Expanding on a recent blog post that detailed care segment performance in the Primary Markets since the most recent market cycle peak that was reached in the fourth quarter of 2014 for the seniors housing and care segments, this analysis goes a step further by  considering the market fundamentals of segments within continuing care retirement communities (CCRC segments), compared to non-CCRC segments in freestanding or combined communities. Also referred to as life plan communities, CCRCs offer multiple care segments (at minimum independent living and nursing care) typically by a single provider on one campus, and this analysis breaks the segments apart from the CCRC community type that NIC includes under the main category of Seniors Housing.

With the objective of making “apples to apples” comparisons, this data is useful for understanding the relative performance of care segments within CCRCs. In order to conduct the analysis, data was mined for 4Q2014 to 2Q2018 (the period under study) from the NIC MAP database for both CCRC entrance fee (EF) and rental payment types (note that 98.8% of Non-CCRC segments were rental). Although NIC MAP recently released 3Q2018 data, to be consistent with the prior blog post on which this analysis builds, 2Q2018 data is referenced.

For context, the seniors housing fundamentals in the Primary Markets since the first quarter of 2006 through the second quarter of 2018 showed peak and near-peak occupancy rates were reached in the quarters leading up to the Great Recession, and more recently, in the second half of 2014, when the occupancy rate hovered around 90% for several quarters. In the beginning of 2016 the seniors housing occupancy rate began a 10-quarter decline as inventory growth outpaced absorption, falling to 87.9% as of the second quarter of 2018. This was the lowest occupancy rate in seven years.

As previously reported, while all segments within the seniors housing category saw declines in occupancy for the period 4Q2014 to 2Q2018 due to inventory growth outpacing absorption, the independent living segment performed the best in terms of occupancy and average annualized asking rent growth. The memory care segment had the weakest comparative performance, overall, with the strongest change in inventory, which put pressure on the segment’s occupancy rates and rent growth.

This analysis goes a step further: CCRCs and Non-CCRCs

Occupancy

Across all segments, entrance fee CCRCs (CCRC EF in the tables) had stronger occupancy growth rates than rental CCRCs or non-CCRCs for the period under study (4Q2014 to 2Q2018).

The memory care and independent living segments in entrance fee CCRCs had the highest rates of occupancy growth, (1.9 and 1.5 percentage points, respectively). The weakest rates of occupancy growth were reported for the non-CCRC memory care and assisted living segments (-3.8 and -3.4 percentage points, respectively). Non-CCRCs, in general, had weaker occupancy growth rates by segment than CCRCs, but rental CCRCs performed worse than non-CCRCs in the nursing care segment in terms of occupancy.

In the second quarter of 2018, CCRCs had higher occupancy levels than non-CCRCs, and entrance fee CCRCs had higher occupancy levels than both rental CCRCs and non-CCRCs.

Inventory

In the Primary Markets, CCRCs account for 49% of the total independent living units, 12% of the total assisted living units, 9% of the total memory care units, and 10% of the nursing care beds.

Non-CCRCs generally had higher rates of inventory growth by segment than CCRCs, and entrance fee CCRCs had stronger rates of inventory growth than rental CCRCs. The highest rate of inventory growth was reported for non-CCRCs in the memory care segment (34.7%). The weakest was reported for the nursing care segment of rental CCRCs (-4.1%).

Asking Rent

Non-CCRCs and entrance fee CCRCs had slightly stronger average annualized asking rent growth by segment for the period than rental CCRCs in independent living and assisted living, and rental CCRCs had slightly stronger average annualized asking rent growth for memory care.

The strongest average annualized rent growth (3.3%) was noted for entrance fee CCRCs in the nursing care segment, rental CCRCs in the memory care segment, and non-CCRCs in the independent living segment. Non-CCRCs saw the weakest average annualized rent growth in the memory care segment (2.4%). Entrance fee CCRCs reported stronger average annualized asking rent growth in nursing care and assisted living than rental CCRCs or non-CCRCs.

In summary:

• Non-CCRC segments, in general, had weaker occupancy levels and growth rates than CCRCs. This may be because non-CCRCs had generally higher rates of inventory growth by segment.
• Entrance fee CCRCs generally had stronger occupancy growth rates by segment than rental CCRCs and non-CCRCs, and also had higher rates of inventory growth than rental CCRCs.
• Non-CCRCs and entrance fee CCRCs had stronger average annualized asking rent growth by segment for the period than rental CCRCs in independent living and assisted living. The strongest average annualized rent growth was noted for entrance fee CCRCs in the nursing care segment, rental CCRCs in the memory care segment, and non-CCRCs in the independent living segment.

Look for future blog posts from NIC to delve deep into the relative performance of care segments within CCRCs. This analysis, not available elsewhere, will be a continuing feature.

NIC MAP® Data Service clients attended a webinar in mid-October on the key seniors housing data trends during the third quarter of 2018.  Key takeaways included the following:

Takeaway #1:  Seniors Housing Occupancy Unchanged, but Remains Soft

• The all occupancy rate for seniors housing, which includes properties still in lease up, was unchanged from the second quarter and remained at 87.9% in the third quarter, but this was down 80 basis points from the third quarter of 2017. This was the lowest occupancy rate in seven years or since 2Q2011.
• This placed occupancy 1.0 percentage points above its cyclical low of 86.9% reached during the first quarter of 2010 and 2.3 percentage points below its most recent high of 90.2% in the fourth quarter of 2014.
• During the quarter, 4,378 units were added to inventory, significantly less than the record pace of nearly 6,300 units seen last quarter and less than the pace of one year ago, but still a lot by historical norms. Net absorption totaled 3,765 units, up from the second quarter, but not as strong as one year ago.
• On a four-quarter moving sum,  19,981 units were added to the stock of seniors housing inventory in the past 12 months, not a record high, but close to the peak of 20,015 achieved in the second quarter of 2017.  That represents a 3.4% increase in inventory in the past year.

Takeaway #2:  Assisted Living Occupancy Near Record Low Point of 2Q18

• Assisted living reached a near-record low occupancy rate of 85.3% in the third quarter. In the second quarter, the rate had reached an all-time low of 85.2%.
• There is a wide 250-basis point difference between stabilized and non-stabilized occupancy rates for assisted living. This stems from the large number of units that have  come online but are not yet leased up.  Based on data from NIC MAP Analyst report, there were 17,207 non-stabilized units in the third quarter, 6.2% of all inventory.

Takeaway #3:  Construction as a Share of Inventory Remains High

• In the third quarter, an estimated 36,902 units were under construction in the Primary markets.  This was the fewest units actively under construction since the first quarter or 2016, but still very high. This chart shows units under construction on the left axis and construction as a share of inventory on the right axis.  Construction includes any project that has broken ground and has not yet been opened.
• As a share of inventory, these units represented 6.0% of today’s stock.  This was below the four-time recent peaks of 7.0% or more seen in third and fourth quarters of 2016 and 2017.

Key Takeaway #4:  Annual Same-Store Rent Growth Above 2.5%

• Same-store asking rent growth for seniors housing accelerated in the third quarter, with year-over-year growth of 2.9%. This was up from 2.7% in the second quarter of 2018 but below the 3.8% rate it reached at the end of 2016.
• Asking rent growth for assisted living (orange line) was 2.6% for the third quarter, down 10 basis points from the second quarter. For independent living (blue line), rent growth accelerated back to 3.1% from 2.7% in the second quarter and 2.3% in the third quarter of 2017.
• This quarter, we’ve compared asking rent growth to the changes in average hourly earnings for assisted living workers, figures that are tracked and monitored by the U.S. Bureau of Labor Statistics. Average hourly earnings were up 4.2% for assisted living employees as of 2Q2018 Together, these lines show the pressure operators may be having as expense growth has been pressured higher, while rent growth has been easing.  For many operators, labor expenses amount to 60% of their expenses.
• There is wide variation in rent growth, however.  Among the Primary markets, the top ranked metropolitan areas for  year-over-year rent growth were Portland Oregon (5.1%), San Jose, Seattle and San Francisco.  Poorest rent growth was in Dallas, Kansas City, Cleveland and Atlanta.

Key Takeaway #5:  Seniors Housing and Nursing Care Pricing Down in 3Q18

• Preliminary data for the third quarter shows that the rolling four-quarter price per unit for seniors housing was $159,700 in the third quarter, which is the lowest price per unit since the second quarter of 2014.
• For skilled nursing, the price per bed was an estimated $71,200 as of the third quarter 2018, which is down 15.3% from the prior quarter.

For the 2018 NIC Fall Conference, the highly popular NIC Talks program returns with eight fresh speakers from beyond the seniors housing and care sector. As in previous years, the TED-style talks are designed to be insightful, highly relevant, and thought provoking – all in 12 minutes. This year’s speakers represent a wide range of talents and experience, all engaged in answering the question, “How am I changing the future of aging?”

In her NIC Talk, Lisa Marsh Ryerson, President of the AARP Foundation, will focus on the value of socialization and the impacts and threats of isolation and loneliness, both on seniors themselves, and on the costs involved in their care. Ryerson has a message: in the future, senior living residents will be known not just for what they did in their past, but what they are doing right now. She believes old age is entering a new era, and will illustrate how the current paradigm, in which seniors value safety, security and comfort, will be replaced as a new generation calls for engagement, connection, and purpose.

There are profound costs associated with loneliness and isolation. Prolonged isolation has been found to be equivalent to smoking 15 cigarettes a day, increasing the risk of morbidity – and the costs of care as well. In a recent AARP Public Policy Institute study, it was found that over four million Medicare recipients suffer from isolation. This population accounts for over $6.7 billion in increased spending annually, which comes to approximately $134 per month per individual.

But there is some good news. Ryerson’s work with the highly regarded Connect2Affect initiative indicates that, beyond adapting to shifting attitudes, investors, owners and operators stand to gain significant benefits by providing social engagement for tomorrow’s seniors. Not only will they achieve cost savings, but, for those that are willing to reimagine how they deliver value to residents, there is now a unique opportunity to align offerings to new demand. Ms. Ryerson says that she’s excited to address NIC’s Fall Conference, in part because she believes “this group is uniquely positioned to build the communities that will meet the demand of boomers, gen x’ers and subsequent generations. They have a real opportunity here.”

The newer generation of seniors will view aging very differently than current seniors housing and care residents. Boomers and succeeding generations will wish to live lives full of purpose, across their entire lifespan. It is possible that children today may reach average lifespans of 100 years. But they will want more than just a long life. They will want a full life, for as many of their years as possible. Rather than “retiring,” these younger seniors will want to remain connected to friends, family and community, and may do so for many more years than currently imagined. They might take up a second career or launch into new experiences that they’d deferred earlier in life. They will not be satisfied to retire and retreat from the community and are likely to demand that the place they call home enable these desires.

As communities begin to address these significant shifts in how seniors, and society, view aging, it will no longer be acceptable to separate and isolate seniors in “age-restricted communities.” Instead, look for “ageless communities” which provide for inter-generational living and plenty of access to the greater community beyond housing and care facilities. Expect these new types of communities to be viewed as assets to the greater community, full of new possibilities for residents, who will live longer and more engaged lives in the homes that they make there.

Be sure not to miss Ms. Ryerson’s NIC Talk for a more detailed and in-depth discussion on the future of aging, delivered by someone whose passion and energy are as compelling as the wealth of research and data she brings to bear on the issue.

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The Labor Department reported that there were 134,000 jobs created in the U.S. economy in September, well below the consensus expectation of 180,000.  However, revisions added 87,000 to the prior two months as August was revised to 270,000 from 201,000 and July to 165,000 from 147,000. The September figure may have been negatively affected by Hurricane Florence. Payrolls have averaged 190,000 per month for the last three months, up from 182,000 last year.

The unemployment rate declined to 3.7% in September from 3.9% in August and was at the lowest rate since December 1969. The jobless rate remains well below the rate of what is generally believed to be the “natural rate of unemployment” of 4.5% and continues to suggest that there will be growing upward pressure on wage rates.  The jobless rate is calculated from a different survey than the survey used to calculate the number of new jobs (the household versus the establishment survey, respectively).

A broader measure of unemployment, which includes those who are working part-time but would prefer full-time jobs and those that they have given up searching—the U-6 unemployment rate—rose to 7.5% from 7.4% in August, but was down from 8.3% a year ago.

In September, employment in health care rose by 26,000. In the past year, health care has added 302,000 jobs.

The labor force participation rate, which is a measure of the share of working-age people who are employed or looking for work was unchanged at 62.7%, near its cyclical low of 62.5% in October 2015.  The low rate at least partially reflecting the effects of an aging population.

Average hourly earnings for all employees on private nonfarm payrolls rose in September by eight cents to $27.24. Over the past 12 months, average hourly earnings have increased by 73 cents, or 2.8%.  Last year, they averaged 2.6%.

The September jobs report and the annual increase in average hourly earnings will provide further support for increases in interest rates through 2018 by the Federal Reserve. As widely expected, the Fed increased the fed funds rate by 25 basis points at its September FOMC meeting, the third increase in 2018.  The Fed has raised rates by a quarter percentage point eight times since late 2015, and most recently to a range between 2.00% and 2.25% after keeping them near zero for seven years.  It is widely expected that the Fed will raise rates at the next FOMC meeting to be held in December, with another three rate hikes anticipated in 2019, pushing rates toward 3.4% by 2020.

For consumers who save, higher rates are good news as their returns on CDs and money market accounts will grow at a faster pace.  But for borrowers—both consumers and businesses–higher rates are not good news as their borrowing costs will be higher.

This year at the 2018 NIC Fall Conference, we will be introducing Peer-to-Peer Salons as one of our newly enhanced educational program opportunities.  The Peer-to-Peer Salons provide a forum for an exchange of ideas across various perspectives from fellow industry professionals.  Salon participants will engage in discussions to gain new insights and better understanding from their peers on issues that the industry faces today or possibly in the future.

These timely topics will be professionally facilitated by Lisa Spinali—a thought leader who helps build cross sector solutions for public good—to ensure the discussion will have an impact on participants. This learning forum is unique compared to other educational sessions at NIC conferences.   Salon participants will share and potentially debate their respective viewpoints with colleagues to give shape and color to the discussion topics.

Our list of topics this year are:

• 9:45 am – 11:00 am -Labor Market: How Can We Better Navigate the Associated Challenges at Our Properties in the Increasingly Tight Labor Market?
• 11:15 am – 12:30 pm-Penetration Rates: What Opportunities Exist for Us to Increase the Penetration Rates Across Senior Care Properties Going Forward?
• 2:30 pm – 3:45 pm-Market Underwriting: Given the Current Competitive Market Conditions, How Do We Best Identify or Underwrite Markets for Investment?

If you are attending the 2018 NIC Fall Conference, we hope you will join us on Thursday, October 18th to participate in one of the three Peer-to-Peer Salons.  The salons are designed to engage all participants as we learn from one other. By participating in this session, you will gain insight on how fellow industry professionals are tackling hot button issues which can make a difference in how you navigate your business as you explore various options and potential paths forward.  Hope to see you there!