Describing 2020 as a year of defensive measures taken to withstand the effects of the pandemic, Diversified Healthcare Trust President and CEO Jennifer Francis said Thursday that proactive steps taken in 2021 helped the Newton, MA-based real estate investment trust transition out of the pandemic.
“During 2021, we focused on the foundational work necessary to position our portfolio for a successful transition out of the global pandemic,” Francis said in a news release issued Wednesday in advance of the REIT’s fourth-quarter and full-year 2021 earnings call on Thursday.
As of Dec. 31, DHC had completed the transition of 107 senior living communities to 10 new third-party managers. The management moves were undertaken as part of a previously announced agreement between DHC and Five Star Senior Living. DHC closed and is assessing opportunities to redevelop the one remaining community, in Delaware, that originally was to be moved to a different operator.
Five Star continues to manage 120 DHC senior living communities as a division of its new parent company, AlerisLife.
During the earnings call on Thursday, Francis said that DHC already is seeing the benefits of using regional operators in the transitioned communities. The operators, she said, are leveraging relationships to drive occupancy and limit costly staffing agency use.
Despite the effects of the omicron variant of COVID-19, the REIT’s senior housing operating portfolio experienced occupancy growth, Francis said. In the 120 communities managed by Five Star in its same-property segment, occupancy increased 70 basis points (0.7%) in the fourth quarter from the third quarter.
Francis said she was encouraged by occupancy growth at DHC’s senior living properties, which has allowed aggressive rent concessions offered earlier in the year to subside. Those rent concession packages in 2021 led to a 2.6% rate decline and same-property revenue decrease of 170 basis points (1.7%) from the third to the fourth quarter, she said.
“Looking ahead, we’re seeing signs we’ve reached an inflection point for rate recovery and continued occupancy growth,” Francis said. “The senior living industry is well-positioned for recovery.”
DHC operators are increasing rents 5% to 10% in the first quarter in reaction to increasing wage expenses, Francis said, adding that operators believe that those rate increases are “realistic and achievable.” Some operators are increasing community fees as well, she said.
The biggest challenge facing the industry is labor, Francis said. Same-property wages and benefits increased $3.4 million (4.1%) from the third quarter to the fourth quarter, driven by a sharp uptick in agency use, she said. Staffing agency cost increases represented 65% of same-property wage increases, due to staffing shortages driven by the omicron variant and the holiday season.
Francis said that she expects agency costs to moderate but that wage inflation will persist. Same-property wages, she said, are expected to increase 10% to 12% this year. Operators are focused on improving the employee experience, Francis added, citing scheduling flexibility as one option.
