Perhaps Assisted Living Not Such a Good Idea After All
I’m determined not to be dragged down by all the speculation and purported news about this pandemic. I’m trying to find the silver linings.
Thankfully my job as a portfolio manager allows me to do that in many ways.
At Nicollet Investment Management we are focused on determining what industries and companies will be, in our opinion, the winners and losers when the dust settles on these cloudy days.
Over the weekend, I read an interesting opinion article on Bloomberg by Stephen Mihm, associate professor of history at the University of Georgia. He suggested that segregating generations, as in assisted living communities, may not be such a good idea.
Over the last 50 years America has slowly segregated the elderly, going well beyond the nursing model earlier in the 20th century. Spurred by good profits in housing developments, communities across the country emerged to cater to the retired.
Those communities offer everything from leisure activities to catered meals. Demand for these communities has been strong.
Little did they know that they would become perfect breeding grounds for viruses.
The fatalities caused by the virus have been skewed towards the older generations; these communities have become ground zero for the pandemic. The contagious nature of the Coronavirus, coupled with the concentration of the most vulnerable people, has become a real problem.
Professor Mihm notes in his article how multiple generations living in close proximity functioned as a way to transfer knowledge as well as perhaps building immunities together against any number of viruses that exist on this planet. In other words, the elderly may be safer integrated with the broader population.
If so, could we witness an exodus or slowing of demand for assisted living facilities once this is over? If so, what will the impact be then on publicly traded real estate investment trusts or REIT’s that own assisted living properties?
The market is already taking a more cautious view.
For example, according to Yahoo Finance the shares of Ventas (NYSE: VTR) are down over 50% in 2020. Ventas is a diversified health care REIT that owns assisted living facilities, but also medical offices and research centers.
The tricky part of analyzing Ventas will be to properly ascertain the potential hit to its assisted living properties versus the potential gains that come with an uptick in research directly tied to the virus and pandemic.
Many investors may be drawn to what is now an over 10% dividend yield on Ventas shares. Given how low interest rates have fallen, such a yield can be enticing. The question that needs to be addressed is will Ventas make good on its dividend payments going forward?
This is just one of a host of questions that need to be answered as we sift through the effects of this pandemic.