Five Star Mulls Future of Some Skilled Units As Occupancy Struggles

Five Star Senior Living (Nasdaq: FVE) is evaluating the future of some skilled nursing units at certain continuing care retirement communities (CCRCs), amid a decline in the product type’s occupancy and revenue.

Occupancy at the the Newton, Massachusetts-based operator’s owned and leased senior living communities was 81.4% for the second quarter of 2018, a 170 basis-point decrease from the 83.1% occupancy rate it saw this time last year.

Five Star is among the largest senior living operators in the U.S., with 208 owned or leased and 75 managed senior living communities across 32 states.

Skilled nursing slump

Overall, Five Star saw a net loss for the second quarter of 2018 of $20.9 million, which included a senior living revenue of $270.9 million. That’s a 3.5% decrease from the $280.9 million in senior living revenue it saw during the same period last year. The company’s troubled skilled nursing segment was to blame for some of the recent revenue decline, according to Five Star President and CEO Bruce Mackey.

“Together, our comparable standalone SNFs and CCRCs were down $6.4 million, or 8.1%, in skilled nursing revenue, compared with the same quarter last year,” Mackey said during the company’s second-quarter earnings call Thursday. “Occupancy at our leased SNFs was down 500 basis points from the second quarter of 2017, to 74.7%, and we are seeing a similar trend in the skilled units at our CCRCs.”

Efforts by accountable care organizations (ACOs) and managed Medicare programs have generally resulted in decreased lengths of stay, and have forced some older adults to bypass skilled nursing settings in favor of cheaper home-based care, Mackey said. In turn, this has caused a decrease in Five Star’s skilled nursing occupancy, and has tipped the company’s payer mix from high-reimbursement Medicare to lower-reimbursement Medicaid.

In light of those challenges, the senior living provider will decide on a market-by-market basis whether its CCRCs’ skilled nursing units make sense as they currently exist.

“We are in the process of evaluating all of our skilled nursing units within our CCRCs and examining the feasibility and profitability of repurposing some or all of these units,” Mackey said. “We will determine if skilled units will be [as] profitable as other types of senior living operations where the demand is evident.”

Elsewhere, Five Star is already lightening its skilled nursing load. In June, Five Star and Senior Housing Properties Trust (NYSE: SNH) sold a skilled nursing facility in California to a third party for about $6.5 million. The provider is also working on converting a former skilled nursing facility in Sun City, Arizona, into a memory care community.

On the senior housing side of the business, assisted and independent living revenues remained flat in the second quarter of 2018, while memory care revenues fell $1.8 million, representing a 6.3% decline from the same quarter in 2017.

“Obviously, this was a difficult quarter for Five Star and the senior living industry, as new units flood the market as a result of record new construction starts over the past year or two,” Mackey said. “That, combined with the decline in the growth rate of the 85-and-above age demographic, has created an operating environment that has not been seen in the industry for quite some time.”

Silver linings

Despite those headwinds, Five Star did highlight some bright spots in its operations.

Ageility Physical Therapy Solutions, the provider’s rehab and wellness division, saw second-quarter revenues of $8.7 million, representing a 17.1% increase over the previous year’s quarterly totals. Five Star opened a total of three outpatient therapy clinics in the second quarter of this year, bringing the total number of outpatient clinics it operates to 111.

The company’s new revenue management program is also gaining some traction, with Five Star adding between eight and 10 communities to that program per month. The provider now has roughly 100 communities using the program, and the early results look promising, according to Mackey.

“In the second quarter, our revenue-managed communities’ move-ins increased 7%, year-over-year, compared to those not on the system, for which move-ins decreased 3% year-over-year,” he said.

Five Star’s share price dipped roughly 12% to $1.15 by the time the market closed Thursday.

Written by Tim Regan

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Tim Regan
Tim is a lover of bad jokes and good beer. When he's not hunched over his work computer, Tim can usually be found hunched over his personal computer.

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