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 Seniors Housing Return on Investment Fairly Strong, but Lags Other Properties

New data from the National Council of Real Estate Investment Fiduciaries (NCREIF) shows third-quarter investment returns for seniors housing beating out the group’s NCREIF Property Index, but not besting the returns for some other types of properties.
Beth Burnham Mace, chief economist and director of outreach at the National Investment Center for Seniors Housing & Care (NIC), analyzed the fresh numbers in a blog post, detailing the mostly favorable news for seniors housing developers and property owners.
The data showed third-quarter 2017 investment returns for the NCREIF-reported seniors housing properties equaled 2.73 percent, which is composed of a 1.38 percent capital return and a 1.36 percent income return.
“The annual total return through the first quarter of 2017 was 12.72 percent, overshadowing the NCREIF Property Index result of 6.89 percent and the apartment result of 6.22 percent,” Mace said. “However, industrial total returns slightly outpaced seniors housing at 12.80 percent.”
Although the total return for seniors housing is relatively strong, she said the trend is not, with total annual return for seniors housing down since mid-2014 when it peaked at 20.37 percent. “This pattern can also be seen in the broader index and reflects a slowdown in the appreciation component of the index,” Mace said.
On a 10-year basis, total returns for seniors housing exceeded both the NCREIF property index and apartments by more than 400 basis points. And, the difference with the hotel class was even larger, at 656 basis points (10.40 percent versus 3.84 percent), while the gap with retail was the smallest of the other five main property types at 257 basis points (10.40 percent versus 7.83 percent).
“On a one-year basis, the widest differential was between hotel and seniors housing, at 810 basis points,” she said. “These performance measurements reflect the returns of 102 seniors housing stabilized properties, valued at $4.9 billion in the first quarter. This is the first quarter that the property count of the NCREIF universe of seniors housing exceeded 100 properties.”
Unrelated to this latest data, NIC’s most recent measurement of seniors housing property occupancy rates averaged 88.8 percent in the third quarter of 2017. The result was unchanged from the second quarter, and down 0.9 percentage point from year-earlier.
NIC said the occupancy rates for independent living properties and assisted living properties averaged 90.5 percent and 86.6 percent, respectively, during the third quarter of 2017. “The occupancy rate for independent living was down 0.1 percentage point from the prior quarter and down 0.6 percentage point from year-earlier levels,” NIC said.
The occupancy rate for assisted living was up 0.2 percentage point from the second quarter, when it had fallen to its lowest point ever for the second time in the 11-year series. The occupancy rate for assisted living was down 1.2 percentage points from year-earlier levels.
On nursing care occupancy, NIC said rates decreased to 86.2 percent in the third quarter of 2017 from 86.6 percent in the second quarter of 2017.
“The nursing care annual inventory growth rate was 0.3 percent in the third quarter of 2017, while annual absorption was down by -0.4 percent. Private-pay rents for the sector grew 2.5 percent year over year this quarter, down 0.4 percentage point from year-earlier levels,” the group said.
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