As Nareit’s REITworld: 2020 Annual Conference wrapped up last week, analysts at Mizuho Securities USA say they remain positive on the skilled nursing sector given the promising vaccine news, strong government support of the industry and an improving acquisitions outlook. And although the vaccine news also is a major positive for senior housing, analysts also worry that the recent rally in the sector’s stocks may be reflecting a far rosier recovery than likely is to occur, and that the 2021 earnings outlook may disappoint.
“The potential for continued occupancy pressures given the current spike in COVID cases across the country is most acute in senior housing, and tenant credit is a real concern given limited government aid to the sector,” said Mizuho analysts Haendel St. Juste, Omotayo Okusanya, Venkat Kommineni, Zachary Silverberg, Lydia Jiang and Corey DeVito in a note to investors Friday.
The analysts noted that tenant rent coverage ratios at SNF-focused real estate investment trusts such as Omega Healthcare Investors, Sabra Health Care REIT and CareTrust REIT have improved through the pandemic given more-than-sufficient funding from the government. They added that these SNF-focused REITs appear set to grow earnings in 2021, with Omega in particular looking increasingly more bullish based on its acquisition outlook.
It’s a different story for senior-housing-focused REITS such as Ventas, Welltower and National Health Investors, however. Although the analysts do still believe that a wide distribution of the COVID-19 vaccine is key to recovery, the firm notes that this may not occur until the second or third quarter of next year.
“We believe that in the period before then, several senior housing operators continue to face a challenging operating environment, given less than adequate government aid and the potential for further occupancy pressures with the current spike in COVID cases across the country,” the investors said. “We remain concerned that due to the murky senior housing outlook, management teams may not be able to provide 2021 guidance in January as has been the tradition, which may spook investors that may be thinking recovery is around the corner due to the vaccine news.”