ScotiaBank analysis Latest Research (August 18, 2020):
OUR TAKE: Mixed. Given the near-term uncertainty with respect to occupancy and margins, we have done a Scenario Analysis with a range of possible outcomes:
We are laying out five scenarios below:
#1. Seniors will eventually make it – a slow and steady recovery.
#2. Winter and Second Wave is coming – another leg down in occupancy.
#3. Govt. will continue to hold the LTC hand – full pandemic expenses recovery.
#4. Risk premium spikes – especially on the LTC with Govt. under funding.
#5. Things are never as bad as it seems – Scotia published estimates.
In each of the above five scenarios, we estimate AFFO and NAVPS and detail the occupancy and Margin assumptions in Exhibits 8-12 on pages 6-8 of the note. In each of the above scenarios (including #2 which we
think is a bear-case scenario), AFFO payout ratios continue to be less than 100% and NAVPS continues to be higher than the current price.
We think the current management team is focused on the right areas – staffing, infection control, marketing/communication enhancements and operational improvements. Based on our revised model post Q2/20 results,dividend yield of 8.9% looks good with 2020 AFFO payout ratio of 83% and 2021 AFFO payout ratio of 86%