Diversified Healthcare Trust reported on the December performance of its seniors housing operators, and let’s just say it seems that little progress has been made.
In the seniors housing operating portfolio (SHOP) operated by Aleris/Five Star, with 117 communities and 16,951 units, in 2023 census increased by only 240 basis points to 80.4% in December. But that is not the major problem. The average monthly rate has held fairly stable, ending the year at $4,429 compared with $4,278 in January last year. The problem has been expenses, which increased by 11% over the year, jumping by 5% from November to December alone. That resulted in a plunge in NOI in December to $4.0 million, representing an NOI margin of just 6.4%. That is based on revenues of $62.4 million in December and occupancy of 80.4%. Something is not right.
Unfortunately, some of these numbers get worse when looking at the additional 106 communities with 7,061 units managed by other operators. Census during the year increased by 490 basis points to 79.1%. While this is a larger increase than the Aleris/Five Star managed portfolio, it is still slightly below the year-end total. In addition, the average monthly rate closed the year at $5,816, or $1,387 higher than Aleris/Five Star. So, what could go wrong? The portfolio posted a negative NOI margin in every month of 2023 except in June and September. At 79% occupancy, that is just plain horrible. It also means that either someone is not watching costs, rates are lower than they should be, or both.
The REIT offers little explanation as to why all of this is happening, and continues to compare current results to those in 2019, something no one else really does. What’s the point? We all know the sector is still performing worse than four years ago, but why focus on results and performance four years ago, especially when you are so far from getting back to that, and probably never will?
We know that DHC’s management was distracted last year with its proposed merger with Office Properties Income Trust announced and then abandoned. But that distraction should not have impacted the operators. We know that many other operators are close to or have exceeded their pre-Covid census levels, and that now the focus is on margin recovery. It would seem, however, that DHC needs to have a major sit-down with its operators. Enough is enough.
