Fierce Memory Care Competition Hurts Five Star’s Occupancy

Memory care has emerged as an embattled front in Five Star Senior Living’s (Nasdaq: FVE) ongoing effort to boost its sagging senior living occupancy.

For the fourth quarter of 2017, Five Star logged $279.2 million in senior living revenue, which represents a 0.6% decrease from the $281 million it saw for the same period in 2016. Occupancy for the operator’s owned and leased senior living communities during the quarter was 82.6%, a decrease when compared to its fourth-quarter 2016 occupancy of 83.9%.

Newton, Massachusetts-based Five Star is one of the largest senior living operators in the U.S., with 213 senior living communities it owns or leases and 70 it manages across 32 states.

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Memory care competition

While rate increases were enough to offset occupancy declines in Five Star’s independent and assisted living units, memory care was another story, CEO Bruce Mackey explained during Wednesday’s fourth-quarter earnings call.

“Memory care was the portion of private pay business where we were not able to overcome occupancy loss with increased rates, as this has been the fiercest source of competition over the past year,” Mackey said. “Memory care revenues were down 3% in the fourth quarter because 50% of our memory care units had new memory units open up within five miles over the past year, according to the NIC data.”

Other senior living operators that offer memory care services, particularly those that have standalone communities, are also struggling to keep units filled—though that could change this year. At the same time, new supply and other industry pressures have stymied senior living occupancy across the board.

Skilled nursing occupancy also dropped 220 basis points, year over year, to rest at 78%, while revenue decreased $2.7 million for the fourth quarter of 2017. However, Five Star’s standalone skilled nursing facilities are still profitable, Mackey stressed.

“Efforts led by accountable care organizations and managed care programs are resulting in decreased length of stay, lower reimbursement rates and in many cases are requiring people to bypass a stay at the skilled nursing facility and go home for care at a lower cost alternative,” he added.

Despite Five Star’s lagging occupancy rates, move-ins are growing at a quicker pace this year than last. The operator is also upbeat regarding several of its ongoing initiatives, such as its plan to roll out electronic medical records at its communities, a new dining program called MyChoice and its growing Ageility rehab division.

Five Star currently has 102 outpatient clinics for rehab, eight of which are non-affiliated locations.

Overall, Five Star logged a net loss of $1.0 million for the fourth quarter of 2017, or $0.02 per diluted share. That is despite $7.3 million gained through the sale of two senior living communities and an income tax benefit of $3.2 million, mainly related to monetization of alternative minimum tax credits. The company beat analysts’ expectations on earnings per share by 13 cents. Its full-year total revenue of $348.2 million also exceeded analysts’ expectations, by $2.4 million.

“As expected, 2017 was a challenging year for the senior living industry, and competition will continue to increase from new supply throughout 2018,” Mackey said. “As I’ve said many times before, we passionately believe that it is the fundamentals of the business that will determine our success.”

Written by Tim Regan

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