Although many in the senior care industry have been focusing on the recent surge in COVID-19 deaths and record low skilled nursing occupancy rates, one ratings agency says it’s banking on a full recovery for the sector by 2022, even without help from the federal government.
The conclusion is based on a Fitch Ratings analysis of second- and third-quarter financial data from several publicly traded real estate investment trusts with significant skilled nursing facility portfolios. Firms considered included Diversicare Healthcare Services, The Ensign Group, National Healthcare Corp., Genesis HealthCare and ProMedica Senior Care.
The ratings agency reported that although many SNF operators relied on grants received under the Coronavirus Aid, Relief and Economic Security (CARES) Act for business continuity in the second quarter, all but one operator (Diversicare) saw underlying net operating income coverage of lease expenses improve in the third quarter. In addition, all but one, ProMedica, reported coverage ratios of 1.0x or higher (compared with two operators in the second quarter).
“Assuming that REIT tenants have similar underlying facility-level cash flow profiles as the five operators in our study, tenants have sufficient cash flows to pay rent without government subsidies,” Fitch noted in its report. “This provides REITs more certainty for the continuity of rental payments absent incremental government funds.”
Fitch says much of this recovery is likely the result of stabilizing occupancy as surgery volumes improve and operating expenses normalize. The agency noted, however, that the continued use of testing and the need for personal protective equipment will keep operating expenses above pre-pandemic levels.
“In the long term, Fitch believes that sufficient volumes of need-driven and complex post-acute care will continue to be best delivered in a SNF setting when considering the aging demographics,” the agency said, adding that it expects an eventual restoration of SNF operating fundamentals to pre-coronavirus levels by 2022.
This article appeared in the McKnight’s Business Daily, a joint effort of McKnight’s Senior Living and McKnight’s Long-Term Care News.