Senior Living (October 2006)

Senior living net incomes rose last year


By Murray W. Wolf

Net operating income rose sharply last year among the senior living communities surveyed in “The State of Seniors Housing 2006” survey, which was released Sept. 27.

The 14th annual survey, which was based on fiscal 2005 data, was a collaborative effort of The American Seniors Housing Association (ASHA), the National Investment Center for the Seniors Housing & Care Industry (NIC), PricewaterhouseCoopers, LLP (PwC), and the American Association of Homes and Services for the Aging (AAHSA).

The survey included 462 respondents, including 237 independent living communities with a total of 39,668 units, 178 assisted living residences with a total of 15,683 beds and 47 continuing care retirement communities (CCRCs) with 19,856 units.

Of the 88 senior living communities that contributed survey data in both 2004 and 2005, median net operating income (NOI) increased appreciably last year for all three property types surveyed. NOI (which is total revenues minus total operating expenses) increased 26.1 percent for CCRCs, 17 percent for independent living communities and 8.4 percent for assisted living residences.

“This demonstrates the dramatic operating leverage available to senior housing operators when revenues are increased even slightly more than total operating expenses,” according to the report.

Occupancy rates increased modestly for all three product types among the 88 communities that contributed survey data both years. Occupancy rates increased 2.6 percent for assisted living residences, 2.2 percent for independent living communities and 1.4 percent for CCRCs.

Among the 462 survey respondents, median occupancy was 92.9 percent in 2005, including 94 percent for CCRCs, 93.9 percent for independent living communities and 90.7 percent for assisted living residences. The overall figures reflect an increase from the previous year, although occupancies rates were still well below the mid- to upper 90 percent medians the survey found in the mid-1990s. However, unlike the NOI data above, the report cautions that “each yearly sample consists of different communities, so caution should be used when making year-to-year comparisons or inferences about underlying trends.”

The median resident turnover rates were 15.6 percent for CCRCs, 33.9 percent for independent living and 55.9 percent for assisted living. Again, the figures aren’t directly comparable because different properties were surveyed, but the survey data suggests that turnover rates have been relatively flat for the past four to five years.

The median increase in in-house rents (rental fees charged to existing residents) was 5 percent for both CCRCs and assisted living facilities, and up 4 percent for independent living communities. Street rents (rental fees charged to new or prospective residents) increased by similar amounts.

The median operating margin was 28.5 percent. The median operating margin was 32.4 percent for independent living, 28.8 percent for assisted living and 24.2 percent for CCRCs.

The median property size for all communities was 122 beds/units. The median property size was 327 beds/units and 360,077 square feet (gross) on 26 acres for CCRCs, 156 beds/units and 129,280 square feet on 6 acres for independent living communities, and 93 beds/units and 42,943 square feet on 4 acres for assisted living residences.

The median time a property had been open was 6.5 years. The median age was 5 years for assisted living residences, 14 years for independent living communities and 16 years for CCRCs. Nearly 80 percent of the properties were built before 2000.

“The majority of all communities (90.7 percent) and units/beds (83.4 percent) … are owned by for-profit entities,” the report stated. Nearly 60 percent of the facilities are managed by a third party of an affiliate of the owner.

The median return on investment (ROI) was 16.4 percent for CCRCs, 12.2 percent for assisted living residences and 9.9 percent for independent living communities. The figures reflect the current unleveraged ROI for for-profit communities that were open for at least two full years at the time of the survey.

Most of the survey data came from senior living facilities in the West (26.8 percent of all units/beds) and Southeast (25.9 percent), and suburban metro areas (77.9 percent).

Copies of “The State of Seniors Housing 2006” are available form ASHA publications at (202) 237-0900 and on ASHA’s Web site, q

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