Memory care 'fiercest' area of competition for Five Star, CEO says

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"Fifty percent of our memory care units had new memory care units open up within five miles over the past year," Five Star Senior Living President and CEO Bruce Mackey said Wednesday.
"Fifty percent of our memory care units had new memory care units open up within five miles over the past year," Five Star Senior Living President and CEO Bruce Mackey said Wednesday.

Memory care has been the “fiercest” area of competition in private-pay senior living over the past year, Five Star Senior Living President and CEO Bruce Mackey said Wednesday during a fourth quarter and full-year 2017 earnings call.

“Memory care revenues were down three percent in the fourth quarter compared to the same quarter last year, because 50% of our memory care units had new memory care units open up within five miles over the past year, according to the [National Investment Center for Seniors Housing & Care] data,” he said.

Rate increases in other areas of the company's private-pay seniors housing helped mitigate the negative effect that occupancy decreases had on the bottom line, Mackey said, although that strategy did not work for memory care.

“We saw a 30 basis point increase in independent living, assisted living and memory care revenues in the fourth quarter of 2017 compared to the same period last year,” he said. “This was driven by independent living and assisted living revenues, which were up over one percent.”

Adjusted earnings before interest, taxes, depreciation and amortization for the fourth quarter were $2.1 million, down from $3.5 million for the same period last year, the CEO said.

Total occupancy was 82.6% in the fourth quarter, down 40 basis points sequentially and down 130 basis points year-over-year, Chief Operating Officer Scott Herzig said.

Despite the challenges, Five Star itself is expanding its presence in memory care, adding 48 dementia care units to a California continuing care retirement community and 32 units at a Delaware community, both of which are leased, Mackey said.

“We are also awaiting final approval to begin construction of 24 units of memory care at a managed assisted living community in California,” he added.

Outside of memory care, the company recently began construction of a 91-unit independent living community in Tennessee that it will manage when it is complete in mid-2019. “As of last week, the units were almost 40% pre-leased,” Mackey said.

Five Star is still waiting for a license to operate the five Indiana communities (450 total units) it finished converting from independent living to assisted living in the third quarter of last year. That license is expected in the second quarter, Mackey said. “Once they are approved, these communities will be better able to compete in their respective markets given the change in demand over the past several years,” he added.

The company's largest current project in its leased portfolio, according to the CEO, is at The Forum at Park Lane, a CCRC in Dallas. There, more than 40 independent living apartments are being converted into assisted living units, he said. The units have been unoccupied since mid-2016, but the project should be finished in the second quarter.

“After the conversion is complete, we plan to create a memory care unit within this community that will allow us to care for some of our existing residents as opposed to them leaving us for a higher level of care,” Mackey said.

Other highlights of the call:

  • Move-ins. Total move-ins for all of 2017 outpaced 2016 by almost 2%, Herzig said. “Move-ins directly from our Five Star website were up 14% year-over-year and now account for 22% of our total move-ins,” he said.
  • Workforce development. To address an industry shortage of executive directors, Five Star began offering its Rising Star training program to internal and external candidates in late 2016, Herzig said. “Since initiation of this program, we have enrolled 13 participants, four of whom who have graduated and are currently working successfully as executive directors in a Five Star community,” he said. “The remaining nine participants are in various stages of their training, which will continue throughout the remainder of the year.”
  • Dining. Five Star's MyChoice Dining is now offered at seven of the company's large independent living and CCRC communities, Herzig said. “These communities now offer multiple dining venues at each site, ranging from coffee and espresso bistros to sports pubs and fine dining restaurants, utilizing a point-of-sale system similar to what you would find in any public restaurant or café,” he added. “Feedback has been extremely positive, and our marketing research shows that this dining program is a difference-maker to prospective new residents and has directly correlated to occupancy improvements where it has been put in place.” The company plans to expand its availability.
  • Electronic medical records. The first phase of an electronic medical records initiative begun in 2017 is now completed, with EMRs in place at all of Five Star's freestanding and CCRC skilled nursing units. “We will now proceed to Phase 2, which will involve conversion of our assisted living units to an [EMR] platform beginning with those units in our CCRC environment,” Herzig said. “Being electronic with our medical records allows us to more easily share our outcomes with key referral sources, improves communications with physicians, reduces medication and transcription errors and is vital to participation in all of the organized healthcare programs.”
  • Community sales. Five Star also is in the midst of the sale of six senior living communities that was first announced on the previous earnings call. Two properties were sold as of Dec. 31, two more transactions closed in the first quarter, and Five Star expects the other two transactions to close in the second quarter, Mackey said. The combined sale price will be approximately $104 million.
  • Rehabilitation. Five Star continues to introduce its Rehab to Home project in CCRCs. “We have seen our Medicare census increase from an average of 17 residents per day prior to project completion to just over 20 residents per day after the project completion,” Mackey said.
  • Physical therapy division. The company's Ageility physical therapy division produced $8.2 million in revenues in the fourth quarter of 2017, a 16% increase over the same quarter of 2016, Herzig said. Total Ageility revenues for the year were approximately $31 million, up $3.4 million compared with 2016. “We opened a total of 15 clinics in 2017, six of which are not affiliated with a Five Star community,” he said. “As of today, we operate 102 outpatient clinics, eight of which are not affiliated with a Five Star community. In 2018, we would like to slightly outpace this year's total of adding both Five Star outpatient clinics and non-Five Star outpatient clinics to our existing platform.”

“In 2017, our focus on the fundamentals, combined with our execution of strategic initiatives, has strengthened our company, and we look forward to continued progress through adapting, improving and growing as the senior living industry evolves,” Mackey said.

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