Five Star Seeks Momentum from Promising Move-In Trends

Five Star Senior Living (NYSE: FVE) has started to see positive occupancy trends, and the provider is planning to use some proceeds from a newly announced transaction to help its ongoing efforts to compete with new supply.

Like other senior living providers across the country, Newton, Massachusetts-based Five Star has experienced occupancy woes related to a large wave of new communities opening. For the third quarter of 2017, it logged an 83% occupancy rate for its independent living, assisted living and memory care communities. That was down 80 basis points year-over-year.

However, occupancy was trending in the right direction during the quarter, Five Star executives said Thursday on an earnings call with analysts. Occupancy for September was at the highest level since January, and the October move-in numbers also were “strong,” COO Scott Herzig said. In addition, move-outs decreased.


Reiterating a point he has made in the past, CEO Bruce Mackey said the company will not be complacent in the face of supply challenges and will continue to make investments into its properties to keep them competitive.

To help fund these efforts, Five Star has sold six senior living communities to one of its principal existing landlords, Senior Housing Properties Trust (NYSE: SNH). The real estate investment trust (REIT) paid an aggregate sales price of $104 million for the portfolio, which is about 91% occupied and will continue to be managed by Five Star in a RIDEA joint venture. Five Star’s portfolio of owned real estate will include about 20 communities after this transaction.

Of the six properties sold to SNH, one is in Alabama, one is in Arizona, one is in Indiana and three are in Tennessee.


“The sale/manage-back transaction gives us capital to maintain flexibility and add value as we head into 2018,” Mackey said.

The properties in the new management partnership will also continue to see improvements.

“We believe that we can put some additional capital into the properties and achieve better rates and to some degree occupancy,” Senior Housing Properties Trust CEO David Hegarty said Thursday on that company’s third-quarter earnings call.

In particular, one of the Tennessee communities already is slated to get a new 91-unit independent living building.

In addition repositioning and renovations of its senior living buildings, Five Star has been undertaking several other initiatives to drive revenue while occupancy is challenged, and COO Scott Herzig provided an update on several of these efforts:

– Resident referrals were up 15% year-over-year and referrals from the company website were up 16%, helping reduce payments to third-party referral sources.

– Revenue for the Ageility rehab division hit $7.6 million, up 8% year-over-year. The division now serves 90 outpatient clinics, and Five Star is pleased with this level of growth.

– The company is in the “home stretch” of implementing the PointClickCare electronic health records platform in its skilled nursing settings, with 85% of units fully converted. The company believes the technology will help drive referrals from managed care payors and accountable care organizations, Mackey said. Patients who receive skilled care in FVE continuing care retirement communities (CCRCs) are sometimes opting to move into these communities after their stint in rehab, he noted.

Overall, Five Star’s third quarter earnings per share of -$0.15 beat analyst expectations by $0.01, while its revenue of $347.1 million missed by about $3 million. FVE shares ended the trading day flat on Thursday, at $1.60.

Written by Tim Mullaney

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