In the Seattle area, 11 elder-care facilities have reported that Covid-19 has turned up among residents or workers. Analysts and investors are concerned that potential new residents could delay their entry into some of these facilities.
Shares of health-care real estate investment trusts have fallen 46% since Feb. 24, according to FactSet, with the slide accelerating in March. This performance puts health-care REITs even with mall REITs for second-worst performing real-estate sector after hotel REITs.
These companies include holdings of medical-office buildings, nursing facilities and senior-housing buildings, and those that focus on elder-care have experienced sharper falls.
Shares of health-care REITs fell 38% in March. Stock prices for Welltower and Ventas Inc., which own senior-housing portfolios, have each fallen more than 45% since the start of March.
Shares of skilled-nursing-facilities owner Sabra Health Care REIT Inc. fell 62% since the start of the month.
Sabra, which owns a Washington state facility where a resident who tested positive for Covid-19 died and at least five have tested positive, is following the proper procedures, Chief Executive Rick Matros said. It is also working closely with the Centers for Disease Control and Prevention, he said.
“In most cases, the families understand that, however concerned they are (about the virus), they are better off with mum or whoever it is getting care 24/7 than they could provide on their own,” he said.
The senior-housing sector was already coming under pressure from overbuilding from Chicago to New England that created an emerging supply glut in major markets.
Last year, returns from senior-housing portfolios were around negative 7%, when the S&P 500 stock index returned 29%.
“At the beginning of the year, we thought that finally, by the end of 2020, demand and supply would be at equilibrium,” said Michael Souers, an analyst at S&P Global Ratings.
Now, the coronavirus outbreak looks like another setback. Current estimates suggest that the mortality rate for seniors for Covid-19 is around 10% to 15%, about four to seven times higher than the rate from the flu, said Lukas Hartwich, an analyst at Green Street Advisors.
“There is an indeterminate probability the Covid-19 outbreak could reduce demand for senior housing and skilled nursing by as much as 5%-15%,” said Mr. Hartwich. “It could also greatly impact the pipeline of future residents who are currently 70-80 years old.”
These facilities say they are taking the necessary precautions. They have been restricting visitors, increasing temperature screening, and isolating residents who have the flu, effectively creating a moat around them. Welltower Inc., the largest owner of senior-housing facilities in the U.S., also said that occupancy has held steady. While it has no confirmed cases of Covid-19, the firm said it is prepared for the eventuality.
“I expect Covid-19, like the flu, to occur in our buildings,” said Thomas DeRosa, chairman and chief executive officer of Welltower. “We are in the position to help someone who is in quarantine.”
Not everyone is convinced that is enough.
“The senior-housing industry is well-prepared; they have handled a few bad flu outbreaks in the past, but we haven’t seen anything like this in terms of contagion,” said Beth Burnham Mace, chief economist at National Investment Center for Seniors Housing & Care.
In the fourth quarter, the occupancy rate of seniors housing across 31 major markets reached 88%, up slightly from 87.8% a year earlier. Now occupancy levels look poised to fall. Typically the adult children of an incoming resident would take a look at a facility, and there have been fewer property tours, Ms. Mace said.