Senior living occupancy dips are taking a toll on some owners and operators, including Massachusetts-based Five Star Quality Care, Inc. (Nasdaq: FVE). Five Star is one of the largest providers in the country, operating 276 senior living communities, including 214 that it owned or leased and 62 that it managed as of June 30, 2016.
For the second quarter of 2016, Five Star’s occupancy across its owned and leased senior living communities was 84.3%. By comparison, its occupancy in the first quarter stood at 85.1%. Senior housing occupancy industry wide, including assisted living and independent living, dropped to 89.7% for the second quarter of 2016, down from 90% in the first three months of the year, according to data from the National Investment Center for Seniors Housing & Care (NIC).
“Occupancy continues to be a challenge for us and the industry,” Five Star CEO Bruce Mackey said during a conference call with analysts Thursday. “…We remain diligent on pushing forward the programming and innovation that continues to lead to greater resident satisfaction and will lead to an increased number of referrals, which we believe will lead to higher occupancy in the long term.”
Nearly 50% of Five Star’s occupancy decline came from Texas, Indiana, Arizona, and Florida. Overbuilding in those markets weighed on occupancy. Yet, the company is bullish on a recent influx of move-ins over the last two months, said Five Star Senior Vice President and Chief Operating Officer R. Scott Herzig on Thursday.
However, the company still pushed monthly rates, a strategy other senior living providers are implementing.
The average monthly rate at owned and leased senior living communities rose 1.4% to $4,657 in the second quarter, up from $4,591 during the same period in 2015.
Overall, Five Star experienced a net loss of $7.7 million, or 16 cents per diluted share. During the same time period in 2015, the company reported a net loss of $3.9 million, or 8 cents per share.
However, the company’s senior living revenue did increase slightly during the quarter, lifted by higher rental rates. Senior living revenue increased just 0.4% during the quarter to $279 million, up from $277.9 million during the same quarter in 2015.
Still, investors unhappy with Five Star’s performance may have little reason to be assuaged by the most recent results; one of these, activist Senior Star, recently renewed calls for large-scale changes at Five Star to unlock value for shareholders and, they argue, put the company on a path toward greater long-term success.
Constructive Moves
While activist investors continue to push Five Star leaders, the company is making some moves. The “highlight of the quarter” was the company’s $112.4 million sale-leaseback with Senior Housing Properties Trust (NYSE: SNH).
SNH acquired a portfolio of seven assisted living communities, encompassing 545 units across four states—North Carolina, South Carolina, Tennessee, and Virginia.
“We were able to realize a portion of those owned properties’ value, which is not being recognized in the public markets, and use the proceeds to pay off our revolving credit,” Mackey said.
In connection with the transaction, Five Star and SNH amended certain terms of the agreements under which Five Star manages senior living communities, including a formula for calculating management fees for communities that Five Star commenced managing on May 1.
The company also touted its recently implemented ‘Rising Star’ program, which seeks to groom, develop and train current employees and external candidates who are potential candidates to become executive directors at Five Star’s senior living communities. The solution addresses a high executive director turnover rate that plagues the industry.
Written by Amy Baxter
Companies featured in this article:
Five Star Quality Care, NIC, Senior Housing Properties Trust
