Occupancy Better Than Feared--
But Several Private Companies Are At Record High Census
Email this article to a friend
The
month of April was a record for seniors housing company
stock prices, with gains ranging from 38% for Emeritus Corporation
(NYSE: ESC) to 104% for Brookdale Senior Living (NYSE: BKD) all the
way to 275% for Sunrise Senior Living (NYSE: SRZ). For several of
them, the bull market continued in May with Emeritus soaring by another
59%, Five Star Quality Care (NYSE: FVE) by 25% and Brookdale adding
another 12%. One would have thought occupancy, revenue per unit and cash
flow were soaring. Well, two out of three isn’t bad, is it?
Investors today seem to have
the mentality that "it could have been worse," or "it was much better than
we feared, given the economy," which is fine. As we have stated for
several months (is anyone listening?), the broad seniors housing industry
was never in the desperate straits that the March lows in stock prices
would have suggested. The financial and auto industries, yes, but the
seniors housing industry? No. So when the sector reported its first
quarter earnings in early May, we assume there was a big sigh of relief as
opposed to a great round of applause. All things considered, it was not
too bad a quarter.
All companies reported lower
occupancy rates compared with the first quarter of 2008, but the range was
a decline of 310 basis points for Five Star (its seniors housing
facilities) to just 20 basis points for Emeritus. On a sequential basis,
Emeritus appears to be the only company with an improvement, with average
occupancy increasing by 10 basis points from last year’s fourth quarter.
Even better, ESC’s occupancy rate increased by 30 basis points to 87.8%
from December 31, 2008 to March 31, 2009. This leads us to believe that
the industry may be bottoming out from an occupancy perspective. Excluding
Assisted Living Concepts (NYSE: ALC), which has intentionally been
lowering its Medicaid census, the average occupancy rate for the remaining
five companies in the first quarter was 87.3%. While lower than what
management would like it to be, no one is going to go out of business with
an 87.3% occupancy rate, and with so little new construction, at some
point the units will start to fill up with residents who delayed their
moves.
*********************** S P O N S O R
***************************
Like this article? Click
here for a FREE TRIAL to The SeniorCare Investor.
**************************************************************
The other good news is that even
though average occupancy rates were declining year-over-year, the
companies were able to increase revenue per unit by 3% to 5% over the past
year. This has allowed them to keep cash flow stable or growing, and that
is an accomplishment in this environment for anyone with a heavy real
estate component to their business. Hotels, hospitals, developers, office
buildings, retail —you name it—they are not performing as well as seniors
housing. One of the few sectors that may be outperforming seniors housing
is skilled nursing
(see page 1), but
investors are worried about the future of government reimbursement
programs.
As we know, the publicly
traded companies, despite the large size of some of them, really represent
a small proportion of the industry. We dropped in at the annual ALFA
meeting in Philadelphia last month and had the opportunity to chat with
the owners of some privately held companies. You may remember our story in
November last year about Legend Senior Living opening a 66-unit
assisted living and memory care facility last August in Oklahoma City and
reaching 100% occupancy in two weeks. Well, they did it again, opening
another 66-unit facility in Oklahoma City, and it was at 40% occupancy the
first week and they expect it to take a little longer to reach stabilized
occupancy, perhaps 10 to 12 weeks instead of two for the other property.
We are talking weeks here, not years. While we could say that the
marketing staff is slipping up a bit, the reality is that this is either
an outstanding example of marketing or of site selection, but probably
both. The company has four additional properties under development or
construction in Florida (you know, the state where the housing market is
so strong), and the first one scheduled to open in early September is
already 30% pre-leased and may reach 40% to 50% by opening day. The point
is that providers do not have to settle for 87% occupancy and 18-month
fill-ups if they can do their homework. And by the way, company-wide
occupancy at Legend Senior Living, with facilities in four states and
nearly 1,000 units, was at 99.5% at the beginning of May.
Or take California-based
Chancellor Health Care, which is smaller with two assisted living
facilities, one skilled nursing facility and one independent living
community in California, plus a skilled nursing facility in Colorado. The
CEO, Michel Augsburger, was at the ALFA conference and he informed us that
his overall occupancy rate was at 97%, representing an all-time high, and
he has been in business for quite a while. Or Steve Vick, CEO of
Signature Senior Living, who keeps building assisted living facilities
in Texas and filling them up, competing head-on with some of the publicly
traded companies, and beating them. We are sure there are more, but it
seems that the flexibility of being small has helped both in terms of
marketing and staffing. They seem to know their local markets better than
a company with 200 properties can, and can change their approach to that
market very quickly if something is not working. This is certainly nothing
new, but they are facing the same economic environment, the same housing
market, the same lost savings and income suffered by the elderly that
other providers are facing, yet they seem to be doing things that others
are not able to do. This is one of the reasons why we have repeatedly said
that the seniors housing industry is not in as bad shape as the investors
in the publicly traded companies think it is. That said, not all private
companies are performing as well as the three mentioned above, and perhaps
it was sheer coincidence that the three CEOs we spoke with were doing so
well. However, we still believe it has a lot to do with focus and
flexibility and not having to turn an aircraft carrier on a dime. But
remember, when those aircraft carriers turn, they can pack a powerful
punch.
|
|
