New Senior Sees Operations Stabilize, But Move-Outs Accelerate

New Senior Investment Group’s (NYSE: SNR) move-in and lead generation in the third quarter of 2020 rebounded from the previous quarter’s low, as restrictions on communities eased and operators adjusted their sales and marketing strategies during Covid-19.

However, move-outs also increased, and although they remain below historic levels, this is placing pressure on net operating income (NOI), CEO Susan Givens said Friday during New Senior’s Q3 2020 earnings call.

The New York City-based real estate investment trust owns a portfolio of 103 communities in 36 states, with its primary operating partner being Winter Park, Florida-based Holiday Retirement. Overall, the financial results in the quarter were in the high range of its expectations. Total revenue was $83.17 million – a 3.2% dropoff from the previous year, attributed to the pandemic. Same-store cash net operating income (NOI) decreased 7.6% year-over-year. Year-to-date, same store cash NOI is down 3.6%.


New Senior’s operators have been able to keep expenses in check, due to a combination of flexing staffing schedules, supply costs, and maintenance costs, and a lack of a health care component in its independent living communities. As a result, margins have continued to hold steady at around 40%. Additionally, expenses attributable to Covid-19 are down 43% from their early pandemic peak, as operators have established efficiencies for managing these costs.

The REIT also improved its financial position. It entered into a five-year, $270 million interest rate swap on its outstanding debt, increasing its fixed rate exposure from 52% to 72%, a weighted average debt maturity of 5.6 years, and no significant debt maturity until 2025. It repaid the $60 million it borrowed against its revolving credit facility. With the facility fully withdrawn, New Senior has access to $160 million in total equity.

“It is also another example of our continued focus on balance sheet optimization,” Executive Vice President of Finance and Accounting Bhairav Patel said. “We continue to be well-positioned from a liquidity standpoint.”


Covid-19 restrictions spur move-outs

New Senior ended the third quarter with an occupancy rate of 83.3%, with sequential improvements in evidence.

Monthly move-ins increased 47% in the third quarter versus the second quarter, September move-ins increased 106% from the low point in April, and October is on pace for the smallest monthly decline in occupancy since the pandemic started, at only a 40 basis point drop.

Lead generation is also gaining momentum. Monthly leads increased 31% sequentially, and September leads increased 67% from an April nadir. As New Senior enters the final two months of 2020, it expects move-ins to continue to grow month-over-month, and leads are expected to surpass 2019 averages for the first time in 2020.

Those improved metrics are tempered, however, by a higher pace of move-outs, which increased 20% sequentially in the third quarter. September move-outs grew 27% from their April low. And most residents are citing community restrictions stemming from the pandemic as the reason for their decision to leave. Excluding that, move-outs are trending near or below historic averages.

“It’s something that we’ve really started to look at in the last couple of months,” Givens said. “It’s not something we’re entirely surprised by given the length of the pandemic, and restrictions to some degree have remained in place.”

Some of New Senior’s operators are now turning to offering rent concessions in order to drive occupancy, which Givens believes is a tradeoff worth making, given the current landscape. But operators are offering concessions with an eye toward maintaining revenue per occupied room (RevPOR), and annual rent increases among existing residents are holding up well, mitigating the pace of concessions.

“It’s [about] getting new people, and it’s also ensuring that your existing residents are paying their rates [and rates] are growing,” she said.

New Senior believes that move-ins will eventually outpace move-outs, as more operating partners prove to prospects that they will be safe in a senior living setting as restrictions are rolled back.

Currently, the REIT has 41 active Covid-19 cases in 14 communities – 34 residents and seven associates. The weekly numbers of new cases within its portfolio have remained relatively low and have averaged about six per week, tracking with broader trends within its markets and nationally. To date, 60% of New Senior’s portfolio have not reported a positive Covid-19 case, and 10 of the 14 communities with Covid-19 have only one active case.

“People now believe they can be safe within independent living communities, and they trust the protocols that are in place,” she said.

Analysts are paying closer attention to move-outs, as more REITs and operators prepare to release their third quarter earnings. Welltower’s (NYSE: WELL) senior housing operating (SHO) portfolio occupancy fell 150 basis points in Q3, although the Toledo, Ohio-based REIT is encouraged by move-in trends.

“While difficult to forecast, this item will need to be vetted with management and other REITs/operators to understand if this is a systemic change [lower (length of stay) perhaps], a behavior change with [Covid-19] cases rising, or one-time blips from pent-up move-outs,” Capital One Securities Analyst Daniel Bernstein wrote in a note to investors.

Another senior housing REIT — LTC Properties (NYSE: LTC) — also held its Q3 earnings call on Friday, and executives told Bernstein that LTC’s operators have not reported an uptick in move-outs. LTC’s portfolio includes higher-acuity care levels than New Senior’s.
New Senior stock fell 2% in trading Friday, closing at $3.91 per share.

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