Healthpeak Does Not Expect Discounts to Drive Occupancy in Covid-19 Recovery

The Covid-19 pandemic has slowed move-ins for many companies in the senior living industry, including large real estate investment trusts. But for Healthpeak Properties, (NYSE: PEAK) the needle is moving in the right direction, at least for now.

Roughly one month ago, around half of the Irvine, California-based health care REIT’s senior housing communities were not accepting move-ins. But today, the number of communities bringing in new residents sits at a much healthier 78%, according to Healthpeak President and CIO, Scott Brinker.

“We think that 78% will continue to increase,” Brinker said during a presentation at Nareit’s REITweek 2020 Virtual Investor Conference Wednesday. “I don’t know that it goes to 100% anytime soon, [as] there is still Covid activity throughout the country.”

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As of May 31 and across 222 communities, Healthpeak had 72 buildings managed by 14 different operators with confirmed cases of Covid-19, with 42 of those seeing at least one resident death. But Healthpeak CEO Tom Herzog believes the company is now past the hump with regard to new infections.

“New Covid-19 cases at our communities are declining rapidly,” Herzog said. “We’re down 75% from the peak, which hit in mid to late April.”

Healthpeak, formerly known as HCP, has a diverse portfolio made up of senior housing, medical office and life science properties. As of March 31, the company’s net operating income (NOI) was made up of 34% senior housing, 31% life sciences, 29% medical office and 6% hospitals.

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Despite the growth in move-ins, Healthpeak is still trending downward in occupancy. Since April 31, Healthpeak’s senior housing operating portfolio (SHOP) shed 150 basis points to land at 79.5% on May 31, according to preliminary numbers the organization shared Wednesday. Occupancy for the CCRC portfolio’s independent living, assisted living and memory care units declined 110 basis points during that same period, hitting 83.8% on May 31. And the company’s CCRC skilled nursing units had an occupancy rate of 59% by May 31.

Healthpeak is expecting that revenue per occupied room (RevPOR) will not come under significant pressure in the near-term, and that price is not a driving factor for many consumers during a global pandemic.

“Prospective residents are not making their choice based on $200 a month right now,” Brinker said. “They either need the product or they don’t, so it’s not a point in the cycle where discounting is going to drive a lot of occupancy.”

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Brinker also noted that senior housing is a business driven by supply and demand, and that senior living occupancy is expected to remain muted across the U.S. in the days and weeks ahead. As a result, he doesn’t expect the company’s operating partners will choose to compete on rates, at least in the immediate future.

“We’ve only had one operator suggest that they might consider that approach at specific properties,” Brinker said. “But there may be some pressure in certain markets, if occupancy falls enough, and especially on new development if it’s not leasing up.”

On the triple-net side, Healthpeak received 97% of its rent due in May, with another 3% deferred. One operator receiving a rent deferral is Capital Senior Living (NYSE: CSU), which agreed to defer 25% of its rent representing $1.7 million through October for its eight communities with the REIT. Healthpeak is also currently marketing those communities for sale, with the timing of a potential disposition uncertain thanks to Covid-19.

Healthpeak was also negotiating a rent deferral with another of its tenants, Harbor Retirement Associates (HRA), but the operator ultimately withdrew its request.

Looking ahead, Herzog feels as though the company is in good shape long-term, demonstrated by a strong balance sheet and a more favorable supply and demand outlook.

“We’ve been asked over and over, will we take advantage of distress in the market? And the answer is probably,” Herzog said. “We’re not seeing enough of the distress yet, but it could present itself in the future.”

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