Real estate investment trusts that own skilled nursing facilities are not likely to see their ratings affected by a minimum staffing rule that will affect most nursing homes across the country within the next three years, according to a new report from Fitch Ratings.
If the draft rule released earlier this month by the Centers for Medicare & Medicaid Services is implemented as written, non-rural nursing homes will be required to provide a minimum of three hours per patient day of direct care — 0.55 hours of that care by a registered nurse and 2.45 hours by a nurse aide — within three years. Rural nursing homes will have five years to implement the overall hourly rate.
“Further up the chain, healthcare REITs with SNF exposure are more insulated from individual operator stress given long-term master leases and their own ability to flex spending and funding sources in order to manage their balance sheets within Fitch’s sensitivities,” wrote the experts at Fitch. “REITs also tend to be diversified into other asset types, such as senior housing, and have the ability to re-tenant properties to replace stressed operators with stronger ones.”
Fitch noted that the ratings of healthcare REITs with portfolios that contain nursing homes were largely unaffected by pandemic-related stressors, “despite the stresses they faced due to operational and balance sheet flexibility.”
The experts said they expect to see similar results when the staffing minimum goes into effect. They added that with the staffing minimum, operators have time to plan for the ramp-up, as opposed to the rapid loss of labor that occurred during the pandemic.
“In certain cases, such as with National Health Investors (BBB-/stable) and Sabra Health Care REIT (BBB-/stable), ultimate impacts to revenue and EBITDA [earnings before interest, taxes, depreciation and amortization] were manageable despite operator stresses as a result of the pandemic, and Fitch expects each to be able to maintain leverage within their sensitivities,” the authors said.
“Omega Healthcare Investors (BBB-/negative), which was particularly stressed, demonstrated some of the levers that healthcare REITs can utilize to maintain ratings, including lease restructurings and a recent equity issuance,” they added.
