One thing is certain as the coronavirus pandemic enters its sixth month in the U.S.: Covid-19 is not going away.
“We are going to have to live with Covid-19 in the world,” Brookdale Senior Living (NYSE: BKD) CEO Cindy Baier told Senior Housing News.
And, in many regards, the senior living industry is in fact learning to do so. Providers are now well into a management phase of the pandemic, adapting in order to stabilize operations, boost occupancy rates, rein in expenses and provide safe environments for residents and workers.
Yet, there are obstacles that can cause further disruption as fall approaches. Smaller communities across the country are at risk of financial distress and bankruptcy. Investors are returning to the capital markets but remain cautious about the opportunities they seize. Continuing care retirement communities are at risk of bond distress because of occupancy issues in higher care segments. And the pandemic will dovetail with flu season.
Here are five issues to watch as senior housing, and the pandemic, head into 2020’s final months.
Financial relief arrives but the fight continues
The U.S. Department of Health and Human Services (HHS) announced earlier this week that private-pay assisted living facilities could apply for funding through its Provider Relief Fund. Industry associations applauded the decision while stressing that more is needed.
Providers eligible for relief will receive 2% of their gross 2019 revenue allocation, which is in line with what other groups across the health care continuum, such as Medicaid providers and hospitals, have received. And, further details have emerged since HHS first announced the assisted living allocation.
Most notably, resident fees that cover accommodations are considered patient service revenue and therefore eligible for provider relief funds. Revenue from independent living units as part of larger assisted living or skilled nursing facilities also qualify as patient service revenue.
While the coming financial support will be a bright spot this fall, the industry has called for more over the months, noting that the Provider Relief Fund does not come close to offsetting the financial hit providers have taken during the pandemic. Private-pay providers have had to foot the costs of testing, extra labor and safety equipment, and that could result in an adverse economic impact of up to $57 million by the second quarter of 2021, according to a third-party analysis released last April by Argentum and the American Seniors Housing Association (ASHA).
Moving forward, Argentum’s public policy will focus on additional relief funding, preferred access to personal protective equipment (PPE), and priority access for testing and vaccines for providers of all sizes, President and CEO James Balda told SHN. More money could be made available to senior living providers in a Phase 3 distribution expected later this fall.
The American Seniors Housing Association (ASHA) will continue its efforts to secure additional relief, and for priority access to testing and vaccines for residents and workers. Furthermore, the association is advocating for coverage for non-licensed stand-alone independent living, ASHA President David Schless told SHN.
“We are hopeful that protection will be included in the next stimulus bill,” he said.
Additionally, states are increasingly providing essential support and resources, as well. Funding made available to states under the CARES Act has been a critical resource for providers, with several states distributing funds directly to providers.
Pennsylvania, which has 1,142 personal care homes and 58 assisted living communities serving over 50,000 seniors, received $50 million from an allocation passed in June. Similarly, in Wisconsin, the more than 1,500 assisted living communities serving 20,000 seniors were granted relief from a $100 million allocation from the state.
Those are exceptions to the rule, thus far. Gardant Management Solutions CEO Rod Burkett told SHN last month that his company has yet to see any relief at the state level.
Capital markets stabilize
Debt and equity providers pulled out of the market during the outbreak’s early weeks and took a wait-and-see approach to re-entry. Within a few weeks, capital providers started returning to the market, but there was a significant imbalance between debt and equity as recently as July.
That imbalance has faded heading into the fourth quarter of 2020, JLL Capital Markets (NYSE: JLL) Senior Managing Director Ted Flagg told SHN. Lenders and third-party consultants are comfortable with virtual tours, resulting in relaxed restrictions, less upfront equity and fewer calls for “Covid holdback” cash operational reserves.
Debt pricing, meanwhile, is back to pre-pandemic levels, and rates offered by agency and life insurance firms are up to 40 basis points better than they were prior to the virus spreading across the country.
Local and regional banks emerged as a dominant source of development lending during the outbreak, as national banks chose to service existing clients and manage their balance sheets. Flagg believes the national banks will reenter the space over the next two quarters, which will improve overall market economics for lending as they compete with the regional banks.
“That’s beneficial for borrowers,” he said.
Providers getting better control of expenses is another factor in the stabilization of the capital markets, Newmark Knight Frank (Nasdaq: NMRK) Vice Chairman, Health and Alternative Assets Chad Lavender told SHN. Expenses are decreasing across the board after the outbreak’s initial disruption. In particular, labor costs are expected to decrease further as more unemployed workers enter the available labor pool.
The peak timetable for baby boomers transitioning to senior living is another factor in market stabilization. The demand window among boomers has moved up from 2027 to 2024-2025 due to less new development supply breaking ground, Flagg said.
“The exit dynamics for investors have improved,” he said.
Nonprofit bond outlooks remain pessimistic
Nonprofit providers operating continuum of care communities will continue to struggle with operational issues stemming from decreasing occupancy among higher care segments such as skilled nursing and assisted living.
Fitch Ratings downgraded 16.7% of its ratings in the first half of 2020, with 10.7% carrying negative rating outlooks. Fitch is releasing ratings outlooks consistently throughout the pandemic, and the average rating is “BBB.”
Moody’s announced in May that senior housing and care has been the U.S. public finance sector hit hardest by the pandemic, and providers are tapping into debt reserve funds, violated bond covenants and are scrambling to renegotiate terms.
Still, Fitch recently noted that most nonprofit life plan communities in its portfolio have remained stable despite all the disruptions of Covid-19.
And despite the caution on the part of rating agencies, providers with diverse service lines will be well-positioned to ride out the pandemic, Ohio Living CEO Larry Gumina told SHN. The Columbus, Ohio-based nonprofit provider operates 12 continuing care retirement communities in the state, totaling over 3,000 units, and ranks 18th on the 2019 list of the largest nonprofit senior housing operators from LeadingAge and Ziegler.
Ohio Living recently had its “BBB” rating reaffirmed, but was warned of a possible downgrade due to ongoing census and occupancy concerns.
“Until we can safely relax visitation guidelines across the country in assisted living and skilled nursing, we will continue to see a challenged industry,” Gumina said.
But Ohio Living has been able to strengthen its other service lines such as home health and hospice. It is also launching a new physicians services line. These segments help mitigate the pressures in Ohio Living’s higher care segments, and are scaling up as more seniors require the services.
“If you can keep someone safely at home and receive the care that they need through a home health provider, that would prolong or possibly eliminate admission into a skilled nursing or assisted living environment, why not?” Gumina said.
Move-ins gain traction
After bottoming out in March and April, occupancy is beginning to trend upward again, even as the virus is surging in the Southeast and Western regions of the country. Independent living, in particular, is proving resilient to the virus’ disruption.
Discovery Senior Living’s independent living residency declined 380 basis points throughout the outbreak, and CEO Richard Hutchinson expects move-ins to return to pre-pandemic levels in September and beyond, barring a major setback.
Hutchinson’s optimism is echoed by A Place for Mom CEO Larry Kutscher, who noted that 97% of communities using the platform are now accepting new residents, and a vast majority of providers in the pandemic’s early epicenters such as the Northeast are accepting move-ins.
Moreover, providers appear to have procedures in place to conduct new move-ins, even in areas of the country where the virus continues to spread. As of August, just 9% of Florida communities on the A Place for Mom platform were closed to new move-ins.
Independent living is outperforming the expectations that some executive held in the spring, but move-ins are gaining momentum across all care segments, despite a July hiccup. Providers have developed new move-in guidelines, coupled with stricter infection protocols, to safely accept new residents.
Providers are also striking a balance between marketing the lifestyle that senior living provides with transparency about the current environment, which is alleviating the fears of prospective residents and their families about a move, Debbie Howard, CEO of senior living marketing firm Senior Living SMART, told SHN.
“Fundamentally, senior living offers all the same great benefits [as always]. But it does look different now as new protocols include smaller groups, greater distancing between residents and everyone wearing masks,” she said. “We fill the same needs and offer the same lifestyle enhancements, but it looks different today than it did six months ago.”
The arrival of autumn brings with it the start of flu season. Coupled with the ongoing coronavirus battle, this flu season has the potential to significantly test the health care continuum.
Coronavirus and flu patients will compete for the same intensive care unit space, and the push for flu shots is already underway. Manufacturers are producing and distributing between 194 million and 198 million doses this season — 20 million more than last season.
Tighter infection control guidelines will help providers grapple with both coronavirus and the flu. Some providers will also implement technology to help with the response.
Bellevue, Washington-based Aegis Living is using tech to accelerate the pace of its infection protocols, President Kris Engskov told SHN. The provider adopted an all-natural platform for surface disinfection across its portfolio, and will have air purification systems installed across 40% of its buildings by the end of the year.
Like Aegis, Brookdale also believes that the more robust infection control protocols in place due to Covid-19 will help mitigate the impact of seasonal flu.
“A lot of the things that you would do to fight Covid-19 will also benefit us. When you think about fighting the flu, it’s all about controlling infection,” Baier said.