Senior Living Distress Emerges, Smaller and Struggling Operators Hit First

In early March, five residents moved out of Rose Haven Assisted Living, a 28-bed assisted living facility in Merrimack, New Hampshire, right before the coronavirus pandemic swept across the U.S.

The family-owned and operated facility already operated under tight margins. The loss of these residents — which were among the highest billed in Rose Haven’s census — placed Rose Haven in a financial bind. By the time the pandemic forced states to enact shutdown restrictions, the community was unable to replace the lost revenue, Administrator Cindy Gaudreault told Senior Housing News.

“There was a panic across the nation on admissions that caused us great difficulty in making ends meet,” she said.

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Rose Haven was able to stay afloat for a few months thanks to relief through the CARES Act stimulus bill, but it was not enough. Earlier this month, the facility announced that it would close its doors on July 31, and has spent the month finding new accommodations for its remaining residents.

When Covid-19 reached U.S. shores, senior living experts predicted a wave of distress, with the most serious issues affecting companies that already were struggling, as well as smaller operators lacking in capital and other resources. These distress situations are indeed emerging as the pandemic intensifies operational pressures and gossamer-thin margins of underperforming or mom-and-pop senior living communities.

Safety Harbor Senior Living, a 50-bed assisted living and memory care facility in Safety Harbor, Florida, is shuttering on August 7 after years of operational struggles. The ownership group, Ucita Properties, brought in Innovation Senior Management last year to turn around the property.

Ownership for Safety Harbor did not return SHN’s requests for comment. ISM CEO Pilar Carvajal confirmed to the Tampa Bay Times that Covid-19 presented insurmountable challenges to the turnaround effort.

Meanwhile, as early as May, Moody’s warned that senior living companies are facing bond defaults, with some of them describing how Covid-19 has worsened already-precarious financial positions.

Industry experts believe that this is only the beginning. The CARES Act stimulus is keeping scores of other communities afloat, but when that money runs out, underperforming properties will be back where they started, if not closer to shutting down operations. When that happens, investors are waiting in the wings to acquire assets at a discount. Kong Capital was part of a group that recently acquired a seven-property portfolio, with a purchase price that dropped from $70 million to $52 million as Covid-19 eroded net operating income at the communities.

“As the economic fallout from the pandemic increases, we are seeing more deals of this type coming to market,” Kong Capital Coe Schlicher said. “We will continue to aggressively source unique distressed opportunities which we consider to be our specialty.”

Margins erased

Most of Rose Haven’s billings came from Medicaid, which allowed the facility to qualify for Payroll Protection Program (PPP) funds and other relief mechanisms through the CARES Act, Business Manager John Raymond told SHN.

But lack of incoming revenue to make up for the residents the community lost, combined with needing a full staff in order to take care of the remaining residents, proved to be insurmountable. The move-outs cost Rose Haven between $20,000 and $25,000 a month, Raymond estimates.

“Payroll costs were the biggest [issue] because of the loss of income. We had no way to make that up and honestly, we wouldn’t have made it through till now if we hadn’t received the PPP loan,” he said.

Rose Haven also contended with rising expenses from higher food costs, as well as tracking down basic necessities such as cleaning supplies and toilet paper. The community uses a variety of vendors for supplies, ranging from commercial foodservice distributor Sysco to the local grocery store. Meat pricing, in particular, has skyrocketed during the pandemic as a result of closing processing plants that became outbreak clusters for coronavirus, among other issues. Last week, the U.S. Department of Agriculture released the findings of an investigation into how the pandemic is impacting beef and cattle prices.

“When [supplies} did come available, it was always more expensive than when we were first getting those types of things. It was a challenge to find the stuff that we needed, because people were going into the grocery store and hoarding toilet paper,” Raymond said. “It made it hard for us when you can only buy two or three rolls of toilet paper. That’s a third of our daily use for us.”

Stimulus not enough

The CARES Act has provided some operators with temporary relief during the pandemic, but industry groups believe a stronger lifeline is needed for providers to exit the pandemic on firm footing.

Industry groups such as the American Seniors Housing Association (ASHA), Argentum and the American Health Care Association/National Center for Assisted Living (AHCA/NCAL) have consistently called for more industry support from Congress, arguing that senior housing has been underserved by the federal government’s coronavirus response — especially when compared to skilled nursing centers.

To date, nursing homes have received nearly $5 billion in federal aid and PPE shipments, while assisted living providers have shouldered the costs of their testing and safety equipment.

Without stronger support, more communities will become distressed and eventually close, starting with facilities that struggled with margins before the pandemic disrupted operations, Blueprint Healthcare Real Estate Advisors Senior Managing Director and Head of Business Development Steve Thomes told SHN.

Specifically, smaller communities may be more adversely impacted by the occupancy depression affecting senior living.

“If you weren’t solvent and you weren’t doing things the right way pre-crisis, you’re going to get a float from the stimulus. And then you’re probably going to be right back where you were, if not in worse shape,” Thomes said.

Potentially exacerbating the situation, the pandemic hit just as senior living providers were beginning to recover from a period of oversupply. While sub-par operators might be essentially culled from the marketplace by Covid-19, it’s possible that higher quality providers may also find it impossible to weather the pandemic if their occupancy was already struggling.

The true extent of distress will not be felt immediately. Thomes expects distress to snowball as CARES Act stimulus ends, particularly if future stimulus packages do not adequately address needs..

“We’re expecting this probably won’t happen for six to eight months, maybe even more. The stimulus has certainly created a kind of an artificial floor for a lot of operators to continue operating,” he said.

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