Ventas Inc., one of the country’s largest owners of senior housing, is offering businesses that operate about one-fifth of its portfolio a 25% deferred rent payment for April. The Chicago-based company is making the move “so the tenants could care for seniors, pay their employees and purchase necessary supplies during this critical period,” said Chief Executive Debra Cafaro.
The deferred amount will be payable on Oct. 1 or earlier, if the operators receive assistance under new government financial rescue programs.
Shares of Ventas tumbled more than 5% Monday after a regulatory filing said deferred payments could be in the $3 million to $9 million range. The filing also warned that the pandemic “may influence occupancy levels and the ability or willingness of our tenants to pay rent in full.”
Senior living communities, which house more than two million people, are being closely watched because the elderly are more likely to die from Covid-19, the illness caused by the new coronavirus, than younger people. One of the nation’s first fatal outbreaks was at the Life Care Center in Kirkland, Wash. Since then, cases have been reported at dozens of other facilities in Florida, Minnesota, California, Massachusetts, New York, Ohio, Louisiana and other states.
Operators have been put in a financial squeeze. Costs have soared, as they have had to buy masks and other supplies, increase overtime and implement new procedures to protect their residents.
Meanwhile, revenues have fallen because filling vacant units has become very difficult. Most tours have been canceled. As stories circulate about quarantines and deaths at senior housing communities, families are figuring out other living solutions for elderly members.
“Inquiries and tours have begun to decrease dramatically and move-ins have begun to slow,” Ventas said in a regulatory filing Monday.
On average, shares of health-care real-estate investment trusts are down about 30% in March, but the slide for some big names goes much farther back.
Brookdale Senior Living, one of the country’s largest senior housing companies, fell from close to $40 in 2016 to the $8 range in early 2020 before the pandemic erupted. Its shares are now trading in the $3 range.
Other landlords also will likely provide rent relief to their hardest hit operators, although Ventas is one of the few that has stated this publicly.
“We stand ready to provide [operators] the support and help they need at this unprecedented time,” said Taylor Pickett, chief executive of Omega Healthcare Investors Inc., in a written statement last week. Omega is a real-estate investment trust that owns over 950 properties in 41 states.
Some landlords said privately that they don’t want to offer blanket rent deferrals because operators who don’t need them would try to take advantage of the program.
The senior housing industry was facing financial pressures from a supply glut even before the pandemic erupted. Anticipating surging demand from aging baby boomers, developers added over 21,000 units in 2018, more than double the number in 2014, according to the National Investment Center for Seniors Housing and Care.
But anticipated demand didn’t materialize partly because the gig economy and new technology are making it easier for seniors to stay at home. The strain has been particularly acute on operators that agreed to annual rent increases, having expected their revenues to rise.
Industry rents were “too high to be sustainable…and that was pre-Covid-19,” said Lukas Hartwich, an analyst with Green Street Advisors. Combined with the new stresses from the pandemic, “there are just a whole bunch of layers here of bad,” he said.
Some senior housing communities don’t pay rent because their operators and landlords are the same. Ventas owns 740 senior housing communities. Similar to hotel companies, operators either pay rent or get paid a management fee.
Financial pressure on the senior housing industry will likely ease, thanks to the $2 trillion rescue package passed by Congress and other steps taken in Washington. Freddie Mac and Fannie Mae have said they would allow some senior housing property owners to defer loan payments under programs announced last week.
Many senior housing operators and owners also will likely be able to tap into nearly $350 billion in small business loans that are part of the $2 trillion rescue program. While many of the companies are huge, many properties are structured as stand-alone limited liability companies and therefore count as small businesses, Mr. Hartwich said.
Still, a lot of uncertainty hangs over how much relief will be available to senior housing owners and operators and when the checks will arrive. “It will be some time before we fully understand how the stimulus bill will be administered and what it will mean for the industry,” said Jerry Frumm, vice chairman of Chicago-based Senior Lifestyle, which has a portfolio of about 190 communities in more than 25 states.
Ms. Cafaro, of Ventas, said government assistance programs will help its tenants pay their rent as well as their other financial obligations. “We are going to work with our tenants…applying for small business loans and availing themselves of the stabilization fund,” she said. “Obviously senior living should be a high priority of policy makers, as they think about where these funds should go.”