Covid-19 Is Costing The Springs Living, But Provider Will ‘Hold the Line’

The senior living industry may come out of the new pandemic era with an even stronger position than before — but in the meantime, operators are taking a hit on net operating income and are relying on support from their capital partners and even their competitors to weather the storm.

For example, McMinnville, Oregon-based provider The Springs Living has already spent about $300,000 on companywide Covid-19 related efforts. That includes procuring personal protective equipment (PPE), which the company expects will be reimbursed through the Oregon Workers’ Compensation Division. The company is also budgeting additional reserves of $500 to $700 per unit through the end of the year, founder Fee Stubblefield said Thursday on a webinar hosted by the National Investment Center for Seniors Housing & Care (NIC).

Going forward, cooperation among all senior living stakeholders, from capital to operations, will be important in solving the crisis and coming out on the other side intact. And there are signs that this is already occurring, according to Kathryn Sweeney, co-founder and managing partner at Blue Moon Capital Partners, a Boston-based firm that provides equity exclusively to the senior housing sector.

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“One of the things I’m very heartened by is the amount of cooperation and collaboration that is happening,” Sweeney said on the NIC webinar. “We used to have .. our 10- or 20-minute drive times in our markets, and we were fierce competitors. Well, now we’re all facing a common enemy.”

At the same time, two of the biggest threats facing many providers before Covid-19 — the rate of new supply and labor — appear to have let up some as the pandemic has taken center stage. Construction pipelines are slowing down “incredibly fast,” and at the same time, the skyrocketing rate of unemployment should give the industry relief from its labor shortage, Sweeney said.

But now is not a time to be complacent, and the providers who will succeed on the labor front later are the same ones who are treating their workers well today, she added. And, it’s clear from what companies have endured so far that the industry faces a long road ahead before it fully recovers. This includes The Springs Living, and even larger players like real estate investment trust LTC Properties (NYSE: LTC), whose CEO was also part of Thursday’s webinar.

A new NIC survey shows that 32% of independent living providers, 29% of assisted living providers and 26% of memory care providers have seen occupancy decline in the past month. Almost half of the surveyed nursing care providers saw a decline in occupancy.

Meanwhile, the pace of move-ins has slowed across the board, with 53% of independent living providers, 55% of assisted living providers and 44% of memory care providers reporting this trend, according to the survey. But most providers across the spectrum reported no change in the pace of move-outs over the past month, suggesting that senior living residents are staying put for now.

‘Hold the line’

One company that can speak to the level of pain in the senior living market is The Springs Living, which has 17 communities throughout Oregon and Montana. So far, the company has weathered the Covid-19 storm, with just one resident who has tested positive for Covid-19, according to Stubblefield. That resident — who tested positive just this week — is now in the hospital and improving, he added.

“It’s hard for employees, it’s hard for our leaders and our management, it’s hard for residents,” Stubblefield said. “We’re holding the line, sticking to our protocols … and we’re kind of in a whole new chapter here.”

The Springs Living has been more aggressive than many other senior living providers with regard to the pandemic. The company stopped all new admissions on March 1, when there were only 89 known cases of Covid-19 in the U.S. For context, that number now tops well over 450,000, according to the latest count from Johns Hopkins University. The Springs Living also temporarily put on hold its annual resident rate increases for March and April of this year.

Still, the disease has taken its toll on the provider’s occupancy levels. The company has seen a net occupancy decline of about 1.2% since March 1, Stubblefield said. And that has taken a toll on revenue, particularly on the ancillary services side.

“We have highly amenitized buildings, and ancillary revenues just disappeared,” Stubblefield said.

In the company’s worst case scenario, the pandemic could cause net operating income (NOI) declines of up to $3,000 to $4,000 per unit in some communities, he added.

All the same, Stubblefield believes the industry is also on the cusp of a rebound with historical parallels. In particular, “smart money” providers will see the post-Covid-19 landscape as an opportunity for new growth.

“We came out of 2008, 2009 as one of the preferred sectors in real estate,” he said. “That’s going to happen again.”

LTC, which has a portfolio of 106 senior living communities and 92 skilled nursing facilities with 30 operators in 28 states, also expects to feel pain from the pandemic, according to Chairman, CEO and President Wendy Simpson.

“I am not Pollyanna enough to think that LTC will not be impacted by this,” Simpson said during the webinar. “This is not going to be a long term-impact, financially, as much as it is right now, [but] it will be a long-term change in our country’s health care.”

Going forward, LTC plans to work closely on a Covid-19 response with its operating partners, and provide support where it can.

“We are requesting our operators to be transparent as to their entire operations,” Simpson said. “In terms of providing concessions and support, we would like an understanding of where they are totally impacted by this crisis.”

One ramification that Simpsons foresees is the potential for private equity investors to shy away from the industry after the pandemic. But Sweeney believes that there will still be committed private equity players left to invest once Covid-19 is gone — just maybe not the so-called private equity “tourists.”

“They did not anticipate how hard something like this could be and just are not prepared,” Sweeney said. and “So, I think we are going to an evaporation of that cohort of private equity suppliers.”

Despite uncertainty today, Stubblefield is also optimistic that, provided the senior living industry can prove its worth to residents and their families in the coming months, it will emerge on the other side “much stronger” than before.

“We are going to get through this, we are going to hold the line,” Stubblefield said. “We’re going to emerge out of this showing that we’re relevant, and that senior living is the very safest place for older adults to be.”

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