Another skilled nursing facility in the state of Washington has reported an outbreak of COVID-19, the disease caused by the novel coronavirus that is sweeping the globe — resulting in major declines in the stock prices of several real estate investment trusts (REITs) with holdings in the skilled nursing and senior housing sectors.
That facility, the Issaquah Nursing Home & Rehab Center, is owned by Sabra Health Care REIT (Nasdaq: SBRA), which saw stock market pain in Wednesday’s trading: The Irvine, Calif.-based REIT’s stock price dropped 14.43% over the course of the day, closing at $13.35 per share.
But it wasn’t the only REIT stock price to fall amid the coronavirus headlines. Omega Healthcare Investors (NYSE: OHI) fell 10.3%, closing at $31.44, while CareTrust REIT (Nasdaq: CTRE) fell 13.76%, closing at $16.99.
The Toledo, Ohio-based Welltower (NYSE: WELL) — which has 218 properties associated with its ProMedica-HCR ManorCare skilled nursing joint venture, and an additional 138 post-acute and long-term care facilities outside of that partnership — was also affected, dropping 12.57% over the course of Wednesday and closing at $56.49.
Mizuho Securities USA managing director Omotayo Okusanya and assistant vice president Zachary Silverberg pointed out in a March 11 research note that the Issaquah facility is one of 24 properties covered by triple-net master lease Sabra has with operator North American Healthcare.
“Hence, if this is an isolated incident, the master lease could provide some protection even in the case of profitability declining at the Issaquah asset,” the note said. “That said, we note that North American Healthcare also operates three other nursing home assets within the Sabra portfolio in the Seattle area, and worry that cross-pollination of staff could result in the risk of the virus also becoming present at these assets as well.”
That might lead to earnings pressure for North American Healthcare if more facilities experience outbreaks of the coronavirus — which could result in a decline in profitability for the operator because of the lack of referrals and a potential embargo on admissions, Mizuho observed.
The outbreak for now is confined to the Issaquah facility, Sabra chairman and CEO Rick Matros told Skilled Nursing News via e-mail.
“It appears to have been contained,” he wrote. “We have had no incidents at any of our other 600 plus properties.”
Mizuho noted that North American Healthcare is Sabra’s third-largest tenant, representing 7% of annualized cash net operating income (NOI) and about $35 million in rents. The overall rent coverage is 1.55 times earnings before interest, taxes, depreciation, amortization, rent, and management fees (EBITDARM) as of the third quarter of 2019, the note said.
The impact for Sabra’s earnings will be determined by the spread of the virus and the resulting effect on the profitability of North American Healthcare’s four Washington assets, Mizuho argued.
“We can see a scenario where rents could be deferred by SBRA for a short period of time if cash flow gets squeezed at North American due to temporary operational disruption from the virus,” the analysts wrote. “However, should the stigma attached to the virus result in the inability to get census up at the facilities for a longer period of time, then the issue of rent reductions may have to be broached given the relatively thin rent coverage.”
Tim Mullaney contributed reporting to this story.