Consolidation Continues: A Shrinking Universe of Senior Housing Operators

Senior living is already flush with a variety of capital sources, new operators and other entrants looking to cash in on the sector’s favorable demographic trends. But as new players continue to enter the space, they are inevitably priming themselves and the industry for even more consolidation over the next few years.

Simply put: consolidation is inevitable, agreed several chief executive officers from some of the nation’s top senior living companies during a panel discussion at the Senior Housing News Summit in Chicago last month.

“There’s got to be more consolidation. That is going to be the inevitable thing that’s going to happen, whether you like it or not,” said Kai Hsiao, president and CEO of Holiday Retirement, during a conversation about the potential for further consolidation in the senior living industry.

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Smaller operators may be motivated to sell their properties as their labor costs and expenses in general increase, thus hampering their ability to grow the scale of the their businesses. Therein lies an opportunity for bigger providers.

“The newer operators may not necessarily have the resources that are out there to build out the platform to scale up, so it’s a great time for folks like us to actually look for consolidation opportunities,” Hsiao said. “I think it’s inevitable on that side.”

Operators’ thirst for liquidity as it applies to scaling their businesses will also play a significant role in further industry consolidation, suggested Ed Kenny, chairman and CEO of Des Moines, Iowa-based Life Care Services.

LCS Chairman and CEO Ed Kenny
LCS President and CEO Ed Kenny

“Over time, companies are going to be faced with the question of liquidity and/or scale,” Kenny said. “Those smaller, regional companies are going to find that it is increasingly challenging to provide the scope of services, meet the CapEx needs and meet the technology needs of the industry, and they’re going to be looking for a place to sell their company because of scale challenges.”

Life Care Services is the third largest senior housing and services provider in the U.S. in terms of resident capacity with approximately 26,000 units. Like the its name suggests, Life Care Services’ portfolio offerings runs the gamut of senior care options, including independent living, assisted living, continuing care retirement communities as well as home health care services.

Kenny sees consolidation being triggered by two factors, primarily driven by the “tremendous” growth in activity from real estate investment trusts (REITs) and the operators with whom they partner.

“We see that there’s going to be consolidation of those operators within the REIT universe,” Kenny said. “That consolidation will really be triggered by two things. Some of these operating companies are going to want liquidity and are going to want to be able to get out. And I think most of the REITs will look at having a more efficient operating platform and maybe having not as many operators in their stable.”

“Operator consolidation is going to happen,” said Jerry Finis, principal and CEO of Pathway Senior Living, a regional senior housing provider.

Based in Des Plaines, Ill., Pathway is an owner and operator of 22 properties consisting of over 1,300 assisted living units and 600 senior apartments located predominantly in the Chicagoland area and Wisconsin.

“I think it’s going to happen at a larger level, but it’s also going to happen because this industry is still filled with a lot of mom-and-pops,” Finnis added. “There’s going to be some consolidation as those companies sort of go away as their assets get sold. I think that will continue to happen.”

As senior living continues to attract a variety of new entrants, be them operators developers or capital providers, the industry could likely be one populated by only a few operators if consolidation activity picks up in the coming years.

“The increase in the amount of capital sources in the senior housing space is growing. The increase in the amount of developers interested in entering this sector is growing, yet we could have a situation where the universe of operators is smaller,” said Kenny. “Do we see consolidation continuing to occur in the marketplace in the near term over the next couple of years? Our answer is yes.”

Written by Jason Oliva

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