Holiday management transition hurting occupancy, New Senior says

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Holiday Retirement's transition from live-in property managers to more traditional executive directors has negatively affected occupancy at its communities, New Senior Investment Group executives shared Thursday in a first-quarter earnings call.

The real estate investment trust, however, believes that the shift “will have a positive impact on performance” in the long term, Managing Director David Smith said.

The transition began in the third quarter of 2016, Smith said. “We believe it has caused some temporary disruption at the properties,” he added. “The good news is that Holiday has now completed the transition for our independent living portfolio and is focused on leasing the newly available units.”

The REIT was “surprised, quite honestly, that there was as much of an occupancy reaction as we've seen,” New Senior CEO Susan Givens said. “And it's hard to say whether that's because of the operating model change or that's because of industry trends.”

Revenue per occupied room in independent living, however, “remained very strong,” at approximately 3% for the quarter, she said. “We're seeing that there's a lot of strength on the independent living side with respect to pricing. People who were coming into the properties are actually willing to pay the prices that we want, and also, the existing residents are actually stepping up to pay higher prices. It's just that we've seen a little bit of a dip on the occupancy side.”

Additional declines in occupancy may occur, Givens said, “but I focus not just on occupancy but also on net operating income, and I think what we did see this quarter is that NOI has held up relatively well in light of the fact that we did see some drops on the occupancy side.”

RevPOR increased 1.8% year-over-year in New Senior's overall portfolio, Smith said. “Operators have continued to achieve rate increases of 3% to 5% on existing residents, which was partially offset by the continued use of rent discounts and incentives for new residents as the operating environment continues to remain competitive given pressures from new supply,” he said.

New Senior's portfolio

Holiday Retirement is the largest operator in New Senior's $3.3 billion portfolio, representing 77% of the REIT's NOI, with 51 triple-net lease properties and 65 managed properties, according to supplemental information released Thursday by the REIT.

New Senior said its portfolio also contains 22 managed Blue Harbor Senior Living properties (10% NOI) and 12 properties from four other operators (13% NOI), including managed JEA Senior Living and Thrive Senior Living properties and triple-net lease LCS and Watermark Retirement Communities properties.

In its managed portfolio, same store average occupancy decreased 220 basis points to 86.1% compared with 88.3% for the first quarter of 2016, New Senior said. Same store triple net average occupancy decreased 140 basis points to 87.5% compared with 88.9% for the first quarter of last year.

The REIT's normalized funds from operations for the first quarter of $0.30 per share missed expectations by $0.02. Its revenue of $114.97 million, down 2.5% year over year, missed expectations by $3.48 million.

Management changes

New Senior recently decided to transition three underperforming Holiday properties and one underperforming Blue Harbor property to new management, Givens said. All are assisted living and memory care properties, the performance of which has not been as stable as that of independent living, she said.

“NOI for these four assets collectively was down 21% year-over-year,” Smith said.

Three of the properties are being managed by Grace Management, a new operator for New Senior, as of May 1, Smith said. One will be managed by Watermark as of June 1, he added.

“We're trying to be very deliberate and make sure that the assets are in the hands of the right operators,” Givens said. “In some instances, while the operators that we had in place had the best intent, they just weren't the right fit for those particular assets. And we think the new operators that we put in place are better situated in those markets for those types of assets, meaning layout, all that kind of stuff.”

The REIT continues to “refine the portfolio” and look for other properties where it might make sense to change management, she said.

“It's never an easy thing to transition assets away from operators, and it takes time to identify the right operators,” Givens said, “but we're well underway in that process, and I think we feel very good about that. It will lead to better results for us.”

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