New Senior Credits Independent Living Model in Trimming Q2 Operating Expenses

New Senior Investment Group (NYSE: SNR) was able to cut its operating expenses by 4.5% in the second quarter of 2020, despite also losing about 250 basis points of occupancy during that time.

Susan Givens, CEO of the New York City-based real estate investment trust (REIT), attributed the operating expense decline to two main things: the company’s flexible cost structure, and Covid-19 costs that were “significantly less than we originally anticipated.”

“As occupancy has gone down, our operators have been able to successfully reduce expenses by flexing staffing schedules and supply costs,” Givens said on an earnings call with investors and analysts Friday. “We believe that this is a unique attribute of independent living, and while others in senior housing have experienced large spikes in healthcare-related labor costs, including hazard pay and overtime, we have not incurred those expenses.”


Givens added: “As a result, our [operating] margins have held steady at roughly 40%.”

New Senior’s Covid-19 operating expenses were approximately $1.5 million in the second quarter of 2020, or 3% of its total expenses.

New Senior wasn’t always as heavily concentrated in independent living. The REIT last November sold a 26-property portfolio of assisted living and memory care communities to a joint venture between ReNew REIT and Merrill Gardens for $385 million.


On the Covid-19 mitigation front, New Senior is seeing lower supply costs and lower labor costs than during the beginning of the pandemic. And the REIT has seen less of a need for temporary labor than some of its peers. But that is not certain to last as the pandemic evolves, Givens noted.

The sequential decline in operating expenses is notable, particularly as many players in the senior living industry have watched expenses steadily rise in 2020 as they implemented infection control measures, procured personal protective equipment (PPE) and doled out hero pay for staffers.

New Senior, which owns 103 properties across 36 states, logged an occupancy rate of 88.7% in February, right before the pandemic kicked into high gear. That likely gave the REIT some cushion to trim costs as it navigated the new and challenging Covid-19 environment, according to Capital One Director and Senior REIT Analyst Daniel Bernstein.

“When you get to 75% occupancy, sub-80% occupancy, you can’t cut much more on expenses or you start cutting bone,” Bernstein said.

Net operating income (NOI) for the second quarter was down 3.1%, year-over-year, which is “a significant improvement relative to what we thought the quarter would look like just three months ago,” Givens said.

New Senior ended July of this year with an average senior housing occupancy rate of 84.4%. For the second quarter of 2020, the REIT logged normalized funds from operations (FFO) of 17 cents per share, beating analysts’ expectations by 5 cents.

New Senior’s share value had gained more than 20% to land at $4.55 by the time the markets closed Friday.

Covid-19 impact

Like many other senior living REITs and operators, New Senior reported a decline in the number of active cases of Covid-19 in the second quarter of 2020.

Across its entire portfolio, New Senior reported positive cases among just 13 residents and 6 staffers across 10 properties as of Aug. 6. And 56% of New Senior’s properties have not reported any positive cases among staff or residents.

“Since the start of the pandemic, the weekly number of new cases within our communities has remained relatively low, averaging about six new cases per week across our 103 properties,” Givens said.

The rate of new cases in New Senior’s portfolio slowed significantly between May and June, and roughly 80% of the REIT’s portfolio is in a “recovery phase.” But the company has also seen a modest increase in the number of positive cases at its communities in the last month as states lifted local infection control restrictions. Increased testing also played a role, Givens said.

Despite seeing some new infections among its communities, New Senior leadership also believes its independent living-centric model can help limit future spread of Covid-19.

“Because our operators do not provide health care services in our communities, there are fewer interactions between residents and associates, “Givens said. “So, fewer touch points, and therefore fewer opportunities for the virus to spread.”

Still, despite all of the progress New Senior has made thus far in mitigating Covid-19, Givens also noted that there are likely still significant pandemic-related challenges ahead, and that the REIT is not yet “out of the woods.” And although move-ins trended have upward 119% since hitting a low point in April, New Senior’s rate of move-ins in July were still 15% below what it saw this time last year.

“While we’ve seen some positive trends, we’re still looking at occupancy starting off in the third quarter roughly 400 basis points lower than what it was last year,” Givens said.

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