Good day, and welcome to the Capital Senior Living Second Quarter 2021 Earnings Call Release Conference Call. Today's conference is being recorded. All statements today, which are not historical facts, may be deemed to be forward-looking statements within the meaning of the federal securities law. These statements are made as of today's date, and the company expressly disclaims any obligation to update these statements in the future. Actual results and performance may differ materially from forward-looking statements. Certain of these factors that could cause actual results to differ are detailed in the earnings release the company issued earlier today as well as in the reports the company files with the SEC from time to time, including the risk factors contained in the annual report on Form 10-K and quarterly reports on Form 10-Q. Please see today's press release for the full safe harbor statement, which may be found at the capitalsenior.com/investor-relations and was furnished in an 8-K filing this morning. Also, please note that during this call, the company will present non-GAAP financial measures. For a reconciliation of each non-GAAP measure from the most comparable GAAP measure, please also see today's press release. At this time, I would like to turn the call over to Capital Senior Living's President and CEO, Ms. Kimberly Lody.

Thank you, Doug. Good afternoon, and welcome to our second quarter 2021 earnings call. Joining me today are Brandon Ribar, our Chief Operating Officer; and Tiffany Dutton, our Senior Vice President of Accounting and Finance. As we continue to navigate the COVID-19 pandemic and emergence of the Delta variant, the talented and dedicated teams at Capital Senior Living demonstrate not only their resilience but their grid and determination every single day to win the recovery despite doing so in an ever-changing and challenging operating environment. I'm pleased to report that with our July average monthly occupancy of 80.4%, we have now delivered 5 consecutive months of occupancy growth, a cumulative increase of 510 basis points from the pandemic low average monthly occupancy of 75.3% in February. July month end spot occupancy was 81.8% and a good indicator of continued upward momentum. Comparing sequential average quarterly occupancy by segment, from Q1 2021 to Q2 of 2021, which is the first full quarter of results since completing 3 sets of vaccination clinics in all of our communities, occupancy in our independent living units grew 170 basis points. Occupancy in our assisted living units grew 290 basis points, and in our memory care units, occupancy increased 400 basis points. We believe this strong performance is attributed to the excellent care and strong value proposition provided to our residents every day by our community teams along with the differentiated resident experiences we have recently implemented across the portfolio. We are pleased with this progress and believe we continue to outpace our industry peers in occupancy growth. In our portfolio of 60-owned communities, revenue for the second quarter increased sequentially $1.3 million or 2.8% from the first quarter of this year. Net operating income for the 60-owned communities, which excludes management fees and includes real…

Thank you, Kim, and good afternoon. As you mentioned, we could not be more proud of the ongoing and significant effort and dedication of our local leaders to guide their communities through the ever-evolving operating environment across Senior Living. Throughout Q2 and the early stages of Q3, our local operating teams worked tirelessly to quickly adjust to the more open operating environment with increased tours and family visits within the community. Most important for the safety of our communities, more than 90% of our residents are fully vaccinated, and COVID cases remain at low levels in spite of the national rise associated with the Delta variant. We remain focused on education efforts across our employee base to increase the percentage of fully vaccinated employees while also closely monitoring the landscape related to state, local and industry vaccine mandates. While the decision to move forward with vaccination as a condition of employment has not yet been finalized, this option is under careful consideration while also weighing the challenging labor environment in certain secondary and tertiary markets. Despite the increase in national COVID cases, our leading indicators related to occupancy remains strong. Lead and tour volume in July reached the highest level in nearly 2 years and move-in volume remained strong. Move-outs in July were at the lowest level since May of 2020. Lead and tour volume remains strong in the early part of August, thanks to the ongoing outreach and digital marketing efforts conducted by our local and regional leadership. While the occupancy gains over the previous 5 months are promising, many of our communities have significant opportunity to continue supporting further growth in our portfolio. The availability of capital to invest in specific communities with near-term occupancy upside is paramount to our growth strategy over the next 12 to 18…

Thank you, Brandon. Good afternoon, everyone. During the second quarter, we continue to see increases in traffic and move-ins, and average occupancy for the quarter was 78.1%, an increase of 260 basis points as compared to the previous quarter. The operating environment has remained challenging, so our operations team has continued to do an excellent job in managing the costs within their control and to mitigate the impacts of COVID-19 on their overall results while continuing to prioritize the health and safety of our residents and staff members. The actions we completed over the course of the past 2 years have stabilized our business and positioned us for future growth. As I review our consolidated financials comparing the second quarter of 2021 to the same quarter of 2020, it is important to note that our portfolio consisted of 59 fewer communities for all or part of the second quarter of 2021 compared to the number of communities in the second quarter of 2020. Our reported revenues for the second quarter were $57.5 million compared to $101.5 million in the second quarter of 2020. $39.2 million of the decrease was related to the sales or conversions of 59 properties throughout 2020, partially offset by an increase in management fees and community reimbursement revenue of $8.9 million. Most of the revenue associated with these managed communities, $10.1 million in the second quarter of 2021, was related to the reimbursement of certain operating costs that we paid on their behalf, the offset of which is also included as an expense on our income statement. Our management fee revenue in the second quarter was approximately $800,000. The remainder of the decrease in revenues is due to a decrease in average monthly rate quarter-over-quarter. Resident revenues for the second quarter increased $1.4 million from the…

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

So just a couple of questions here. Just on the quarter itself, just around the operating expenses and the margins for the 60 owned communities, on Page 9 in the slide presentation, you include the real estate taxes and insurance expense and the operating expenses, and that translates into a 21.5% NOI margin, which is up 140 bps sequentially. But then on Page 10 in the press release, you exclude the real estate taxes and insurance, then you show the NOI margin at 28.7%, which is up 860 bps. So I guess I was just trying to just better understand the thought pattern on excluding -- or including those expenses in one comparison and then excluding them in another, just so we can understand kind of the thought pattern and the best way to think about that.

Yes. Thanks, Steve. So on the Page 9 of the investor presentation, the comparison of the 21.5% versus the 20.1%. The reason that we include real estate taxes and insurance in that NOI calculation is because as we look at our portfolio of assets, our expectation is that those assets should be able to cover those operating expenses with their operating results. When you look at the supplemental information from the press release in the supplemental schedule that you referenced, that's just a pure calculation excluding those 2 line items. That's kind of a historical operating margin that the company has represented. But we think that the more relevant representation of how the business is doing needs to include those 2 components of expenses that include real estate taxes and insurance.

Okay, okay. Great. That's helpful. So when those are included then, to the extent that you had, let's call it, just use round numbers, roughly $36 million in quarterly operating expenses in both 1Q and 2Q this year. And then tying that in with your comments just regarding labor expense and also the tight labor market, how should we think about just the raw dollar amount of quarterly operating expenses going forward from here relative to that $36 million trend line that we saw in each of the first 2 quarters?

Yes, Steve, I think that we're looking at that, as we've said previously and in my comments, as in this very, I'd say, dynamic operating environment, and we're continuing to focus heavily on keeping our labor expense flat while we are increasing the occupancy. And just kind of referencing back to some of my comments, we did see our labor expense when you exclude the benefit in workers' compensation, expenses remained flat quarter-over-quarter while we experienced that referenced occupancy increase. So I think we see opportunity within that $36 million that you referenced to bring it down as the overall environment continues to just evolve. I think there's just a bit of uncertainty right now around what the Delta variant is going to -- what impact that may have here in the near future and then just how the labor market evolves as the government supplements begin to go away here towards the end of the year. So we are looking at opportunities to bring that number down so that we get the benefit of the increasing revenue and occupancy that we're delivering. But there's a lot of variability right now and just what's going on in the labor market.

Okay. Great. Okay. And then I had a few questions around some of the recent investor activity, but I think I'll just follow-up with those offline just to keep things more simplistic for today.

Okay. Great. Thanks, Steve.

That concludes our question-and-answer session. I'd like to hand it back to Ms. Lody for closing remarks.

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

Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time and have a wonderful day.