Last week, as part of its earnings release, New Senior Investment Group announced that Atria Senior Living would be taking over management of 21 independent living communities managed by Holiday Retirement Corporation. From a diversification perspective, this makes great sense for New Senior because Holiday had been managing 98 of New Senior’s 103 properties. In the REIT world, that kind of tenant concentration is a no-no.
Like most owners across the country, including Atria, the New Senior portfolio has seen its occupancy drop by 690 basis points in the past year. This is much better than the average for assisted living and skilled nursing, but as we all know, the higher you are on the acuity scale, the more damage done by COVID. And since Holiday is independent living, it is no wonder they have performed relatively well during the pandemic.
We have to admit, however, that we were a bit surprised by Atria taking on the management of these communities. After all, Atria prides itself on being an operator of mostly high-end communities in high-end, primary markets, boasting rates of $6,000 to $10,000 per month (and higher) and among the highest margins in the business. Holiday always prided itself on being an operator of “B” communities in secondary markets catering to the middle class at a fair price. And as founder Bill Colson liked to say, “we run a tight ship.” The Holiday portfolio has a revenue per occupied room of about $2,700. That might get you a walk-in closet and kitchen in a top Atria community. The only similarity is that Holiday’s margins are high, at close to 39% in the pandemic, but closer to 41% when occupancy is normalized.
Apparently, this is all part of Atria’s strategy for branding, and in particular, a multi-branding strategy. The Holiday portfolio represents an opportunity to go after the middle market. While the middle market certainly does need more supply, and help, this is not the first area we would think of for Atria to expand in. Also, we have been very vocal that branding does not work in seniors housing because it is a one-time purchase (or two times if the adult daughter is in the market 30 years after helping her mother). It is not like a Marriott or Ritz where you stay year after year and you know exactly what you are getting, each and every time.
Brookdale Senior Living tried it with a major television ad campaign. While we liked the ads every morning over breakfast, the Brookdale name associated with an original Brookdale property, or ones purchased from Emeritus or Alterra or Sunwest or any number of company names, made no sense. They all looked different, operated differently, had different décor and different amenities. The only thing that was common was the Brookdale name, but no one would remember that. At least Atria will have a new name for its middle market assisted living brand (Gladwell), but they have Atria Signature, Atria Park and perhaps others. Is the consumer going to remember the difference? We doubt it, especially after one purchase.
We are glad to see that Atria is back in the growth mode after having several of its communities sold off by some of its REIT landlords. And maybe this new relationship with New Senior will lead to more opportunities (with big Deb watching in the background). For New Senior, it is the smallest of the seniors housing REITs and most likely to be sold at some point, unless they can grow it. But census and unit values have to rise to attract buyers to pay any kind of premium. With the vaccine rolled out in its communities, that may happen soon. And maybe Atria will help in the effort.
