The SeniorCare Investor: Seniors Housing Outperforms Market -

Seniors Housing Stocks Soar, Skilled Nursing Mixed
 

What a difference a year can make. In 2011, only four seniors housing and care stocks posted a positive return, two of which were barely positive. All were coming off the disastrous summer of 2011, when tap dancing around the debt ceiling coincided with the significant cut to Medicare reimbursement to skilled nursing facilities. The latter sent SNF stocks to their lowest point in quite a while, and the former just plain soured the investment atmosphere. And remember that some seniors housing stocks with limited Medicare exposure were thrown out with the bathwater as well.

The market for our sector bottomed out in early October 2011 (more on that later), and the rally continued into 2012 and, with some bumps along the way, is still on the move. On the move, at least, for seniors housing, as skilled nursing has still not found its way, and that sector has not been able to persuade investors that it can really be part of the solution to rising health-care costs. Troubling reimbursement prospects have certainly not helped, but the industry is not helping itself if any of the recent allegations regarding up-coding, inappropriate coding or inappropriate care in physical therapy are proven. There is a difference between aggressive interpretation of the rules and fraud, and if fraud was committed, those who did it should pay the piper, and that is what will happen whether it was aggressive use or fraud. That said, it doesn’t give investors a warm and fuzzy feeling about the sector, and it certainly does not help in loosening the reimbursement purse strings. In hindsight, the industry should have been a little less greedy with its 12-month Medicare “gift” that started on October 1, 2010.

Partly as a result of the Medicare debacle, and also partly as a result of strengthening metrics in the private-pay seniors housing business, investors switched their focus and assisted and independent living stocks took off in 2012, posting their best year since 2009.  Takeover rumors and the “REIT phenomenon” certainly played a part in the robust market for seniors housing stocks, and from a statistical perspective, it didn’t hurt that they were coming off a poorly performing 2011. Five of the six stocks had returns in excess of 40% in 2012, with only Assisted Living Concepts (NYSE: ALC) turning up in the negative column.

It may not be a coincidence, but the only two seniors housing stocks with a positive return in 2011 were the two leaders again in 2012.  This time, Capital Senior Living (NYSE: CSU) took top honors with an astounding return of 135% after jumping by more than 18% in 2011.  What was unique about the story in 2012 was that CSU’s shares rose in every month of the year, from 2% to 20%, something that no other company in the sector can point to. And in three of the last four months of the year CSU had double-digit gains........Want to read more? Click here for a free trial to The SeniorCare Investor and download the current issue today