Leaders with Five Star Senior Living (NYSE: FVE) are seeking to grow ancillary revenues as part of the company’s three-pronged strategy to “reposition, evolve and diversify” its operations.
The Newton, Massachusetts-based company is about eight months into its strategic repositioning plan that was announced following the news that Diversified Healthcare Trust (Nasdaq: DHC) was transitioning 108 Five Star communities to new operators.
As of early November, Five Star had transitioned 99 of the 108 communities to other third-party operators, with the remainder expected to transition by the end of the year. Charter Senior Living, Phoenix Senior Living, Oaks/CaraVita Senior Care and Stellar Senior Living are among the operators taking over former Five Star buildings.
With the lion’s share of the transitions out of the way, Five Star is — like some other operators — seeking to further diversify its sources of revenue, such as through its Ageility rehabilitation service line or even an expansion of fitness, concierge and home health services, according to CEO Katie Potter.
“We are concentrating on revenue diversification opportunities that synergistically drive performance at our senior living communities and provide us with the opportunity to engage with customers sooner, such as Ageility rehabilitation services,” Potter said Thursday during the company’s third-quarter earnings call.
Five Star grew occupancy for its 20 owned communities by about 280 basis points from Q2, landing at 72.9% by the end of September. And as of Oct. 31, occupancy for the 120 communities Five Star will continue to manage for Diversified registered at 74.9%, representing a 250 basis point increase from the operator’s pandemic lows.
Though the operator has traditionally shied away from offering discounts and concessions, competition in the senior living industry has pushed Five Star to selectively wield some, such as community fee waivers or a month or two of free rent.
“Although new supply remains largely muted, many of the communities that compete with our Five Star-managed properties offered aggressive rate concession packages this quarter and last, pushing Five Star to follow suit,” Diversified Healthcare Trust CEO Jennifer Francis said during the company’s third-quarter earnings call Thursday.
‘More independent lifestyle’
One trend fueling the company’s focus on ancillary services is the fact that Five Star’s assisted living residents have a higher median age and a lower length of stay than its independent living residents.
“Given these dynamics, we believe we can drive a more efficient business by focusing on a younger and lower acuity customer,” Potter said.
Post-transition, Five Star will have a much deeper focus on independent living, with approximately 52% of the company’s units lying in the property type, up from 38% previously. And in those communities, the operator plans to explore offering more services to meet those residents’ wants and needs.
“Today’s customer is seeking a more independent lifestyle with access to a vast array of what we call concierge services,” Potter said. “These services are designed to enhance and customize the restaurant experience, differentiate our offering from the competition and provide us the opportunity to engage the customer earlier in their aging process.”
Potter also noted that service lines such as Ageility can improve resident outcomes at the communities where they are located. That is evident in how operating an onsite rehabilitation business aided senior living residents during the pandemic, according to Denise Kelly, who oversees Ageility and has been responsible for growing the brand since its launch.
“As older adults became deconditioned during the pandemic, falls became more likely, but due to isolation, residents also were less likely to reach out for help,” Kelly told SHN in October. “Being onsite, we became the springboard to engagement and recovery, and as we saw new needs emerge, we expanded our programming.”
Five Star operates 223 outpatient clinics across 28 states in its Ageility service line. The company opened five new Ageility clinics in the third quarter of 2021, and Five Star is retaining management of all 45 of the outpatient Ageility clinics located in the communities Diversified is transitioning to other operators.
The company is closing all of its inpatient rehab facilities as part of its strategic plan. Currently, Five Star Operates 10 inpatient clinics — four times fewer than it did just one year ago.
The decision to deepen ancillary revenue should not come as a surprise for those who have paid attention to the operator in recent years. Potter has previously laid out her vision for Five Star as a “life services” company that supports older adults’ physical, emotional and social wellbeing.
