Assisted Living Executive - March/April 2011

living occupancy increased 0.36 percentage point and freestanding assisted living gained 0.29 percentage point. On the other hand, independent living declined to new cyclical lows: CCRCs were down one percentage point, combined independent living fell 0.38 percentage point, and freestanding independent living dipped 0.60 percentage point.

Rent Rates

Of course, occupancy isn’t the only metric to consider when analyzing the performance of the assisted living sector. Another encouraging trend is that rent growth has remained positive for assisted living, although just barely. This is in comparison to other asset classes such as office and multifamily properties, which have seen significantly negative rent growth during 2009 and 2010.

As the chart (lower right) shows, the distribution landscape for rent growth changed dramatically in the last four years. In fourth-quarter 2006, more than half of all seniors housing properties reported to NIC MAP that they raised rents 3 percent or more. For assisted living, that number was 56. 2 percent. By third-quarter 2010, only 25 percent of seniors housing properties—or half as many—raised rents 3 percent or more. Assisted living did slightly better at 26. 1 percent.

Studying the data further, we see a significant increase in the percentage of properties that reported lower rents as well as properties that reported they held rents steady. In second-quarter 2009, only 10 percent of seniors housing properties reported a year-over-year decline in average monthly rent. As of third-quarter 2010, that figure doubled to 21 percent. As for assisted living, 9. 6 percent of operators lowered rents in second-quarter 2009 compared with 17. 9 percent in third-quarter 2010.

For many operators, this lowering of rents may be a way of trying to boost occupancy. They may be adjusting to market conditions to make their communities more attractive to prospective residents.