Diversified Healthcare Trust Occupancy Falls Below 71% While New Vaccinations, Leads Rise

Diversified Healthcare Trust’s (Nasdaq: DHC) senior housing occupancy fell in the final months of 2020 — but the company’s leaders are heartened by positive trends in vaccinations and new sales leads.

Occupancy for the Newton, Massachusetts-based real estate investment trust’s senior housing operating portfolio (SHOP) fell to 70.7% as of Dec. 31. That represents a decrease of 380 basis points from Sept. 30, when the portfolio had an occupancy rate of 74.5%.

Five Star Senior Living (Nasdaq: FVE) is the operator for the company’s 239 SHOP communities. Diversified also has 32 other senior living communities under triple-net leases.

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But while occupancy rates are falling at Diversified’s SHOP communities, the company is also encouraged by the number of residents who have received their Covid-19 vaccinations. Five Star partnered with CVS Health to administer the vaccines to the SHOP communities and held its first clinics last December.

As of Jan. 29, approximately 65% of the residents and 30% of the employees in Diversified’s SHOP segment had received the vaccine, with more than 2,000 residents and workers already having received both doses. Approximately 93% of the company’s SHOP communities are admitting new residents, and 3.5% of the portfolio’s residents have tested positive for Covid-19. Of those who tested positive, 67% have since recovered from the disease.

The REIT expects to complete substantially all of its vaccination clinics by the end of the first quarter of this year.

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Sales metrics were also trending in the right direction. Rolling four-week average sales leads were 83% higher as of Jan. 24 than they were at the beginning of the fourth quarter of 2020, according to Diversified Healthcare Trust President and COO Jennifer Francis.

“We expect growing confidence in the resident experience to drive resident move-ins, help stabilize our SHOP segment occupancy and lead to a recovery in senior living performance over time,” Francis said in the company’s latest business update. “We are also encouraged by the substantial increase in sales leads since the beginning of 2021, which is often an indicator of future move-in activity.”

Still, despite these positive signs, the company’s most recent occupancy loss represented “weaker than expected” results, according to RBC Capital Markets Director Michael Carroll. And vaccination efforts may lag for now given that more than a third of Diversified’s SHOP segment is composed of independent living and active adult communities, which are currently not prioritized for vaccines in many states.

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“We are reducing our earnings estimates, as we now expect SHOP occupancy will trough ~320 basis points lower than our previous estimate in 1Q21,” Carroll wrote in a Feb. 1 investor note.

And the portfolio’s recovery might be complicated by the fact that operating partner Five Star is fighting against steep concessions that competitors are offering in some markets across the U.S. The operator is offering some discounts to stay competitive in certain locations, but Five Star believes it can hold the line on rates while building back occupancy.

Diversified also announced Monday it had amended the agreements governing its revolving credit and term loan facilities, waiving certain financial covenants through June 30, 2022.

Among other changes, the amendment reduces the REIT’s revolving credit facility commitments to $800 million, down from $1 billion. Diversified also has the ability to fund up to $250 million of capital expenditures per year, and that increases to $350 million following the REIT’s repayment of a $200 million term loan. And the company is generally required to use net cash proceeds from dispositions or debt refinancings to repay senior notes, the $200 million term loan and or other debt in its revolving credit facility.

Diversified Healthcare Trust’s share price rose more than 7.3% to land at $4.32 by the time financial markets closed Monday.

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