REITs Favor Senior Housing for Healthcare Investments

Low volatility and aging demographics have made senior housing a favorable sector for real estate investment trusts (REITs), according to Health Care REIT (NYSE:HCN) Chairman, CEO and President George Chapman during a webcast Wednesday.

Sponsored by Bank of America Merrill Lynch, the webcast event U.S. Rental Housing at Every Age featured panelists specializing in various sectors of rental housing, from student apartments to senior living.

HCN’s portfolio is about 60-65% senior rental housing, according to Chapman, who sees senior housing as a “favored sector” from a REIT standpoint.


“Senior housing has become a core property type for healthcare REITs,” he said. “It’s been doing very well, it’s been resilient over the last five years and it has not had the kind of volatility that other sectors have had.”

HCN differed from other panelists in a few ways, including average resident age and net worth in target markets.

The average age of a resident living in an HCN-affiliated facility is 85 years old. With much of the REIT’s portfolio located in the best markets in the U.K., Canada and the U.S., 60% of those market’s residents have an average $300,000 net worth, with 85% of them owning their homes.


“It’s a radically different focal point from the other gentlemen up here,” Chapman said in regard to his fellow panelists.

Fielding a question that referred to senior housing having about a 1 in 10 penetration rate, Chapman cited the economic downturn in the last five years as a key factor in slowing growth for the senior housing sector. However, he added, aging demographics and the $600 billion opportunity in the healthcare market offer strong prospects for growth.

“Together, with the fact that the 75 and older population is the fastest-growing cohort in the U.S. by five times the national average, we’re looking for some penetration,” he said.

While supply threatens to slow growth in the sector, considering recent NIC data that showed assisted living construction starts have increased steadily in the three years since 2010, the REIT is confident the rise in supply has yet to carry substantial impact.

“What’s important to note is that with the need-driven nature of healthcare and senior housing, we do not have a lot of volatility,” he said. “Supply has gone up a bit, [senior housing] is clearly a core property around the U.S., but we think it’s still very manageable.”

HCN estimates its margins between 40-45% for independent living; 30-35% for assisted living; 25-30% for dementia care and 15-20% for skilled nursing facilities, according to Chapman.

Labor continues to be a big variable cost, which HCN says it can flex it quite a bit, so that even during the downturn the REIT’s operators can flex their staffing and keep their margins high.

“We have to have great operators and have to be out there with them,” Chapman said. “We’re also going to have to learn from other housing providers, especially as we get more into incorporating technology and other service products, because when the baby boomers come—and it’s starting—it’s going to be no holds barred.”

Written by Jason Oliva

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