Investment Case For Seniors Housing
and Assisted Living Properties
Anthony J. Mullen, CPA, M.S.
Director of Executive Development, Johns
Hopkins/NIC Seniors Housing & Care Program
Occupancy Rates: For Stabilized Properties
(Those Open 24 Months or Longer)
91
100
91
90
88
90
88.5
88
89
88
89
80
60
40
20
Quarter Ending
© National Investment Center for the Seniors Housing & Care Industries
03
06
/3
0
/2
0
03
03
/3
1
/2
0
02
12
/3
1
/2
0
02
09
/3
0
/2
0
02
06
/3
0
/2
0
02
03
/3
1
/2
0
01
12
/3
1
/2
0
01
09
/3
0
/2
0
01
/2
0
/3
0
06
/3
1
/2
0
01
0
03
Median Occupancy Rate (%)
Independent Living
Occupancy Rates: For Stabilized Properties
(Those Open 24 Months or Longer)
© National Investment Center for the Seniors Housing & Care Industries
03
/3
0
06
/3
1
03
/2
0
03
89
/2
0
02
/3
1
/2
0
02
/3
0
09
/3
0
06
Quarter Ending
90
89.5
/2
0
02
90
/2
0
02
/2
0
/3
1
/2
0
/3
1
90
12
91.5
01
91.5
01
09
/3
0
/2
0
01
/2
0
06
/3
0
/2
0
/3
1
91.5
03
92
12
92.5
01
100
90
80
70
60
50
40
30
20
10
0
03
Mean Occupancy Rate (%)
CCRCs
Occupancy Rates: For Stabilized Properties
(Those Open 24 Months or Longer)
© National Investment Center for the Seniors Housing & Care Industries
03
06
/3
0
/2
0
03
03
/3
1
/2
0
02
/3
1
12
/3
0
09
Quarter Ending
84
83
/2
0
02
86
/2
0
02
06
/3
0
/2
0
02
/2
0
/3
1
03
86
84
83
01
/3
1
/3
0
/2
0
01
83.5
/2
0
01
06
/3
0
/2
0
01
/2
0
/3
1
85
84
12
86
09
100
90
80
70
60
50
40
30
20
10
0
03
Median Occupancy Rate (%)
Assisted Living Properties
Move-in Rates: For Properties Not Yet Stabilized
(Those Open Less Than 24 Months)
7
6.3
6
5
4.9
4.5
5
4
3.8
4
2.9
3
2.3
2
1
Quarter Ending
© National Investment Center for the Seniors Housing & Care Industries
03
06
/3
0
/2
0
03
03
/3
1
/2
0
02
12
/3
1
/2
0
02
09
/3
0
/2
0
02
06
/3
0
/2
0
02
03
/3
1
/2
0
01
/2
0
/3
1
12
/3
0
/2
0
01
0
09
Net # of Units/Month
Independent Living
Move-in Rates: For Properties Not Yet Stabilized
(Those Open Less Than 24 Months)
Assisted Living Properties
Net # of Units/Month
7
6
5
3.8
4
3.3
3.1
3
2
1.6
1.9
1.9
03/31/2002
06/30/2002
2.2
2.4
12/31/2002
03/31/2003
1
0
09/30/2001
12/31/2001
09/30/2002
Quarter Ending
© National Investment Center for the Seniors Housing & Care Industries
06/30/2003
Capitalization Rates
Independent Living
14
12
10.5
10.2
10.1
9.95
10.5
10.1
10.4
10
9.9
10
8
6
4
2
Quarter Ending
© National Investment Center for the Seniors Housing & Care Industries
03
06
/3
0
/2
0
03
03
/3
1
/2
0
02
12
/3
1
/2
0
02
09
/3
0
/2
0
02
06
/3
0
/2
0
02
03
/3
1
/2
0
01
12
/3
1
/2
0
01
09
/3
0
/2
0
01
/2
0
/3
0
06
/3
1
/2
0
01
0
03
Mean Cap Rate (%)
10.2
Capitalization Rates
Assisted Living Properties
12
11.2
11.2
11
10.9
10.75
11.1
11
11
11.4
10.9
10
8
6
4
2
Quarter Ending
© National Investment Center for the Seniors Housing & Care Industries
03
06
/3
0
/2
0
03
03
/3
1
/2
0
02
12
/3
1
/2
0
02
09
/3
0
/2
0
02
06
/3
0
/2
0
02
03
/3
1
/2
0
01
12
/3
1
/2
0
01
09
/3
0
/2
0
01
/2
0
/3
0
06
/3
1
/2
0
01
0
03
Mean Cap Rate (%)
14
Loan Performance for Permanent Debt
Performing*
Non-Performing**
In Foreclosure
Proportion of Outstanding Investments
100
98
97.8
97.4
97.1
98.2
98
97.4
90
80
70
60
50
40
30
20
10
2.7
0.2
2.5
0.1
2
0.2
1.9
0.1
1.9
0.1
1.7
0.1
2.4
0.2
0
12/31/2001
03/31/2002
06/30/2002
09/30/2002
12/31/2002
03/31/2003
06/30/2003
Quarter Ending
*Performing may include some loans not in compliance with non-payment financial covenants or on watch list.
**Non-performing includes loans 2 or more payments delinquent
© National Investment Center for the Seniors Housing & Care Industries
Total Units Under Construction by Property Type: 2003
10000
8789
7732
8000
6028
6147
Independent
Living
Assisted Living
6000
4000
2000
0
Seniors
Apartments
Source: ASHA Seniors Housing Construction Report 2003
CCRCs
Seniors Housing Construction: Total Units by Property Type 1999 & 2003
40000
31273
30000
1999
20000
17749
13042
8789
10000
6147
6028
7732
3815
0
Seniors
Apartments
Independent
Living
Assisted
Living
Source: ASHA Seniors Housing Construction Report 2003
CCRCs
2003
Properly Weighted Seniors Population Growth Rates per Year
2000-2005
2000-2015
Seniors Apartments
1.2%
1.8%
Independent
1.25%
1.6%
Assisted Living
1.9%
2.0%
0.9%
0.9%
Compare to:
Overall Population
Note: Based upon actual 5-year cohort growth
rates and age of residents at entrance.
Source: KMF Senior Housing Investors
The Powerful Investment
Benefits of Operating Leverage
Due to the high expense to revenue ratio of IL, AL, and CCRC,
there is a significant increase in NOI when expense increases
can be held 1% to 2% (absolute) below revenue increases.
60% Expense / 40% NOI Margin
70% Expense / 30% NOI Margin
Revenue %
5%
4%
5%
4%
Expense%
4%
3%
4%
3%
6.5%
5.5%
7.3%
6.3%
NOI%
Margins Vary Significantly
(after management fee and cap x)
Assisted
Living
Independent
Living
CCRC
Lower
Quartile
18.8%
24%
6.9%
Median
28.3%
33%
29.7%
Upper
Quartile
34.3%
41.6%
34.1%
•82% difference between lower and upper quartile in AL
•73% difference between lower and upper quartile in IL
•394% difference between lower and upper quartile in CCRCs
Source: ASHA The State of Seniors Housing 2003
Upper Quartile Current Returns on Investment
(Unlevered)
•Independent Living 14.5%
•Assisted Living
16.0%
•CCRCs
24.0%
Source: ASHA The State of Seniors Housing 2003
Margins Can Be Misleading
Net Operating Income, Per Unit After Management
Fee and Cap X, is the Key Number to Focus On
Assisted Living
Independent Living
Lower Quartile
$5,383
$6,019
Median
$9,113
$8,684
Upper Quartile
$11,695
$11,485
Source: ASHA The State of Seniors Housing 2003
The Powerful Investment
Benefits of Financial Leverage
Especially With a Large Difference
Between Cap Rate and Interest Rate
75% Debt / 25% Equity
70% Debt / 30% Equity
Cap Rate
10%
11%
10%
11%
Interest Rate
6.5%
6.5%
6.5%
6.5%
ROE
20.5%
24.5%
18%
21.5%
16%
20%
14.5%
18%
ROE w/25 year
amortization*
* True ROE is about 1% (absolute) higher due to principal amortization,
which is not accounted for in the return calculation.
Needs-Influenced vs. Needs-Driven Element of IL vs. AL
Proportion of Residents by Urgency of Move
CCRC**
Independent**
AL*
Extremely
5%
7%
32%
Very
6%
11%
30%
Somewhat
30%
31%
20%
Not
25%
26%
14%
Not at All
34%
25%
4%
** CCRC and Independent Data: ASHA Independent Living Report
* AL Data: NIC National Survey of Adult Children
Yearly Median Increases in Resident Revenue
Independent Living
IN HOUSE
STREET
2002
4%
5%
2001
4.5%
5%
2000
4%
5%
1999
4%
4%
1998
4%
4%
1997
3.5%
4%
1996
3.5%
4%
1995
4%
4%
1994
4%
4.5%
Source: ASHA The State of Seniors Housing 2003
Yearly Median Increases in Resident Revenue
Assisted Living
IN HOUSE
STREET
2002
5%
5%
2001
5%
5.5%
2000
4%
4.5%
1999
3.5%
5%
1998
4%
5%
1997
3.5%
5%
1996
4%
5%
1995
4%
5%
1994
4%
4%
Source: ASHA The State of Seniors Housing 2003
Have You Ever Visited a Retirement Community to
Consider It As a Place For You to Live?
25%
23.7%
20%
16.4%
15%
10%
9.7%
5%
0%
1997
Source: NIC National Housing Survey
1998
2000
Proportion of Prospects by Attitude Toward
Age-Qualified Community
Prefer Age-Qualified
No Preference
40
Percent by Category
30.8
30
23.4
18.2 18.2
20
17.9
12
10.6
10
8.2
0
No Move
Source: NIC National Housing Survey
Thinking
Plans
Decided
Proportion Age 60+ Households by Preference for
Age-Qualified Community by Wave of Survey
Prefer All-Ages
100%
90%
No Preference
8.3
10.2
8.2
8.1
Percent in Category
80%
Prefer Age-Qualified
10.4
19.9
70%
60%
50%
40%
83.5
81.7
69.7
30%
20%
10%
0%
1997 Wave
Source: NIC National Housing Survey
1998 Wave
2000 Wave
Proportion of Age 60+ Households by Plans to Move
to a Retirement Community by Wave of Survey
1997 Wave
1998 Wave
10
2000 Wave
8.9
Percent by Category
8
6
5.2
4.4
4
2
2.9 3.3
1.9
0.9 0.8 1.2
0
Thinking of Moving
Source: NIC National Housing Survey
Move in Future
Move Within 6
Months
Today – Here vs. Previous
More Frequently
With Friends
45
New Friends
61
New Activities
37
Exercise
35
37
Recreation
Day Trips
22
Shopping
15
Religious
14
0
10
20
Source: American Seniors Housing Association
30
40
50
60
70
I Am Healthier Today
50
45.7
45
40
35
29.1
30
25
20
15
13
11.1
10
5
1.3
0
Stongly
Agree
Agree
Source: American Seniors Housing Association
Neutral
Disagree
Stongly
Disagree
Satisfaction With Quality of Life in This Community?
Dissatisfied
Very
1%
Dissatisfied
Neutral
0%
5%
Satisfied
44%
Source: American Seniors Housing Association
Very
Satisfied
50%
Willing to Recommend to my Friends
50
46.9
45.4
40
30
20
10
6.7
0.6
0.3
Disagree
Stongly
Disagree
0
Strongly
Agree
Agree
Source: American Seniors Housing Association
Neutral
Homeownership Rates
Source: U.S. Census Bureau
Population Distribution of Disabilities 1982 to 1999
Over-65 Year Old Population
Distribution by Disability
1982
1984
1989
1994
1999
Nondisabled
73.8%
73.8%
75.6%
77.5%
80.3%
IADL only
5.7
6.2
4.8
4.4
3.2
1 or 2 ADLs
6.9
7.0
6.7
6.1
6.0
3 or 4 ADLs
3.0
3.1
3.7
3.4
3.5
5 or 6 ADLs
3.7
3.4
3.0
3.0
2.9
Institutional Residents
6.8
6.6
6.1
5.7
4.2
Source: Manton and Gu. Proceeding of the National Academy of Sciences, 98(11), pp.6354-6359.