Scott White, CEO of Invesque (TSE: IVQ.U), on Thursday added his voice to the chorus of senior living leaders expressing optimism about a recovery taking hold in the sector — but with a dose of caution.
White feels a sense of “rejuvenation” and “excitement” from the Invesque team and the real estate investment firm’s operating partners, and credited the rollout of Covid-19 vaccines.
As of March 5, there were 32 patients or residents being treated or quarantined for Covid-19 across Invesque’s portfolio, which consists of about 11,000 beds of senior housing and skilled nursing across 121 properties. In May and June last year, there were more than 700 positive Covid-19 cases across the portfolio.
“To be clear, it will take time to recover census and there will be elements of Covid-19 safety and precautionary measures that remain for the future,” White said on Invesque’s Q4 2020 earnings call. “However, we remain very optimistic about the industry and the Invesque portfolio.”
Carmel, Indiana-based Invesque is not currently pursuing aggressive growth but is focused on preserving capital while refining its portfolio through targeted operator transitions and asset sales.
However, the company did expand its relationship with memory care provider Constant Care through an acquisition and added units through expansion projects at Commonwealth Senior Living communities.
Improvements in 2021 and beyond
Invesque’s earnings call took place one day after the U.S. Centers for Disease Control and Prevention (CDC) issued relaxed guidelines related to visitation policies in long-term care settings.
“At this time, reopenings remain driven by state and local mandates, but most of our communities have reopened for in-person tours, small group activities, communal dining and are allowing some form of family visitation,” White said. “We expect that the limitations currently in place will continue to be reduced as the vaccine is rolled out more broadly.”
Within Invesque’s portfolio, about 95% of U.S. senior housing and skilled nursing properties have gone through the first phase of vaccination and 90% of properties have gone through phase two.
Same-store stabilized SHOP occupancy for Invesque sat at 79.3% for the three months ending Dec. 31, 2020, with an NOI margin of 28.3%. That compares with 87.6% occupancy and 28.3% margin for the three-month period that ended Dec. 31, 2019, according to the company’s financial documents.
Occupancy should start to recover in the second half of 2021, White believes, and he praised Invesque’s operating partners for their ability to maintain NOI. However, he counseled patience on an occupancy rebound and acknowledged that there are questions about whether rate cutting in the marketplace will threaten NOI in the months ahead, as providers across the industry try to rebuild census.
“While we think we’ve put the worst of it behind us in terms of occupancy declines, it’s not going to come back overnight,” he said. “There’s going to be some lag period, where you’re going to take some time on occupancy gains.”
But Invesque is more than willing to endure such a lag period, with its investment thesis rooted in the long-term demographic demand.
“The pandemic did not change the demographic fundamentals,” he said. “As one of the youngest portfolios in the industry, we’re well positioned for long-term success and shareholder value creation.”
Memory care acquisition, Commonwealth additions
Among the moves that Invesque made as 2020 came to a close, the firm closed on the acquisition of a 32-unit memory care community in Rogers, Arkansas.
The community is triple-net leased to Constant Care, adding an eighth community to the operator’s portfolio with Invesque. The building was a good target as it was 100% occupied and strengthens the relationship with one of Invesque’s preferred operators, Chief Investment Officer Adlai Chester said.
“We’re not looking with our current position to acquire a bunch of assets right now,” Chester said. “But when we see an opportunity to strengthen the portfolio through an acquisition, we’re going to try and act on it if we can.”
The Constant Care portfolio could grow further. Invesque has a mezzanine investment in a new development in Grand Rapids, Michigan, with the option to acquire the 42-bed memory care community in the future.
“The building was open towards the end of 2020 in the middle of Covid,” Chester said. “Even with the headwinds, the Constant Care team has ramped occupancy in this building to almost 50% in just a handful of months.”
Invesque also added capacity through three expansion projects at Commonwealth Senior Living communities. Roanoke, Virginia-based Commonwealth is the internal management company owned by Invesque, through a $340 million transaction in 2019.
As per Invesque’s earnings press release, the projects involved:
— The Commonwealth Senior Living at Abingdon property expansion added nine one-bedroom assisted living units, activity space, renovated dining, and new office space
— The Commonwealth Senior Living at Front Royal property expansion added 14 one-bedroom assisted living units, and two studio-size assisted living units
— The Commonwealth Senior Living at South Boston property expansion added 10 one-bedroom assisted living units, activity space and new office space
The expansions were completed on schedule despite the complications of Covid-19 and are accepting new residents.
“These expansions will allow us to cater to the pent-up demand in these markets, while increasing Invesque overall private pay exposure,” Chester said. “The Commonwealth platform continues to be a bright spot in Invesque’s portfolio and we look forward to working with Earl Parker, the recently promoted CEO of Commonwealth and the rest of the Commonwealth team on additional expansion projects across the portfolio in the coming years.”
As Invesque has ramped up its private-pay senior living exposure, it has scaled back on skilled nursing. The firm is still in the process of restructuring its portfolio with Symphony, its largest skilled nursing operator. That effort includes the sale of some assets to Symphony, transferring some properties to a regional operator, and amending the master lease on remaining properties.