Senior Housing Shares Rally After Trump Win, REITs Take Hit

After a long evening of counting votes on Tuesday, Donald Trump was declared as the next President of the United States. The impacts of a Trump presidency will soon be known, but Tuesday night fears swirled around a potential market collapse as Trump’s imminent victory created a sharp initial downturn. By Wednesday morning however, the outlook is a little brighter, including for senior housing.

After seeing a slight drop at market close Tuesday, Capital Senior Living Corporation (NYSE: CSU) was up by 1.7% or $0.24 as of market close Wednesday. Brookdale Senior Living Inc. (NYSE: BKD) saw its share price climb during the day, although it closed down by 0.47% or $0.06.

Overall, the S&P 500 rose 1% Wednesday afternoon after a drop of as much as 5% was seen overnight, according to Bloomberg.

It is also anticipated by analysts that infrastructure, drugmakers, prison operators and defense stocks have the potential to do very well under the Trump presidency.

Though Trump has promised to boost the U.S. health care system, his “repeal and replace” approach to the Affordable Care Act could present tough challenges for senior living providers that have exposure to government reimbursements, such as skilled nursing facilities, as well as the hospitals that providers may be partnered with, suggested a report from PricewaterhouseCoopers.

“’Repeal and replace’ could be very tough on hospitals that worked in the last process in 2009 and 2010 to accept tremendous Medicare and Medicaid reductions to help health reform happen,” Chip Kahn, president and chief executive of the Federation of American Hospitals, said in the report. “It would be important for us to see if those two things go together. If you want to repeal, fine, but you have to repeal the whole things. And that’s going to be hard.”

However, even senior care and post-acute providers that derive a significant portion of revenue from Medicare and Medicaid were rallying Tuesday. Louisville-based Kindred Healthcare, Inc. (NYSE: KND)—which has taken a big beating this week following a bad quarterly earnings report—saw an uptick Wednesday with a 5.28% increase in stock price as of market close Wednesday.

Genesis Healthcare (NYSE: GEN) also saw an uptick of 5.73% at market close Wednesday and the Ensign Group (Nasdaq: ENSG) saw an increase of 4.46%.

Overall though, the senior housing industry, particularly assisted living, may not take as much of a hit due to ACA changes because these communities are predominantly private pay, Michael Knott, director of U.S. Real Estate Investment Trust (REIT) Research at Green Street Advisors, stated to Senior Housing News.

“The slice of the industry we look at is mostly high quality private pay, so I don’t think the election has that much of an impact there,” he said. “Hospitals are the main concern with the possibility of the repeal and replace of Obamacare.”

Impact on REITs

The REIT market was looking more challenged. Large industry REITs like Ventas (NYSE:VTR), Welltower (NYSE:HCN), HCP (NYSE:HCP) and Omega (NYSE:OHI) were all down as of market close on Wednesday.

Ventas saw the largest decline of 4.07% or $2.57, followed by Welltower with a drop of 3.42%, HCP fell 2.86% and Omega dropped by 1.25%.

The downtrend may be due to the uncertainty surrounding federal interest hikes that may come along with a Trump presidency.

Due to the high dividend payouts of REITs, higher interest rates may make them less attractive to investors. With higher rates, bonds could start looking better to investors and the fear is they may kick the REITs to the curb.

“Bond yields rose as some market participants anticipate higher rates of inflation under a Trump administration,” Beth Burnham Mace, chief economist and director of capital markets outreach at the National Investment Center for Seniors Housing & Care (NIC), told Senior Housing News. “This is because the dollar could potentially weaken and because the federal budget deficit could increase if Mr. Trump’s campaign proposals about spending more on defense and infrastructure, while cutting taxes, materialize”

Though it is too early to say with any confidence what the impact of a Trump presidency will be until we have a clearer picture of his policies, she added.

The Fed Funds futures had priced in nearly a 100% chance of an interest rate hike in December as of Wednesday afternoon.

Trump’s policies 

The president-elect has proposed two policies regarding family caregivers that could have a serious impact on the industry. One policy involves a tax deduction of up to $5,000 per year for elder care costs necessary to keep a family member working outside of the home.

The other policy Trump proposed in his run would allow Americans to open Dependent Care Savings Accounts of up to $2,000 a year, which could be used to plan for future expenses, including elder care.

Senior care provider associations, however, were pushing for more substantial policies Tuesday.

There are several critical priorities for the aging population including more affordable senior housing, reducing financial burdens of long-term care, and addressing the rapidly changing and confusing payment reform landscape, provider association LeadingAge said in a press release.

“There is a lot of work that we must do together to ensure that our aging population can grow old with dignity and respect,” Katie Smith Sloan, president and CEO of LeadingAge, said. “We can do our small part by forging relationships that will lead to trust so we can develop policies that address the most essential issues for our aging society.”

Being able to work together with both the state and federal governments is vital to success in the transfer of power, Argentum CEO James Balda said in a statement to SHN.

“We look forward to working at the state and federal levels on our senior living agenda promoting choice, dignity and independence for our nation’s older adults,” he said.

Some of the positive stock market performance on Wednesday was being attributed to hopefulness that Trump’s business background will come through in his administration, and this was echoed by the American Seniors Housing Association (ASHA).

“With his (Trump) background in real estate development, operations and business in general, we are optimistic he will approach issues such as tax reform, immigration, labor and regulatory initiatives with a keen sense of the the impact on the industry, its workforce and the senior residents in our communities,” said Jeanne McGlynn Delgado, VP of government affairs at ASHA. “It is very likely his administration will take action to repeal some of the onerous Obama administration regulations that impact our members such as the Department of Labor overtime rules and the NLRB’s overreach as well as CMS’s restrictions on arbitration.”

As for the reactions of those on the front lines of senior care, it appears many share the uncertainty that seems to be commonly felt in the wake of a surprise election result, based on comments shared with SHN at the PointClickCare Summit in Orlando.

Health care policies changing will probably not happen for the next couple of years, but there’s not a clear view on what it will mean for the senior housing industry, said Jennifer Pyne, RN at Genesis HealthCare.

Written by Alana Stramowski