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2011 Seniors Housing Outlook
 

2011 Seniors Housing Outlook

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Integra Realty Resources DFW

Integra Realty Resources DFW
Seniors Housing & Health Care Specialty Practice

2011 Seniors Housing Outlook

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    2011 Seniors Housing Outlook 2011 Seniors Housing Outlook Document Transcript

    • 2011 SeniorS induStry outlook
    • 2011 SeniorS houSing outlookTypes of Seniors HousingThe following chart summarizes the primary types of seniors housing. CCrCS And Item SenIor ApArtmentS Independent LIvIng ASSISted LIvIng nurSIng HomeS CombInAtIonS State Licensing Not Required Not Required Required Required Required Not in most Most states Most states states, but State Approvals require a CON have some Not Required Not Required there are a Needed to Build or application for state approval few with CON Medicaid funding requirements requirements Private pay or Primarily private Section 8. Many pay, some Predominantly Low Income Primarily private Medicaid and funded by Resident Funding Housing Tax Private pay pay, some Medicare in Medicaid and Credits and have Medicaid Waiver assisted and/ Medicare rent and income or nursing restrictions components Majority of CCRCs require Primarily rent by About 3/4 rental Primarily rent by an entry fee for Primarily rent by the month, a small Payment Type by the month, 1/4 the day, virtually independent the month percentage are entry fee none are entry fee living, and some entry fee require for assisted living too Typically 200+ 60 to 250 units 80 to 200 units, 40 to 100 units, 100 to 200 beds, units/beds, many Typical Size average is +/-200 average is +/-125 average is +/-75 average is +/-120 in the 300 to 500 units units units beds range Typically 1 to 3 Typically 3 meals Typically 3 meals Varies by care Meal Service Limited meals per day per day included per day included types within the included in rent in rent in rent community All provided in All provided in senior apartments independent living All provided in Varies by care Typical Services Transportation plus meal service, plus laundry and assisted living types within the Provided and activities housekeeping, assistance with plus 24-hour community and 24 hour activities of daily nursing care monitoring livingAnother type of care is Alzheimer’s/Dementia care, which continuing care retirement community. A true CCRC includesis normally provided using an assisted living license and independent living, assisted living and nursing care, but theis generally considered a subset of assisted living. Many term is also often applied to any entry fee facility even if itproperties feature a combination of care types, such does not offer the full spectrum of care.as assisted and independent living. CCRC stands for a 1 integra realty resources ShhCp
    • 2011 SeniorS houSing outlookDemand TrendsThere is no denying that the demographic trends impacting Much of the forecast growth will occur between 2010 andthe seniors housing sector are positive. As of the 2000 2030, when the “Baby Boom” generation enter their elderlyCensus, there were 34.1 million elderly Americans (those years. This is most apparent when comparing growthaged 65 and older), making up nearly 13% of the total rates. Between 2010 and 2030, the overall US populationpopulation. The elderly population is expected to more than is forecast to grow at an annual pace of 0.9% per year. Butdouble by the year 2030 to 72 million, to make up 19% of growth in all three elderly sectors is much stronger: 3.0%the total population. As of the 2000 Census, there were 3.8 per year for the 65+ population; 2.9% per year for the 75+million Americans aged 85 and older, just over 1% of the population and 2.1% per year for the 85+ population. Thesetotal population. This population is expected to more than strong rates of growth will lead to growing demand fordouble by 2030 and become 2.3% of the total population. seniors housing.In 2050, as many as one in five Americans could be elderly. Forecast Population Growth 500,000 450,000 400,000 Population (Thousands) 350,000 85+ 300,000 75 to 84 250,000 65 to 74 45 to 64 200,000 20 to 44 150,000 Under 20 100,000 50,000 0 2010 2015 2020 2025 2030 2035 2040 2045 2050 Year Source: US Census Bureau Elderly Population - Percent of Total 25% 20% % of Total Population 15% 65+ 75+ 10% 85+ 5% 0% 2010 2015 2020 2025 2030 2035 2040 2045 2050 Year Source: US Census Bureau 2011 SeniorS induStry outlook 2
    • 2011 SeniorS houSing outlookSector OverviewWhile not entirely immune to the recent recession, the as steeply through the recession as did occupancy levels inseniors housing market outperformed the primary property other real estate sectors and has recovered well since thesectors through the recent recession. The chart below initial drop.outlines the key seniors housing metrics used in analyzingthe overall market performance, as of fourth quarter 2010. With new construction near historic lows and the seniorsWhile seniors housing rent growth and new construction aged demographic continuing to grow, we anticipate positiveinventory have slowed or remained flat, many other real growth in both rents and occupancy for 2011 over all of theestate sectors have seen negative trends in each category. seniors housing categories.Furthermore, seniors housing occupancy levels did not fall Seniors Housing Majority Nursing Property Type Majority Majority Assisted Aggregate Care Independent Living Living All Occupancy 87.6% 87.1% 88.4% 88.3% YoY Rent Growth 0.0% 0.2% -0.2% 3.1% Quarterly Absorption 1,173 744 448 -1,357 Quarterly Inventory Growth 1365 745 620 -304 Units/Beds Under Construction 9,291 6,127 3,164 2,472 Construction vs Inventory 1.8% 1.9% 1.7% 0.4% Inventory 502,326 320,051 182,275 569,850 Penetration 10.6% 6.7% 3.8% 12.0% Source: NICOccupancy LevelsOf the three types of seniors housing, the independent living sector have seen the greatest challenges in independentsector was negatively impacted by the recession to the living occupancy levels. It appears that occupancy may havegreatest degree. In the 31 largest MSAs, independent living bottomed, as public operators such as Capital Senior Livingoccupancy levels fell from a high of 92.4% at the beginning and Brookdale are reporting stabilization or improvementsof the recession (the fourth quarter of 2007) to 87.8% in in occupancy in their portfolios.the third quarter of 2010. This decline of 460 basis pointswas much more significant than in the other sectors. The Occupancy levels in the assisted living and nursing careaverage assisted living occupancy fell only 150 basis points, sectors held up much better through the recession. These arefrom 90.9% to 89.4% over the same period, and nursing more needs-based product, and seniors and their caregiverscare occupancy levels fell 160 basis points from 90.3% to found ways to finance the move to assisted living or nursing88.7%. care even in the face of the most severe economic downtown since the great depression. It should be noted that whileIndependent living is more of a lifestyle decision than a needs- independent living is almost entirely private pay, nursingbased decision, and seniors and their children have simply care is predominately funded by Medicaid and Medicare,delayed or foregone this lifestyle change in the face of a and Medicaid funding in assisted living is becoming morechallenging housing market and economy. Not surprisingly, prevalent.the markets with the most significant issues in the housing 3 integra realty resources ShhCp
    • Occupancy Levels - 31 Largest MSAs 95% 94% 93% 92% Average Occupancy 91% 90% 89% 88% 87% 86% 85% 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 2006 2006 2006 2006 2007 2007 2007 2007 2008 2008 2008 2008 2009 2009 2009 2009 2010 2010 2010 Independent Living 93.0% 93.3% 93.2% 93.2% 93.4% 93.0% 92.6% 92.4% 91.9% 91.3% 90.9% 90.2% 89.7% 89.0% 89.1% 88.7% 88.2% 88.1% 87.8% Assisted Living 91.1% 91.5% 91.4% 91.4% 91.5% 90.9% 91.0% 90.9% 90.2% 89.9% 89.5% 89.5% 88.7% 88.7% 89.2% 89.0% 88.6% 89.2% 89.4% Nursing 90.8% 90.7% 90.8% 90.8% 90.9% 90.6% 90.5% 90.3% 90.3% 89.9% 89.6% 89.5% 89.5% 89.3% 89.2% 88.9% 89.1% 88.8% 88.7% Majority Independent Living Majority Assisted Living Majority Nursing Source: NICMAP IL/AL - Occupancy 91% 90% 89% Brookdale Senior Living Percent 88% Capital Senior Living Emeritus Corporation 87% FiveStar Quality Care Sunrise Senior Living 86% 85% Q2 Q3 Q4 Q1 Q2 Q3 Q1 09 09 09 10 10 10 09 20 20 20 20 20 20 20 Source: SEC Filings SNF - Occupancy 90% 88% 86% 84% Advocat Percent 82% Ensign Group Kindred Healthcare 80% Skilled Healthcare Group 78% Sun Healthcare 76% 74% Q2 Q3 Q4 Q1 Q2 Q3 Q1 09 09 09 10 10 10 09 20 20 20 20 20 20 20 Source: SEC Filings2011 SeniorS induStry outlook 4
    • 2011 SeniorS houSing outlookCapital MarketsSeniors housing industry loan performance remains high absence of CMBS lending is impacting the industry to ain comparison to other commercial real estate sectors, degree. In the past, CMBS loans funded large acquisitions,although non-performing loans as a percentage of total such as the Fortress acquisition of Holiday Retirement, andloans have increased to approximately 2.5% as of the third Carlyle Group’s acquisition of ManorCare. However, therequarter of 2010, according to NIC. The main providers of are rumors that the CMBS seniors housing market will bedebt for seniors housing continue to be Fannie Mae, Freddie opening up in the near term, albeit at lower leverage levelsMac, and HUD. All of these GSEs offer attractive leverage than in past cycles. We anticipate that liquidity will remainand terms depending on the seniors housing type. While a at or near current levels for 2011 and expect loan volume tobig chunk of the lending is being provided by GSEs, there increase or remain constant as well.are still local and regional banks getting deals done. The Loans Placed in Quarter ($M) 2500.00 Volume in Millions 2000.00 1500.00 1000.00 500.00 0.00 00 001 001 002 002 003 003 004 004 005 005 006 006 007 007 008 008 009 009 010 20 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 4Q 2Q 4Q 2Q 4Q 2Q 4Q 2Q 4Q 2Q 4Q 2Q 4Q 2Q 4Q 2Q 4Q 2Q 4Q 2Q Source: NICNew ConstructionThe inventory of seniors housing grew at an annual rate of 1.7% in the third quarter of 2010, which is a slowdown fromthe levels seen a few years ago. For more than three years prior to the second quarter of 2010, inventory was growing inexcess of 2% annually. Units Under Construction 16000 Majority IL 14000 Majority AL 12000 Number of Units/Beds 10000 Majority NC 8000 6000 4000 2000 0 4Q2005 1Q2006 2Q2006 3Q2006 4Q2006 1Q2007 2Q2007 3Q2007 4Q2007 1Q2008 2Q2008 3Q2008 4Q2008 1Q2009 2Q2009 3Q2009 4Q2009 1Q2010 2Q2010 3Q2010 4Q2010 Source: NICMAP 5 integra realty resources ShhCp
    • Capitalization RatesHistorically, seniors housing capitalization rates have moved indicates that capitalization rates have fallen since then, andin lockstep with cap rates for other asset classes (the sole are now in the 7% to 8% range for high quality independentexception being SNF cap rates which have remained in a and assisted living assets in major markets. Nursing homefairly narrow band). This is shown in the graph that follows. capitalization rates continue to be in the 12% to 15% range, depending upon age, quality and location.As seen, apartment capitalization rates have started todecline in recent quarters, as investors have gotten more REITs have announced several large deals recently usingaggressive and long term financing rates have fallen to Taxable REIT Subsidiaries. The largest such deal is thehistorical lows. The most recent quarter that has been planned acquisition of Atria by Ventas in a deal valued atreported for seniors housing capitalization rates is the first $3.1 billion. The reported capitalization rate on the stabilizedquarter of 2010. Sale and pending sale data collected by IRR portfolio is a low 6.5%. Cap Rate Comparison 14% 13% 12% 11% Average Cap Rate 10% 9% 8% 7% 6% 5% 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 2006 2006 2006 2006 2007 2007 2007 2007 2008 2008 2008 2008 2009 2009 2009 2009 2010 2010 2010 Skilled Nursing 13.10%12.70%12.70%12.80%12.60%12.30%12.00%12.00%12.80%12.70%12.75%13.10%13.00%13.30%13.20%13.30%13.40%13.10%13.10% Assisted Living 8.90% 8.70% 9.20% 8.70% 8.80% 8.50% 9.00% 9.10% 8.80% 9.00% 9.20% 9.30% 9.40% 9.50% 9.60% 9.90% 9.80% 9.80% 9.80% 8.Independent Living 8.20% 8.30% 7.70% 7.70% 7.70% 7.90% 7.40% 7.30% 7.60% 7.80% 8.70% 8.70% 8.10% 8.50% 8.80% 8.80% 8.90% 9.40% 8.60% Class A Apartments 6.06% 6.01% 5.98% 5.97% 5.89% 5.80% 5.76% 5.75% 5.79% 5.75% 5.86% 6.13% 6.88% 7.49% 7.84% 8.03% 7.85% 7.68% Skilled Nursing Assisted Living Independent Living Class A Apartments Source: NIC & Korpacz2011 ForecastIt appears that occupancy levels for assisted living and New capital is likely to continue to flow into the sector. Thenursing bottomed in 2010, while independent living is still REITs that focus on seniors housing have built large warsearching for a floor. Absent a setback in the economic chests of funding, and will need to deploy it over the next fewrecovery, we anticipate occupancy levels in all three years. In addition, a number of institutional and opportunitysectors will rise throughout 2011. There is a low level of funds have been raised and are seeking opportunities tonew construction underway in the seniors housing market, invest this capital. While 2009 and 2010 saw very few salesbut demand will continue to grow. Thus, it is likely that transact, there have been several recent very large salesoccupancy levels and rent levels will increase for several announced and this is likely a sign of things to come. Due toyears as supply tightens. sound sector fundamentals and the opportunities for income growth, we expect to see capitalization rates decline relative to levels seen in 2009 and early 2010. 2011 SeniorS induStry outlook 6
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