Average Occupancy Rates Up Slightly for Assisted Living and Skilled Nursing, According to NIC Key Financial Indicators.

Business Editors/Health & Medical Writers

ANNAPOLIS, Md.--(BUSINESS WIRE)--Oct. 7, 2002

Average occupancy rates for assisted living and skilled nursing properties rose slightly in the second quarter of 2002, according to the most recent figures released today by the National Investment Center for the Seniors Housing & Care Industries (NIC).

The NIC Key Financial Indicators, updated quarterly and posted on www.NIC.org, include details on occupancy rates, as well as loan volume and loan performance, move-in rates, construction starts, and capitalization rates as reported by the leading lenders, owners/operators and appraisal professionals in the seniors housing and care industry.

The Key Financial Indicators for the second quarter of 2002 showed that average assisted living occupancy rates edged up a half point (84 to 84.5 percent) from the first quarter. The occupancy rates were gathered from more than 1,400 professionally managed assisted living properties and represented almost 100,000 units.

During the same period, average occupancy rates for skilled nursing increased a point from 82.5 to 83.5 percent, representing more than 1,200 properties reporting and comprising almost 150,000 units.

"This quarter saw an increase in the numbers of properties and units reported from essentially the same operators," said Harvey N. Singer, NIC research director. "This is good news, because it means that occupancy rates held steady or increased, in spite of additional properties that have now stabilized, that is, been open two years or longer."

Net move-in rates held steady at 1.9 per month during the second quarter for assisted living properties open less than two years. "While the lack of further decay is encouraging," said Robert G. Kramer, NIC executive director, "properties with a net move-in rate of 1.9 are likely not generating enough cash to avoid the necessity of tapping into existing equity for cash flow purposes."

Also found in the Key Financial Indicators section of the NIC Web site, construction starts reported for assisted living from McGraw Hill's Dodge Seniors Pipeline information service declined slightly during the quarter from 71 to 66 properties. But that pace is significant enough to generate approximately 15,000 new units a year, if all the reported units get built.

That is roughly a 2 percent annual growth rate in numbers of units, matching (but not exceeding) the population growth rate for target age groups. However, evidence suggests that the majority of these new starts are neither found in the large metropolitan markets nor funded by national lenders. Rather, they are apparently being built in secondary or tertiary markets and funded by local banks.

"It's also the most significant level of construction activity of any seniors property type," emphasized Singer.

During the second quarter of 2002, capitalization rates held steady for assisted living (from 11.2 to 11.1 percent) and went down for congregate (from 10.5 to 10.1 percent). On the other hand, capitalization rates went up for skilled nursing (from 12.4 to 12.8 percent) and up slightly for continuing care retirement communities (from 10.75 to 10.9 percent).

However, the range between the low and high capitalization rates was wider than the previous quarter. Singer said this suggests that there is more discernment in the market about the value of productive versus troubled properties. Also, the volume of reported transactions almost doubled (from 95 to 172), suggesting a fairly significant level of activity.

The total amount of project financing placed in the second quarter of 2002 by major, national lenders totaled $405 million, down from $444 million the previous quarter.

But reported loan performance - categorized as loans being paid back, rather than in delinquency or foreclosure - improved from 91 percent (restated to reflect comparable data) the first quarter to 95.7 percent the second quarter.

"However, there are still a lot of lenders who have not taken action, particularly with assisted living properties that may be listed as performing and making payments, but not currently meeting all debt covenants," said Anthony J. Mullen, NIC research chair, and managing director of KMF Senior Housing Investors LLC. "The reason these properties haven't restructured is because lenders have exercised patience since they haven't had a lot of other options."

For more than two years, the NIC Key Financial Indicators have represented the largest, most up-to-date, single compilation of financial benchmarks in the seniors housing and long term care industry.

Founded in 1991, the National Investment Center for the Seniors Housing & Care Industries is a nonprofit organization providing information about business strategy and capital formation for the seniors housing and care industry. Proceeds from its annual conference - scheduled next for October 16-18, 2002, in Washington, D.C. - are used to fund research on issues of importance to the industry.

For more information, visit www.NIC.org or call [phone].