Things are looking up--selectively.

Most skilled nursing operators will probably not be surprised by recent national data showing that the sector's occupancy rates have been recovering over the past year. Of course, broad generalizations do not always apply to individual markets. In fact, new data now available on individual markets shed light on how local conditions can positively or negatively affect performance--sometimes quite differently from what is observed nationwide.

Occupancy in the Top 30 Markets

Since the first quarter of 2004, the National Investment Center for the Seniors Housing & Care Industries (NIC) has tracked key seniors housing and care data in the nation's top 30 metropolitan statistical areas (MSAs). Known as NIC Market Area Profiles (or NIC MAP[TM]), it gives providers detailed quarterly information on revenue, occupancy, property, and demographic data. NIC MAP tracks data on market-rate properties with 25 or more units or beds, of which there are more than 7,000 in the top 30 MSAs.

One of the key insights from the NIC MAP data is that very high penetration rates appear to negatively affect occupancy. (In NIC's research, "penetration" is defined as the number of units or beds available for all the age 75+ households in a certain market.) For example, six of the bottom ten MSAs that NIC has ranked in terms of their overall occupancy rate (for all property types combined) are ranked among the top ten on highest overall penetration rate.

But this penetration-to-occupancy correlation does not always hold true. For instance, Portland, Oregon, was ranked 28th (third lowest) for penetration in skilled nursing during the fourth quarter of 2004. Its penetration rate was 6.3%, compared with a 12.2% average for all 30 MSAs. "Knowing this, one would think that Portland would have a high occupancy rate," observed Michael Hargrave, NIC MAP director of sales and marketing. "But, in fact, our data show that Portland has the lowest occupancy rate of the top 30 MSAs. Why is that? We believe that part of the answer has to do with the state's Medicaid-waiver program, which actively tries to keep seniors from moving to skilled nursing."

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While further evidence from statewide data is necessary to know for certain, NIC MAP data support this reasoning. During the same quarter, Portland's median occupancy rate for skilled nursing was 75.2%, approximately 1,200 basis points lower than the rate for St. Louis (which was the 29th ranked MSA for occupancy at 85.7%). Portland's figure pales in comparison with the median occupancy rate for skilled nursing for all 30 MSAs (93.1%). Moreover, Portland has the highest penetration rate for assisted living at 8.9%, with the next highest being 5.2% for Minneapolis. Portland also has the 4th highest occupancy rate for assisted living at 96.1%.

Comparison With National Occupancy Rates

How do these metrics within the top 30 MSAs compare with national trends? In the fourth quarter of 2004, national occupancy rates for all seniors housing and care sectors continued an upward trend, according to the NIC Key Financial Indicators[TM]. This information--along with other financial and performance benchmarks, such as loan volume, move-in rates, and capitalization rates--is gathered every quarter by NIC from senior living's leading lenders, owners/operators, and appraisal professionals.

In fact, 2004 was the best year ever tracked by NIC in terms of year-over-year occupancy increases. All the property types were up, except for independent living. That sector has stayed pretty much at the 90% level for about four-and-a-half years. Median occupancy rates for both skilled nursing and assisted living were up 200 basis points from 86 to 88%. Although the nationwide median occupancy rate climbed during 2004 for skilled nursing, it has been between 86 and 88% for the last seven quarters. However, NIC MAP data from the fourth quarter of 2004 show that occupancy rates for skilled nursing and assisted living are significantly higher in the top 30 MSAs than they are nationwide.

What factors might cause these differences? For one thing, it is possible the top 30 MSAs have significantly more barriers to entry for new facilities. That is, land is likely scarcer and more expensive in more heavily populated areas.

What This Means for Operators

As can be seen, occupancy rates in individual markets do not necessarily parallel those reported on a collective, national basis. Depending on a provider's needs, such as better asset management or competitive benchmarking, obtaining individual market data is desirable. MSA data can be used for overall strategic direction and to evaluate market trends as they are happening to take advantage of opportunities and to avoid potentially negative investments.

The information also can be used to make market-by-market comparisons. For example, New York and Chicago rank first and second in total numbers of nursing beds, according to the NIC MAP data. New York ranks second highest of all 30 MSAs based on occupancy (at 96.1%), while Chicago ranks 26th (at 87.8%). Interestingly, the nursing care penetration for both markets is similar, with New York ranking 10th (12.2%) and Chicago ranking 6th (14.8%).

Other MAP data show that inside the New York MSA, 19.5% of properties are part of a chain, compared with 51.6% of the properties in the Chicago MSA. New York also has the highest (in the top 30 MSAs) realized revenue from private pay ($7,752), while Chicago ranks in the bottom 10 ($4,059). "Our data show the New York MSA has high supply factors, but even stronger demand factors, which makes it an excellent market for nursing care," says Hargrave.

Anthony J. Mullen is Research Director for the National Investment Center for the Seniors Housing & Care Industries (NIC). Founded in 1991, this nonprofit organization uses proceeds from its annual conference to fund original research, particularly that dealing with business strategy and capital formation for the industry. For more information about NIC's Key Financial Indicators, online resources, research, and annual conference--scheduled next for September 28-30, 2005, in Washington, D.C.--visit www.NIC.org or call [phone]. NIC MAP is available by subscription. For more information on NIC MAP, visit www.nicmap.org. To send your comments to the author and editors, e-mail [e-mail].