The senior living industry is evolving. Some changes are in response to consumer preferences, while others are driven by market conditions such as a wave of new supply.
A few leaders in senior living recently weighed in on some of the top trends and forces they see shaping the industry. From the growth in ancillary services to the latest hot amenities, here are some of the key topics they spoke about at the recent National Investment Center for Seniors Housing & Care (NIC) Fall Conference in Chicago:
More senior living providers should think about beefing up their ancillary services, according to Randy Bufford, president and CEO of Trilogy Health Services. Based in Louisville, Kentucky, Trilogy operates senior care and senior living communities throughout Kentucky, Indiana, Ohio and Michigan.
“There’s a huge ancillary service business around senior housing that’s not being captured by the operators,” Bufford said.
Some senior living operators, such as Newton, Massachusetts-based Five Star Senior Living (Nasdaq: FVE) and Chicago-based Senior Lifestyle, are making an effort to grow service lines such as home health care, rehabilitation and hospice care. And Bufford identified Brentwood, Tennessee-based Brookdale Senior Living (NYSE: BKD) as an example of how ancillary services can be done well, particularly with its therapy and pharmacy services.
But Peter Martin, managing director at full-service investment banking firm JMP Securities, had some cautionary words regarding ancillary services.
“You have to have scale to do it, and you better bring in expertise,” Martin said. “From a financing perspective, I would caution you to underwrite to include that ancillary services cash flow.”
Adding Medicare-reimbursed home health, hospice and therapy also exposes providers to the possibility that the government will freeze or cut payments with little or no warning. This is something else providers cannot take lightly, Martin stressed, saying he has seen how this can play out to an operator’s detriment.
“When those Medicare reimbursement changes hit, it really changed the dynamic of the capital structure of that operator and put a lot of pressure where it probably shouldn’t have been,” he said.
Money on the table
Though some providers are turning their focus to new construction or acquisitions to make money, Capital Senior Living (NYSE: CSU) plans to grow its bottom line partly by bringing more people into its properties, said CEO Larry Cohen (pictured above). Dallas-based Capital Senior Living owns and operates 129 senior living communities around the U.S.
The company—which has about 12,500 total units—has a vacancy rate somewhere between 12% and 13%, Cohen said.
“That’s a lot of money. I can’t make that money buying properties,” he said. “Every 1% of occupancy, for us, is $4.5 million in revenue.”
Despite the amount of new supply entering the senior housing industry, plenty of units remain vacant. Those vacancies represent approximately $7.2 billion of idle capital in the industry, according to one analyst.
Foreign funding not here (yet)
Though senior living providers have long anticipated an air drop of foreign cash into the industry, it so far hasn’t materialized, according to John Cobb, executive vice president and chief investment officer of Ventas (NYSE: VTR). Ventas is a Chicago-based health care real estate investment trust (REIT) and among the industry’s biggest property owners.
Rumors swirled earlier this year that a major Chinese company was in talks to buy Brookdale, but that buyout has yet to happen.
“They’re definitely out there. [But] they really haven’t done a ton of transactions yet in our space,” Cobb said.
Providers must pay close attention to what their residents want or be left behind, said Scott Stewart, managing partner of Capitol Seniors Housing (CSH). Based in Washington, D.C., CSH is a private equity-backed real estate acquisition, development and investment management firm.
“We think the current population of properties is archaic,” Stewart said. “A lot of the properties with the eight-foot ceilings and the choppy rooms are not what the discerning senior wants today.”
Capitol Seniors Housing recently has shifted its focus more to developing new properties. Hot trends right now include communities with test kitchens, keyless entry rooms and big memory care walking gardens, Stewart said.
And gone are the days of complacent residents: seniors are getting more picky about the kind of care they receive.
“You want to evolve the property to really hit what the discerning senior really wants,” Stewart said. “It’s wonderful to be part of that evolution of the senior lifestyle.”
Written by Tim Regan