“How do you fight the enemy without knowing where it is?”
The question posed by Kathryn Sweeney, co-founder and managing partner of Blue Moon Capital Partners LP, underscores the need for senior living communities to have priority access to personal protective equipment (PPE) and adequate testing to battle the COVID-19 virus.
“We’re really fighting this battle with very rudimentary and limited tools,” said Sweeney, whose Boston-based firm provides equity exclusively to the seniors housing sector.
“We have had inconsistent access to tests in our portfolio. What we’re finding is those operators who are more on the healthcare end of the spectrum have relationships with healthcare professionals such that they are able to access tests more so than operators who are more on the social end of the spectrum,” said Sweeney.
Kathryn Sweeney, Blue Moon Capital Partners
Her comments came during an April 9 webinar hosted by the National Investment Center for Seniors Housing & Care (NIC). The hour-long webinar, titled “The Intersection of Operators and the Financial Community in a COVID-19 Environment” and moderated by NIC’s chief economist Beth Burnham Mace, featured two other speakers: Fee Stubblefield, founder and CEO of The Springs Living; and Wendy Simpson, president and CEO of LTC Properties (NYSE: LTC).
As of this writing, there have been over 600,000 confirmed cases of COVID-19 in the U.S. and more than 26,000 deaths, according to Johns Hopkins University. To put that figure into perspective, the death toll on April 6 crossed the 10,000 mark.
Abbott Laboratories’ rapid molecular test for COVID-19, which can deliver positive results in as little as five minutes and negative results in 13 minutes, is something that every senior living community in the country needs, emphasized Sweeney. “Unfortunately, we don’t have that. It’s a real issue. I know ASHA (American Seniors Housing Association) is working on it, and some operators are working on it. I’m hearing some rumblings that the federal government is starting to recognize [the need].”
Intrepid operator
Headquartered in McMinnville, Oregon, The Springs Living operates 1,824 units across 17 communities in Oregon and Montana. The properties consist of independent living, assisted living and memory care. Stubblefield describes his company’s portfolio as being on the front of the wave of the COVID-19 virus.
The company’s senior management team decided to stop all admissions at its properties on March 1 with the exception of a few move-ins that had already been planned. “We felt that we had an obligation to protect the people that we already had commitments to,” said Stubblefield.
At the same time the company halted move-ins, it also decided to temporarily freeze rents. Residents were already dealing with enough fear, reasoned Stubblefield. Receiving an annual rent increase at that point would only exacerbate their worries.
Net occupancy across the portfolio has declined 1.2 percent since March 1 and that’s led to a decrease in revenues. “Most of our revenue losses have been in ancillary revenues. We have highly amenitized buildings,” explained Stubblefield.
Fee Stubblefield, The Springs Living
To battle the COVID-19 outbreak, the company thus far has spent $300,000 for paid time off, meals and PPE, the latter accounting for the lion’s share of expenses. That comes out to about approximately $164 per unit. Stubblefield is forecasting the total cost to fight the virus through June 1 could range from $500 to $700 per unit. Based on 1,824 units, that would amount to a total cost between $900,000 and $1.3 million.
“The way we win this is we spend what we need to spend to hold the line and have the best outcome for our residents and for our employees,” said Stubblefield. “We believe that we’ll actually come out of this stronger. We believe that our sector will show that not only do we have the sustainability to survive this, but our goal here is to show that older adults are as safe as they could be in our environment.”
Two days before the webinar, The Springs Living management team got word that one of its residents tested positive for COVID-19. “That was a little hard to take at first,” admitted Stubblefield. “There is a lot of fear out there with operators, and a lot of fear with employees. We’ve heard a lot of the tragedy that’s out there. After we got past that, we were able to react very quickly, including our industrial cleaning sanitation process. It happened immediately.”
On the day of the NIC webinar, Stubblefield reported that 30 of the company’s employees had been tested. Nine of the tests had come back from the lab and all were negative. The resident who contracted COVID-19 was in the hospital and reportedly improving, he said.
A REIT perspective
When COVID-19 first struck, LTC set up a “connection” for operators across its portfolio to share information on critical issues such as supplies and PPE, said Simpson of LTC Properties.
Based in Westlake Village, California, the real estate investment trust invests in seniors housing properties through triple-net lease transactions. As of Dec. 31, 2019, LTC held investments in 106 assisted living properties and 92 skilled nursing facilities.
“We’ve determined we are not going to be bothering our operators every day to tell us stuff. We do have a very open communication with operators. We need to know what it is we can do to help them. Certainly, we’re not saying, ‘you’re not making your covenant,’ or ‘your rent is 10 days late,’ or anything like that. We are trying to ensure that we are there to support them,” said Simpson.
Wendy Simpson, LTC Properties
“Not being on the front line, we don’t know what they’re facing, other than we know that they’re facing something they’ve never faced before. So, our position is to support them as much as possible,” added Simpson.
One advantage that skilled nursing providers had over assisted living and memory care operators entering this COVID-19 outbreak is experience in preparing for infections, said Simpson. “They always have a flu season. They have very stringent protocols in place, so I think they were able to respond a little faster than the private-pay assisted living and memory care [segment of the business].”
For a host of reasons, Simpson believes the performance of the industry in May, not March or April, will offer better insight into the impact of COVID-19 on operators. “I am not Pollyannaish enough to think that LTC will not be impacted by this. I think we all believe that this is not going to be a long-term impact financially as it is right now,” said Simpson. But she was quick to add that the crisis could lead to changes in the healthcare delivery system in the long run.
LTC has been very conservatively financed, so it doesn’t have a liquidity problem, said Simpson. The company will release its first-quarter earnings Monday, May 4.
Some operators that LTC works with are quite small and can access SBA loans during this tumultuous period, explained Simpson. “We have some operators that are very large and so they don’t have access to that, but they might have access to other support from governments.”
— Matt Valley