Debt Metrics Remained Strong for Seniors Housing During the Second Quarter of 2008

Debt Metrics Remained Strong for Seniors Housing During the Second Quarter of 2008

FOR IMMEDIATE RELEASE: November 11, 2008
Contact: Renee Tilton, (410) 626-0805 or rtilton@crosbymarketing.com

Annapolis, Md. – Loan volume and loan performance remained strong during the second quarter of 2008 for the seniors housing and care industry, according to data tracked by the National Investment Center for the Seniors Housing & Care Industry (NIC). Each quarter, financial and performance data are collected by NIC from the nation’s leading senior living lenders, owners/operators and appraisal professionals and posted as the NIC Key Financial Indicators™ (KFIs) on the organization’s Web site.

Loan volume placed in the second quarter of 2008 was $1.55 billion, which was up 68 percent from the first quarter. However, when comparing year over year, the second quarter results were unchanged.

The loans tracked during the second quarter 2008 showed overall strong performance, with 99.5 percent performing and just 0.5 percent restructured or delinquent. This loan performance matched the all-time high, reported in the fourth quarter 2007, since NIC has been keeping track of this data beginning in 1999.

“Similar to other commercial real estate asset classes, seniors housing had not yet seen any significant deterioration in loan performance,” said Robert G. Kramer, president of NIC. “In terms of loan volume, one must remember that these data results predate the disruptive market activity and tightened credit markets that took place in September 2008. We’ll be looking closely at the impact from those conditions, when our fourth quarter data come in early next year.”

Occupancy rates did show a slight decline during the second quarter for independent living and continuing care retirement communities (CCRCs) compared to the previous quarter. Compared to the second quarter of 2007, the mean occupancy rate was down 250 basis points for independent living and 200 basis points for CCRCs. The mean occupancy rate for assisted living remained relatively flat year over year.

“It’s revealing to put the data in an historical context by comparing the current decline in occupancy to previous periods,” said Michael Hargrave, vice president – NIC MAP®. For example, “for independent living, there was a 650 basis point drop from the fourth quarter of 1999 – when occupancy was at 94 percent – to the fourth quarter of 2002 – when it slid to 87.5 percent. In comparison, the mean occupancy stood at 93 percent during the third quarter of 2006 and went to 89 percent during the second quarter of 2008, a milder 400 basis point drop.”

“When looking at assisted living,” continued Hargrave, “the mean occupancy rate fell from 89.5 percent in the fourth quarter of 1999 to 83.5 percent in the first quarter of 2003, a 600 basis point decline. Most recently, the occupancy for assisted living was again at 89.5 percent during the third quarter of 2006 and it dropped to 88 percent during this second quarter, which is only a 150 basis point drop.”

“It will be very important to monitor third and fourth quarter NIC MAP and KFI data to determine whether we have reached the low point for occupancy in this cycle,” noted Hargrave. Unlike the KFIs, which track national aggregate data, NIC MAP is a subscription-based service that tracks operating and performance metrics in the top 100 metro markets.

The mean capitalization rate for independent living rose 20 basis points during the second quarter of 2008 to 7.8 percent – compared to 7.6 percent in the previous quarter – and the spread ranged from a low of 6.6 percent to a high of 8.75 percent. Assisted living likewise saw a 20 basis point increase from the first quarter, going from 8.8 percent to 9.0 percent. This sector had cap rates ranging from a low of 7.0 percent to a high of 12.2 percent.

The mean capitalization rate for skilled nursing stayed virtually flat at 12.7 percent. Interestingly, it went down for CCRCs, although that could have been a statistical anomaly due to a low sample size in the previous quarter.

The NIC KFIs are quarterly financial and performance data for the seniors housing and care industry that have been consistently tracked since 1999. The loan data collected by NIC represent the quarterly lending activity of major national lenders (non-REITs) that make permanent and short-term debt investments in seniors housing and care. This includes data provided by Fannie Mae, Freddie Mac, and several of the larger commercial credit companies and banks.

About NIC

Founded in 1991, the National Investment Center for the Seniors Housing & Care Industry is a nonprofit education and research organization providing information about business strategy and capital formation for the senior living industry. NIC is the leading provider of historical and trend data on the industry through its Key Financial Indicators™ (KFIs) that report nationwide statistics and its Market Area Profiles (MAP®) Data and Analysis Service that tracks properties in the 100 largest metropolitan areas. Proceeds from its annual conference are used to fund research on issues of importance to seniors housing and care decision-makers. For more information, visit www.NIC.org or call (410) 267-0504.