Seniors Housing Occupancy on the Mend, but NOI Trails, Say Industry CEOs
LOS ANGELES — After bottoming out at 78.7 percent in the second quarter of 2021, private-pay seniors housing occupancy has been on a slow, steady climb, according to data from the National Investment Center for Seniors Housing and Care (NIC). The most recent data — for the fourth quarter of 2021 — showed occupancy at 81 percent.
However, the pace of recovery varies widely among individual markets, individual companies and even individual properties.
“Some people are able to manage the turmoil. Some are even thriving, or at least doing pretty well,” said J.P. LoMonaco, president of Valuation & Information Group. “Other people are really floundering. The questions I’m getting all revolve around occupancy, inflation, maintaining margins and revenue growth.”
LoMonaco’s comments came as moderator during a panel titled, “The Power Panel: CEOs Discuss the State of the Industry” at France Media’s InterFace Seniors Housing West conference in Los Angeles on Feb. 24. Nearly 225 industry professionals attended the event.
Other panelists included Chris Belford, CEO, Sinceri Senior Living; Rob Leinbach, principal, Cadence Living; Bill Pettit, president, R.D. Merrill Co.; Courtney Siegel, president and CEO, Oakmont Management Group; and Dave Sedgwick, president and CEO, CareTrust REIT.
All the panelists reported their occupancy numbers hit their nadir earlier and came back faster than the overall NIC averages. For example, Belford noted that Sinceri hit its low in September 2020 around 60 percent, but has fully recovered to its pre-pandemic level of 85 percent.
“We’re a needs-driven business. There was a lot of pent-up demand, and then we carried the wave to this point,” said Belford.
At Merrill, Pettit said that the portfolio is split among its high-end Merrill Gardens brand and mid-market Truewood by Merrill brand. Truewood buildings, which were recently built or acquired, came into the pandemic with lower occupancy (68 percent) than Merrill Gardens properties (96 percent).
However, occupancy at the company’s mid-market properties dropped only 100 basis points compared with the high-end segment’s 160-basis-point drop. Occupancy for both brands has gained 160 basis points from the nadir, meaning the Merrill Gardens product has fully recovered and the Truewood product has a higher occupancy rate than prior to the pandemic.
“We made minor progress in recovery of occupancy from fall 2020 to March 2021, at which point the restrictions came off the buildings,” said Pettit. “From the end of the first quarter of 2021 to today, we have recovered all of that occupancy we lost and can operate as normal.”
Sedgwick noted that the recovery can differ greatly based on the operator, market and individual property. He said half of the REIT’s portfolio is “exceptionally recovered,” but that the other half has stayed stagnant at its low point for occupancy.
“That’s one of the reasons why we’re taking pretty decisive actions with a few of our tenant relationships,” said Sedgwick. The company announced during a recent earnings call that it is selling, re-tenanting or repurposing 32 of its underperforming properties. The repurposed communities will become behavioral health facilities.
Leinbach’s experience at Cadence was different because the bulk of the company’s portfolio was in the lease-up phase. Rather than a drop in occupancy, he said leasing stalled temporarily, then picked up again after the COVID-19 vaccine was widely distributed.
Leinbach was also quick to note that occupancy returning does not necessarily mean a corresponding increase in net operating income (NOI), as COVID also led to a spike in expenses for operators.
“Occupancy and leasing have been good, but if any operator tells you they’re thriving right now, they’re lying to your face. We’re surviving,” said Leinbach. “Occupancy isn’t the issue. We can go from 60 to 85 percent, but where’s NOI? We have not seen the recovery on the NOI side.”
Siegel said that Oakmont has not had occupancy return to above 90 percent, but that inquiry traffic is hitting pre-pandemic highs, which could indicate additional recovery is on the way. The largest change on the sales side, though has been messaging.
Oakmont has opened 12 new private-pay communities since January 2020, and the former pre-leasing method of showing off amenities “completely failed.” Instead, the company pivoted to showcasing the healthcare and safety aspects of the communities.
“We had to put healthcare at the forefront of our organization,” said Siegel. “We made changes in our value proposition to showcase items like safety, security and the presence of a medical director. The client that we were speaking to wasn’t interested in our highly amenitized buildings anymore. Through those changes, we were able to lease up those 12 communities.”
— Jeff Shaw