Newton, MA-based Five Star Senior Living may sell some of its senior living communities or repurpose units within communities to help solve financial issues that cast “substantial doubt on our ability to continue as a going concern,” President and CEO Bruce Mackey said Wednesday morning during the company’s third-quarter earnings call.

The company reported a net loss of $21.6 million for the third quarter and $50.4 million for the nine months ended Sept. 30.

Increased competition, older adults delaying move-ins due to advances in medicine and healthcare services, and increased labor costs are negatively affecting revenue, the company said in a quarterly report filed later with the Securities and Exchange Commission. Five Star said it expects those challenges to continue at least through 2019.

Five Star is the country’s fourth-largest operator of senior living communities, according to 2018 lists compiled by Argentum and the American Seniors Housing Association.

“Based on our cash balance at Sept. 30, 2018, and projected cash needs for the next 12 months, our management believes that we will need to increase our revenues, reduce our costs and/or pursue other transactions to be able to continue to fund our operating and capital requirements and meet our debt covenant obligations,” Five Star told the SEC.

Moves under consideration include selling some of the senior living communities that Five Star owns and repurposing some or all of the skilled nursing units within its continuing care retirement communities, Mackey said during the earnings call. Five Star has had informal discussions with its primary senior living community owner, Senior Housing Properties Trust, but “they may or may not result in anything being done,” he said.

On the real estate investment trust’s recent third-quarter earnings call, Senior Housing Properties Trust COO Jennifer Francis said that executives have discussed with Five Star the possibility of their selling some skilled nursing facilities to other operators. “We think that would certainly help with their rent coverage,” she added.

Five Star leased 184 senior living communities from the REIT and managed 75 communities for the REIT as of Sept. 30. Overall, as of August, the company had 2,343 leased, owned or managed CCRC units and 2,429 free-standing leased skilled nursing units out of a total of 31,800 leased, owned or managed units, according to a company presentation.

Skilled nursing is one of the company’s biggest negative drivers of comparable community revenue, responsible for a 1.7% or $1.3 million decrease year-over-year, he said. “We continue to see pressure at our stand-alone skilled nursing facilities and the skilled nursing units at our CCRCs,” the CEO added.

Occupancy at leased SNFs was 76.9%, down 3.2% from the third quarter of 2017, “and we’re seeing a similar trend in the skilled units of our CCRCs,” Mackey said. He attributed the losses to actions by accountable care organization and managed Medicaid programs that have led to decreased length of stay.

Occupancy was up 2.2% at leased stand-alone SNFs compared with the second quarter, however, he said. Move-ins across the portfolio are encouraging, too, Mackey added.

Memory care, which represented 11% of all units as of August, also has been a negative revenue driver, experiencing a 5.2% or $1.4 million decrease in comparable community revenue year-over-year, the CEO said. “Memory care continues to be the fiercest source of new competition in our markets,” Mackey said, echoing remarks he had made during earnings calls in March and May.

Bright spots

Independent living and rehabilitation and wellness have been bright spots for the company, however. Independent living saw a 1.5% increase in comparable community revenue year-over-year, Mackey said, and Five Star’s Ageility Physical Therapy Solutions division produced “solid growth” of 13% or $1 million in the third quarter of 2018 compared with the third quarter of 2017. Five Star now operates 120 Ageility outpatient clinics, 14 of which are not affiliated with a Five Star community; 28 have opened in 2018.

The continued implementation of a revenue management program across the company’s private-pay communities has contributed to “a good portion of the growth” the company has seen, Mackey said. The program allows prices to be adjusted “continuously up or down to match the demand for specific products in specific markets.”

Five Star is adding approximately eight to 10 communities to the system every month, the CEO said. Fifty-three percent of all private-pay communities are using it now, and all communities should be using it by the end of the first quarter of 2019, he added.

Potential delisting

On the earnings call, Mackey also mentioned the notice Five Star had received from Nasdaq Stock Market LLC in October, warning of potential stock exchange delisting the bid price of its common stock had closed below the $1 per common share minimum for 30 consecutive business days.

“If we do not regain compliance within the allotted grace period, which could be up to 360 days, Nasdaq may delist our common shares,” he said. The stock price reflects industry headwinds and the company’s resulting financial performance, the CEO added.

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