On today’s show we’re talking about the health of a high turnover businesses. One business in particular that has been very hard hit during the pandemic is senior housing.
Under normal circumstances, those entering assisted living are there on average for about three years. Some facilities offer respite care, but most residents are there until they move into a skilled nursing facility, or if they decline quickly, they go into hospice.
Senior housing relies in a continual flow of new residents coming into the homes to maintain their occupancy. Generally speaking, there has been a lot of construction of new senior housing in anticipation of the baby boomers aging out of their homes. It’s expected that the size of the senior housing industry is going to double over the next decade. So much of this excess supply will eventually get absorbed.
So here we are in 2020, in the middle of a pandemic that has impacted many senior care homes. The stories of homes that have been devastated by outbreaks of Covid-19 have made headlines. There have been a handful of really badly managed situations, acute staff shortages, resident neglect and high death toll.
On the other hand, the vast majority of facilities have continued to be well run, and have not experienced any Covid-19 outbreaks. But the headlines have stigmatized the entire industry.
We are now 7 months into the pandemic and a number of residents have left the assisted living community where they resided. This may have been due to a deterioration of the pre-existing condition, it may have been as a result of Covid-19, and it may have been as a result of family pulling Mom or Dad back home.
Senior facilities continue to operate under strict lockdown protocols. That means that someone new coming into a facility must quarantine for 14 days. After that, they may have contact with other residents in the facility. But family is still barred from visiting indefinitely. The lack of human contact for the elderly can be emotionally devastating.
Families are simply not electing to put a family member into assisted living under these circumstances. While facilities have been open to accepting new residents for some time, the number of new residents has been a trickle compared with normal conditions. That means that senior housing as an industry is going to experience declining occupancy until well after the pandemic is over. Some newer facilities were in the middle of their lease-up when the pandemic hit.
According to a report in Senior Housing News, 53% of communities are continuing to report declining occupancy.
Ventas is a large national operator. They’ve seen occupancy drop from 85% in some of their facilities to about 80% since April.
WellTower, another large player with 612 senior housing operations in their portfolio reported a 79.4% average spot occupancy rate for its portfolio in July, a significant decrease from the 85.8% occupancy rate it reported in February before the pandemic hit.
We believe that the big box operators are going to get aggressive in their marketing in the coming months as they try to fight for market share under these challenging conditions. We also believe the economic model is going to change.
The number one cost in assisted living is staff. Labour costs are on the rise in the industry as caregivers and personal support workers demand higher wages to compensate for the added costs and risks associated with working in the pandemic environment. These higher costs are ultimately going to be passed on to customers, except in those cases where there is a government or insurance contribution. Labour rates are rising faster than the cost of living allowance that both government and insurance have built into their rates. The result will be a profit squeeze for operators. Some who are already suffering due to lower occupancy will get hit again as their profit margins get eroded.