Capital markets adapt to the new pandemic reality

The big unknown remains just that, as capital markets adjust and assess the long-term impacts of the COVID-19 pandemic on the demand for financing and the structure of loans and other financing instruments for long-term care. duration and post-acute (LT / PAC).

Informed sources say that there is of course a lot of caution as to what lies ahead, but at the same time, there is still a lot of activity in certain slices of the market.

Capital demand

The headlines focus on the huge challenges that skilled nursing facilities (SNFs) and assisted living communities face in what is a once-in-a-lifetime threat from the pandemic, but Erik Howard, Executive Director General, Funding healthcare provider, Capital Funding Group (CFG), tells the provider that his business has been booming in recent times.

“We’ve had probably the best six months of bridging activity we’ve seen, and part of that comes from our continued support of the LT / PAC industry; we’ve been doing it for 30 years, ”he says. And, during that time, there were cycles of ups and downs, but nothing like the pandemic to test her resolve, Howard says.

“It’s interesting, but many other banks have stayed on the sidelines to sort of wait for the pandemic, taking on what was a relatively strong lender pool earlier this year and making it harder for borrowers to find capital.” , he notes. This has left companies like CFG with a lot of demand for their financing services, and although he says there is a “bit of a capital shortage,” operators have continued to knock on doors.

Bridge loans are mostly in the $ 10-15 million range, and much of this variance is due to location. The Northeast, Howard says, generally has higher per-bed valuations and a strong repayment environment. Overall, CFG has a record funding total of some $ 625 million in the first six months of 2020 in bridge financing, housing and urban development loans, and accounts receivable arrangements.

Operators seeking to regroup

Part of CFG’s flourishing business is recapitalization loans, where an owner / operator has an existing loan from lender X but wishes to transfer the loan to another lender. This, Howard says, can be for a number of reasons.

“It could be that the lender is no longer interested in the LTC space or the borrower is looking for money,” he says.

When it comes to acquisitions, the market is primarily focused on regional vendors who purchase smaller portfolios as large organizations continue to divest assets in LT / PAC.

“This is the thesis of the last 12 to 24 months, with operators leaving states that are not at the heart of their platform and owners moving away from relationships that are not. We’ve seen a confluence of this over the past year and a half, ”says Howard.

With COVID-19, they believe there will be a noticeable increase in the number of “mom and pop” providers looking for the door, as he puts it, with the “straw that broke the camel’s back” pandemic.

Overall, the response to the pandemic from the federal government, states, and support from industry advocates like the American Health Care Association have offered lifelines for providers, especially during the early stages of the spread. virus, Howard says.

“Through it all, we have remained optimistic and expect the industry to persevere. The question is, will it be over in three months, six, 12 or 18 months? At CFG, we are supporting as we have been doing for over 30 years and believe that providers will do well because they are an integral part of the healthcare system, ”he says,

“Now that the SNFs have been put in the spotlight, let’s hope that many policymakers and the American people see these facilities and how important they are,” Howard adds.

The REIT assesses the markets

Vikas guptaVikas Gupta, senior vice president, acquisitions and development, Omega Healthcare Investors, said the listed Real Estate Investment Trust (REIT) has seen a definite shift in the long-term care space due to the pandemic. The question is whether the change is temporary or permanent.

“The need for skilled nursing facilities is still there, but business models have changed as operators adapt to the new world of COVID-19,” he says. “As a result, the trading volume has slowed down where the smaller trades are traded, but the larger trades are mostly on hold as everyone waits to see how things go long term for the SNF space. . “

Matthew Gourmand, senior vice president of investor relations at Omega Healthcare Investors, says the REIT continues to love the skilled nursing space for many reasons. “First, we know the industry and have close relationships with established quality operators. “

He says the second reason is that the skilled sector is a practical, needs-based enterprise with very little potential for technological disruption. “Third, the demand for skilled nursing beds will only increase in the years to come as the baby boomers age. “

On the assisted living front, Gourmand said his business is quite selective as a new bed offering has created headwinds in occupancy and pricing in many markets in recent years.

“In the United States, we have chosen to focus primarily on developing in more densely populated markets with higher barriers to entry. We have also invested in the UK nursing home market, which has similar qualities to the US skilled nursing industry, ”he said.

    Matthieu GourmandA pandemic puts operators to the test

Overall, the challenges of the pandemic have a few key aspects, Gupta says. “The main challenges lie with the operators where they learn to adapt to the changes needed to cope with andemia.

This involves new protocols in SNFs, including regular testing of residents and staff, purchase of appropriate PPE [personal protective
equipment], retain staff and create a safe environment for residents, ”he says.

“From our perspective, we regularly check in with our operators to understand how they are adapting, share best practices from other operators and ask how we can help them. ”

Omega Healthcare Investors owns more than 950 healthcare facilities in 40 states of the United States, as well as the United Kingdom. About 850 of these are SNFs, with the majority of the remaining facilities being assisted living communities in the US and nursing homes in the UK.

Refund also contested

From a different perspective, on the accounting and reimbursement side of the LT / PAC trade, Mueller Prost partner Tiffany Karlin said the pandemic is of great concern to her company’s customers given the uncertainties.

“It creates stress for our industry as a whole from a reimbursement and billing perspective. Customers are asking how are we paid for some of these COVID-related costs. What are the codes? We have to educate and train them and we do it constantly, ”she says.

This is 70-80 hours per week updating information from all aspects of the business, such as changing PPE costs, compliance issues with new infection control regulations and reporting, and, of course, all of this while providers strive to maintain high quality care for their residents, Karlin says.

The hope for all stakeholders is that some normalcy will return and that the positive trends that were emerging before COVID-19 can materialize.

As Gourmand says, the biggest non-pandemic trend is clearly the increased growth in demand resulting from aging baby boomers.

“The average birth rate between 1941 and 1964 was about 50% higher than the previous period. This cohort is just beginning to reach the age when the use of skilled nursing facilities is increasing dramatically. This will likely represent a 20-year tailwind of demand for this industry, ”he said.

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