Five Star to Provide Outpatient Therapy in Competitors’ Communities

Five Star Senior Living (Nasdaq: FVE) is continuing to execute on a six-point plan for improving occupancy and cash flow, as it confronts oversupply headwinds, rising labor costs, and other pressures. As part of its efforts, the Newton, Massachusetts-based company is exploring providing outpatient rehabilitation at senior living communities operated by providers unaffiliated with Five Star.

The overall six-point plan includes: internal expansions and external acquisitions; improving current communities through capital investment; increasing revenue through ancillary services that complement senior living; gaining expense efficiencies; investing in workers; and creating new programs and driving resident satisfaction.

After describing this plan last November, Five Star executed across all these areas in the fourth quarter of 2016 and will continue to do so this year, CEO Bruce Mackey said Friday on an earnings call with analysts.


Among the notable achievements and goals so far:

– Five Star added 15 new outpatient rehabilitation clinics in 2016, to bring the total to 77. Revenue from these clinics increased more than 17% in 2016, surpassing $18 million. An additional 15 clinics are slated to open in 2017, and the company now is looking to expand them into non-Five Star affiliated communities, COO Scott Herzig said on Friday’s call.

The plan is for the services to be branded under a different name than “Five Star Rehab,” given that the services may be provided in senior living communities that compete with FVE, Vice President of Sales & Marketing Rob Poyas told Senior Housing.


– An ongoing effort to reduce reliance on third-party lead aggregators is bearing fruit, with move-ins from A Place for Mom down 47% from 2015 levels. They now account for less than 5% of total move-ins, according to Herzig.

– Five Star is set to scale up a “Rising Star” program to groom new executive directors, which currently has six people enrolled in it. The goal is to move people through the program on an ongoing basis every six months.

– After a nine-community pilot in 2016, Five Star now is moving toward implementing PointClickCare electronic medical records across all its skilled nursing facilities by Dec. 2017. Five Star also has been piloting PointClickCare in its senior living environments and is planning a full rollout to these settings as well, the Mississauga, Ontario-based technology provider confirmed to SHN.

Also, Five Star now officially will be known as “Five Star Senior Living.” The provider has been doing business under this name for about two years, but officially still went by “Five Star Quality Care” on legal and real estate documents.

The new name is a better reflection of the company’s identity, as it has shifted away from being heavily skilled nursing to being diversified across private-pay senior living and other hospitality-oriented services, according to Mackey.

“Our new name helps bring alignment to our evolved brands,” he said.

Has Occupancy Hit a Bottom?

Such concerted actions are needed to combat some serious challenges affecting Five Star and other senior housing operators nationwide. One of these is supply coming online, creating substantial new competition. Roughly a quarter of Five Star’s portfolio was exposed to new senior living units opening within a five-mile radius in the fourth quarter of 2016, Herzig noted.

However, the company managed to keep occupancy relatively stable between the third and fourth quarters at just under 84%; and while new supply will continue to be an issue in 2017, Mackey believes the worst may be past.

“I think hopefully we somewhat bottomed out here,” Mackey said of the occupancy trouble caused by new competition.

Labor is another hot-button issue, with wages rising and new competition threatening to hire away workers. Wages and benefits were up 1.8% year-over-year in the fourth quarter of 2016, which the company’s executives described as a good achievement given the pressures. Five states where the provider operates were impacted by minimum wage increases in 2016, and that number is set to more than double in 2017.

As a result, wage inflation will occur in 2017. A 50 basis point increase could be in the cards, according to CFO and Treasurer Rick Doyle.

Overall, Five Star’s fourth quarter earnings per share of -$0.13 missed analyst expectations by $0.02, but its revenue of $346.25 million beat expectations by $5.51 million. Shares were down 2.13% as of late afternoon on Friday.

Written by Tim Mullaney

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