Occupancy declines at Holiday continue to affect New Senior

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Holiday Retirement's operating model transition, which saw community oversight change from live-in managers to more traditional executive directors over the past year, continued to affect occupancy in the second quarter and, therefore, the portfolio performance of New Senior Investment Group, the publicly traded real estate investment trust's CEO, Susan Givens, told participants in a Thursday earnings call.

Givens said she believes the occupancy declines are temporary.

“We expected that the change would bring some volatility, and we really saw that this quarter,” she said. “The good news is that Holiday has completed the rollout of the new model, and we've already begun to see occupancy steadily increase over the last several months. So we're optimistic that the new model is taking root and will ultimately contribute to better performance.”

Holiday, the country's largest independent living operator, which also has assisted living and memory care properties, accounts for 75% of the REIT's net operating income, according to a presentation that New Senior Investment Group released in conjunction with the call. The REIT's portfolio has 51 triple-net Holiday properties and 60 managed Holiday properties.

Overall, Holiday operates more than 300 senior living communities, according to its website.

Occupancy for the REIT's same-store portfolio was 85.6% in the quarter, a year-over-year decrease of 270 basis points, driven by large decreases in the independent living portfolio, Managing Director David Smith said. “Similar to last quarter, the majority of this decrease was driven by our properties operated by Holiday,” he added.

Occupancy increased 50 basis points from April to June, however, Smith said. “These positive occupancy trends in the independent living portfolio have also continued into July,” he said. “Importantly, we continue to believe that this operating model change, which introduces a true business leader at each community, will result in more cohesive operating teams at the properties and will have positive impact on performance and resident satisfaction over the long term.”

New Senior's Holiday assets were able to maintain good growth in revenue per occupied room during the quarter, Givens said. “So although we had occupancy declines, the RevPOR was very strong, and margins were able to hold up better on the independent living side, whereas we've seen kind of a different phenomenon on the assisted living side, where occupancy is under pressure.”

Rate is faring better on the independent living side, too, the CEO said, “which is a good sign now that the Holiday model has been fully implemented, because we seem like we're now in a good position to actually get growth out of those assets again.”

The new management model will drive occupancy and net operating income at the Holiday properties, Givens said. Executive directors, she added, have “power to make decisions and to push sales and to really drive performance at the assets in a way that the co-manager model was not necessarily set up for. There is lot of focus on sales and a lot of focus on making sure that the pricing is competitive in the market.”

Overall, New Senior Investment Group saw earnings per share of $0.29, missing analysts' expectations by $0.01. Revenue of $114.29 million, down 3.6% year-over-year, missed expectations  by $390,000.

Sabra portfolio

Sabra Health Care REIT CEO and Chairman Rick Matros, on his own earnings call on Thursday, also discussed Holiday, which is part of Sabra's triple-net lease portfolio.

Matros said margins related to the REIT's Holiday assets have been “extremely healthy.”

Speaking of the company's management change, he said: “That's a pretty tough transition, to change a model that's been in place for years and years. That transition has occurred over the last year, and that fact that they've been able to go through that kind of major shift in their operating model and have maintained their margins has been pretty admirable.”

Holiday is the fifth largest tenant in the Sabra portfolio, with 21 properties responsible for 5.8% of annualized cash net operating income for the 12 months ending June 30, according to supplemental material released in advance of the earnings call.

Sabra's funds from operations for the quarter were $0.55, missing expectations by $0.01. Revenue of $64.74 million, down 12.8% year-over-year, beat expectations by $1.31 million.

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