Clearing the Fog of War: Senior Living Operators, Capital Providers Are Cautiously Optimistic

Covid-19 has placed significant strains on the margins of senior living providers, and pandemic-related costs will continue to hit the industry as 2020 draws to a close. As the pandemic enters its seventh month, however, many providers are moving past the management phase of the outbreak that defined the summer months and into a period of cautious optimism.

This phase will be highlighted by the use of predictive data analytics to streamline costs, a rollback in enhanced wages and benefits and an extended slowdown in new development, allowing operators to correct course on occupancy rates which took major hits during the pandemic’s early weeks, executives from Blue Moon Capital Partners and Discovery Senior Living said during a recent webinar hosted by the American Seniors Housing Association (ASHA).

Although Covid-19 has disrupted financial operations for months, the specific impact can now be quantified, thanks in part to data from HealthTrust that the firm’s COO and Partner Colleen Blumenthal presented during the webinar. Notably, margins throughout the pandemic average around 21%, closer to skilled nursing facilities, while net operating income losses averaged around 30%.


But, the good news is that even as they adapted their operations to keep the virus at bay, nimble providers have learned to mitigate the hit to their margins.

But concerns remain over how the flu season will impact Covid-19 response; safeguarding residents while gradually reopening communities during autumn and winter; and keeping positive Covid-19 cases among staff down and workforce morale up while therapeutic treatments and vaccines are developed.

Better investor-operator partnerships

What has become clear is the pandemic separated operators that cultivated strong workplace cultures and responded to the pandemic confidently and successfully, from providers that talked a good game but floundered, Blue Moon Capital Partners Managing Partner and Co-Founder Kathryn Sweeney said.


“Covid-19 has separated the wheat from the chaff. It has been a stark event that provided a dividing line between those who were responsive early and aggressively versus those who were not,” she said.

The pandemic also gave owners a better appreciation of operators’ efforts to provide care and grow business, Discovery Senior Living COO Bill Sciortino said. The Bonita Springs, Florida-based operator counts health care real estate investment trusts (REITs) Welltower (NYSE: WELL) and National Health Investors (NYSE: NHI), and private equity investor Kayne Anderson Real Estate among its capital partners.

Discovery is a data-forward operator. The early weeks of the outbreak forced its corporate offices into a work-from-home environment, and executives accustomed to frequently visiting communities only had anecdotal evidence of operations with which to provide updates to its partners.

So, the company pivoted teams that normally worked in areas such as sales, marketing, pricing and rate comparisons, and put them to work gathering data on testing at the community level – raw numbers; positive cases; residents cases versus staff cases; which communities are doing sample testing; and which ones are doing containment testing.

From there, Discovery created a dashboard with constantly updated information on outbreaks across its portfolio, which it could then segment to its landlords as needed.

“It was like The Fog of War,” Sciortino said, referring to Errol Morris’ 2003 Oscar winning documentary film about General Robert McNamara. “[Owners] want predictability.”

Owners have stepped up their efforts supporting operators, as well. NHI and other REITs have assumed responsibility for sourcing and acquiring personal protective equipment, freeing up operators to focus on keeping residents and staff safe.

Blue Moon used Covid-19 as an opportunity to take a more granular look at its operators, Sweeney said. The firm asked its operators detailed questions about the scope of Covid-19 outbreaks: how many were residents and how many were staff; were staff who tested positive caught at the door with symptoms, or during their daily work routines; and who tested positive and asymptomatic versus developing symptoms?

Some of Blue Moon’s operators are conducting proactive surveillance testing to get better understanding of the scope of outbreaks in communities.

“We’re getting under the hood and understanding the details behind the numbers, and how the organization supported those successful outcomes,” Sweeney said.

Autumn, winter challenges

This period of cautious optimism is tempered, however, by several factors.

First, flu season is arriving while the country continues to deal with the first wave of the pandemic, and positive Covid-19 cases are now being driven by staff, raising concerns about future outbreaks as the warm weather months fade.

This may be compounded by a potential “second wave” of the pandemic.

“I’m worried about a second wave from the employee standpoint,” Sweeney said.

Second, residents are at a heightened risk of contracting Covid-19 from a combination of new outbreaks among staff and transmission from loved ones to residents. Blue Moon’s operators have allowed visitations to resume over the summer, and some communities have progressed to the point of skin-to-skin visitations, albeit with masks and other safety measures in place.

But these relaxed visitations have occurred in outdoor settings. Colder weather will make it harder to sustain, Sweeney said.

Another issue operators are monitoring is the ongoing impact of the pandemic on workforce morale, both front-line workers and community leadership. A rise in unemployment across the country has not resulted in a rush of new hires to the industry, and many workers are not coming into work out of fear of working in a risky environment, forcing other employees and team leaders to fill the gaps.

Discovery had some success receiving provider relief funds through the CARES Act, and may be eligible for more funds from another $20 billion in aid by the U.S. Department of Health and Human Services on Thursday.

Sciortino believes providers have two options: either pay more aggressively for workers, or recruit new talent more aggressively, highlighting the rewards of working with older adults.

“Your directors are staying weekends. They’re working 14, 15 days straight. They’re taking on night shifts after working day shifts,” he said. “I worry about the toll on our workers.”

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