Pushed to the edge
Retirement communities financed by municipal bonds struggle amid virus
The coronavirus, especially lethal to the elderly, is pushing a growing number of retirement communities into financial turmoil and fueling distress in the municipal bonds that financed them.
Henry Ford Village, a 1,040- bed community in Dearborn, Michigan, has incurred“extraordinary expenses ,” to contain an outbreak of the new coronavirus, which has killed at least 26 residents. Unable to accept new occupants, the operator is using a stimulus loan to make payroll and drew on a debt service reserve to make a May 15 interest payment.
StoryPoint Senior Living has canceled tours at four new facilities in Indiana and Ohio and reported it doesn't expect occupancy to increase through July. StoryPoint, projecting a $5 million operating loss this year, wants bondholders to forgo interest payments for the next 12 months.
“We believe t he senior housing industry has a very bright future,” said Brian S toy, an executive with Common Sail Investment Group and Story Point Investments, said in a May 12 call with bondholders. “Short term, however, we are playing defense and for the next 18 months we are in the fight of our lives until there's a vaccine for COVID-19.”
Since the beginning of March, at least five retirement communities have missed a debt payment, draw non reserves or violated bond covenants, according to data compiled by Bloomberg. At least one assisted living facility and one nursing home operator have missed debt payments.
More than 80% of the $42 billion municipal bonds issued for senior housing have financed continuing care retirement communities, which offer independent housing, assisted living and skilled nursing on one campus. Most units at CCRC's are for seniors who live by themselves and need less care, so the facilities have largely avoided the tens of thousands of deaths at nursing homes and assisted living facilities.
But they' re grappling with higher costs to protect patients and unable to generate revenue through new admissions. The facilities rely on a constant flow of entrance fees from new seniors who move into independent units after residents move on to higher levels of care or die.
Spending on masks, gowns, overtime and additional screening for staff has soared. Moratoriums on elective surgeries mean patients aren't coming in from hospitals for rehab after hip or knee replacements. Seniors who want to move in can't because the facilities are locked down to protect current residents, while fear is causing some prospects to put plans on hold.