headshot - Diversified Healthcare Trust President and CEO Jennifer Francis
Diversified Healthcare Trust President and CEO Jennifer Francis

Diversified Healthcare Trust’s second-quarter results showed continued and encouraging recovery for the senior living portfolio, President and CEO Jennifer Francis said during Thursday’s earnings call. 

Based on the most recent data from the National Investment Center for Seniors Housing & Care, Francis said, supply and demand fundamentals within senior living “continue to be in our favor.” Construction starts in the industry remain at their lowest level since 2015, she noted; also, new supply remains muted, and inventory growth is moderating to just 1.5% year over year.

Occupancy across the industry increased, with assisted living occupancy growing at the fastest pace since 2005, Francis noted, citing NIC data. DHC, she said, is seeing the effects of those tailwinds in its portfolio, as its consolidated senior housing operating portfolio occupancy increased 60 basis points (0.6%).

Although average occupancy remained flat compared with the first quarter in DHC’s same-property senior housing operating portfolio, or SHOP, segment, at 74.1%, month-end occupancy increased to 75.4% in June and increased an additional 40 basis points (0.4%) in July.

Rates also rose slightly in the second quarter, with SHOP same-property revenues increasing by 1.6% over the first quarter.

“Looking ahead, we expect to see concessions that were heavily utilized in this portfolio at the end of 2021 dissipate in the second half of the year, which should continue to improve revenue,” Francis said. “I believe we are now on a more defined path toward stabilization of our senior living assets.”

Workforce stabilizing

SHOP same-property expenses also decreased slightly for the first quarter as a result of reduced staffing agency use related to AlerisLife’s labor initiatives. AlerisLife, through its Five Star division, manages 120 senior living communities, with a total of 17,899 units, for DHC, according to a May presentation for investors.

Francis said overall labor is stabilizing, as turnover, the average time to fill positions and the number of open positions all have decreased.

“Accessing labor and wage inflation will continue to be the biggest challenge facing the senior living industry,” Francis said. “Looking forward, we expect wage and benefits to continue to increase as our operators compete to attract and retain team members.”

Francis added that she expects higher labor costs to be “the new normal” for some operators but that DHC expects to recover most of those additional costs through rate increases at the community level.

Looking ahead

The turnaround of DHC’s portfolio communities transitioned from Five Star Senior Living — which changed its name to AlerisLife in January but operates the communities under the Five Star name — is “well underway,” Francis said. Those communities experienced occupancy increases of 210 basis points (2.1%) from the first quarter, as revenues grew 3% in the second quarter. Operators at these transitioned communities made investments in marketing initiatives and sales training to drive occupancy.

DHC continues to identify areas of opportunity to prioritize and deploy capital, Francis said. In its overall SHOP segment, the CEO said that 77 projects are underway or in the planning / design stages, including everything from major community-wide renovations of dining and activity and common areas to lighter cosmetic upgrades such as new paint and carpeting.

Chief Financial Officer and Treasurer Richard Siedel said that out of $64.9 million in capital expenditures by DHS in the second quarter across the entire portfolio, $39.3 million was spent in the overall SHOP portfolio.