While stormy economic conditions buffeted the business last year, indicators now point to smoother sailing ahead. As businesses in nearly every U.S. sector struggled to stay afloat last year, assisted living was the buoy in the choppy waters DJ. Steady demand for quality services helped keep companies stable-even if accompanied by a hiatus from major mergers and acquisitions.
As businesses in nearly every U.S. sector struggled to stay
afloat last year, assisted living was the buoy in the choppy waters. Steady
demand for quality services helped keep companies stable-even if accompanied by
a hiatus from major mergers and acquisitions.
Now, as economic forecasters allude to the end of the
“Great Recession,” companies like this year’s Largest Providers are
poised for growth, some of which is already underway. Forty-two of those
companies (60%) that made the 2010 list report increases in licensed assisted
living resident capacity-though much of that growth was in single-digit
percentages. Another 16 of the top 70 companies maintained their size, while
just 12 reported losses.
Here’s a look at Assisted Living Executive’s 2010 Largest
Providers, and the business environment, transactions, and trends that landed
each company a spot.
Top Players Hold Steady
In 2009, no assisted living providers merged nor acquired any
other complete company. However, while most deals were small, the year did
produce a few large portfolio acquisitions and considerable reshuffling. The
biggest gains and losses were among the biggest players and occurred through
simple sales and acquisitions.
For the first time since Assisted Living Executive began
compiling this annual Largest Providers list, Sunrise Senior Living, based in
McLean, Virginia, no longer sits at No. 1. The company, now No. 2, had no new
building starts and sold off about 9 percent of its assisted living capacity
(about 2,896 units) last year. Its biggest transaction was a portfolio of 21
communities in 11 states to Milwaukee, Wisconsin-based Brookdale Senior Living
for $204 million, but Sunrise also sold smaller portfolios to regional
providers, such as Baltimore-based Brightview Senior Living (The Shelter
Group), which purchased two of Sunrise’s New Jersey communities.
The Sunrise downsize has made Seattle-based Emeritus Senior Living the nation’s largest assisted living provider. Emeritus acquired 2,221 new licensed assisted living units and grew by 7 percent in the past year, and it’s very likely that Emeritus will not only maintain the top spot next year, but expand significantly in 2011. The company’s partner, Blackstone Real Estate Advisors, is pursuing the purchase of 134 communities operated by Sunwest Management, which is in Chapter 11 bankruptcy Hochzeits-DJ. Under a preliminary agreement, Emeritus would manage the properties with the option to invest up to 10 percent of the equity in a joint venture with Blackstone and Columbia Pacific Management, an entity controlled by Dan Baty, Emeritus chairman and co-CEO.
Brookdale Senior Living maintained its No. 3 ranking, but
also grew by 3,808 residents, or 15 percent, in 2009. Sunwest Management, last
year’s No. 4 company, comes in at No. 7 this year with 9,186 assisted living
residents, a 43 percent drop. The company will disappear completely from the
2011 list if Blackstone or another entity receives court approval to buy the
remainder of Sunwest’s portfolio.
In terms of percentage growth, the clear winner is Solana
Beach, California-based Senior Resource Group, another beneficiary of Sunwest’s
financial woes. The company picked up management contracts for 41 properties in
11 states, under the name LaVida Communities, when institutional investor Lone
Star Funds of Dallas acquired the properties in the first big deal of 2009.
Senior Resource Group catapults from No. 55 to No. 11, having grown its
assisted living resident capacity more than 500 percent, to 4,897.
For the next Largest Providers percentage spike, look to CRL
Senior Living Communities, which enters the list at No. 57, thanks to more than
doubling its assisted living capacity from 502 to 1,019. Also on the growth
path, Frontier Management expanded by 64 percent, from 828 to 1,358 licensed
assisted living units, thanks to seven new management contracts and two new
buildings. Frontier Management jumps 15 spots from No. 57 to No. 42. Watch this
Western regional provider to grow further next year as several more new
The fourth-largest list jumper is Carmichael,
California-based Eskaton Senior Residences and Services, rising 12 spots to No.
56. The company reports 1,036 licensed assisted living units (up from 732 last
year) due to either expansions or applications for additional assisted living
Only seven other providers report gains of 20 percent or more
in the past year, and among them is Bradley, Illinois- based BMA Management.
Because of its focus on the affordable market, the company continues to benefit
from accessible financing sources not available to traditional providers. BMA
Management’s assisted living resident capacity jumped 27 percent in the past
year as the company opened six new communities. In 2010, the company moves up
the list by three spots, coming in at No. 21.
Other companies that increased their licensed assisted living
capacity include Capital Senior Living Corporation (No. 20), which grew by 25
percent, and Bonaventure Senior Living (No. 23), whose assisted living capacity
surged by 21 percent to 2,595. Assisted living capacity for Carlsbad,
California-based Integral Senior Living (No. 24) rose 24 percent. Benedictine
Health System (No. 41) grew by 20 percent, and Brightview Senior Living (No.
52, up from No. 62 last year) expanded by 29 percent, thanks to the Sunrise
deal, which added 240 residents. Another chart-jumper was Leisure Living
Management, which vaulted nine places from No. 58 in 2009 to No. 49 this year
simply by adding 200 residents (22 percent).
The vast majority of expanding providers, however, had gains
of less than 10 percent. But a little growth can go a long way when nearly 60
percent of companies on the Largest Providers list have fewer than 2,000
assisted living residents.
In another indication of assisted living growth, Independent
Healthcare Properties, the smallest company on the list at No. 70, only kept
its 2009 rank thanks to an 18 percent capacity gain from 706 to 833. Most of
the 2009-ranked companies that did not make this year’s list either maintained
capacity or had very small gains. Another reason for higher numbers at the
bottom of the list is attributed to data from five providers not previously
listed-Spectrum Retirement Communities (No. 28), Mountain View Retirement (No.
50), CRL Senior Living Communities (No. 57), Welcome Home Management Company
(No. 64), and Elder Care Alliance (No. 66).
Other than Sunwest, the company with the most dramatic drop
in licensed assisted living capacity was Northstar Senior Living, which shed
1,068 residents, or 55 percent of its 2009 capacity, falling from No. 28 to No.
67. Again, because of modest overall numbers, decreases were most notable
toward the bottom of the top 70 list. Grace Management saw a 30 percent decline
from 1,399 to 979 and dropped from No. 37 in 2009 to No. 61 this year. Carillon
Assisted Living, No. 49 in 2009, decreased its capacity by 24 percent from
1,024 to 775, removing it from the list altogether.
Several companies that didn’t make this year’s list but may
show up in 2011 include Trinity Lifestyles Management, which nearly doubled in
size to 480 assisted living residents after picking up three Atlanta-area
EdenCare properties, formerly operated by Sunrise Senior Living. Wichita,
Kansas-based Legend Senior Living has been raising its assisted living
component steadily with new construction, expanding another 18 percent to 692
in 2010. And finally, AdCare Health Systems, based in Springfield, Ohio,
remains a smaller provider at 231, but that reflects a 38 percent increase over
the prior year, and the company recently announced raising $2.5 million to fund
More Stable Times Ahead
“The fact that we’ll be able to point to this time
period-the worst economic downturn in our lifetimes-and say that our industry
weathered it pretty well and even continued to grow is significant,” says
Granger Cobb, president and co- CEO of Emeritus Senior Living.
The past two recessions hit assisted living hard, and many
providers at the start of 2009 were concerned that the stalled housing market,
depleted stock market earnings, and high unemployment among the adult children
of potential residents could cause occupancy rates to plummet. Instead, after
modest 2008 rate declines and a rent growth slowdown to 2 percent from 2.9
percent in 2008 and 4 percent in 2007, the needs-based component of assisted
living seemed to trump economic concerns. Move-ins could be postponed but only
for so long.
By second quarter 2009, signs of stabilization began to
emerge, followed by a slow but upward trend, says Robert G. Kramer, president
of the Annapolis, Maryland-based National Investment Center for the Seniors
Housing & Care Industry (NIC). While national unemployment still hovered at
a troubling 10 percent in January, Kramer says he’s cautiously optimistic about
the future, especially since the industry saw its largest absorption rate in
the third quarter of 2009 since the first quarter of 2006- 1,400 assisted
living units in the top 30 urban markets and slightly stronger in the top 100
Those statistics suggest that the overall picture is much
rosier for assisted living than for other real estate sectors, including
multifamily, hotels, and offices, Kramer notes. “Basically, we are seeing
operators holding the line with regard to rates,” he adds. “We
certainly are seeing more concessions out there, but at the same time, those
concessions tend to be very much market-specific, property-specific, or even
Still, move-in delays due to economic factors have amplified
a trend already developing pre-recession-residents tend to be older and
frailer, says Jim Moore, president of Moore Diversified Services and author of
“Strategic Forecast,” published in Assisted Living Executive’s
January/February 2010 issue. The result is heightened opportunity in dementia
care, which is even more needs-based than assisted living, he adds. Indeed, a
number of top 70 operators reported having converted independent units to
assisted living or assisted living to memory care.
As for new construction, buildings already in the pipeline
continued to open, but few companies launched new developments, and by January
2010, the number of new building starts had fallen to the lowest point since
NIC started tracking senior housing trends. No companies went public in 2009.
Forecast for 2010
Access to capital will remain the primary challenge for
development in 2010, although new properties financed before the recession will
continue to open through the third quarter of 2010. But the lack of new
properties isn’t necessarily bad news for assisted living.
“We’re going to go through a period of very little new
product coming online, but if that coincides with pent-up demand and a recovery
in the economy, all should bode well for occupancies and rent growth in
assisted living,” Kramer says. “Outside of external economic factors
that we don’t have any control over, the greatest risk to assisted living is
Fannie Mae and Freddie Mac will continue to be dependable
sources of permanent 10-year financing, but when it comes to construction
loans, developers have few options. Some very limited HUD 232 financing will be
available, but more likely, the few projects that launch will do so because of
relationships with local lenders.
Indeed, The Arbor Company, based in Atlanta, lacks the cash
to develop properties on its own, but thanks to a partnership with Formation
Capital, Arbor will manage two new properties scheduled to break ground this
fall, says COO Judd Harper. “We feel much stronger and more optimistic
about the assisted living occupancies in today’s slowly recovering economy, but
are optimistic about independent living’s rebound in the future,” he adds.
“As people get jobs, they no longer are going to be able to care for a
parent at home.”
A bright spot in the acquisitions arena, private equity
entities are beginning to eye assisted living as a desirable sector again, and
the major REITs in senior housing are well-positioned to invest again, Kramer
notes. Emeritus will be a company to watch thanks to the Blackstone deal, and
while it only plans one new building in 2010, the company actively will be
looking for other acquisition opportunities at attractive prices.
“If a company has liquidity, cash flow, and a reasonably
healthy balance sheet, it will be in a great position because there are
opportunities right now,” Cobb says. That advantage isn’t just for big
companies like Emeritus, but also for regional and even small mom-and-pop
players with targeted expansion plans, he adds, noting that “interest
rates have not changed that much over the last couple of years, but the amount
of equity and coverage ratios you have to have in place has become more
stringent, as well as the underwriting.”
Fanwood, New Jersey-based Chelsea Senior Living leveraged a
strong relationship with a local lender to purchase a former Sunwest property
in New Jersey last fall and is actively looking for more deals, says Roger
Bernier, president and COO. “Some people are likely to see their debt
maturing and be unable to refinance,” he forecasts. “Ultimately we’d
like to grow by two communities per year, but it has to be the right deal for
us to take a look.”
Much of the acquisitions action in 2010 is likely to remain
with distressed properties, however, and no one expects lots of high-end
properties to come on the market this year, says Steve Monroe of Senior Care
Investor. “High-performing properties are only going to sell if owners can
get a good price, although that may start to change later in 2010.”
Still, wise operators should not be blinded by attractive
price tags so much that they forget to consider how well the acquisition fits
into their existing portfolio and evolving demands of seniors and their
families, Moore cautions. “Senior psychographics are changing,” he adds.
“It’s not so much the World War II homemaker widow as 80-year-olds who
have been in the professional workforce.”
Another area of opportunity in 2010 may be new management
contracts for owners and lenders who may be unhappy with their current
management, Moore suggests. And for many companies, the wisest move in 2010 may
be just to sharpen internal operations, he says.
Although Greensboro, North Carolina- based Bell Senior Living
is open to the right deal within the mid-Atlantic states in which it already
operates, the latter strategy will be the company’s prime priority this year,
says President Steve Morton. “I’d say it’s a time to focus on operations,
improve operating results including management and revenue streams, and put
together the necessary tools to maximize and run communities in the most
effective manner possible,” he says. “This is something we can do
because we don’t have five acquisitions or development deals.”