Commonwealth Senior Living managed to offset pandemic-related occupancy loss and post a quarter-over-quarter increase in net operating income (NOI) by continuing to drive rate growth in Q2.
“The results are particularly impressive considering the ongoing pandemic,” Scott White, CEO of Invesque (TSX: IVQ.U and IVQ), said Thursday on the Carmel, Indiana-based real estate investment company’s Q2 2020 earnings call. Invesque acquired the operating company and 20 properties of Charlottesville, Virginia-based Commonwealth in 2019.
Those 20 Commonwealth properties posted a 660 basis point improvement in NOI in the second quarter compared to the first, while occupancy dwindled by 220 basis points, according White.
Commonwealth managed to increase daily rates almost 200 basis points quarter-over-quarter and more than 500 basis points on a year-over-year basis.
Some of the increased rates were charges tied to Covid-19 expenses, but Commonwealth also managed to execute on a pricing strategy laid out earlier in the year, White explained.
Senior living providers across the country have been hit with increased costs related to labor, personal protective equipment (PPE), Covid-19 testing, and other pandemic-related necessities. Some providers have passed some of those costs on consumers. This practice has caused controversy in some cases, but some leaders within the industry have emphasized the importance of being transparent with consumers and charging appropriately in order to maintain quality of care and service.
It’s a point that White alluded to, noting that Commonwealth’s sophisticated approach paved the way for rate increases.
“What’s fascinating is, you watch some of your stronger operators as they found ways to navigate [Covid-19], first in terms of the expense control, second in terms of ability to push pricing,” White said.
In addition to senior housing, Invesque’s 120-property portfolio includes other types of health care assets such as medical office and skilled nursing. Every type of property has been affected by Covid-19, White noted, which weighed on the firm’s quarterly financial results. Invesque reported funds from operations of $0.19 per common share for the second quarter; excluding costs related to Covid-19, FFO was $0.21 per common share.
Like other publicly traded senior housing owners, Invesque has taken steps to preserve liquidity and strengthen its balance sheet, including by suspending its dividend. In addition, executives have taken pay reductions, personnel costs have been reduced, and other steps have been taken to reduce general and administrative expenses by about $2.5 million to $3 million in fiscal year 2020. Deferral of non-essential capital expenditures is estimated to save an additional $2.5 million to $3 million this fiscal year.
And, as other companies have recently reported, indicators did turn more positive over the course of Q2, with occupancy loss slowing and new visits to facilities increasing. While Invesque has granted rent deferrals to certain tenants, including skilled nursing operator Symphony Care Network, rent collections overall “continue to be strong,” White said. Covid-19 infections also have fallen, with only 29 total patients or residents with a positive diagnosis as of Aug. 7.
In conjunction with its Q2 earnings, Invesque also announced that Jones Lang LaSalle (JLL) will take over property management and leasing services for the company’s 15-property medical office building (MOB) portfolio. Mohawk Realty Advisors previously managed the portfolio.