Invesque Inc. (TSE: IVQ.U) this week reported significant COVID-19 strains on a pair of its post-acute care tenants, with the skilled nursing landlord taking steps to reduce its exposure to Symphony Care Network and reporting no revenue from Bridgemoor Transitional Care.
The real estate investment firm will either sell or transition operations at half of the 16 buildings in its portfolio operated by the Chicagoland-based Symphony.
Symphony will serve as the buyer for some of the properties, with the facilities that remain under Invesque’s control subject to a new 15-year triple-net agreement “with enhanced lease coverage,” according to Invesque.
Both sides have entered into a non-binding memorandum of understanding, and the transactions are set to close sometime during the first quarter of 2021.
“This series of transactions will allow Symphony the flexibility to succeed in the near term during the pandemic as well as over the long run,” Invesque chief investment officer Adlai Chester said on a Thursday earnings call with investors and analysts. “The transactions will also provide us liquidity, diversification, and better portfolio-level coverage.”
Once representing nearly 70% of the Carmel, Ind.-based Invesque’s net operating income, Symphony will contribute under 15% when the transactions close, according to Chester.
But CEO Scott White stressed that Invesque intends to be a long-term partner with the operator, framing the restructuring as a key move to help keep Symphony afloat during the extended effects of the COVID-19 pandemic.
“We realize that we are at what I believe is a trough in the industry, and to not be there as a supportive partner to help Symphony at a time that they need the help the most is not how we operate, and it’s not how we view the world,” White said.
White also took pains to emphasize that the problems facing Symphony aren’t unique to the operator.
“Across the industry, as I noted in my comments, we’re at historically low occupancy levels and Symphony wasn’t immune,” he said. “They fought hard and the best they could to keep everyone safe in the buildings, and to keep those beds as full as possible. But the reality of the environment is it’s just not sustainable, and that’s why we wanted to work with them to find something that is.”
Bridgemoor, meanwhile, contributed no revenue to Invesque during the most recent quarter, and the landlord moved to reserve against a working capital loan that it had extended to the Texas-based operator.
Chester cited the heavy impact of the novel coronavirus on hospitals in the Lone Star State, which had a particularly harsh trickle-down effect on Bridgemoor, an operator that focuses on higher-end rehabilitation services for patients recovering from surgeries; the suspension of non-emergency procedures remains a common response to coronavirus spikes in markets across the country, as health officials look to reserve acute-cate beds for COVID-19 cases.
“We continue to explore all options, including a potential sale of the assets or an operator transition to ensure we maximize the value of our assets in this portfolio,” Chester said of the Bridgemoor properties.
Invesque and Bridgemoor have a shared lineage through Mainstreet, an Indiana-based senior care development and investment firm led by CEO Zeke Turner.
Mainstreet had in 2016 spun out its investment arm into a separate company listed on the Toronto Stock Exchange; that firm adopted the name Invesque in 2017 to differentiate itself from the developer.
That same year, Mainstreet rolled out its luxe Rapid Recovery Center model with great expectations. Turner predicted that the company would have 11 Rapid Recovery Centers operating in Texas and Arizona within 18 months of the initial announcement, but the company quickly ran into trouble: Mainstreet in March 2018 halted all RRC development in Arizona, laying off 70 employees.
Mark Fritz, a former Mainstreet executive who helped to develop the RRC model, formed Bridgemoor in early 2019 to take over four of the properties in Texas.
At the time, Fritz saw great opportunity in Medicare-focused post-acute services given the looming implementation of the new Patient-Driven Payment Model (PDPM) for nursing home reimbursement; Fritz and his fellow Mainstreet leaders had essentially developed the RRC structure with the expectation that payments would follow acuity.
“I think we all had a pretty good idea that it was not going to be minute-based therapy reimbursement, and it was going to be a much more coordinated care model,” Fritz told SNN early last year. “As we were training to develop this, we always kept our eye a little bit ahead of the ball, trying to figure out where it may go.”
But like pretty much every other operator in the sector, COVID-19 has cast a pall over those plans, with Bridgemoor’s fate largely in the hands of trends upstream at the hospital level.
“We follow the hospitals in lockstep, and so when all of the elective surgeries were stopped here in Texas, to say the least, it had a huge impact on our census, and also just the ability to grow census because the hospitals were full — as they were pretty much across the country — with COVID patients,” Fritz said of the scene in Texas during the spring.
Bridgemoor had worked with local hospital systems to prepare for a projected overflow of coronavirus patients. By the time their COVID units were set up, though, hospital demand eased and elective surgeries slowly began to recover, prompting a corresponding rise in occupancy at Bridgemoor facilities.
“We did a decent rebound during that, but it never turned on like it was in January and February of this year,” Fritz told SNN on Friday.
And since late September, with coronavirus cases peaking in Texas yet again, the lockstep trend has reverted back to where it was earlier this year.
“A lot of the 65-plus [population], they’re just postponing, and the hospitals and doctors are recommending that they wait until after the first of the year,” Fritz said. “Hopefully we will have a vaccine for this, and it’ll be safer for them to come in.”
Post-acute specialists like Bridgemoor of course are not the only nursing care companies facing clinical, financial, and operational stress — Fritz pointed to Genesis HealthCare (NYSE: GEN) as an example of a more traditional nursing home firm under strain — but the niche does bring its own challenges.
Local health departments in Bridgemoor’s markets have required the use of special isolation wings for all incoming residents at nursing facilities, essentially separating them from the general population for 14 days.
But the company’s average length of stay is only 15 days; while Fritz acknowledged the wisdom of keeping new patients away from those who live in nursing facilities long-term, Bridgemoor’s properties just don’t have that type of resident.
“We don’t really have that situation, but we have to operate as if we did,” he said. “That’s the number-one issue that we have right now, and we can’t manage our labor to our census very well.”