Occupancy Rebounds

Green Street Advisors released a new report showing senior living occupancy ended the year with “better than expected momentum … that sets the stage for a favorable outlook this year. Occupancy will exceed pre-Covid levels in 2024. The Wall Street Journal reports an analysis by Jason Fichtner, chief economist at the Bipartisan Policy Center, that a record 4.1 million Americans will turn 65 this year.

“The senior housing sector is not without its risks, but the positives are likely to outweigh the negatives as fundamentals are still recovering from depressed levels, and the sector is on the cusp of a significant demand versus supply imbalance,” the experts said. “Over the long term, lower supply barriers and outsized cap-ex [capital expenditure] needs may weigh on returns relative to other areas of real estate.”

A separate report from commercial real estate investment sales brokerage Marcus & Millichap noted that rent rates were increasing at approximately double the pace seen before the pandemic, up 6% to 6.7% year over year.

“Prospective private market returns for senior housing seem attractive relative to other property sectors,” the report said. “investors are able to buy properties at higher initial yields than many sectors, with stronger intermediate term NOI [net operating income] growth prospects.”

Omega, Sabra and LTC are all structured as real estate investment trusts, which makes them especially advantageous for income seekers. REITs control the operation by controlling the budgets of the facilities. Profitable Real estate investment trusts Welltower, Ventas and Diversified Healthcare Trust; investment firm Harrison Street; and operators Benchmark Senior Living and Brookdale Senior Living are among the biggest owners of senior living properties. Brookdale has made many moves recently.

REITs have tax benefits as they are required to distribute at least 90% of their taxable income to shareholders. That means REIT investors receive a consistent stream of dividends derived from the nursing home operation including rental income or property sales.

Another report published by ADP, ADP Chief Economist Nela Richardson said that, overall, “[w]ages adjusted for inflation have improved over the past six months, and the economy looks like it’s headed toward a soft landing in the US and globally.”

The surge of 65-year-old Baby Boomers (born 1946-1964) will continue through 2027. AARP calls it a “silver tsunami.”