The coronavirus was much worse then expected, as was its impact on senior care providers.
I have to admit I was wrong, but just the third time in 34 years. In late February, I referred to the coronavirus as the flu on steroids, and that the senior care industry was prepared to deal with it. I was wrong on both accounts. It was much worse than anything on steroids, and many providers were not prepared for this one. I am not sure anyone could have adequately prepared for a deadly disease that can be quickly spread by asymptomatic staff and visitors.
Some people think they have escaped the worst part of the coronavirus, and they may be right. But this is not going to be a short-term problem. When the economy opens up, it looks likes restrictions on visits to nursing homes and assisted living communities will not be lifted until the end of a three-phase process, whenever that is.
On average, it is likely that seniors housing occupancy could drop by at least 100 to 200 basis points a month through the end of June, with some better and others much worse. That means that we could be looking at national occupancy below 80% for the first time ever. That would be as close to catastrophic for the sector as you get.
I am not trying to scare you; I am just trying to be objective and mathematical, and to figure out what all this will mean for values, investing and lending. The good news is that despite the current negative publicity surrounding the skilled nursing sector, our industry is not going away and will learn from this. But if anyone thinks this will not have an impact on values, well, call me and we can have a chat.
Steve, totally spot on. Maybe even conservative. I spoke to a Canadian operator who said that their buildings in Canada are all around 95%, down from 98%, so clearly this will further bifurcate the industry between the haves (well prepared, well located, well run) from the have nots (oversupplied market, under prepared with PPE and staff education). We are seeing varied impacts across the US also.
Yes, there will certainly be winners and losers, whether by luck, location or preparedeness. But even some well-run communities and companies will suffer. Some of this, at least at the early stages, was beyond anyone’s control. No one had the tests required to test every relative or visitor coming through the door, not to mention staff. The industry has been crying out to get these tests, and they will certainly help for staff today, and for all the others when the doors finally open.
Alan and Steve, any thoughts on the gap between the ‘haves and the haves nots’ being evident across different acuity types in this time period of less move ins, etc?
Mark,
Unfortunately this virus does not discriminate, and sometimes it has been just luck that staff or visitors did not enter unwittingly while infected. The not-for-profit SNF in my town is always top rated and well respected, yet at last count they had seven of our town’s 10 deaths, but the town number has now increased to 21 and they stopped reporting deaths at this facility.
Hi Steve,
From conversation with couple of Skilled Nursing facilities owners, i hear that they do not fear drop in occupancy because there are no real alternative available and the hospitals will need vacant beds. Do you share their view?
Dear Steve, for clarification when you refer to values are you talking about monetary, or something else? If it’s the latter what do you see as the impact of this crisis on corporate values? I’m interested in your perspective. Thank you.
Thanks Steve. I agree with your assessment that COVID 19 fears and protocols will have a negative impact on future occupancy. I have also observed, however, a noticeable increase in demand from some higher functioning IL, AL, MC and CCRC prospects. Those for whom self-dealing with COVID and isolation at home, mostly alone, was the “final straw”. As overall senior living penetration rates continue to hover around 10 to 15%, even a small increase in readiness to move could more than offset fears about COVID and distancing protocols.
I hear you, but how many people would place their parent in a SNF that just reported 15 deaths in a month? So, the more need-driven in theory the quicker the bounce back, but some people are going to be very nervous about moving anywhere. Occupoancy was already low in SNFs since they concentrate on the short-stay rehab patient. The long-stay Medicaid patient is locked out of assisted living, and all the people who are pushing for home and community-based services will very quickly point out what is happening in SNFs today. Unfair, I agree, but they will do it anyway. The private pay assisted living customer does have options, even though they may not be in the best interests of the elder person in terms of social isolation, food, and care, etc. But with everyone’s net worth and income declining, I think families will look at things differently, at least this year.
Dee, I was really talking about values for skilled nursing facilities, assisted living and probably CCRCs. As occupancy declines and expenses increase, cash flow will decrease which means values go down. And as investors assess whether the risk has increased, cap rates on that cash flow will rise a bit. I hope this helps.
Yes, it is very hard to get in the mind of that 85 year old to understand what they are really thinking. They often don’t even tell their own children. And, just to put it out there, a lot of 85 year olds are just not afraid, they have lived a long life, probably longer than they expected, so they may do what they think is best for them at the moment, and screw COVID-19. I agree that there are obviously so many positives for moving into senior living that the current fears can be put aside. But with some states shutting down admissions, and we know virtual tours are just not the same, it will be volatile the next few months.