Jennifer Francis & Katie Potter hedshots

Expense pressures on the senior living industry due to the COVID-19 pandemic are expected to persist in the near term, creating operational headwinds, but a slow and steady response to the crisis will benefit business in the long term, according to Five Star Senior Living and Diversified Healthcare Trust executives during third-quarter earnings calls on Thursday.

COVID-19 impact

COVID-19 resulted in both continued occupancy declines and sharp increases in expenses related to employee healthcare and personal protective equipment, according to Jennifer Francis, president and CEO of Newton, MA-based Diversified Healthcare Trust. Although the pandemic is expected to continue to negatively affect near-term senior living results, she said the real estate investment trust is strengthened by the diversity of its portfolio and noted that that healthcare real estate will benefit from the aging U.S. population in the long term.

As of October, 1% of residents in Diversified Healthcare portfolio communities had active coronavirus cases.

COVID-related medical supply expenses for Diversified Healthcare’s portfolio were $3 million over the second quarter. COVID-related testing and employee medical care drove healthcare costs up $8.7 million over the second quarter. 

Looking ahead, Francis said she expects operational headwinds to persist. 

Five Star, 33.9% of which was owned by Diversified Healthcare as of August, also continues to experience increased costs associated with the pandemic, including for PPE, labor, insurance and other COVID-related operating expenses.

Five Star, also based in Newton, MA, reported that 71% of its communities have no active coronavirus cases, 18% have one to two active cases, and 11% have three or more active cases. In addition, 96% of its communities are accepting new residents.

Five Star Chief Operating Officer Margaret Wigglesworth said communities’ reopening represents a “delicate balance of providing essential safety while creating a fulfilling experience for residents.” Five Star’s testing and screening protocols include testing residents and team members showing symptoms, as well as routine surveillance testing of 25% of team members each month. In the event of a positive case, the entire community is tested weekly until the community goes two consecutive weeks without a new case.

As of Oct. 31, Five Star had administered more than 146,000 resident and employee tests, resulting in a 2.4% positive coronavirus case rate. 

“Our slow and steady reopening strategy has resulted in communities being able to remain open once restrictions are lifted, which we believe will be a benefit to our business and all stakeholders in the long term,” Wigglesworth said.

Chief Financial Officer Jeffrey Leer said Five Star experienced increased expenses from self-insured health insurance costs of $1.8 million and $200,000 of medical supplies primarily related to COVID-19 testing and infectious disease protocols. Year-to-date, Five Star has spent $15.1 million on PPE, deploying $4 million of PPE reserves to communities to combat potential increased needs into the first quarter of 2021. The majority of this pre-funded PPE will be reimbursed by Diversified Healthcare as it is delivered to communities Five Star manages.

Five Star’s third quarter COVID-related expenses were $4.3 million, including $3.6 million in PPE and medical supplies. 


Occupancy in Diversified Healthcare’s senior housing portfolio was 76.3% for the third quarter, compared with 85.4% in 2019. Same-property senior housing operating portfolio average occupancy was down 355 basis points, or about 27 basis points per week. 

Francis said Diversified Healthcare has seen a 35% increase in leads in the third quarter, with conversion rates consistent with pre-pandemic rates. Third quarter move-ins increased 31% over the quarter, although move-outs exceeded move-ins. 

Although 97% of Diversified Healthcare’s communities are open for admissions, the majority of move-ins are needs-based. Francis said it will take a combination of increased confidence by prospective residents in the safety of senior living, as well as a vaccine, to drive changes and stop the occupancy declines.

Five Star reported that as of Sept. 30, 96% of its communities were accepting new residents. Occupancy declines decelerated compared with the second quarter, but the company continued to experience declines in average monthly senior living revenue throughout the quarter due to occupancy challenges. 

Average occupancy in Five Star’s comparable communities decreased 360 basis points from the second quarter and 650 basis points from the prior year. Comparable community average occupancy in its managed communities decreased 340 basis points from last quarter and 880 basis points from the prior year. 

Wigglesworth reported that average weekly sales leads at Five Star are down from pre-pandemic levels, but average sales leads for the third quarter increased by 33% over the second quarter. Conversion rates remain consistent with pre-pandemic levels. 

Francis said Five Star remains committed to optimizing revenue rather than managing to occupancy. Although the strategy may weigh on near-term results, Francis said it will better position the company in the future compared with communities that are offering material rent reduction to grow occupancy, which Francis described as a “very dangerous, slippery slope.” She said concessions being offered include one to two months of free rent up front to attract residents in independent living and active adult communities. 

“We believe our commitment to preserving rates better positions our senior living operations for long-term stability once occupancy levels normalize,” Wigglesworth said. “As we work to safely work to move our communities through the reopening process and address occupancy declines, we believe that our conservative and structured approach to mitigating the pandemic, and the investments we’re making in our team members, will not only benefit our residents and clients, but will best prepare our business to capitalize on opportunities and generate long-term growth.” 

Compliance matter

As a result of routine monitoring protocols related to Five Star’s Medicare filing, the company discovered potentially inadequate documentation at a skilled nursing facility at one of its communities. As a result, Diversified Healthcare and Five Star made an initial voluntary disclosure to the U.S. Department of Health and Human Services Office of the Inspector General. 

Diversified Healthcare expects to repay $4 million for the documentation error, in addition to $2.2 million in fees and penalties.

Looking forward

Five Star CEO Katie Potter said Five Star is making its workforce a priority by offering “compelling compensation, rewards and recognition for exceptional effort and resources to support our team members.”

“The COVID-19 pandemic presents new and changing hurdles,” she said. “We believe our growing knowledge and carefully planned response in the face of this crisis, coupled with our strategic business plan and financial stability, will support long-term sustainability and continued growth of our business.”