Five Star Must Make Changes To Survive

November 14, 2018, Alex Spanko, Skilled Nursing News - Five Star Senior Living (Nasdaq: FVE) raised concerns Wednesday about its ongoing viability after reporting losses of $50.4 million so far in 2018, and a net loss of $21.6 million in the third quarter alone.

“Five Star faces challenges that are currently negatively impacting its revenues, expenses, cash flows and results from operations, and Five Star expects these challenges to continue at least through 2019,” the Newton, Mass.-based operator of senior housing and skilled nursing properties wrote in its third quarter earnings release.  “These conditions raise substantial doubt about Five Star’s ability to continue as a going concern.”

Management indicated that the company would have to slash costs, boost revenues, and “pursue other transactions” in order to meet its operating, capital, and debt requirements over the coming year.

Five Star’s 29 skilled nursing facilities generated $40.6 million in revenues during the third quarter of this year, down from the $42.3 million over the same time last year.  Year to date, that figure fell from $129.3 million last year to about $122 million this year.

Occupancy has also dipped, with 76.9% of Five Star’s 2,505 skilled nursing beds — including units at its continuing care retirement communities (CCRCs) — full during the most recent quarter, down from 80.1% in 2017.

Both of those figures fall below the most recent nationwide average occupancy of 81.7%, as calculated by the National Investment Center for Seniors Housing & Care (NIC).

“Efforts being led by accountable care organizations and managed Medicare programs are resulting in decreased lengths of stay, causing a decrease in occupancy and lower rates,” CEO Bruce Mackey said on the call.  “It is an ongoing initiative of ours to recognize and serve the ongoing demand changes in our markets.  Accordingly, 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.”

The company had also indicated a desire to sell off its skilled nursing assets after a similarly weak showing in the second quarter of this year, which saw leased SNF occupancy drop by 500 basis points year-over-year.  Five Star and landlord Senior Housing Properties Trust (Nasdaq: SNH) sold a single skilled nursing property this past June, Five Star noted in its earnings release.

The operator has been in turmoil for some time now, with the Nasdaq stock exchange late last month issuing a delisting warning after its stock fell below an average price of $1 per share for 30 consecutive trading days.  FVE shares plummeted 31.7% in the wake of Wednesday morning’s earnings call, closing trading at $0.44.

“Five Star’s low share price has been a reflection of our low public float, coupled with industry headwinds, and our resulting financial performance,” Mackey said.

There was one bright spot amid the gloom: Ageility Physical Therapy Solutions, the company’s outpatient rehabilitation arm, which Five Star launched last year in an attempt to offer ancillary services to residents at third-party senior housing facilities.  Ageility generated revenues of $8.6 million for the third quarter, a boost of $1 million, or 13%, from the same time last year, Mackey said.

Five Star now offers its therapy services at 120 outpatient clinics, 14 of which are unaffiliated with the company’s communities, and has added 28 sites of care so far in 2018.

But Mackey emphasized that the company needs to make changes to its current business model.

“We do have options available to us to raise capital based on the strength of our balance sheet, including selling some of the senior living communities that we own,” he said.  “Despite having some success with recently implemented growth strategies, the impact of these strategies has not been enough to significantly improve our near-term financial performance.  We recognize that more needs to be done.”