Five Star Senior Living’s (Nasdaq: FVE) plans to expand its rehabilitation and wellness services portfolio in 2021, as the segment became an area of positive growth during 2020 and demand for rehab and wellness services increased throughout the coronavirus pandemic.
The rehab and wellness arm helped to offset continued struggles with Five Star’s senior housing segment. Occupancy deteriorated further in the fourth quarter across its owned and leased communities, as well as its managed communities, CEO Katie Potter said Thursday during the Newton, Massachusetts-based operator’s Q4 2020 earnings call.
But Five Star remains committed to holding the line on rate concessions, except in unique circumstances, and believes positive trends in lead generation and Covid-19 vaccination rates will prove beneficial in the long-term. And its primary landlord, Diversified Healthcare Trust (Nasdaq: DHC) remains resolute with the decision.
Five Star reported $53 million in total operating and management revenue in the fourth quarter, net income of $2.9 million or 9 cents per share, and adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) of $5.2 million.
Five Star is one of the largest operators in the country, with 252 communities across 31 states.
Senior housing woes continue
The most recent wave of positive Covid-19 cases had an undesirable effect on Five Star’s senior housing segment in the fourth quarter.
Occupancy among its owned and leased communities decreased to 71.5% — a 4.3% sequential decline and a 12.8% drop over the previous year. Five Star’s managed senior housing portfolio occupancy fell to 72.5%, marking a 4% sequential decrease and a 13.7% dropoff, year-over-year.
This is not what Five Star anticipated when 2020 started. It entered last year with a major restructuring of its lease with Diversified, in which all of its master leases were terminated in favor of management contracts. Diversified, a real estate investment trust also based in Newton, also increased its ownership stake in Five Star and pursued nearly $900 million in dispositions.
Five Star also worked to improve its talent leadership and streamlined operations. These moves showed signs of improvement before the pandemic swept across the country last spring. The operator saw sales leads plummet by 50% in April 2020.
But there are glimmers of hope emerging. Five Star launched Covid-19 vaccine clinics on December 19, 2020. Through February 20, 28,135 doses of the vaccine have been administered to residents, along with 12,704 doses administered to team members. To date, 87.2% of residents and 42.5% of staff have received first doses of Covid-19 vaccines, and over 15,000 residents and staff have received both doses.
Five Star is working to improve the staff vaccination percentages through education on the benefits and risks, so that each team member has the ability to make an informed decision. And the numbers of vaccine adoption among staff is improving as concerns are alleviated. The operator expects to host three clinics at each eligible community, scheduled according to the requirements for the two doses of a vaccine. This ensures that any resident or team member who missed their community’s first clinic would still be able to receive the full dosage.
Positive coronavirus cases, meanswhile, have fallen 72% from the peak fourth quarter average and are at their lowest since early October, COO Margaret Wigglesworth said.
“We expect to see continued deterioration through the first quarter of this year, but are hopeful that completion of our vaccination program will support our efforts to drive new admissions and recover lost occupancy,” she said.
As of February 20, 98% of Five Star’s communities are accepting new move-ins, and rolling four-week sales leads increased 83.4% from the beginning of the fourth quarter. The operator remains focused on evaluating the quality of its leads and driving conversion rates higher. And it is holding steadfast at not offering rate concessions, except in markets where demand dynamics are less favorable.
Scaling rehab and wellness segment
Five Star saw increased demand for its rehabilitation and wellness services line, Ageility.
The segment now represents 38% of its total management and operating revenue — a 5% increase over the previous year, Potter said. And it is looking to aggressively add to the portfolio throughout 2021.
She expects Five Star to add two to four new clinics per quarter, for the remainder of the year.
Neither Five Star nor Diversified expect to sell any more senior housing communities this year. The two agreed to, and completed, disposing of six communities in the fourth quarter, generating $60.5 million in proceeds.
Another property is under contract for sale, with closing expected within the next 60 days, and the two have identified a handful of other communities for sale, and are moving residents to other communities so that the buildings can be sold as vacant, value-add opportunities, Diversified CEO Jennifer Francis said.
“Other than that, we’re on hold with our disposition program,” she said. “Our focus is going to be on repositioning our portfolio, investing the capital, recovering from Covid-19 and the effects of it in our portfolio.”
Diversified stock ended trading Thursday down slightly, closing at $4.66 per share. Five Star stock, meanwhile, fell over 18% to close at $7.13 per share.
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