Sabra: Genesis, Signature Not Alone in COVID-19 Troubles, But Wider Write-Down Trend Unlikely

General improvements in access to testing and vital protective gear have put skilled nursing facilities in a better spot than the springtime, a top landlord in the space asserted Tuesday, but operators and investors shouldn’t necessarily expect complete adoption of a long-awaited vaccine when it hits the market.

And although Sabra Health Care REIT (Nasdaq: SBRA) recently joined other landlords in taking write-downs on operators Genesis HealthCare (NYSE: GEN) and Signature HealthCARE, executives don’t expect that trend to continue despite the gathering storm clouds.

The COVID-19 situation at the real estate investment trust (REIT) has changed significantly even in the less than two weeks since the company’s most recent quarterly earnings presentation on November 6, CEO Rick Matros said Tuesday.

“The virus has really started to spin out of control,” Matros said during a presentation at Nareit’s virtual REITWorld conference. “The impact on our business is that we have seen the number of facilities that have someone test positive has risen quite a bit, particularly in the last 10 days.”

At least thus far, those cases have largely been confined to handfuls of employees, with no significant outbreaks and overall “manageable” impacts on day-to-day operations at the REIT’s skilled nursing and senior living tenants.

“That’s disconcerting,” Matros said of the escalating numbers. “I think what we’re positive about is the fact that testing has gotten better. Testing, from our perspective, is how we normalize the operations, or how operators normalize the operations of their facilities. While testing still isn’t what it needs to be, it’s much better than it was, and anticipated to be a lot better.”

The prospect of a vaccine soon coming to post-acute and long-term care has also improved significantly in recent weeks, with promising early results from trials conducted by drugmakers Pfizer and Moderna.

The federal government has indicated its intention to begin administering vaccines to nursing home residents within 24 to 48 hours of emergency approval from the Food and Drug Administration, powered primarily by a partnership with retail pharmacy giants Walgreens and CVS.

That said, even under the most optimistic of timelines, operators will face resistance from skeptical residents and employees, Matros predicted.

“To the extent that it’s mandated … I just don’t see how that works,” he said. “I think there’ll be a certain percentage of people that just aren’t going to take it, and I don’t think there’s anything that anybody can do about that. If half your employees decide not to take it, you still need them to come to work because you need people to take care of patients.”

Matros instead framed vaccination as less of an instant silver-bullet solution and more the latest tool in operators’ arsenal for rebuilding trust and safety, alongside testing and personal protective equipment (PPE).

Gradual vaccine adoption could also have outside trickle-down effects: Hospitals may not have to hold as many beds for COVID patients during a vaccine rollout, potentially allowing non-emergency surgeries to resume — and easing pressure on nursing facilities struggling with low post-acute census.

“Even if the vaccine takes longer, the fact that we believe we’ll be in a position to have enough testing — that also goes to creating a safer environment, and should help to accelerate admissions,” he said.

Sabra CFO Harold Andrews also took the opportunity to expand on the company’s strategy on rent write-downs.

Sabra took the $14.3 million step, along with several other REITs that own Genesis- and Signature-operated nursing facilities, largely in response to specific audits indicating uncertainty about the providers’ ability to weather the coming 12 months.

But that doesn’t necessarily mean those operators are alone in that regard, and Andrews noted that the auditors can take a “very, very conservative” approach in evaluating a murky COVID-19 future.

“I think if you were to evaluate each of our operators today, under the same scenario — whether or not they can prove that they’re going to have cash flow 12 months in the future — that’d be difficult for anybody to be able to prove at this point,” Andrews said.

For that reason, while continued government support and occupancy improvements will be important long-term, Sabra doesn’t see the accounting move becoming a widespread response.

“At this point, we feel confident enough that our analysis is that we don’t need to put everybody on a cash basis at this point, and that we’ll take those as they come,” Andrews said. “I don’t think that’s something that we’re expecting — an extreme amount of operators being moved to a cash basis.”

Matros additionally framed the government support received thus far — while not unlimited — as a longer-term benefit given the lack of rent concessions needed thus far.

“We’re not unduly concerned, simply because we were prepared to start giving assistance to our operators in March,” he said. “We’re going to have bought ourselves, with the help of the government, well more than a year. So … as we go into the second half of next year, and assistance is no longer available, and occupancies will have been better than it’s been, but it’s not all the way back — we’ll be still in a great position to give assistance.”