If there’s been one constant in 2020, it’s been uncertainty — and the post-acute and long-term care landscape has seen more than its fair share.
For operators and the residents they serve, that murkiness has taken the form of shifting mandates, questions about reopening their properties to vital visits from family and friends, and the looming challenge of administering a potential vaccine to the some of the most vulnerable people in our society.
For the financial companies that back skilled nursing facilities, the uncertainty takes a much longer view. Just about everyone agrees that COVID will — and must — lead to permanent changes to the way America cares for its elderly, but exactly how that will play out remans deeply unclear.
Last month, leaders from across the sector joined Skilled Nursing News to discuss the COVID and post-COVID landscape at our virtual Rethink conference. During the panel sessions, we asked them for their outlook on the future, and while each answer is unique, there were some common themes — particularly around the need for finance to take an increasingly active role in operations.
Today, we provide insights from four top financial executives to discuss how they see the coming months and years playing out — with two representatives each from the real estate investment trust (REIT) and private equity worlds.
Wendy Simpson, CEO, LTC Properties
It’s going to be really hard to underwrite a SNF right now — in the next six months, or eight months. I mean, what is your trailing 12? You’re certainly not going to sell it on your trailing three months. So the value of SNFs, I think, is going to be a little bit difficult to peg at the moment.
One of the things that has been a guiding force in real estate has been location, location, location. Over the years, we’ve realized that in skilled nursing — and certainly in assisted living, but we’re talking about skilled nursing right now — the guiding force is management, management, management. I think the successful management teams are going to be the asset that you’re going to want. It’s going to be important to get the right operating people in the facilities.
I think the facilities will evolve. In some areas, they still have three- and four-bed wards. I’m not sure that that will be viable anymore. However, if there’s a viable immunization, it’s just like the flu, and so it may be going back to double occupancies, or triple occupancies, in facilities.
But right now, I think everybody is decompressing the rooms, and so it’ll be interesting: How would you value the number of beds you’re going to buy? Is it one bed per room now, and then in two years, when COVID is under control, you could increase the number of beds in the facility? So I think the valuation and the underwriting of skilled nursing is going to be very difficult, but the market will come back.
Kent Eikanas, CEO, Summit Healthcare REIT
I think six months and beyond, it’ll continue to be very competitive. Throughout COVID, we’ve looked at opportunities — and we weren’t the only ones. I think sellers have options with buyers, and it really comes down to who they choose to work with and partner with as a landlord.
We see opportunities, and we can adjust for the COVID expenses and revenues and still come up with a value that I think is fair for the seller as well as us — and structure a lease that is sustainable for the operator.
We see new buyers in the space. Every time we are looking at a deal, we hear of a new [name]. So it’s I think it’s going to continue to be a very strong real estate market. Compared to assisted living, I think skilled nursing — at least in our portfolio — has been less affected by COVID than our assisted living facilities.
David Reis, CEO, Senior Care Development
I think [private equity is] going to be a lot more hands-on, and it’s going to be a lot more needed for people to continue to grow. I see a very nice, long runway ahead for smart private equity, institutional quality buyers.
As the owner, we’re not the operator. But a good owner wants to roll up the sleeves, really understand the operator’s goals and how they’re going to go about achieving them. And then frankly, we don’t just sit back and collect the rent checks. We do our own analytics on the communities every single month. We’re looking at all the notices they’re getting, we’re looking at everything they see on a live basis — and we’re asking a lot of questions.
A good operator does not have a problem with an owner asking questions. Bad operators don’t tend to like that so much. But the guys who are good at it recognize it, I think, and respect it. And if they’re really smart, they like to leverage off of an informed owner, because an informed owner is the one who could actually help them when issues come up — because invariably, issues always do come up.
Chad Buchanan, Managing Partner, Twin Light Capital
The PE firms that are experienced in this industry really think of themselves as value-add capital partners; they’re not sitting back and collecting their distributions and joining a quarterly call. We’re deeply invested and involved in the operations themselves — not just on the real estate side of the business.
I think that the lessening of the sale-leaseback relationship with a landlord, tenant-net lease relationship, is only going to increase PE’s role in this industry going forward. I think that that could be — and hopefully will be — a value-add to the providers and operators in the industry.
There are a lot of newer companies and newer operators that have come up through the ranks — whether it’s an administrator or admissions director or clinical director at larger or regional operating companies — and they’ve gone off on their own. They’ve started to build a platform.
We have countless conversations with smaller groups that are growing like that. We talk about principles, and we talk about growth strategies — where you want to be.
We’re not looking for operating partners who just want to, quote unquote, do deals. How many times you hear that in our industry? “Are you doing deals? How many deals are you doing?”
That’s not what we’re looking for. We’re looking for operators who want to be very strategic in their growth, pick opportunities that match well, with their skill sets and their track records.
These comments have been condensed and edited for clarity.