Five Star Will ‘Not Be Complacent’ Amid Occupancy Woes

Five Star Senior Living (Nasdaq: FVE) is vowing to take concrete actions in its ongoing battle with sagging occupancy rates.

Occupancy for senior living communities owned and leased by the Newton, Massachusetts-based company was just 83.1% for the second quarter of 2017, compared with 84.3% for the same period in 2016. For reference, Five Star logged an occupancy rate of 83.6% at owned and leased senior living communities last quarter.

“In the second quarter, the senior living industry saw another record high in the number of new units opening up across the country,” Five Star CEO Bruce Mackey said on an Aug. 2 quarterly earnings call. “Consequently, we saw occupancy in our owned and leased portfolio drop to 83.1%, which is 120 basis points lower than one year ago and 50 basis points below last quarter, both of which correspond with the industry trends.”


Despite the decline in occupancy, the company was able to increase monthly rates and saw increased ancillary business revenue, which helped to soften the blow, Mackey said. The average monthly rate at owned and leased Five Star senior living communities for the second quarter of 2017 increased 1.2% to $4,715, which is up from $4,657 for the same period in 2016.

Senior living earnings were flat for the quarter. The company logged senior living revenue of $279 million for the second quarter of 2017, which was approximately unchanged from the same period in 2016.

Overall, Five Star recorded a net loss of $6.5 million for the second quarter of 2017, compared to a net loss of $7.7 million for the second quarter of 2016.


Push toward assisted living and ancillary services

During the call, Mackey said the company took its occupancy and share price issues seriously.

“We know in this challenging market that new demand isn’t just going to walk through the door,” he said. “We are not going to be complacent as we wait for the market to improve. We will continue to invest in our communities and keep our focus on ensuring that we are providing the best possible service we can to our residents.”

Among the capital improvements Mackey touted was a sizable push toward assisted living in certain markets. Five Star is currently converting 40 units of independent living to assisted living at its continuing care retirement community (CCRC) in Dallas. In Indiana, the company is putting the finishing touches on a conversion of 450 units at five communities from independent living units to assisted living.

“These communities, which have lost market share over the years due to the growing need of assisted living in the area, will now be better able to compete in their respective markets, given the changing demand over the past several years,” he said.

Five Star also is wrapping up construction on renovations of a CCRC in the Fort Meyers, Florida, and an independent living community in Dallas. Additionally, it’s poised to break ground on other independent living and memory care expansion projects at four communities in Delaware, Tennessee, and California.

“We have been investing capital in our communities and continue to do so to ensure they will be able to compete with all the new inventory that is coming online in most of our markets,” Mackey added.

Another place the company sees growth is in its plan to provide outpatient rehabilitation at senior living communities operated by unaffiliated providers, including some competitors. The provider also added four new outpatient rehab clinics during the second quarter of this year, bringing its total number to 85.

Five Star’s Rehab to Home services also represented another bright spot in the earnings report. The company as of late has focused on going after “a higher-end, shorter-term rehab resident,” COO Scott Herzig said during the call.

“I think long-term, you’ll probably see a lot of those traditional SNF units, to some extent, go away,” Mackey said. “I think the units we’re positioning right now to Rehab to Home, as you look to the future of this industry, are really going to be competitive going forward.”

Shares were up about 3% at $1.70 Wednesday afternoon following the earnings call.

Written by Tim Regan

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