Like many property types, seniors housing investment returns fell in the second quarter of 2020 as the effects of the COVID-19 global pandemic and the utter collapse of the economy took their toll. The total investment return for the seniors housing sector was a negative 1.00% in the second quarter of 2020, the first negative return since 2Q 2012.

The income return remained positive but was the smallest increase on record as far back as 2003. The appreciation return fell 2.04%, the third consecutive quarterly decline, making the valuation return a negative 2.43% since 4Q 2019. Many investors reduced their appreciation expectations in the first half of the year as the impact of the coronavirus weighed heavily on their view of the sector.

Comparatively, the total negative return of 1.00% was on par with the NPI which fell by -0.99%, but was slightly worse than the apartment sector performance, which dropped by -0.63%. Hotels plunged by a whopping 16.59%, retail by 3.85% and office by 0.50%. The only sector that did not see declines was industrial, but even there, the appreciation return was negative, albeit slightly (- 0.07%). It is notable that, like other property types, transaction volumes were very limited in the second quarter, making price discovery challenging.

The annual total return through the second quarter of 2020 was 3.52%, outpacing the NCREIF Property Index (NPI) result of 2.69% and the apartment result of 2.98%. On a ten-year basis, total returns are higher at 11.79% for seniors housing—more than 2 percentage points higher than the NPI or apartment returns. The total annual return for seniors housing has been trending down since mid-2014 when it peaked at 20.37%. This pattern can also be seen in the broader NPI index and is due to the appreciation return which tends to slow at this point in the real estate cycle.

These performance measurements reflect the returns of 123 seniors housing properties, valued at $6.3 billion in the second quarter.

See my full Quarterly Highlight in the recent National Council of Real Estate Fiduciaries (NCREIF) Real Estate Performance Report.

NIC MAP^® Data Service released its first ever Skilled Nursing Monthly Report on August 31, 2020, which includes key monthly data points from January 2012 through June 2020.

Here are some key takeaways from the report:

1. With few signs of abating, the effects of the COVID-19 pandemic were still evident in the June skilled nursing data. The pace of the decline in occupancy slowed in June, but the rate hit a new record low of 74.8%. The 41 basis-point decline from May was the first month-over-month decline in occupancy less than 100 basis points since the start of the pandemic in March. This suggests that occupancies at skilled nursing properties may be starting to stabilize. However, significant uncertainty remains, especially as fall and winter approach. New challenges could arise with arrival of the flu season complicated by a possible resurgence of the COVID-19 virus. Since March, the occupancy rate has fallen 853 basis points from 83.4%. It is now down 990 basis points below February’s level.  The year-over-year occupancy rate is down 930 basis points from June 2019 and down 871 basis points from the previous low set in June 2018, prior to the pandemic. Urban area occupancy has declined significantly more than rural areas, declining 970 basis points since March compared to 539 basis points in rural areas.
2. Managed Medicare patient day mix increased slightly from May, ending June at 5.5%. This was the first month-over-month increase, albeit small, since the pandemic started. However, it is still down 109 basis points since March and down 158 basis points since February when the managed Medicare patient day mix was 7.0%. In addition, managed Medicare revenue mix seems to be stabilizing. It was flat from May to June, ending June at 7.4%. However, it has declined 224 basis points since March and 303 basis points since February when it was 10.5%. The stabilization in June suggests that insurance enrollees may have started to resume elective surgeries as states began lifting the suspension of such procedures.
3. Medicare revenue mix declined slightly from May to June, ending at 20.4%. Although down, Medicare revenue mix has held up relatively well since the pandemic began in March, compared with other payors. It is only down 89 basis points since March compared to managed Medicare (down 224 basis points) and private (down 102 basis points). In addition, Medicare patient day mix has increased since March, from 11.2% to 11.9% in June. Although overall occupancy has declined dramatically during the pandemic creating significant pressure on skilled nursing operators, Medicare patient days likely did not decrease as much as it would have given that the Centers for Medicare and Medicaid Services (CMS) waived the 3-Day Rule, which required  a 3-day inpatient hospital stay prior to a Medicare-covered skilled nursing stay. 
4. Medicare (RPPD) was essentially flat from May to June, ending at $557.76. However, Medicare RPPD has increased 1.9% since March. It likely increased because of additional reimbursement for COVID-19-positive patients requiring isolation, in addition to the temporary suspension of the 2.0% sequestration cuts by CMS (effective May 1-December 31, 2020). The trend varies, however, in urban and rural areas. The increase in Medicare RPPD since March was only 0.2% in rural areas, but 2.4% in urban areas. This most likely reflects the increase in Medicare support for urban areas with higher levels of COVID-19 cases.

To get more trends from the latest data you can 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 in order to provide data at localized levels in the future. Operators who are interested in participating can complete a participation form here. https://www.nic.org/skilled-nursing-data-initiative. NIC maintains strict confidentiality of all data it receives.

The NIC MAP^® Data Service recently released national monthly data through June 2020 for actual rates and leasing velocity. In this release, NIC also provided data on three metropolitan areas for which there is enough data to report:  Atlanta, Philadelphia, and Phoenix.

A few of the key takeaways from the 2Q2020 Seniors Housing Actual Rates Report are listed below. Full access to the reports and other takeaways are available to NIC MAP Data Service clients. 

• Average initial rates for residents moving into independent living, assisted living and memory care segments were below average asking rates, with monthly spreads generally largest for memory care, followed by independent living segments and then assisted living segments. Care segments refer to the levels of care provided to a resident living in an assisted living, memory care or independent living unit.
• The average discount for the memory care segment was the largest of the three care segments in June 2020 and averaged 8.5% below average asking rates. This equates to an average initial rate discount of 1.0 month on an annualized basis, less than 1.5 months at the end of 2019.
• Average in-place rates for residents in assisted living and memory care segments were below average asking rates. The discount was smaller for in-place rates than initial rates compared with asking rates.
• For the assisted living segment, average in-place rates consistently were below average asking rates since reporting began in January 2017. The monthly gap between these rates was 0.8% or $40 in June 2020, the equivalent of 0.1 month. It has averaged 0.2 month over the past six months.
• The rate of move-outs has exceeded or equaled the rate of move-ins for nine of the prior twelve months for both the independent living and assisted living segments, and for seven of the last twelve months for the memory care segment as of June 2020.

The NIC Actual Rates 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, in the world of the COVID-19 pandemic, having access to accurate data on the actual monthly rates that a seniors housing resident pays as compared to property level asking rates helps NIC achieve this goal.

The Seniors Housing Actual Rates Report available in NIC MAP provides aggregate national data from approximately 300,000 units within more than 2,500 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 5 or more properties. Note that this monthly time series is comprised of end-of-month data for each respective month.

Note that the data reported here is on care segment, where care segment type refers to each part or section of a property that provides a specific level of service, i.e., independent living, assisted living or memory care. NIC also has this data for majority property type, where majority property type refers to which care segment comprises the largest share of inventory. In addition, care segment actual rates data is also available for the Atlanta, Phoenix and Philadelphia CBSAs.

While these trends are certainly interesting aggregated across the states, actual rate data is even more useful at the CBSA level. As NIC continues to work toward growing the sample size to be large enough to release more data at the CBSA level, partnering with leading software providers like Yardi, PointClickCare, Alis, and MatrixCare makes it easier for operators to contribute data to the Actual Rates Initiative. NIC appreciates our partnerships with software providers and our data contributors and their work in achieving standardized data reporting.

If you are an operator or a software provider interested in how you can contribute to the Actual Rates Initiative, please visit nic.org/actual-rates.

The Labor Department reported that nonfarm payrolls rose by 1.4 million in August and that the unemployment rate fell to 8.4% from 10.2%. This suggests that the employment recovery from the unprecedented COVID-related drop in March and April continues to reverse course. Eleven million jobs have now been recovered during the May to August period. Nonetheless, the level of payrolls remains about 12 million below where it was in February.

The 1.4 million job gain in August was smaller than in the prior three months, but was significant, nonetheless. The change in total nonfarm payroll employment for June was revised down by 10,000 from a gain of 4.791 million to 4.781 million and the change for July was revised down by 29,000 from 1.763 million to 1.734 million. Combined, 39,000 jobs were subtracted to the original estimates. Monthly revisions result from additional reports received from businesses and government agencies since the last published estimates and from the recalculation of seasonal factors. Market expectations had been for a gain of 1.350 million. 

August hiring was helped by the employment of 238,000 temporary field workers for the 2020 Census. Census hiring could rise further in September before slipping later in the year as those positions are no longer needed. However, other sectors also saw impressive gains, with retail adding 249,000 jobs, leisure and hospitality, 174,000 jobs and professional and business services up 200,000 positions. In July, leisure and hospitality sectors had added 621,000 jobs as COVID-related jobs come back.  

Health care added 75,000 jobs in August, with gains in offices of physician, dentists, hospitals, and home health care services. Job losses continued in nursing and residential care facilities.  

The 1.8 percentage point drop in the August unemployment rate to 8.4% was good news and driven by a 3.8 million person increase in the household measure of employment and occurred despite an increase in the labor forces of nearly 1 million. The increase in the labor force in turn may be the result of the expiration of jobless benefits at the start of the month which pushed some workers back into the labor force. At 8.4%, however, the unemployment rate is still quite elevated by historic standards and significantly higher than the 50-year low of 3.5% in February.

The number of permanent job losses rose 534,000 in August to 3.2 million from 2.9 million, a figure that suggests difficult time for a number of Americans. Moreover, more than 29 million workers remain on government assistance and the number of unemployed remain 5 million above where it was pre-pandemic. 

Among major worker groups, the unemployment rate fell in August for adult men to 8.0%, adult women to 8.4% and teenagers to 16.1%.  

The underemployment rate or the U-6 jobless rate fell to 14.2% in August from 16.4% in July. This figure includes those who have quit looking for a job because they are discouraged about their prospects and people working part-time but desiring a full work week. In the previous 2008/2009 recession, this rate peaked at 17.2%.

Average hourly earnings for all employees on private nonfarm payrolls rose by $0.11 in August to $29.47, a gain of 4.7% from a year earlier.  

The labor force participation rate, which is a measure of the share of working age people who are employed or looking for work increased 0.3 percentage point in August to 61.7%.  

While the August improvement is welcome news, the labor market continues to be strained and the recent spike in the virus across many states could hamper further gains. Indeed, some states are backtracking plans to reopen as coronavirus infections are rising again.

NIC’s Executive Survey of operators in seniors housing and skilled nursing is designed to deliver transparency into market fundamentals in the seniors housing and care space at a time when market conditions are rapidly changing—providing both capital providers and capital seekers with data as to how COVID-19 is impacting the sector.

This Wave 11 survey sample includes responses collected August 17-30, 2020 from owners and executives of 56 seniors housing and skilled nursing operators from across the nation. Detailed reports for each “wave” of the survey can be found on the NIC COVID-19 Resource Center webpage under Executive Survey Insights.

Wave 11 Summary of Insights and Findings

Over the summer months, much of the southern and western portions of the nation experienced a surge in COVID-19 outbreaks. More recently, this has been followed by a flattening in the number of new cases reported daily. Although some areas of the country are seeing increasing cases of COVID-19, many seniors housing and care organizations are continuing to ease move-in restrictions. The Wave 11 survey revealed generally little change in the pace of move-ins and move-outs in the past 30-days from Wave 10, and greater shares of organizations with higher levels of acuity in their properties—nursing care beds and memory care units—reporting month-over-month and week-over-week improvements in occupancy rates. About half (48%) of organizations with independent living units and 40% with assisted living units report no change in month-over-month occupancy. More organizations with assisted living units note a deceleration in the pace of move-ins and slower increase in occupancy rates than in Wave 10.

• In Wave 11 of the survey, increased resident demand continued to be cited as the primary reason for accelerations in move-ins in the past 30-days (70%), and notably fewer organizations in Wave 11 than in Wave 10 cited a slowdown in leads conversions/sales (48% vs. 70%). Hospital placement (due to more elective surgeries and rehabilitation therapies resuming) has grown considerably since Wave 9 (responses collected June 22 to July 5, 2020). However, notably more organizations in Wave 11 than in all of the prior waves of the survey cited resident or family member concerns (74%), presumably due to new spikes of COVID-19 cases in many areas of the country or possibly due to restrictions on family member visitation rules imposed by some states.
• The shares of organizations reporting acceleration in move-ins in Wave 11 of the survey remained similar to Wave 10 for the independent living, memory care and nursing care segments. However, fewer organizations with assisted living in Wave 11 than in the prior two waves of the survey report an acceleration in the pace of move-ins, and more than one-third (38%) note a deceleration.
• Compared to the Wave 10 survey (and all prior waves, as well), the shares of organizations reporting a deceleration in the pace of move-outs for the independent living care segment increased to the highest level in the Wave 11 survey. Most organizations with independent living, assisted living and/or memory care segments (60% to 64%) note no change in the pace of move-outs in the past 30-days, while about three-quarters with nursing care beds (75%) report no change.
• Most organizations are not currently offering rent concessions to attract new residents (59%). That said, more organizations report offering rent concessions in Wave 11 than in the prior survey (41% vs. 34%). While, one-third of organizations report a backlog of residents waiting to move in, the majority of organizations—about seven in ten—do not.
• Larger shares of organizations with memory care units and/or nursing care beds in their properties report increasing occupancy from one week prior (31%, respectively)—an improvement from Wave 10 but similar to Wave 9. However, four out of five organizations with independent living and/or assisted living care units (83%, respectively) report no change in week-over-week occupancy.
• Organizations with nursing care beds continue to report the largest shares of increasing occupancy on a month-over-month basis. In Wave 11, half (50%) report an upward change in occupancy from the month prior, similar to Wave 10 (53%). Additionally, more organizations with memory care units note increases in occupancy (40% vs. 20%).
• Two-thirds of organizations in Waves 10 and 11 reported that COVID-19 test results for staff, residents or prospective residents are typically available in 3-5 days (67%). However, one in five (20%) received test results in as few as 2-days—an improvement since Wave 10 (13%).
• Due to the pandemic most organizations (83%-85%) have bolstered staffing deficiencies with additional overtime hours. Additionally, a growing percentage of survey respondents report tapping agency or temp staff (48% in Wave 11 vs. 36% in Wave 3) adding to increasing costs since the pandemic began.

Wave 11 Survey Demographics

• Responses were collected August 17-30, 2020 from owners and executives of 56 seniors housing and skilled nursing operators from across the nation. Roughly half of respondents are exclusively for-profit providers (56%), about one-third (33%) are exclusively nonprofit providers, and 11% operate both for-profit and nonprofit seniors housing and care organizations.
• Owner/operators with 1 to 10 properties comprise 59% of the sample. Operators with 11 to 25 properties make up 18% while operators with 26 properties or more make up 23% of the sample.
• Many respondents in the sample report operating combinations of property types. Across their entire portfolios of properties, 72% of the organizations operate seniors housing properties (IL, AL, MC), 24% operate nursing care properties, and 39% operate CCRCs (aka Life Plan Communities).

Key Survey Results

Pace of Move-Ins and Move-Outs

Respondents were asked: “Considering my organization’s entire portfolio of properties, overall, the pace of move-ins and move-outs by care segment in the past 30-days has…”

• In Wave 11, fewer organizations with assisted living reported an acceleration in the pace of move-ins than in Waves 9 and 10. More than one-third (38%) noted a deceleration.
• However, the shares of organizations reporting acceleration in move-ins in Wave 11 of the survey remained similar to Wave 10 for the independent living, memory care and nursing care segments. In Wave 11, between 33% and 41% of organizations with these care segments indicated that the pace of move-ins accelerated in the past 30-days.

Reasons for Acceleration/Deceleration in Move-Ins

Respondents were asked: “The acceleration/deceleration in move-ins is due to…”

• Increased resident demand continued to be cited most frequently as a reason for an acceleration in move-ins in the past 30-days (70%). Hospital placement cited as a reason for acceleration in move-ins has grown since Wave 9 (responses collected June 22-July 5, 2020).

• Regarding reasons for a deceleration in move-ins, resident or family member concerns reached the highest level in the time series. While notably fewer organizations in Wave 11 than in Wave 10 cited a slowdown in leads conversions/sales (48% vs. 70%), considerably more organizations in Wave 11 than in all of the prior waves of the survey cited resident or family member concerns (74%).

Organizations Easing or Increasing Move-In Restrictions

Respondents were asked to describe whether they were easing or increasing move-in restrictions in some or all of the geographies in which they operate.

• Roughly two-thirds (63%) of organizations with multiple properties in their portfolios were easing move in restrictions in some or all of their geographies in Wave 11, compared to roughly half in Wave 10. About one-third (33%) were neither increasing nor easing move-in restrictions. However, fewer than one in ten (8%) indicated they were increasing move-in restrictions in all of their geographies. Among single-site organizations, roughly half were easing move-in restrictions (47%), but none were increasing move-in restrictions.

Organizations Currently Offering Rent Concessions to Attract New Residents and Organizations Experiencing a Backlog of Residents Waiting to Move-In

Respondents were asked: “My organization is currently offering rent concessions to attract new residents,” and “My organization is experiencing a backlog of residents waiting to move-in”

• Most organizations are not currently offering rent concessions to attract new residents (59%). However, more organizations report offering rent concessions in Wave 11 than in the prior survey (41% vs. 34%). The majority of organizations—about seven in ten—do not currently have a backlog of residents waiting to move in.

Move-Outs

• Roughly two-thirds of organizations with independent living, assisted living and/or memory care segments (60% to 64%) in Wave 11 of the survey note no change in the pace of move-outs in the past 30-days, while about three-quarters with nursing care beds (75%) report no change. This has been largely consistent since the survey began in March.
• Compared to the Wave 10 survey (and all prior waves, as well), the shares of organizations reporting a deceleration in the pace of move-outs for the independent living care segment increased to the highest level in the Wave 11 survey.

Change in Occupancy by Care Segment

Respondents were asked: “Considering the entire portfolio of properties, overall, my organization’s occupancy rates by care segment are… (Most Recent Occupancy, Occupancy One Month Ago, Occupancy One Week Ago, Percent 0-100)”

• Many organizations continue to report improvements in occupancy rates since the beginning of the survey in March. The nursing care segment had the largest shares of organizations with increasing month-over-month occupancy. In Wave 11, half (50%) report an upward change in occupancy from the month prior, similar to Wave 10 (53%) and the most since NIC began conducting this survey.
• In Wave 11, about half (48%) of organizations with independent living and 40% with assisted living report no change in month-over-month occupancy.
• Fewer organizations with assisted living units in Wave 11 than in Wave 10 report increases in occupancy rates (17% vs. 30%), however, more organizations with memory care units note increases in occupancy (40% vs. 20%).

• The chart below shows the entire time series of assisted living care segment month-over-month occupancy change data for each wave of the survey between March 24 and August 30, 2020. The data is illustrative of effects of the pandemic on seniors housing occupancy rates during the pandemic and the trend is similar to the NIC MAP^® Intra-Quarterly Snapshot data reported beginning in March.
• Indeed, the new Intra-Quarterly database shows that the largest decline in assisted living stabilized occupancy occurred early during the second quarter in the April reporting period, the first full month of the COVID-19 pandemic in the US. In the April reporting period (defined as the February-March-April rolling period), occupancy for assisted living for the Primary Markets fell 1.8 percentage points to 86.0%. The decline in May was less at 0.8 percentage point (to 85.2%), and the decline in June was even less at 0.6 percentage point (to 84.6%). However, in July, the drop in occupancy accelerated to a full 1.7 percentage points to push the overall rate to 82.9%. Total occupancy was even lower at 80.5%, a new record low. This decline, after two months of seemingly better occupancy patterns, likely reflects the recent growth in COVID-19 cases in many parts of the country.
• In Wave 4 of the survey (responses collected April 20-April 26, 2020) four out of five of organizations reported occupancy declines from one month prior (81%). Occupancy rates began to improve in Wave 8 (responses collected May 25-June 7, 2020), with the highest shares of organizations reporting increases in occupancy in Wave 10 than at any other time during the survey (30%).
• In Wave 11, the largest share of organizations with assisted living report no change in month-over-month occupancy (40%) since Wave 1 of the survey when about half indicated no change (54%).

• Regarding the change in occupancy from one week ago—about four out of five organizations with independent living and assisted living care segments (83%, respectively) report no change in week-over-week occupancy. However, larger shares of organizations with memory care units and/or nursing care beds in their properties report increasing occupancy from one week prior (31%, respectively)—an improvement from Wave 10 but similar to Wave 9.

Time Frames for Receiving COVID-19 Test Results

Respondents were asked: “Regarding COVID-19 test results (either for staff, residents or prospective residents) results typically come back within…”

• Two-thirds of organizations continue to report that COVID-19 test results for staff, residents or prospective residents are typically available in 3-5 days, however, more organizations in Wave 11 received test results within 2 days than in Wave 10 (20% vs. 13%).

Labor and Staffing

Respondents were asked: “My organization is backfilling property staffing shortages by utilizing … (Choose all that apply)”

Note: this question was asked in Wave 3, Wave 10 and Wave 11.

• Respondents offering overtime hours has remained steady (between 83% and 85%) with regard to backfilling staffing shortages since the beginning of the pandemic. However, organizations are increasingly using agency or temp staff to fill staffing vacancies. In Wave 11, roughly half of respondents are tapping agency or temp staff to mitigate staffing shortages.

NIC wishes to thank survey respondents for their valuable input and continuing support for this effort to bring clarity and transparency into market fundamentals in the seniors housing and care space at a time where trends are rapidly changing. The results of our joint efforts to provide timely and informative data to the market in this challenging time have been significant and noteworthy.

If you are an owner or C-suite executive of seniors housing and care properties and have not received an email invitation but would like to participate in the upcoming Executive Survey: Market Fundamentals, please send a message to insight@nic.org to be added to the email distribution list.