businessman pointing to COVID graph

Signs of recovery from the coronavirus pandemic could begin to show in the senior living industry in the second quarter, Adam Portnoy, president and CEO of The RMR Group Inc., said Tuesday.

The Newton, MA-based holding company’s two biggest equity real estate investment trusts, Diversified Healthcare Trust, active in the senior living industry, and Service Properties Trust, in hospitality, “are poised well to benefit from the economic reopening, the vaccinations becoming more widespread,” Portnoy said on a fourth-quarter and full-year 2020 earnings call.

“We feel generally pretty confident that things are going to start getting pretty much better as we get into the summer and third and fourth quarters in terms of those industries,” he said. “Within the senior living industry, it may even be a little earlier than that.”

As of Sept. 30, DHC’s senior living portfolio consisted of almost 31,000 assisted living, independent living, memory care and skilled nursing units in a total of 271 communities operated by Five Star Senior Living (239 communities), Brookdale Senior Living (18 communities) and several private senior living operators (14 communities).

Most senior living workers and residents will be fully inoculated against the virus by the end of the first quarter, noted Portnoy, who sits on the boards of DHC and Five Star. “That positions them well, that they may start to see a recovery, sort of the first sort of sector to see a rebound, because if they are fully inoculated, they really can turn their attention to new admissions and growing occupancy, and you could start to see a turnaround there, maybe in the second quarter.”

The senior living and the hospitality industries “are both well-positioned to improve materially in the second half of 2021,” he said, adding, however, that the recoveries “may be measured.”

“Within its senior living portfolio, DHC’s primary operator, Five Star, has partnered with CVS to administer vaccines to all participating residents and staff at their communities,” Portnoy said. “Currently, more than 65% of Five Star’s residents have received at least the first dose of the vaccine, and approximately 93% of Five Star communities are accepting new residents.”

DHC recently secured covenant waivers on its revolving credit facility through June 2022 in an effort to enhance its liquidity, he added, reiterating news released by the real estate investment trust on Monday.

Dispositions, repositionings

DHC had been poised to consider “large-scale dispositions” as the pandemic began but largely has put disposition activity on hold, Portnoy said. 

“You could see some smattering of disposition activity in and around senior living assets, but I don’t think it would be a large portfolio. I think it would be one-offs,” he said.

RMR may consider converting some senior living communities into multifamily properties, Portnoy said. It’s an area in which the company does not currently have a significant presence, he noted.

Converting senior living communities, along with renovating and repositioning hotels, Portnoy said, “could be sort of a catalyst to sort of to grow a new line of business. …Of course, it would have to make sense to SVC and/or DHC — if we did it with any senior living assets — to make that conversion. But that is how we are thinking about it. It could come through strategic M&A, but we are also exploring building it ourselves to some extent.”

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