living units to new operators in 2021, of which
approximately 4,800 living units transitioned during the three months ended
Other reimbursed expenses. Other reimbursed expenses represent reimbursements that arise from certain centralized services we provide pursuant to our management agreements with DHC. The decrease in other reimbursed expenses was primarily due to a decrease in the expenses that are reimbursable as a result of the reduced corporate headcount of approximately 20% in connection with the repositioning of our residential management business, as well as a decrease in reimbursements of$0.8 million related to restructuring expenses in the three months endedSeptember 30, 2021 .
Other operating income. Other operating income represents funds received and
recognized under the
Lifestyle services expenses. The increase in lifestyle services expenses is primarily due to the full quarter impact of the new outpatient rehabilitation locations opened during or subsequent to the third quarter of 2021, an increase in outpatient rehabilitation location visits during the three months endedSeptember 30, 2022 when compared to the same quarter in the prior year and higher labor costs due to rising wages and market conditions. Those increases were partially offset by$0.4 million of 31 -------------------------------------------------------------------------------- Table of Contents expenses that had been incurred during the three months endedSeptember 30, 2021 related to 17 outpatient rehabilitation locations that were subsequently closed inDecember 2021 in senior living communities that were transitioned to new operators or closed. The increase in lifestyle services expenses at our comparable locations was due primarily to the increase in outpatient rehabilitation location visits during the three months endedSeptember 30, 2022 when compared to the same quarter in the prior year as well as higher labor costs. Residential wages and benefits. The increase in residential wages and benefits is primarily due to increased medical insurance and workers compensation costs of$0.9 million as a result of an increase in the number of claims received compared to the third quarter of 2021 as well as an increase in labor costs due to rising wages and market conditions. These increases were partially offset by the termination of a lease for four communities onSeptember 30, 2021 , which resulted in a decrease in residential wages and benefits of$0.8 million . The increase in residential wages and benefits at our comparable communities is primarily due to increased costs for medical insurance and workers compensation of$1.0 million as well as higher labor costs. Other residential operating expenses. Other residential operating expenses are comprised of utilities, housekeeping, dietary, repairs and maintenance, insurance and other community-level costs. The decrease in other residential operating expenses is primarily due to the termination of a lease for four communities onSeptember 30, 2021 , which resulted in a decrease in other residential operating expenses of$1.3 million , as well as slightly decreased costs associated with our self-insurance obligations. The increase in other residential operating expenses at our comparable communities is primarily due to increases in costs related to marketing, utilities, disposable food supplies and other costs that have been impacted by rising inflation and supply chain issues, partially offset by reductions in building maintenance and medical supplies. General and administrative. The decrease in general and administrative expenses was primarily attributable to lower corporate wages and benefits due to reduced corporate headcount of approximately 20% primarily in connection with the repositioning of the residential management business and lower fees for services performed by RMR due to a decrease in revenues for which those fees are determined, partially offset by$0.6 million of costs related to the operational review performed by A&M for the three months endedSeptember 30, 2022 . Restructuring expenses. The increase in restructuring expenses was primarily due to severance, benefits, transition and retention costs incurred during the three months endedSeptember 30, 2022 , related to the restructuring plan implemented as a result of A&M's operational review. Depreciation and amortization. The increase in depreciation and amortization is primarily due to an increase in depreciation as a result of the investment of capital in our owned senior living communities, partially offset by the termination of a lease for four communities onSeptember 30, 2021 , which resulted in a decrease in depreciation and amortization of$0.1 million .
Interest, dividend and other income. Interest, dividend and other income consists of interest earned primarily on our debt and equity investments.
Interest and other expense. Interest and other expense consists primarily of interest expense on the Loan, amortization of deferred financing fees on the Loan, and interest on our finance leases and mortgage note for the three months endedSeptember 30, 2022 . Interest and other expense consists primarily of amortization of deferred financing fees and commitment fees related to our Credit Facility, and interest on our finance leases and mortgage note for the three months endedSeptember 30, 2021 . The increase in interest and other expense for the three months endedSeptember 30, 2022 was due to interest related to the Loan. Unrealized (loss) gain on equity investments. Unrealized (loss) gain on equity investments represents adjustments made to our investments in equity securities to record amounts at fair value. The increase in unrealized loss in the three months endedSeptember 30, 2022 is due to market conditions.
Realized gain on sale of debt and equity investments. Realized gain on sale of debt and equity investments represents our realized gains and losses on investments.
Gain (loss) on termination of leases Gain on termination of lease for the three months endedSeptember 30, 2022 is due to the termination of our previous headquarters lease. Loss on termination of leases for the three months endedSeptember 30, 2021 represents a$3.3 million loss on the lease termination of four communities. These costs include a$3.1 million lease termination fee, the write off of the remaining net assets at the communities including property and equipment and the remaining right of use assets, less the remaining recorded lease liability and the remaining obligation under the insurance deductible for a fire that occurred at one of the four leased communities. For more information about the lease terminations, see 32
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