Five Star closes 1,473 SNF units, Diversified moves 50 percent of its portfolio to new operators – News – McKnight’s Senior Living

Five Star Senior Living closed 1,473 skilled nursing facility units and a corresponding 27 Ageility inpatient clinics in the second quarter, continuing to carry out a plan first announced in April, executives said Thursday on the company’s second-quarter earnings call.

With its exit from skilled nursing, the Newton, MA-based company is repositioning itself to focus on larger independent living, assisted living and memory care communities, as well as on stand-alone independent living and active adult communities.

“We believe our strategic exit from skilled nursing will best position us for long-term growth and success,” President and CEO Katie Potter said.

Although Five Star is closing its Ageility inpatient clinics, the company said it remains focused on expanding Ageility’s reach through outpatient clinics and fitness offerings, which increased by more than 50% over the past year. Since Jan. 1, 2019, Five Star has opened 89 new outpatient rehabilitation clinics, and 11 of them opened this year.

Also on an earnings call Thursday, Diversified Healthcare Trust executives said that the real estate investment trust has made significant progress on its own plan to transition some of the Five Star-managed communities in its portfolio to new operators, as first announced in April, and expects to complete those transitions by year end.

Jennifer Francis, president and CEO of the Newton, MA-based REIT, said that Diversified has executed agreements with four new third-party managers to transition 76 of the 108 communities. Of those 76 communities, 41 were transitioned to third-party managers that represent new relationships.

Chief Financial Officer and Treasurer Richard Siedel said that Diversified spent $48.8 million on capital improvements in the second quarter, bringing its year-to-date capital improvement spend to just over $100 million.

“We remain committed to investing capital into our portfolio to improve our future results,” Siedel said. “Those plans are largely unaffected by the senior living operator transitions we have scheduled.”

Francis said the investment will increase the long-term value of its buildings and better position its portfolio to capitalize on the strong “supply-demand dynamic” in senior living.

“We remain confident in both the recovery and long-term prospects of senior living —  and healthcare real estate, in general — due to the aging of the U.S. population,” Francis said. 

COVID-19

In June, Five Star Senior Living announced a staff COVID-19 vaccine mandate for its team members at the senior living communities in Diversified’s portfolio. All staff members will be required to be fully vaccinated by Sept. 1. As of July 31, the staff vaccination rate for Five Star increased to 66.3%, compared with 49.6% on May 1. 

“Because vaccinations have had a significant impact on reducing the number of active COVID cases in our communities, we are supportive of Five Star in this vaccination requirement initiative,” Francis said, adding that she is banking on increasing vaccination rates to build consumer confidence and bring independent living residents back.

Occupancy

Diversified’s same property senior living operating portfolio occupancy increased 40 basis points from the first quarter, with month-end spot occupancy increasing to 72.2%. Siedel said its portfolio of retained Five Star communities saw a 170 basis point increase in occupancy from the first quarter. 

In its transitioning communities, where skilled nursing communities remain open for the most part, occupancy also increased by 90 basis points. 

Potter said that the 120 communities Five Star will continue to manage for Diversified regained 140 basis points of occupancy as of July 31, to a level of 73.8%. She said she is encouraged by the continued momentum of sales leads and tours to reclaim lost occupancy. 

Five Star also saw its lead volume increase 16.9% over the prior month, and its conversion rate as of July 31 increased 350 basis points from a low in January, according to Margaret Wigglesworth, Five Star executive vice president and chief operating officer. 

“While it’s difficult to predict a sustained turnaround for our industry against the backdrop of the pandemic, we expect rising vaccination levels will support a safe and robust community as a place to call home and a workplace of choice and a return to pre-COVID conditions, along with continued execution of our strategic plan, will support our momentum toward recovery,” Wigglesworth said.