Diversified Sees Benefits of Newly Remade Portfolio Despite ‘More Measured’ Recovery

Last year, Diversified Healthcare Trust (Nasdaq: DHC) transitioned more than 100 senior living communities from Five Star Senior Living to 10 other operators. That effort started to bear fruit in the first quarter of 2022, according to the company’s top executives.

Occupancy for the 107 communities increased approximately 100 basis points in the first quarter of 2022, with eight of the 10 operators reporting occupancy growth during that time. Additionally, seven of the operators grew rates in the first quarter of 2022, resulting in non-same property revenue growth of about $4.5 million.

Though it has only been a few months since the company transitioned all of the 107 communities, the new operators have been able to execute their business plans, according to Diversified President and CEO Jennifer Francis.


Occupancy for the 107 communities at the end of Q1 registered at 70.9 %, representing a gain over last December, when average occupancy was 67.4%. 

“We believe we have the right operator mix and are starting to see the benefits from both our capital spend and from the investment our operators are making in their communities and in their corporate and marketing teams,” Francis said during the company’s first-quarter earnings call Wednesday.

Occupancy for the Newton, Massachusetts-based real estate investment trust’s Five Star-managed communities, in Q1 hit 73.8%, representing a decrease of about 30 basis points over the 74.1 % rate seen in February.


As of March 31, Five Star managed 120 Diversified communities, while other operators managed 114. With the newly transitioned communities, the company’s other operating partners now include Cedarhurst Senior Living, Charter Senior Living, IntegraCare Senior Living, Life Care Services, Navion Senior Solutions, Northstar Senior Living, Oaks-Caravita Senior Care, Omega Senior Living, Phoenix Senior Living and Stellar Senior Living.

Diversified Healthcare Trust’s share value grew 3.56% to land at $2.33 by the time the markets closed Wednesday.

Need-based recovery

Francis noted that the industry has “experienced tremendous occupancy declines.” And while she added that occupancy has modestly improved since then, “the pace of the recovery has been more measured than anticipated.”

Even so, the company made progress in certain parts of its portfolio in the first quarter of 2022. Needs-based demand drove the occupancy growth in Diversified’s senior housing operating portfolio (SHOP), with communities offering those services seeing more occupancy gains in the first quarter than choice-based communities, according to Francis.

As of March 31, the REIT’s SHOP segment was equally weighted between assisted living and memory care, with both making up about 42% of the total unit count. However, independent living makes up about 26% of the company’s same-store net operating income (NOI), while assisted living represents just 5%.

Ninety-two percent of the units transitioned to new operators are needs-based compared with 45% of units still managed by Five Star.

Overall, Diversified’s operators increased their number of qualified leads and tours in the first quarter of 2022 compared with the previous quarter, according to Francis. AlerisLife specifically in the first quarter of this year saw its lowest quarterly levels of voluntary move-outs since the beginning of 2020.

“The key is … having the operators and the folks out in the communities convert those tours to move-ins,” Francis said. “They’re all very focused on training the sales force.”

Average monthly rates for the company’s 120 Five Star communities landed at nearly $4,100 in the first quarter, representing a decrease over the almost $4,480 average monthly rate for that portfolio segment a year ago.

But for the operators behind the company’s 114 other SHOP communities, rates grew 9.3%, landing at almost $5,500 as of the end of the first quarter.

“We’re seeing that our operators are now largely using concessions as a closing tool, and at most offering one month of free rent to help drive occupancy,” Francis said.

Although labor expenses continue to weigh on operators’ bottom lines, Francis said the REIT is generally pleased with how its operators managed through those headwinds.

“We expect wages and benefits to increase as our operators look to compete for and retain team members,” she added.

Looking ahead, the company is actively working to deploy about $110 million in CapEx toward its AlerisLife/Five Star portfolio, with another $165 million going to the rest of its SHOP segment. Some of that is pent-up spending delayed because of headwinds caused by Covid-19.

“Our goal was to spend a great deal of capital last year and the year before, and it got delayed because of the pandemic,” Francis said. “So, it will not be as elevated next year … but it will still be a pretty heavy capital year.”

Companies featured in this article:

, , , , , , , , , , ,