Invesque Q2 2024 Earnings Report

Invesque EPS Results

• Actual EPS: -C$0.37
• Consensus EPS: N/A
• Beat/Miss: N/A
• One Year Ago EPS: N/A

Invesque Revenue Results

• Actual Revenue: $58.97 million
• Expected Revenue: N/A
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

Invesque Announcement Details

• Quarter: Q2 2024
• Date: 8/8/2024
• Time: N/A
• Conference Call Date: Wednesday, August 7, 2024
• Conference Call Time: 6:00PM ET

Invesque (TSE:IVQ) Inc is a Canada-based company. It is engaged in owning income-producing seniors housing and care properties. The company focuses on acquiring and investing in properties that offer transitional care, long-term care, memory care assisted living, independent living programs, and medical office properties. The rental income generates maximum revenue for the company. It offers its services to the United States of America. Its segments comprise Seniors housing and care investment properties, Owner occupied properties, Medical office buildings, and Corporate.

Invesque Q2 2024 Earnings Call Transcript

Key Takeaways

• Completed the SimCare portfolio sale for $121 million, reducing skilled nursing exposure to nine properties and fully exiting the SimCare operating relationship.
• Sold the MetroWest Medical Center building for $6.4 million and is actively marketing the final two medical office buildings with sales expected within 12 months.
• Onboarded Chapters Living to manage three memory care communities, with operational improvements underway targeting enhanced financial results.
• SHOP portfolio occupancy reached pre-pandemic levels with a sequential increase of 80 basis points, driving a 5.5% quarter-over-quarter NOI gain and revenue per resident day growth of over 5%.
• Paid down over $141 million on the corporate credit facility and signed a non-binding term sheet to extend the $200 million facility to March 31, 2025, while agreeing to cap convertible debenture repayments at 10% this quarter.

Presentation

[Operator]

Good morning, ladies and gentlemen. Welcome to Invesque's second quarter 2023 conference call. I will now turn the call over to Scott White, Chief Executive Officer. Please go ahead, Mr. White.

[Scott White, CEO at Invesque Inc]

Thank you, operator, and thank you all for joining our second quarter 2023 conference call. I'm joined today by Adlai Chester, our Chief Financial Officer and Executive Vice President of Investments. The second quarter earnings release, financial statements, and MD&A are available on our website, and a replay of this call will be available from 12:45 P.M. Eastern Time today until 11:59 P.M. Eastern Time on August 28th. As always, please remember that today's call may include forward-looking statements regarding future operations. Such statements involve known and unknown risks and uncertainties that may cause actual results to differ materially from those expressed or implied today. We have identified such factors in our news release and other public filings. As we discuss our performance, please bear in mind that all amounts are in U.S. dollars unless otherwise specified.

[Scott White, CEO at Invesque Inc]

With that, I'll turn to some of the highlights for the second quarter. Our team was very busy continuing to execute on our simplification strategy. The highlight of the quarter was the completion of the Symcare portfolio sale for $121 million, which we previewed on our last call. Seven of the eight assets were sold on June 1, with the final asset closing after the quarter end in July. This transaction represents significant progress in the reduction of our skilled nursing exposure and was a major priority for the company. Following the sale, Invesque no longer leases any assets to Symcare, and we have reduced our skilled nursing portfolio to just nine properties. In addition to the Symcare sale, and as announced on our earnings call in May, we sold 1 medical office building during the second quarter.

[Scott White, CEO at Invesque Inc]

The sale of the MetroWest Medical Center in Orlando, Florida, for $6.4 million occurred in April and represents another step in simplifying our portfolio and our balance sheet as we continue to look to exit our medical office portfolio. We have two remaining medical office buildings and are actively marketing both of them for sale. I expect that they will be sold within the next 12 months. We touched on this briefly last quarter, but at the beginning of the second quarter, we added a new operator, Chapters Living, to our triple net portfolio. The Chapters Living team signed a long-term lease for three memory care communities located in Texas and Arkansas that were previously leased to another operator.

[Scott White, CEO at Invesque Inc]

It has been more than 90 days since the transition, and we're pleased with the progress Chapters Living has made with implementing policies and processes that should result in improved operations and financial results. I'm excited about having Chapters Living as one of our operators and look forward to seeing continued progress from this portfolio. The second quarter results for our SHOP rep operators were solid, including continued growth in occupancy and net operating income. Our Commonwealth and Heritage portfolios have both hit and maintained pre-pandemic occupancy levels, an achievement few operators in the industry have achieved to date. The Commonwealth portfolio has seen additional occupancy growth so far in the third quarter, and I'm hopeful that the steady growth we have seen over the last four quarters will continue for the rest of the year and into 2024.

[Scott White, CEO at Invesque Inc]

Our operators have not only been successful growing census, but also revenue per resident. Specifically, Commonwealth grew year-over-year average revenue per resident day by 6%, and Heritage achieved growth of 5.2%. Additionally, Commonwealth and Heritage continue to see improvements in the availability and retention of staffing, which has been an ongoing challenge for more than three-two years. We expect this will result in more modest operating expense growth going forward. We remain bullish on the seniors housing industry and believe that the efforts we have taken over the last two to four years to focus our portfolio specifically on this asset type, will prove beneficial in the coming years as the demand for seniors housing reaches a level we have never seen before.

[Scott White, CEO at Invesque Inc]

As we have highlighted a number of times recently, the company strategically set out to simplify, with a focus on pruning the portfolio and improving our balance sheet. We made significant progress on the portfolio front via dispositions and operator transitions and are now hyper-focused on the balance sheet. I'll now turn the call over to Adlai, who, as of August first, has assumed the role of Chief Financial Officer in addition to EVP of Investments. Adlai will review our financial results for the quarter and touch on a few noteworthy items relating to our KeyBank credit facility. Lastly, he'll provide an update on transaction activity in our company.

[Adlai Chester, CFO at Invesque Inc]

Thank you, Scott. For the three months ended June 30th, FFO and AFFO were each $0.10 per share. Consistent with themes from prior quarters, our priority is to delever and streamline our capital stack. The sale to Symcare Assets has allowed us to do both of those things. Between March 31st and June 30th, we paid down our corporate credit facility by over $122 million. Subsequent to the second quarter, we repaid an additional $19.4 million as part of the sale of the final Symcare asset. This brought the total paydown to over $141 million. We believe these transactions substantially de-risk the portfolio that supports our corporate credit facility and positions us to work collaboratively with the bank group to extend the pending maturity of our corporate credit facility.

[Adlai Chester, CFO at Invesque Inc]

On that note, we are currently working in earnest with KeyBank and the remainder of the bank group on an extension of the credit facility, which currently matures at the end of 2023. As part of the negotiation, we have agreed to restrictions on the amount of September 30, 2023 convertible debentures that can be repaid. As an amendment to our current credit agreement, we agree that no more than 10% of the outstanding principal balance of those debentures will be repaid later this quarter. This is a reduction in what had previously been agreed upon with debenture holders, but refinancing and extending the KeyBank credit facility is our highest priority. Our belief is that this was a necessary concession to lay the framework for finalizing a deal with KeyBank.

[Adlai Chester, CFO at Invesque Inc]

We realize that this is disappointing news to debenture holders who have long supported Invesque, but as a management team, we believe that it is our highest priority to ensure that the company is on solid financial footing, which starts with our senior lending partners. We will continue to work in good faith with all of our stakeholders, including the debenture holders, and will utilize all resources at our disposal to ensure that they are treated equitably as we continue to stabilize our capital structure. I am pleased to report that late Friday of last week, we executed a non-binding term sheet from KeyBank and the other participating lenders. The term sheet contemplates extending the credit facility to March 31, 2025. We will be working diligently over the coming weeks to document and work towards the closing of the extension. Moving on to our portfolio performance.

[Adlai Chester, CFO at Invesque Inc]

Our stabilized portfolio EBITDA coverage remained just below 1.0 times for the period ended March 31, 2023. As of March 31, the trailing twelve-month occupancy for the stabilized triple net assets and stabilized shop portfolio was 76% and 81% respectively. As Scott mentioned, our aggregate shop portfolio saw solid traction during the quarter, which translated into favorable operating results. Occupancy continued its steady gains with a sequential increase of 80 basis points. The combination of occupancy growth and rate growth, highlighted by Scott, led NOI to increase by 5.5% sequentially. Staffing in many markets has stabilized, and our shop operators feel good about where things are headed in the coming months. The transactions highlighted earlier in the call and in our press release from this morning represent meaningful progress towards achieving our stated goal of becoming a predominantly private-pay senior housing company.

[Adlai Chester, CFO at Invesque Inc]

But they don't represent the culmination of that strategy. You should expect to see us continue to proactively manage our remaining portfolio. This can and will include identifying non-core assets or those that we think may work against our goal of growing and stabilizing earnings. The process for identifying these assets is ongoing, and I anticipate we will have further transactions to tell you about in future earnings calls. With that, I will turn it back to the operator to open the line for questions.

[Operator]

Thank you, ladies and gentlemen. We will now begin the question-and-answer session. Should you have a question, please press star followed by the one on your touch tone phone. You will hear a three-tone prompt acknowledging your request, and your questions will be pulled in the order they are received. Should you wish to decline from the polling process, please press star followed by the two. If you are using a speakerphone, please lift the handset before pressing any keys. Your first question comes from Tal Woolley with National Bank Financial. Please go ahead.

[Tal Woolley, Research Analyst at National Bank Financial]

Hey, good morning.

[Adlai Chester, CFO at Invesque Inc]

Morning, Cal.

[Analyst]

Good morning.

[Tal Woolley, Research Analyst at National Bank Financial]

Just wondering, I'd like if you can talk a little bit about the pending credit facility extension. Can you talk just sort of about what kind of amount is in principle you're discussing and what sort of rates we should be expecting on the refinance?

[Adlai Chester, CFO at Invesque Inc]

We're still negotiating on that piece, Cal. You know, you should expect the amount that's outstanding at June 30. We're not gonna see any further substantial pay down, maybe a little slight one, but for the most part, you know, in that, call it $200 million range is a good number to use.

[Tal Woolley, Research Analyst at National Bank Financial]

Okay.

[Adlai Chester, CFO at Invesque Inc]

In terms of the interest rate, that's still a negotiation that we haven't landed on yet.

[Tal Woolley, Research Analyst at National Bank Financial]

Okay. And, the debenture modification, so you can proceed with, I believe, I believe the number was $5 million. That's what you're able to do right now?

[Adlai Chester, CFO at Invesque Inc]

Yep.

[Tal Woolley, Research Analyst at National Bank Financial]

Is that can you still use that approved plan by the debenture holders? Like, so if it's $5 million now, but then things free up in the future, like, can you repay those, or do you have to go back for approval? I'm just trying to understand the mechanics here on how this works.

[Adlai Chester, CFO at Invesque Inc]

Yeah. So we're in active conversations with the debenture holders at this point in time, trying to land on what that's going to look like. But as far as the relationship to Key, they're allowing the 10% pay down now, nothing further. So if we were going to pay any more than that, we'd have to go back to Key.

[Tal Woolley, Research Analyst at National Bank Financial]

Okay. I mean, worst case scenario, like, I guess, like, you just, you know, like, once you're in the clear with the lenders, you can—you could just go to the market and buy down if you wanted to as well?

[Adlai Chester, CFO at Invesque Inc]

Right.

[Tal Woolley, Research Analyst at National Bank Financial]

But it'd be on the existing terms of the debenture, not the modified terms.

[Adlai Chester, CFO at Invesque Inc]

What do you mean by that?

[Tal Woolley, Research Analyst at National Bank Financial]

Sorry, I guess I'm like, I guess what I'm trying to understand is, like, if you've got the $5 million pay down now, you were planning to pay down, I think, $22 or something like that.

[Adlai Chester, CFO at Invesque Inc]

Yes.

[Tal Woolley, Research Analyst at National Bank Financial]

If you pay down $5 now, can you do the other 17 later once you're in the clear with the debenture, clear with the debenture holders? Or do you have to go back to them to submit another plan?

[Adlai Chester, CFO at Invesque Inc]

To the debenture holders or the KeyBank?

[Tal Woolley, Research Analyst at National Bank Financial]

Yeah, to the debenture holders.

[Adlai Chester, CFO at Invesque Inc]

So we're in current discussions with the debenture holders. I think it's too early to share where we end up with that.

[Tal Woolley, Research Analyst at National Bank Financial]

Okay. So it's still something in process. Got it.

[Adlai Chester, CFO at Invesque Inc]

Um, yeah.

[Tal Woolley, Research Analyst at National Bank Financial]

Then I guess with the, you know, disposition plan, do you have like sort of a visibility to kind of like what your run rate NOI would be from the different, from the different segments of the business, once you're sort of done with the dispositions?

[Analyst]

I think we have a pretty good.

[Scott White, CEO at Invesque Inc]

Go ahead.

[Analyst]

Sorry. Oh, no, go ahead. Yeah.

[Scott White, CEO at Invesque Inc]

Yeah, I was just gonna say, we do. I mean, we've had a cash projection plan, an NOI plan that we update each year for the last, you know, as long as the business has been around, we have a three and five-year projection that we've been executing on. And there haven't been big surprises in terms of, as you've noticed, probably from our earnings release this quarter, there aren't big surprises in the ongoing run rate NOI. As we sell off assets, it's obviously reduced, but there aren't sort of meaningful peaks or valleys.

[Tal Woolley, Research Analyst at National Bank Financial]

Okay. Where would you peg run rate NOI right now?

[Analyst]

Yeah, Cal, that's something I can help on your modeling. Yeah, Cal. Yeah, we haven't historically disclosed specifically forward rate NOI, but with that said, I think I can help bridge you to what you're going to try and get to.

[Tal Woolley, Research Analyst at National Bank Financial]

Okay, that's great. And then, just lastly, you've got, like, some other parts of your cap structure that are, like, I'm thinking of, like, the preferred equity investment from Magnetar, that are, you know, costly. And I'm just wondering, is there a way to, you know, like, refinance those or refinance them out at some point down the road?

[Scott White, CEO at Invesque Inc]

Sure. Yeah, absolutely. I mean, as part of our overall strategy, we've been wanting to simplify our cap stack. I will tell you that, you know, costly is a relative concept, but as interest rates-

[Tal Woolley, Research Analyst at National Bank Financial]

Yeah

[Scott White, CEO at Invesque Inc]

have gone up, all of a sudden, a lot of our financing-

[Tal Woolley, Research Analyst at National Bank Financial]

That's true.

[Scott White, CEO at Invesque Inc]

You know, if you listen to our call from a year ago, I told you there were certain things we were chasing to eliminate because of their relative cost. Now, as I look in the rearview mirror-

[Tal Woolley, Research Analyst at National Bank Financial]

Yeah

[Scott White, CEO at Invesque Inc]

... I'm less anxious to eliminate those because they do have locked in. And, you know, even what you just referred to, the Magnetar PREPs, across that, all the classes of PREPs, so yes, there's some that are more and less expensive, but we don't have the right to just take out a specific class. As you look at the average cost of those PREPs, they're not very expensive relative to the cost of capital today.

[Tal Woolley, Research Analyst at National Bank Financial]

Okay. And then just the last thing on your senior housing portfolio. How are you finding, like, you said, you've recovered to occupancy in, you know, pre- or, sorry, pre-COVID occupancy?

[Scott White, CEO at Invesque Inc]

Yes.

[Tal Woolley, Research Analyst at National Bank Financial]

Do you have an idea of, like, what sort of occupancy growth, you know, is sort of reasonable to expect from this point forward? And also just wanted to ask, too, about, you know, how you're finding staffing and things like that in the facilities.

[Scott White, CEO at Invesque Inc]

Yeah, so on occupancy growth, I think is going to be a bit more muted relative to what we've seen over the last couple of quarters, right? Because you had a big valley, so then you worked your way back to the peak. So on a quarter-over-quarter basis, I do think you're going to see more of a leveling off as opposed to the exponential growth we've seen in the last few quarters. As it relates to staffing, it is definitely improving. It, it continues to be a challenge, there's no doubt about that. As you look across the U.S. labor market, forget about our industries, staffing is still a challenge across all industries, and our industry has historically always had a, a challenge with staffing.

[Scott White, CEO at Invesque Inc]

With that said, as we mentioned in our remarks, the cost of attracting and retaining has leveled off relative to the last few quarters, when it was really just skyrocketing quarter-over-quarter.

[Tal Woolley, Research Analyst at National Bank Financial]

Okay. In the triple net portfolio, you know, you've done so much work transitioning operators. Do you feel like at this point in time, like, the operators that you've got, everyone's on steady ground now, and we're not expecting any more operator transitions going forward?

[Scott White, CEO at Invesque Inc]

I think that's fair to say. The only thing I would caveat is we continue to look at the portfolio for selective pruning, so I don't expect that you'll see big operator changes. But as we announced at the beginning of our simplification strategy, not only were we looking to focus the portfolio on seniors housing, around the margin, there are some smaller relationships that we have, and as we try to focus our attention, our energy on the highest and best uses, I think there is a opportunity to continue to reduce the number of operator relationships and number of disparate portfolios we have.

[Tal Woolley, Research Analyst at National Bank Financial]

Got it. Okay. That's great. Thanks, gentlemen. I appreciate it.

[Scott White, CEO at Invesque Inc]

Wonderful. Thanks, Cal. Have a great day.

[Operator]

Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your line.

Participants

Executives

• Adlai Chester, CFO
• Scott White, CEO

Analysts

• Tal Woolley, Research Analyst at National Bank Financial
• Analyst