State of senior living

William C. Fisher

There is some good news about the state of the senior living business: Senior living providers are operating with more strength financially than in recent years. The recently released CARF-CCAC ratio data show that net operating margins are in the higher range of historical averages due to cost containment and modest increases in fees. More services are also being offered to meet the growing needs of seniors. These might include more resident-centered care and home services.

Growth trends have not been discussed in recent years due to the economic challenges all senior living executives faced. That is changing. More senior living organizations are focusing on renovating and repositioning healthcare units, while perhaps adding memory care and assisted living facilities to their existing skilled nursing care campuses. Another interesting trend is the building of small- to medium-sized independent living units. Amid these growth trends, the industry continues to see increasing numbers of affiliations, mergers and acquisitions. In fact, these three areas alone saw activity levels increase year-over-year by about 25%.

The capital markets for senior living-financed transactions have begun to ease somewhat. Capital is available on acceptable terms for the fixed-rate and bank credit markets for solid projects. Senior living borrowing costs were pulled down by a weak economy, prompting many borrowers to refinance bank debt or older fixed-rate debt. Credit remains important to the capital markets as the difference between rated and non-rated borrowers is meaningful.

Institutional buyers of senior living debt look for financially strong sponsors of new projects and providers with less dependence on entrance fees to cover debt. Such buyers believe the relationship between investors and borrowers should be stressed.  

The bottom line: Senior living CFOs can look ahead to 2013 with some optimism.