THE STATE OF SENIORS HOUSING
For the fifth consecutive year, the American Seniors Housing Association (ASHA), together with the American Health Care Association and the Assisted Living Federation of America, distributed survey questionnaires to owners and managers of seniors housing residences throughout the United States. Respondents were asked to complete separate surveys for each of their company's residences.
'The State of Seniors Housing 1997' summarizes fiscal year 1996 data from a national survey of 268 seniors housing communities comprising more than 55,000 independent living units, assisted living beds, and long-term care beds.
We thank ASHA Executive Director David Schless for his permission to present excerpts of this report. Please call 202/974-2300 for information about ordering the complete report.
NOTABLE SURVEY FINDINGS
Median occupancy rates for all sample segments are in excess of 94 percent.
Annual resident turnover rates in assisted living communities catering to low acuity residents are considerably less than for those catering to high acuity residents.
Median rental fees for independent living units and assisted living beds contained within CCRCs samples are greater than those for free-standing congregate and assisted living communities.
Despite varying annual resident turnover rates between the three sample segments, marketing/advertising expenses per occupied unit are remarkably similar for each segment.
While larger residences in each sample segment enjoy higher operating margins due to economies of scale, bottom line results, as measured by net cash flow per occupied unit, do not appear to be affected by community size.
Year-to-year percentage increases in rental fees for all communities exceed percentage increases in broad consumer price indices over the same period.
On a 'same store' basis, assisted living communities sampled had significantly larger percentage increases in key operating results and enjoyed the highest percentage increase (15.7 percent) in net operating income.
Median management fees, as a percentage of total revenues, are 6 percent for assisted living communities, compared to 5 percent for congregate communities, and 4.6 percent for CCRCs.
Gross operating margins for congregate communities exceed those of other sample segments, which is similar to past survey findings.
Median debt service coverage ratios for all communities operated by for-profit owners exceed 1.4 to 1 for all sample segments.
Median current returns on investment continue to increase compared to prior survey results.
Of the 268 communities in this year's survey sample, approximately 42 percent are categorized as congregate residences, 34 CCRCs, and the balance, (25 percent) assisted living communities. The number and percentage of CCRCs has increased from prior years' survey samples, resulting in a more evenly distributed sample of communities. The sample comprises a total of 55,273 units, with approximately one-half found in CCRCs, 39 percent in congregate communities, and 11 percent in assisted living communities. However, because both congregate communities and CCRCs may contain assisted living units, assisted living units account for 21 percent of all units in the sample. Only three of the 68 assisted living communities in the sample indicated that they were not licensed.
Occupancy levels remain very strong as illustrated by rates in excess of 94 percent for all property types. Occupancy rates for congregate communities were marginally higher, and there is virtually no difference in occupancy rates between for-profit and not-for-profit communities.
All sample segments experienced relative increases in occupancy during 1996, led by assisted living communities with a median increase of 2.68 percent. The fact that occupancy rates in each of the last several surveys have continued to increase suggests continued strong demand for seniors housing.
Median annual turnover is highest for assisted living communities, followed by congregate communities and CCRCs. Compared to last year's survey sample, there appears to be a widening difference in turnover rates between assisted living communities serving low acuity versus high acuity residents.
The inverse of resident turnover is the average length of stay (in months); as annual turnover increases, length of stay shortens. Because CCRCs offer more housing and health care options than other industry segments, residents are typically younger upon entrance and stay longer. Large entrance fees or fee simple investments tend to result in longer overall resident tenure in this industry segment.
ANNUAL FINANCIAL RESULTS PER OCCUPIED UNIT
As expected, median total revenues per occupied unit/bed are highest for CCRCs because these communities generally offer the greatest array of personal and health care services.
Examining rental revenue by care level and unit/bed type reveals that CCRCs also have the highest median rental rates for independent living units and assisted living beds compared to similar units/beds in congregate and assisted living communities, respectively. For example, the median annual independent living unit rental rate for CCRCs is $20,108 ($1,676 monthly) compared to $17,418 ($1,452 monthly) for congregate communities.
Similarly, the median annual assisted living bed rental rate for CCRCs is $23,386 ($1,949 monthly) compared to $22,574 ($1,881 monthly) for free-standing assisted living communities. Labor-related expenses, including payroll taxes and benefits, are typically the largest major expense category for all seniors housing communities. The analysis of direct labor by department illustrates that those departments that provide services or care directly to residents (e.g., dietary, assisted living, and skilled nursing) are most costly.
Raw food, utilities, and management fees are the highest non-labor related expenses for all communities, while property insurance is the lowest. Marketing/advertising expenses are remarkably similar for all community types.
Due primarily to lower staffing requirements, particularly regarding caregivers, the congregate communities sampled have a higher median net operating income per occupied unit than assisted living communities. Because of higher debt/lease costs, however, congregate communities trail both assisted living communities and CCRCs in net cash flow per occupied unit.
FINANCIAL PERFORMANCE INDICATORS
(FOR-PROFIT COMMUNITIES ONLY)
To represent the overwhelming percentage (80 percent) of owners who produce profits for their stakeholders, key financial performance indicators are presented for the for-profit segment of the sample only. All communities in this analysis had stabilized occupancy levels and operations during calendar or fiscal year 1996.
As in last year's survey sample, for-profit congregate communities generated higher gross operating margins than for-profit assisted living communities and CCRCs. Despite higher operating margins, congregate communities in past samples had underperformed assisted living communities and CCRCs in most other key performance categories. In this
years sample, however, the congregate segment leads the way with the lowest debt-to-equity ratio and is second, after the assisted living segment, in debt service coverage.
Median debt service coverage ratios are above 1.4 for all industry sectors, which is indicative of excellent operating results and manageable debt levels. The assisted living segment recorded the most significant improvement from the prior year's sample, increasing from a median of 1.56 to 1.89. This improvement may be due to historically low interest rates, as well as the fact that 20 communities, or approximately 30 percent of the assisted living sample, are subject to operating leases and are thus debt-free. Median debt levels, as measured by debt-to-equity ratios, are between 2.6 and 6.0, which equate to leverage in the range of 60 to 83 percent of total cost. While these levels are aggressive, they are manageable and not uncommon for real estate-related investments. U
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|Date:||Jul 1, 1998|
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