(Credit: Getty Images)
The recovery of the senior living industry will continue to be uneven in the face of a challenging labor market and wage pressures, as well as competition driving rates down, according to industry experts.
During third-quarter earnings calls on Thursday, Diversified Healthcare Trust President and CEO Jennifer Francis said that significant headwinds persist in senior living, and the COVID-19 delta variant has created additional pressure in some areas while magnifying challenges in other areas. Five Star Senior Living President and CEO Katie Potter echoed those concerns on a separate call, adding that the company is focused on transforming its business to provide more concierge services to younger, healthier residents.
Competition among providers in the form of rate concessions, waived community fees and free rent affected operational results for both companies.
“Although new supply remains largely muted, many of the communities that compete with our Five Star Senior Living managed properties offered aggressive rate concession packages this quarter and last, pushing Five Star to follow suit,” Francis said. “I don’t see that concessions are going to subside any time soon.”
Francis said the Newton, MA, real estate investment trust made “substantial progress” on transitioning the management of 108 senior living communities from Five Star to new third party managers.
As of Nov. 3, the REIT had signed new management agreements with 10 new third-party managers to move 107 senior living communities from Five Star. Ninety-nine communities have been transitioned, with the expectation that the remaining eight will move by year’s end. DHC plans to close one Delaware community and is assessing opportunities to redevelop it.
Five Star also has closed all 1,532 skilled nursing facility units and 27 of the planned-to-close Ageility rehabilitation and wellness inpatient clinics. Sept. 30, the company also terminated its leases for four communities it managed for Healthpeak Properties.
Potter said the transition will take the independent living part of its senior living segment from 38% to 52% of units. Five Star, she said, is positioned to diversify its revenue streams and expand its health and wellness services through new outpatient Ageility clinics and new service offerings.
Following closure of Five Star-managed skilled nursing units, and the “right-sizing” of community-level workforce due to occupancy levels, Francis said, DHC continues to see a decrease in wages and benefits expenses in the Five Star-managed portfolio — a 1.9% decrease from the second quarter.
“Persisting labor pressures challenge all of our operators’ ability to reduce wage-related expenses,” she said. “We expect wages to increase as labor pressures continue.”
In addition to wage pressures, Francis said, operators also are experiencing a scarcity of qualified employees, as many left the industry due to burnout, opportunities in other industries or vaccination requirements for healthcare workers. But, she said, leading indicators give DHC reason to be “cautiously optimistic” about improved future performance in senior living.
Same-property average monthly occupancy in DHC’s senior housing operating portfolio, or SHOP, segment increased 100 basis points (1%) between July and September, despite the pervasiveness of the COVID-19 delta variant, which slowed recovery, the REIT said. SHOP average occupancy was 75.2% at the end of the third quarter, with same-property occupancy averaging 77.9%.
Five Star reported that same-community average occupancy in its owned portfolio was up 210 basis points (2.1%) to 70.4%, whereas average occupancy in its managed portfolio was up 50 basis (0.5%) points to 73.4%, compared with the second quarter. Month-end occupancy for October in the managed communities was up 30 basis points to 74.9%, compared with September month end, whereas occupancy in its owned portfolio for October was up 10 basis points (0.1%) to 73%.
Five Star Executive Vice President and Chief Operating Officer Margaret Wigglesworth said that sales leads grew 24% from the second quarter, driven by a 49% increase from the second quarter in digital leads.
Positive occupancy trends came as a result of a 100% vaccination rate among its residents and staff, along with a decline in resident COVID-19 cases, she said.
DHC reported that within its Five Star-managed portfolio, leads are up 41% from the second quarter, primarily driven by a 70% increase in digital leads. Move-ins are up 19.2%, whereas move-outs are up 3.6%. Tours are down 4.3% sequentially in reaction to caution over the delta variant, but Francis said that October tours increased 7.8% compared with September.
“We are encouraged by the recent decrease in active COVID castes across the country and are hopeful these trends prompt a reduction in pandemic-related restrictions and promote a smoother operating environment,” she said. “With the progress we’ve made in the transition of our SHOP communities to new operators, we remain confident in our strategy and expect a gradual recovery in performance in our senior living portfolio.”
As Five Star enters the eighth month of its strategic plan to reposition its business, Potter said the transformation is taking shape.
During the nine months ending Sept. 30, Five Star made progress on the Evolve phase of its strategic plan, including enhancing its corporate technology infrastructure; investing in the residential experience, including community wireless connectivity, transportation services and redesigned common areas and residential units; enhancing digital marketing infrastructure and implementation of a labor management tool; and standardizing administrative functions to enhance operating efficiency.
In the final Diversify phase of Five Star’s strategic plan, the company opened 16 new Ageility outpatient rehabilitation clinics and increased Ageility fitness revenues to $3.4 million — a 41.1% increase over the same period in 2020. Potter said Five Star is actively pursuing an expansion of its concierge services.
“As our customer demands change, we need to be agile and anticipate these needs to attract and retain residents within the communities we own and manage, in addition to engaging with customers outside these communities earlier in the aging process,” she said. “We are concentrating on revenue diversification opportunities that synergistically drive performance at our senior living communities and provide us with the opportunity to engage with customers sooner.”