“In many parts of the country the occupancy challenge is not a demand issue, but a labor supply issue” – Bill Kauffman

NIC MAP^® Data Service, powered by NIC MAP Vision, released its latest Skilled Nursing Monthly Report on December 30, 2021. The report includes key monthly data points from January 2012 through October 2021.
Here are some key takeaways from the report:

Skilled nursing property occupancy increased 28 basis points in October to 75.4%, reversing a similarly- sized decline in September. The occupancy rate is now 382 basis points above the low point reached in January 2021 (71.6%.) The cautious optimism for a recovery in occupancy at the beginning of 2021 was challenged by the rapid spread of the contagious COVID-19 Delta variant over the summer. Another factor that became more evident as 2021 progressed was the severe labor shortage in the sector, which has continued to cause many properties to limit admissions and subsequently slowed the recovery in occupancy. The question remains as to how fast the industry can increase occupancy to a sustainable level as staffing shortages are likely to remain challenging in 2022. Additional challenges may be on the horizon with the arrival of the fall/winter season and as the new Omicron variant becomes dominant. Occupancy remains very low compared to February 2020 pre-pandemic levels of 85.8% (10.4 percentage points.)

Managed Medicare revenue per patient day (RPPD) resumed its downtrend in October and fell 0.2% to $448.69. It is now down 3.3% from year-earlier levels and has been declining since NIC began reporting this data in 2012. This persistent decline in managed Medicare RPPD continues to result in an expanded reimbursement differential between Medicare fee-for-service and managed Medicare, which has accelerated during the pandemic. Medicare fee-for-service RPPD ended October 2021 at $570.25 and managed Medicare ended at $448.69, representing a $121.57 difference. Pre-pandemic, in February of 2020, the differential was $96. Meanwhile, Managed Medicare revenue mix held relatively steady from September to October at 10.4%. It is down from its 2021 high of 11.2% in February but is up from the pandemic low set in May 2020 of 8.4%. Managed Medicare admissions to skilled nursing properties have increased from pandemic lows when elective surgeries were suspended, but they are likely lower than before the pandemic.

Medicare revenue mix increased from September to October. However, it has also been trending down since January 2021, dropping 455 basis points to 20.2%. This suggests that utilization of the 3-Day Rule waiver fell as COVID-19 cases declined relative to the month of January. The 3-Day Rule waiver was implemented by Centers for Medicare and Medicaid Services (CMS) to eliminate the need to transfer positive COVID-19 patients back to the hospital to qualify for a Medicare-paid skilled nursing stay, hence increasing the Medicare census at properties. Medicare RPPD increased from $566 in September to $570 in October. Some of this increase is likely a result of the increase in Medicare rates to skilled nursing properties for fiscal year 2022. However, it has decreased 0.8% from one year ago which is most likely due to less reimbursement needed for COVID-19 positive patients. During the pandemic, there has been support from the federal government to increase Medicare fee-for-service reimbursements for COVID-19 positive patients requiring isolation. Resident COVID-19 cases are now lower compared to October 2020, according to NIC’s Skilled Nursing COVID-19 Tracker. 

Medicaid RPPD increased from September to end October at $249. Medicaid RPPD was trending downward from January 2021 through June but started to increase in July which suggests additional reimbursement for COVID-19 positive patients as the Delta variant spread over the summer. Medicaid reimbursement has increased more than usual as many states acted to increase reimbursement related to COVID-19. This latest monthly data shows a 5.2% increase since February 2020, prior to the pandemic. Covering the cost of care for Medicaid patients is still a major concern as reimbursement does not cover the cost in many states. Nursing home wage growth is elevated, as is inflation as measured by the Consumer Price Index (CPI,) and staffing shortages are a significant challenge around the country. Expectations are that wage growth will remain elevated as staffing challenges persist into 2022.

To get more trends from the latest data download the Skilled Nursing Monthly Report. There is no charge for this report.

The report provides aggregate data at the national level from a sampling of skilled nursing operators with multiple properties in the United States. NIC continues to grow its database of participating operators to provide data at localized levels in the future. Operators who are interested in participating can complete a participation form. NIC maintains strict confidentiality of all data it receives.

Though rising inflation and a new COVID variant may cloud the recovery, the right borrowers have a variety of financing options. Traditional lenders are cautiously making loans. Government sponsored lenders are dialing back restrictions. And new debt sources are filling the capital gap, which should help boost deal-making activity going forward.

“There will be more transactions next year,” predicted Kelly Sheehy, principal and managing director, healthcare, at Artemis Real Estate Partners. “Debt will be available.”

Sheehy and other lenders discussed debt market trends during a panel discussion at the recent 2021 NIC Fall Conference in Houston. The panel acknowledged the ongoing uncertainty around COVID-19 and its impact on the industry, along with the prospect of rising interest rates. But they were mostly upbeat that lenders and borrowers will continue to work their way through the issues with a better understanding of how to adapt to a variety of changing circumstances.

Lenders are monitoring occupancies carefully. Continuing care retirement communities and independent living properties are performing relatively well because they weren’t subjected to move-in restrictions. The assisted living and memory care segments, which had a fair amount of new inventory, are still catching up.

Nobody planned for the Delta variant which caused an occupancy slowdown. However, regions of the country with relatively high vaccination rates are experiencing higher occupancy rates in the lenders’ portfolios than those with low vaccination rates. The impact of the Omicron variant is still unclear.

Permanent financing from Fannie Mae, Freddie Mac and HUD is available for the right borrowers. HUD lending totaled $3.9 billion for fiscal year 2021, only down slightly from 2020 volume. Current activity is being driven by refinancings, according to Lee Delaveris, vice president, KeyBank Real Estate Capital. He expects 2021 volume at agency lenders—Fannie Mae and Freddie Mac—to be well off 2020 numbers when year-end figures are reported in December. Though the agencies are funding some loans, Delaveris noted growing competition for the best deals from life insurance companies and community banks. “There is not a lack of capital for stabilized properties,” he said.

Panel moderator Aaron Becker, senior managing director at Lument, asked how underwriting has changed.

“The challenge is to figure out whether the properties were performing prior to COVID to determine a new stabilization rate,” said Imran Javaid, managing director at BMO Harris Bank. “We cannot underwrite to current occupancy,” he said, explaining that a new stabilization rate is determined in collaboration with the borrower. “It’s not a hard and fast number,” he added.

In fairness to borrowers, Kelly noted that more than 1,000 new properties were delivered from 2017-2020. “Not every building got to where it needed to be pre-pandemic,” he said. That’s where debt funds have stepped in with capital.

Lenders generally require recourse loans or assurances that the borrower has access to fresh equity as a backstop. “The details are important,” said Javaid.

Experience Counts

Debt for new construction is available for borrowers with industry experience, a good track record and a reliable equity source. A big challenge, though, is the rising cost of construction. “Fewer projects are penciling out,” said Javaid.

Lenders prefer projects in barrier-to-entry markets with good demand. In most of those cases, the developer has already done the hard work of securing new project entitlements to keep the construction timeline on track.

HUD offers funding for new construction but with tighter underwriting standards. “These loans are for the experienced borrower,” said Delaveris.

Bridge loans and mezzanine financing are available, but again for the right borrower. The route to permanent financing depends on performance, noted Delaveris. The prospect of rising interest rates should spur borrowers to seek permanent financing.

New capital flow into senior housing bode well for borrowers. Hedge funds, private equity and pension funds are offering debt, currently at rates of about 3.5-4.5%. That compares to pre-COVID rates of 5-6%, according to Kelly. “There’s been some real compression in the cost of debt for higher leveraged paper,” he said.

Moderator Becker asked how the lenders helped their borrowers during COVID.

“Nobody’s plans worked out,” said Javaid. “Who planned for this?” He explained that every loan needed covenant modifications or extensions beyond the original maturity date. Projections have been recast as needed, for example, when the Delta variant emerged and caused an occupancy slowdown. “We have an ongoing process with borrowers,” said Javaid. “We want them to succeed.” He added that it comes back to the quality of the borrower. Lenders want smart operators that are in the business for the long haul.”

Looking ahead, Kelly expects more investors to jump into the senior housing debt market because it offers good yields compared to the other commercial property sectors. He did, however, warn about the emergence of COVID variants that could hurt the industry. Delevaris said that property performance is likely to dictate financing activity. “Permanent capital is available for deals that work,” he said. Javaid doesn’t expect absorption numbers to return to more normal levels until 2023. But, he added, “We will be doing better in 2022.”

This blog features the NIC Analytics Demand Pulse Metric (DPM) for third quarter 2021 (3Q2021), a measure that examines senior housing demand (occupied units) for the NIC MAP^® 31 Primary Markets and provides a window into the strength of a market based on occupied stock trends. The demand pulse metric pinpoints when 3Q2021 demand levels were last seen before the pandemic began to influence the senior housing sector in 1Q2020 and tracks demand growth and progress across the 31 Primary Markets.

Aggregate Market Demand Pulse

Third quarter 2021 NIC MAP^® data, powered by NIC MAP Vision, showed the largest improvement in demand in a single quarter since NIC MAP^® began to report the data in 2005. For the 31 Primary Markets, 12,318 units were absorbed on a net basis, a 2.3% increase from the prior quarter. This pushed occupied units back to their 2Q2018 level. Said another way, it was 1.75 years (7 quarters) ago – counting back from pre-pandemic 1Q2020 levels – that occupied units equaled the level achieved in 3Q2021. Prior to the 3Q2021 jump in net absorption, occupied units had only recovered to their 2Q2017 levels (2.75 years or 11 quarters, counting back from pre-pandemic 1Q2020 levels). And while a very welcomed improvement, 3Q2021 occupied stock was still 4.7% below pre-pandemic 1Q2020 levels.

The DPM Exhibit below provides a visual of these metrics for the Primary Markets as well as the individual metropolitan markets that comprise the aggregate measure.

Market-Specific Demand Pulse

Based on the positive momentum in net absorption patterns in 3Q2021, the level of occupied units in both Washington, D.C. and Kansas City had returned to 1Q2020 pre-pandemic levels. In fact, the level of occupied units in Washington exceeded pre-pandemic levels by 0.9%, while demand in Kansas City was near 1Q2020 levels and fell short by only 55 units, equivalent to a gap of merely 0.4% compared with 1Q2020 levels.

There were 10 markets where occupied units in 3Q2021 were at levels seen as recently as one year ago or less compared with 1Q2020 levels. This includes Atlanta (3Q2021 demand was the same as in 4Q2019 and remains 1.9% below 1Q2020 levels), Orlando (same as 3Q2019); Minneapolis, Sacramento, Cleveland, Houston and Las Vegas (same as 2Q2019); Dallas, Phoenix and Denver (same as 1Q2019).

Despite the recent improvements in demand across all the 31 Primary Markets, the level of occupied units in 3Q 2021 remains far below 1Q2020 levels. This is the case for Pittsburgh, where the number of occupied units remains below levels reported since at least 2005, when NIC began reporting data. Similarly, the number of occupied units in Los Angeles remains below 1Q2020 levels by almost 10 years and is now at levels seen in 2Q2010, and San Jose remains eight years below 1Q2020 levels and is now at levels seen in 4Q2011. Notably, 3Q2021 demand relative to 1Q2020 levels in Los Angeles stood at negative 9.6%, while 3Q2021 demand in San Jose and Pittsburgh remains 7.0% and 6.9% below 1Q2020 levels, respectively.

This analysis suggests that factors that influence demand are stronger in some markets than in others and that there will be some markets that will return to pre-pandemic demand levels sooner while others will take longer. Separately, and not surprisingly, a recent analysis by NIC Analytics looked at the share of same-store properties within individual metropolitan markets that had reached their pre-pandemic occupied unit levels and found that the demand recovery paths and timelines for properties also varied significantly. Hence as property performance goes, so goes broader metropolitan area performance.

In summary, positive senior housing demand momentum was evident in both the 2Q2021 and 3Q2021 NIC MAP^® data after four consecutive quarters of pandemic-related weak demand. The upcoming 4Q2021 NIC MAP^® Quarterly Data Release on January 6, 2022, will showcase if the demand recovery continued to expand or slowed down, and which other markets have fully returned to pre-pandemic 1Q2020 demand levels and which ones continued to lag.

Exhibit: 3Q2021 NIC Analytics Demand Pulse Metric

Interested in learning more about NIC MAP data? To learn more about NIC MAP data, powered by NIC MAP Vision, schedule a meeting with a product expert today.

Did move-ins continue to outpace move-outs in the third quarter 2021? What were the rate discounting trends by segment? How did asking rates grow on a year-over-year basis? The 3Q2021 NIC MAP® Actual Rates Report, available to NIC MAP subscribers, offers third quarter data trends through September 2021 for actual rates and leasing velocity. We’ve summarized some of the key takeaways from the report below.

The following key takeaways are pulled from the NIC MAP Segment Type report. Care segments refer to the levels of care and services provided to a resident living in an assisted living, memory care or independent living unit.

Key Takeaways

• For the second quarter in a row, move-ins outpaced move-outs for all three care segments (independent living, assisted living, and memory care) in 3Q21. This marks seven consecutive months of move-ins outpacing move-outs, from March 2021 through September 2021.

• The memory care segment had the highest pace of move-ins of the three care segments in the third quarter at 3.9% of inventory in July and August of 2021. This was down from the recorded high of 4.7% of inventory in March of 2021, however.

• The year-over-year growth rate for assisted living asking rates reached the highest recorded level in the time series at 5.2% in September 2021. For independent living, the comparable rate was 2.5% in September 2021 and for memory care the rate was 1.6%. For memory care that was the highest pace since June 2019 when it was 1.7%.

• Average initial rates for residents moving into independent living, assisted living, and memory care segments were below average asking rates, with monthly spreads largest for memory care.

• • • In September 2021, memory care segment initial rates had a discount of 9.3% ($609) from asking rates, which equates to 1.1 months on an annualized basis. This is up from the prior year when the September 2020 discount was 7.5% ($487).

• • • Assisted living segments had an initial rate discount of 8.3% ($431) relative to asking rates in July 2021 and ended the quarter with a discount of 7.8% ($412) in September 2021. September’s assisted living initial rate discount is up from one year prior when it was 4.9% ($246).

Our Software Partners Support this Initiative

At the 2021 NIC Fall Conference in Houston, Texas, Glennis Solutions and Eldermark were proudly announced as being officially certified Actual Rates Software Partners. Glennis Solutions and Eldermark now offer their senior housing operator customers the ability to share their data more efficiently in the official NIC Actual Rates format. To receive certification, a software provider works with the NIC MAP Vision team to develop reports that meet the NIC Actual Rates standard format. They are then required to provide six months’ worth of actual rates data for two or more operators using those reports.

NIC and NIC MAP Vision appreciate the time, effort, and commitment from our software partners. We thank Glennis Solutions and Eldermark for their partnerships and recognize their accomplishments in receiving official certification status.

The Actual Rates Data Initiative is driven by the need to continually increase transparency in the seniors housing sector and achieve greater parity to data that is available in other real estate asset types. Now, more than ever, having access to accurate data on the actual monthly rates that a senior housing resident pays as compared to property level asking rates helps the sector achieve this goal.

About the Report

The NIC MAP^® Seniors Housing Actual Rates Report provides aggregate national data from approximately 300,000 units within more than 2,600 properties across the U.S. operated by 25 to 30 seniors housing providers. The operators included in the current sample tend to be larger, professionally managed, and investment-grade operators as we currently require participating operators to manage five or more properties. Note that this monthly time series is comprised of end-of-month data for each respective month.

While these trends are certainly interesting aggregated across the states, actual rates data is even more useful at the metro level. NIC MAP Vision currently reports on the Atlanta, Philadelphia, and Phoenix metropolitan markets, and is continuing to work towards reporting more markets.

Interested in Participating?

The Actual Rates Data Initiative is an effort to expand seniors housing data and we are looking for operators who have five or more properties to participate. We have expertise in extracting data from industry leading software systems, such as Yardi, PointClickCare, Alis, MatrixCare, Glennis Solutions, and Eldermark and can facilitate the process for you.

Operators contributing data to the NIC MAP Actual Rates report receive a complimentary report which allows them to compare their own data against national, and metropolitan market benchmarks.

In addition to receiving a complimentary report, your organization benefits through:

• • More informed benchmarking, strategic planning, and day-to-day business operations,
    Increased transparency, aligning with other commercial real estate assets in terms of data availability,

• • Saved time, Actual Rates data is collected electronically directly from operators’ corporate offices, removing the need for telephone calls to individual properties, and

• • Enhanced investment and efficiency across the sector.

Learn more.

Since the start of the pandemic, senior housing properties have all experienced wide-ranging pandemic-related challenges, but the depth of the demand contraction has differed across markets.

As senior housing demand began to recover in the second quarter of 2021 and registered its strongest increase the following quarter (3Q2021), NIC MAP® data, powered by NIC MAP Vision, shows that certain markets are recovering quickly, while others continue to lag. Due to the skewed pandemic impact the sector has experienced, the demand recovery paths and timelines are proving to be uneven across both markets and properties.

Methodology

• In this analysis, we examine senior housing demand recovery across the 31 NIC MAP Primary Markets by looking at the share of “same-store” properties where pre-pandemic occupied unit levels have been achieved. Same store is defined as properties that have been open and reporting data at least since 3Q2019, three full quarters before the pandemic began to influence the senior housing sector. Within the 31 NIC MAP Primary Markets aggregate, we identified 4,863 same-store senior housing properties.
• This analysis is based purely on demand, as defined by changes in net absorption or occupied units and does not take supply conditions within the same-store properties into account. Additionally, closed and newly opened properties since 3Q2019 have been excluded from this analysis.
• The concept of demand or the number of occupied units is critically important to evaluate senior housing markets’ recovery. Occupancy rates are a broader concept and take into account new supply or newly opened units in the last 18 months, in addition to the upcoming inventory currently under construction.

Senior Housing Demand Recovery

• Exhibit 1 below shows that 1Q2020 pre-pandemic occupied unit levels have been achieved or surpassed in nearly one-third (31.3% – equivalent to 1,521 properties) of same-store properties within the NIC MAP Primary Markets aggregate. In fact, occupied units within this cohort grew by about 14,100 units between the first quarter of 2020 and the third quarter of 2021, equivalent to 10.6% of pre-pandemic occupied stock. Further, the occupied stock in this cohort as a share of overall demand within the 4,863 properties identified in this analysis went from 24% in 1Q2020 to 29% in 3Q2021, up five percentage points.
• By contrast, the number of occupied units within roughly two-thirds of properties (68.7%) in 3Q2021 remained substantially below pre-pandemic 1Q2020 levels, with 51,000 units still placed back in the market, equivalent to 12.3% of pre-pandemic occupied stock. Additionally, the occupied stock in this cohort as a share of overall demand went from 76% in 1Q2020 to 71% in 3Q2021, down five percentage points.
• The COVID-19 pandemic recovery has been uneven between markets and properties. If we were to graph this recovery, we would get a shape that resembles a “K,” with an increase in the share of occupied stock across properties that have already achieved or surpassed pre-pandemic occupied unit levels, and a decrease in the share of occupied stock across properties where demand remains below pre-pandemic levels.

Exhibit 1: Share of Same Store Properties Where Pre-Pandemic Occupied Unit Levels Have Been Achieved


Market-Specific Demand Recovery

• Drilling deeper into select metropolitan markets within the NIC MAP Primary Markets, Houston and Las Vegas had the largest share of same store properties where 3Q2021 occupied units have returned to the same level or exceeded 1Q2020 pre-pandemic occupied unit levels at 43.6% and 42.9%, respectively, while San Jose had the smallest share among the 31 Primary Markets at 13.3%. Notably, San Jose is a bit of an anomaly. It is one of the very few markets that has experienced negative inventory growth associated with units being pulled off the market throughout the pandemic, and some of these units were occupied in 1Q2020.
• Overall, pre-pandemic occupied units across 14 of the 31 Primary Markets have been achieved or surpassed in at least 30% of the same store properties within each market, some of these markets include Washington (39.1%), Dallas (39.1%), Detroit (31.7%), and Boston (31.4%). Other than San Jose, the lowest shares of same-store properties where pre-pandemic occupied units have been achieved or surpassed were seen in Sacramento (23.1%), Miami (24.8%), and Los Angeles (25.0%).

Aggregate Market Demand Growth

• Exhibit 2 below provides another way to look at demand growth, comparing the share of same store properties reporting an increase, decrease, or no change in occupied units (quarter-to-quarter) since 3Q2019. Notably, the market’s initial contraction was identified in the second quarter of 2020, and developed over subsequent quarters, through the first quarter of 2021. As demand improved in the second quarter of 2021, seniors housing properties began to see promising signs of improvement. This has translated to increases in demand within 46% of same store seniors housing properties within the aggregated 31 NIC MAP Primary Markets.
• In the third quarter of 2021, the share of properties reporting an increase in occupied units rose by six percentage points to 53% as demand improved and registered its strongest increase in the number of occupied units since NIC MAP began reporting the data back in 2005. At the same time, 20% of properties reported no change in the number of occupied units from the second quarter of 2021, and 27% of properties reported a decrease in occupied units over the same period, down eight percentage points from the second quarter of 2021. This was the smallest share recorded throughout the pandemic.
• While the majority of same store senior housing properties (53%) experienced an increase in demand in the third quarter of 2021, with 16,600 occupied units absorbed in one quarter, demand continued to trend downward across 27% of properties, with 8300 units lost or placed back in the market, half of the units absorbed by those properties reporting an increase in demand.
• The key takeaway from this analysis is that the path to recovery looks different at the property level and will be influenced by how resilient properties were in 2020 and the first half of 2021. If we look at the second quarter of 2020, while the majority of senior housing properties experienced a dramatic decrease in occupied units (20,800 occupied units lost in one quarter), 22% of properties did relatively better and even experienced an increase in occupied units with 5,600 units absorbed at the height of the pandemic.

Exhibit 2: Share of Same Store Properties by Demand Growth (Quarter-to-Quarter)

As the recovery in senior housing continues and as the industry continues to navigate its way through the pandemic, there are likely to be further twist and turns, and ups and down, but the sector has proven itself to be agile and resilient and will bounce back. That said, and as this analysis has shown, the recovery paths and timelines of demand may differ from one market to another, and from one property to another.

Interested in learning more about NIC MAP^® data? To learn more about NIC MAP data, powered by NIC MAP Vision, schedule a meeting with a product expert today.