Assisted living operators face “looming danger” due to the federal government’s relative lack of financial support to the sector, CareTrust REIT Chairman and CEO Greg Stapley said Friday on the real estate investment trust’s second-quarter earnings call.
Skilled nursing providers, which account for 83% of the REIT’s portfolio, “have fared well as the government has provided significant funding and other measures designed to fill the gaps created by decreased occupancy revenue and increased operating costs,” he said.
Senior living operators have received less funding from the Provider Relief Fund established with the Coronavirus Aid, Relief, and Economic Security (CARES) Act than have skilled nursing providers, yet both types of providers continue to face “lingering effects” from the pandemic, including “depressed census, increased labor costs and a shortage of qualified workers,” Stapley said.
To date, assisted living communities and nursing homes collectively have received approximately $14 billion of the $178 billion Provider Relief Fund, according to the American Health Care Association / National Center for Assisted Living. Assisted living operators, however, have received less than 1% of Provider Relief Fund resources, according to Argentum, which says that assisted living providers have incurred almost $30 billion in uncompensated losses due the the pandemic.
“Census for assisted living providers is unlikely to recover as quickly as it will for skilled nursing. These providers, especially those serving mid-market and lower-income clientele, provide a highly valuable and essential service to society, and there are good reasons for payers to want to keep those residents healthy and in place for as long as possible,” Stapley said. “We join with many voices who are calling on the government to acknowledge the critical role that assisted living providers play in the healthcare continuum with direct relief funding.”
CareTrust President and Chief Operating Officer Dave Sedgwick said that $43.7 billion of “unobligated funds” remained in the Provider Relief Fund, according to the Government Accountability Office on July 19. “In addition, there remains another $8 billion in relief funds earmarked for rural providers, bringing the total unallocated and undistributed funds to about $52 billion,” he said.
Sedgwick said it was a “defensive win” when Congress agreed not to tap into the unobligated funds to help pay for the infrastructure bill under consideration. Timing of the release of the monies to providers is unclear, however, he added.
“We do understand that a program is at the White House for final approval, which would assist providers based on lost income and increased expenses during the second half of 2020 and the first quarter of 2021,” he said. “Given D.C.’s current attention to the infrastructure bill, our understanding is that movement toward final approval and execution will wait until the current infrastructure bill is done.”
The next phase of distribution of funds will include senior living operators, Sedgwick said CareTrust has heard. “At this point, we can’t promise that. That’s just what we’ve been told by those who are closer to it than we are,” he added.
Senior living operators are facing “strong headwinds” right now, Sedgwick said.
“Our current assisted living operators were improving operations and coverage leading up to the pandemic, and they all largely held their own through 2020,” he said. “But January’s sharp decrease in occupancy, coupled with elevated labor costs, had made a challenging operating environment that much harder.”
Before the pandemic, Sedgwick said, average occupancy in CareTrust’s senior housing portfolio was 84.5%.
“We appeared to hit a low point in March of 73.5%, and that level has held steady through June,” he said. “While we expect seniors housing occupancy to recover and actually exceed pre-pandemic numbers at some point … it will not happen nearly as quickly for assisted living as it is happening for skilled.”
Operators have told the REIT that occupancy continued to be affected in the second quarter by local restrictions on visitation and by staffing issues, Sedgwick said. CareTrust, however, has seen “real momentum” in parts of its portfolio since then, he said.
“As we sit here today, from July even to August, that’s going to, if it holds for sure, [be] a pretty good improvement over what we’ve reported through June,” Sedgwick said. “For example, we had some buildings in Michigan that were at 73% occupancy in June that are today at 79% and are projected to be at 82% by the end of this month.”
The positive movement comes as senior living communities and skilled nursing facilities “have today become some of the safest and healthiest places for vulnerable seniors and post-acute patients to be” despite the settings being “a favorite target of the finger-pointers in the early days of the pandemic,” Stapley said.
The REIT’s investment pipeline — deals actively being pursued — is in the range of $100 million to $125 million, Chief Investment Officer Mark Lamb said. Most of the potential deals involve skilled nursing, he added.