The COVID-19 vaccine rollout translated to a feeling of “real change,” Diversified Healthcare Trust executives said as they reported growth in occupancy, move-ins and leads in its senior housing portfolio during a first-quarter 2021 earnings call on Thursday. Five Star Senior Living also held its earnings call Thursday.

In 2020, Diversified Healthcare restructured previously existing master leases with Five Star Senior Living. April 9, Diversified Healthcare amended its management arrangements with Five Star and extended them by two years, to Dec. 31, 2036.

At the same time, Five Star announced a new strategic plan to reposition its senior living management business to focus on larger independent living, assisted living and memory care communities, as well as stand-alone independent living and active adult communities. Katherine “Katie” Potter, Five Star president and CEO, said Thursday that Newton, MA-based Five Star expects to complete the transition of 108 larger communities by the end of the year.

“We believe this sharpened focus on larger and lower [needs] communities will not only highlight tour expertise as a senior living operator, but also support the evolution of our services business to better serve our target demographic and continue to diversify our revenue sources,” Potter said. “We will continue to refine our senior living products to build competitiveness in the market while taking advantage of new opportunities beyond traditional senior living demand.”

Diversified President and Chief Operating Officer Jennifer Francis said the Newton, MA-based real estate investment trust is working on the previously announced transition of 108 Five Star senior living communities with approximately 7,500 units to new operators to try to improve profitability in the portfolio. Discussions are underway with several operators, most with a regional focus, Francis said. Diversified Healthcare has made “significant” progress in transitioning the management of these communities and expects to complete the transition by the end of the year, she added.

Francis said that Diversified Healthcare supports Five Star’s strategic plan to reposition its business to focus on larger communities with residents who require a lower level of care. To support that strategy, Diversified Healthcare has begun to close the skilled nursing units in its continuing care retirement communities and repurpose them to complement the needs requirements of the communities.

The RMR Group will assume control of major renovations and repositioning activities at all of its senior living communities that Five Star will continue to manage.


Five Star experienced “significant” operating and financial challenges during the pandemic, which directly affected Diversified Healthcare’s operating results, REIT executives said. Increased costs for labor and services, competition within the senior living industry, older adults delaying or forgoing moves to senior living communities, compliance cost increases, and tort and insurance liability cost increases all affected operations.

Jeffrey Leer, Five Star executive vice president and chief financial officer, said that senior living segment revenues declined 9.6% from the prior year and 6.1% on a sequential basis. Operating expenses increased $3.3 million, or 5.7%, over the past year due to increased labor and operating costs associated with the pandemic.

Five Star’s COVID-19 expenses totaled $6.1 million in the first quarter, including $2.9 million related to personal protective equipment and medical supplies. Leer said $5.8 million of those expenses will be absorbed by Diversified Healthcare.

Diversified Healthcare said it expects its senior housing providers to continue to operate at lower average occupancy and higher operating expenses as a result of the COVID-19 pandemic. 

But there is good news.

All vaccination clinics have been completed in properties in the senior housing operating portfolio, with 96% of residents taking the vaccination. Francis said the vaccine rollout was a “catalyst for occupancy to begin to stabilize in February and March.” All of its communities are now open to admissions.

As of May 1, Diversified Healthcare had 11 active coronavirus cases among residents in its managed communities.

Five Star said it completed all of its scheduled vaccination clinics at its communities in early April. Current COVID-19-positive cases number 12 among its 21,000 residents, a 98% decline from peak case rates in the fourth quarter.

Margaret Wigglesworth, Five Star executive vice president and chief operating officer, said she was encouraged by the momentum of sales leads and move-in activity. A significant decline in COVID cases, broad accessibility to the vaccine and a return to pre-pandemic lifestyles are revealing increased consumer interest in exploring senior living. 

Wigglesworth said that Five Star launched targeted concessions programs to regain market share where necessary, but the company remains committed to preserving rates while reinstating the full resident experience.

Move-ins accelerated 24% compared with the fourth quarter, leads increased “substantially,” and Five Star is generating more professional and resident referrals. Francis said the REIT’s managed senior living communities had 400 move-ins in late April, the most in the portfolio in 14 months.

Leads were 30% higher in the first quarter of 2021 over the fourth quarter 2020, and there was a more than 40% increase in web leads, Francis said. She also reported close to an 80% increase in repeat tours and said the REIT is “really starting to feel change.”

Five Star also is increasing its investment in its digital marketing platform, which it expects to result in greater conversion rates and lengths of stay.

Occupancy stabilized in February, March and April, according to Diversified. Francis said that she is cautiously optimistic that those trends will continue through the end of the year.

Although occupancy declined to 69.5% in the first quarter, down 320 basis points (3.2%) from the fourth quarter of 2020, March occupancy increased 30 basis points (0.3%) from February lows.   

As a result of the pandemic, Five Star experienced declines in average occupancy at its owned and leased senior living communities, from 81.3% for the first quarter 2020 to 68.3% for the first quarter 2021. 

Richard Siedel, Diversified Healthcare chief financial officer and treasurer, said that revenues were down 4.5% from the fourth quarter, driven by lower occupancy, but average monthly fees were up 2.3% compared with the fourth quarter. Expenses decreased 1.5%, or $3.9 million, primarily as a result of lower wages and benefits. That amount was partially offset by $2 million in increased operating expenses in the first quarter related to the February winter storms, which affected Texas and other states in which the REIT operates.

“We believe the fastest path to stock price recovery is rejuvenation of our [seniors housing operating portfolio] segment,” Francis said. “We believe that we are well-positioned to weather the present disruptions facing the real estate industry and, in particular, the real estate healthcare industry, including senior living.”