Leadership Huddle: Cooperation as Seniors Housing Operators and Capital Providers Fight COVID-19

The second of NIC’s “Leadership Huddle” webinar series featured a frank discussion amongst capital provider and operator leaders currently navigating their businesses on the frontlines of the COVID-19 pandemic.

Titled, “The Intersection of Operators and the Financial Community in a COVID-19 Environment,” the April 9 event focused on how the industry is managing the crisis, both from the perspective of operators on the frontlines of the pandemic, and the capital providers who are grappling with shifting economic realities. Attendees gained insights from an Oregon-based operator, whose properties have been fighting to protect their residents since late February, as well as capital providers who are working every day to provide support to their portfolios of operators, while planning for the future during a time of monumental change.

Moderated by NIC Chief Economist, Beth Burnham Mace, the webinar began with data from the newly launched NIC Executive Survey Insights. The initial “Wave 1” of the survey of 180 seniors housing and skilled nursing operators, released last week, provides a baseline on occupancy, move-in, and move-out rates across the sector, as the pandemic begins to have an impact. NIC has announced it will release new survey results on a weekly basis. While there is some loss in occupancy rates, mostly in skilled nursing, many operators reported little change in these key metrics towards the end of March. Lower occupancy, however, may loom on the near horizon.

Operator Fee Stubblefield, Founder & CEO, The Springs Living, said that his properties began to enact protocols on February 29^th, spurred by the early appearance of COVID-19 in neighboring Washington state. In addition to enabling his Executive Directors to keep staff at home if they showed symptoms, Stubblefield said, “We immediately shut down dining, moved to staff delivering meals in rooms, and began screening visitors. We limited all outside visits to essential-only in the first week.” He also acknowledged the helpfulness of regulatory action from the state of Oregon.

As a joint-venture-structured capital partner, Kathryn Sweeney, Co-Founder and Managing Partner, Blue Moon Capital Partners LP, shared how her organization is supporting their operator partners, “This is really hard. Discussions, truthfully, lean to the empathetic rather than the financial side of the scale. We want to make sure our operators are not worried about spending money on PPE and test kits.” She pointed out that, although many operators have protocols in place, “Nobody has experience with this. We’re all running to catch up.”

Wendy Simpson, Chairman, President & CEO, LTC Properties, offered the perspective of a triple-net capital partner. Her approach has been to bring her operators together to share vital information, such as where to find supplies of PPE, and to ensure channels of communication remain open – without overburdening her partners with too many requests. She noted that, compared to assisted living, her skilled nursing facilities are more prepared to fight the pandemic, “They are prepared for infections; they always have a flu season, and already have stringent protocols in place…They have been able to respond faster than assisted living and memory care…more of their employees are trained for this type of thing. They did have challenges with PPE at the beginning. They are experiencing COVID, but they are more experienced in handling communicable diseases.”

Fee described how, after the initial few days, his organization also found itself seeking out additional supplies, and taking additional steps to keep COVID-19 away, saying, “We spent days building a moat around all of our communities. This has been about the physical protection of our existing residents.” He described “burning through” PPE, even enlisting residents and families with sewing machines, who made thousands of home-made masks. “COVID rides our breath; droplet suppression is critical. Six foot separation is not enough in our opinion. Everybody needs a face mask.”

Despite these protocols, which Fee says have been effective across The Springs Living’s 17 communities, a resident tested positive for COVID-19, just a day prior to the webinar. He said, “Emotionally…it was hard to take when we learned we had it…after we were past that we were able to react very quickly, with industrial cleaning and sanitation…we deployed tests. We did 30 tests on employees. As of this morning, nine results have come back so far, all negative.” With the resident recovering in a local hospital, the staff is holding to protocols and continuing to fight. “We’re ready for this. We’re fighting this thing and…we’re going to minimize the impact.”

From the capital-provider standpoint, Sweeney said how heartened she is by how many operators, many of whom are fierce competitors, are now cooperating with each other.  “Now, we’re all facing a common enemy…operators are joining forces, collaborating with each other…facing challenges on PPE…sharing suppliers…sharing strategies and tactics on labor. We’re in this together.” Asked about preventative costs, she pointed out that keeping COVID-19 out has a cost-benefit, “Once COVID hits a building it could be a million dollar hit to the economics of that building…keeping it out costs a fraction of that.”

But keeping COVID-19 out does come at a cost. Fee described a number of investments, including providing “hero meals” to staff, who often work long shifts and have little time to prepare their meals. Providing food at no cost to employees, and allowing staff to take meals home to their families, not only provides needed support, but keeps them from going into their own communities, to get takeout or visit grocery stores, for example, exposing them to additional points of potential contact with the virus. But the cost is significant. According to Stubblefield, “We have 1,824 units. We spent $300,000 already, including paid time off, and meals, and PPE is by far the largest part of that. We are at $164 per unit right now. Our forecast on spend is in a range from $500 to $700 per unit.”

Throughout the Leadership Huddle, audience questions were posed to panelists by NIC COO, Chuck Harry. The first of these was on operators’ ability to test their residents for the virus. Sweeny’s response revealed frustration, “It’s really hard. Unfortunately, the seniors housing industry, excluding skilled nursing, is not prioritized in terms of accessing PPE and tests. We’re fighting this battle with rudimentary and limited tools…We have had inconsistent access to tests in our portfolio.” She observed that those operators with ties to healthcare professionals were better able to access tests, and that all tests are not the same. Referring to Abbott Labs’ 5 to 13 minute “quick test,” she said, “That’s what every senior living community in the country needs…how do you fight an enemy without knowing where it is?”

Stubblefield, in response to the same question, said he had access to some tests developed locally and expected more to come, but stressed that not all tests have proven their accuracy. Access to the swabs required by the most accurate lab testing remains a problem. He agreed that seniors housing and care is on the front lines of this battle, and should be prioritized for testing availability, in order to prevent overrunning emergency rooms and hospitals. He said, “One of the ways that the hospitals and public health can stop this virus from impacting our healthcare systems is to recognize that seniors housing and care is on the frontline and if we get the PPE and testing we can help diminish the impact on the healthcare system.”

The discussion also addressed how the pandemic is affecting budgets. Both capital providers agreed that it is too early to be able to calculate the full impact on their financials, which will be reflected partially in March financials, and more fully in April’s. According to Simpson, rents received in May will provide better insight into the impact on her operators. Her company is running analysis, and, along with industry groups, such as NAREIT, is looking to Congress for some relief on rules, particularly on rent deferrals or forgiveness, that impact their ability to support operators. While some short-term impacts are expected, Simpson sees little impact financially over the long-term. There will be other impacts, however. “It will be a long-term change in healthcare providing,” she said.

Looking ahead, all the panelists saw a silver lining, particularly in labor and new supply. Mace pointed out that 16 million people have just filed for unemployment insurance, a fact which panelists agreed will ease labor shortages. Sweeney suggested operators that support their staff today, by supplying PPE, offering meals, and other investments in their well-being during this crisis, will likely attract staff. “Post-COVID puts us in a very good place on the labor front,” she said.

Simpson is seeing a sharp drop in development, and expects some sources of capital to back away, stating that, “We are thinking private equity may not think this is an industry for investment. There will be less competition when this crisis is over.”

Fee, also looking ahead, said of the future that, “We will come out of this stronger. Our sector will show not only the sustainability to survive this, but that older adults are the safest they can be in our facilities.” He pointed out that national projections of fatalities from COVID-19 are declining every week, “We went from 150,000 projected deaths on one site…to 80,000, and this morning, 60,000. If we can hold the line, and our capital providers continue to give support…we’ll emerge showing we’re relevant and that senior living is the very safest place for older adults to be.”