1

The Nursing Home Market in The Nursing Home Market in 2007 2007

23rd National Home and Community Based Services Waiver Conference Albuquerque, NM September 2007

Leslie Hendrickson Ph.D.Leslie Hendrickson Ph.D.Visiting Professor Visiting Professor

Rutgers Center for State Rutgers Center for State Health PolicyHealth Policy609-213-0685609-213-0685

lhendrickson@ifh.rutgers.edulhendrickson@ifh.rutgers.edu

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Kind and Amount of Long-Term Kind and Amount of Long-Term Care HousingCare Housing

In 2000, roughly 46,000 properties with 3,400,000 beds:

50% assisted living34% nursing facilities7% independent living4% continuing care retirement

centers

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Long Term Care MarketLong Term Care Market

Number of certified beds, persons in certified beds and number of homes

Occupancy in long term care settings

Loan Volume

Look at Capitalization Rates

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Certified Beds, Residents and Certified Beds, Residents and Homes 2000-2007Homes 2000-2007

Beds, Residents and Number of Nursing Homes 2000-2007

1,250,000

1,300,000

1,350,000

1,400,000

1,450,000

1,500,000

1,550,000

1,600,000

1,650,000

1,700,000

1,750,000

2000 2001 2002 2003 2004 2005 2006 2007

15,200

15,400

15,600

15,800

16,000

16,200

16,400

16,600

16,800

17,000

Certified Beds

Residents

Nursing Homes

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Occupancy RatesOccupancy Rates

Nursing Home Occupany Rates 2000 - 2007

87.50%

88.00%

88.50%

89.00%

89.50%

2000 2001 2002 2003 2004 2005 2006 2007

Occupany Rates

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Occupancy Rates in Occupancy Rates in Long-term Care SettingsLong-term Care Settings

Long-term Care Occupancy Rates 1999-2007

75.00

80.00

85.00

90.00

95.00

2000

2001

2002

2003

2004

2005

2006

2007

Mea

n O

ccup

ancy

Rat

es

Independent Living

Assisted Living

Skilled Nursing

CCRCs

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Loan VolumeLoan Volume

Loan Volume 2001-2006

-5,000

10,00015,00020,00025,00030,000

2001 2002 2003 2004 2005 2006

$ in

Mill

ions Independent Living

Assisted Living

Skilled Nursing

CCRCs

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Capitalization Rates Capitalization Rates

A capitalization rate (or "cap rate") is a measure of the ratio between the cash flow produced by an asset and its capital cost (the original price paid to own the asset). The rate is calculated in a simple fashion as follows:Annual cash flow / Capital Cost = Capitalization Rate

The annual cash flow is called net operating income (NOI),. Generally, NOI is defined as income (earnings) before depreciation, taxes, and interest expenses.

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Annual Cash FlowAnnual Cash Flow

The annual cash flow is called net operating income (NOI) or EBITIDA. Generally, NOI is defined as income (earnings) before depreciation, and interest expenses.

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Long Term Care Cap RatesLong Term Care Cap Rates

Capitalization Rates In Long Term Care Settings 2000-2007

-

5.00

10.00

15.00

2000

2001

2002

2003

2004

2005

2006

2007

Cap

Rat

e % Independent Living

Assisted Living

Skilled Nursing

CCRCs

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Why Build Long Term Care Why Build Long Term Care Housing?Housing?

High, 8-11%, cash on cash returns. 10% to 20% internal rates of return.

Known demand from aging population and little technology risk.

Independent of business cycle. Good return, over 30%, on expansions and

additions, e.g. adding a 30 bed assisted living unit to a 100 bed nursing home.

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Competition for Rehab. IncomeCompetition for Rehab. Income

0.00%2.00%4.00%6.00%8.00%

10.00%12.00%14.00%

Dec.2001

June2003

June2004

June2005

June2006

June2007

MEDICARE % IN NURSING HOMES

Medicare %

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Competition for Rehab. $Competition for Rehab. $

No end in sight of competition among rehab hospitals and nursing homes.

CMS Post Acute Payment PoliciesDevelopment of new assessment

instrument

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States

% Difference between

December 2002 and June 2007 in Number of NF

Beds Wisconsin -15.70%

Minnesota -12.04%

Rhode Island -10.99%

Indiana -9.64%

Vermont -8.92%

South Dakota -8.12%

Massachusetts -7.00%

Pennsylvania -6.47%

Idaho -6.44%

Louisiana -6.31%

Maine -6.06%

Washington -5.99%

Kansas -5.60%

Iowa -4.67%

Connecticut -4.48%

Montana -4.05%

Oklahoma -4.03%

District of Columbia -3.19%

West Virginia -2.76%

Nebraska -2.71%

Illinois -2.60%

Alaska -2.55%

Michigan -2.39%

Tennessee -2.27%

United States -1.34%

North Dakota -1.32%

Wyoming -1.20%

Oregon -1.05%

Ohio -0.98%

Florida -0.84%

California -0.38%

Arkansas -0.17%

Arizona -0.09%

Missouri -0.02%

New Mexico 0.62%

New Jersey 0.63%

Georgia 0.66%

New Hampshire 0.98%

Colorado 1.30%

Alabama 2.58%

Kentucky 2.70%

New York 2.86%

South Carolina 3.21%

Utah 3.49%

Maryland 3.96%

Hawaii 4.27%

Mississippi 5.04%

Delaware 5.17%

North Carolina 5.90%

Virginia 6.33%

Nevada 10.00%

Texas 10.04%

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Data SourcesData Sources

OSCAR data from Health Services Research and Evaluation group of American Health Care Association (AHCA) retrieved from

http://www.ahca.org/research/index.html

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Data SourcesData Sources

Financial data from National Investment Center for Seniors Housing & Care Industry retrieved from

http://www.nic.org/shop/shopdisplayproductsNIC.asp?id=7&cat=Research+Library