The Evolution of Senior Living and Nursing Home Stocks Amid Demographic Shifts and Pandemic Challenges
Back in 2015, Larry Robbins from Glenview Capital Management made rounds betting on healthcare stocks. This was despite the fact that there were legal challenges to the Affordable Care Act in 2012. Robbins stated that the Act meant hospitals would make more money on emergency room visits because more Americans would have health insurance. Stating that he remains bullish on hospitals and pharmaceuticals, Robbins affirmed that the demographic trends in the US are generating a robust tailwind of consistent growth in the sector.
“You can get emerging market-type growth based on U.S. demographics”.
Global pharma's were at the forefront for this hedge fund, while hospitals and managed care companies were trimmed down a bit. Maintaining its long-term holdings in Tenet Healthcare Corporation (NYSE:THC) and Community Healthcare, the firm's buys also included Actavis, Endo International, and Brookdale Senior Living Inc. (NYSE:BKD). Insider Monkey’s take on whether hedge funds are right about stocks such as Brookdale Senior Living back in 2015 also stated that money managers have been taking a bullish view. At the end of the third quarter of 2015, BKD was in 66 hedge fund portfolios, with Larry Robbins holding the most valuable position, an estimated $405 million. Barry Rosenstein of JANA Partners was second, with a $235.6 million position.
Again, Robbins has been at the forefront of stocks such as Brookdale Senior Living Inc. (NYSE:BKD), stating that the company ought to benefit not only from improving its properties that would allow it to start charging more but also from taking advantage of opportunities that arise from seniors not living in their homes. Joint ventures, tax-free spins, and similar transactions could also allow the company to monetize, and rightly so, it did.
According to Robbins,
"Easiest thing to bet on is an aging population”.
Fast forward to 2020, senior living operators began struggling to survive the COVID-19 pandemic situation. The same year Brookdale Senior Living Inc. (NYSE:BKD) had an 11.2% occupancy decline as reported by Credit Risk Monitor. However, these declines were not unique to Brookdale only. The S&P Global Market Intelligence data revealed that healthcare was one of the leading industries with the most bankruptcies. Assisted living, memory care, and even nursing homes faced the most distress due to a real "cash-flow problem". This is backed by the Polsinelli-TrBK Distress Indices report that saw senior living-focused organizations, independent and assisted living communities, and skilled nursing facilities making a significant portion of bankruptcy filings in Q4, 2021.
The S&P report further revealed that the healthcare sector had the highest probability of default at 4.4% in 2022, up from 3.3% in December 2021. Staffing shortages, canceled elective procedures, and pandemic fears led to the most bankruptcies. However, the pandemic crisis is finally over and industry heavyweights are keen on “meeting and even exceeding the 80% occupancy thresholds”, notes Senior Housing News. Having reported Q4,2023 and full-year results, Welltower Inc. (NYSE:WELL), Ventas, Inc. (NYSE:VTR), and Brookdale Senior Living Inc. (NYSE:BKD) deliver positive news in terms of the state of the industry as of the year 2024.
Welltower Inc. (NYSE:WELL) reached the highest level of year-over-year growth of 330 basis points in Q4, 2023. The company reported same-store occupancy in the senior housing operating (SHO) portfolio of 83.3%. Q4 also saw "accelerated" occupancy gains among same-store communities in the SHO portfolio, from 310bps in October to 330bps in November, and to 340bps in December.
“The flow through gets pretty fantastic as you get north of 80%. When you talk about staffing up … the positions are in place. You have your head chef, you have your executive director, et cetera, et cetera. So it’s very incremental … this arc of the curve, there’s a lot of money that comes to the bottom line as you increase occupancy".
Here is an excerpt from the Earnings Call Transcript for Welltower Inc. (NYSE:WELL) for Q4,2023:
“We finished the year strong with significant momentum to set us up for another year of solid performance in 2024. In terms of our Senior Housing Operating portfolio, I was particularly encouraged by the occupancy growth in fourth quarter, which is seasonally not the strongest period. The portfolio saw 110 basis points of sequential occupancy gains, which translate into 330 basis points year-over-year occupancy growth, and the 330 basis points year-over-year occupancy growth is by far the highest level we have ever achieved in the fourth quarter of any year in our recorded history. Just as compelling is that looking at the intra-quarter trends, year-over-year occupancy growth strengthened each month, which is unusual given the aforementioned seasonality of the business”.
Ventas, Inc. (NYSE:VTR) reported similar findings, stating that strong pricing and higher move-ins helped it get off to a strong start in the year 2024. Brookdale also reports an "upward trajectory" in many respects, though it is yet to reach the 80% mark. The weighted average occupancy was 78.4% in Q4,2023.
“Senior living communities operate most effectively at that 80-plus percent occupancy rate. So that is still ahead of us”.
Hedge fund sentiments towards Brookdale have witnessed a modest uptick in hedge fund interest, with 24 positions by hedge funds in Q1, 2021 to 28 in Q4, 2023. However, this is nowhere near the peak of 62 hedge funds having a position in the stock during Q1-Q3, 2015. The current levels suggest cautious hedge fund sentiments moving forward.
10 Best Alternatives to Nursing Homes and Assisted Living
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Methodology
To compile the list of 10 best alternatives to nursing homes and assisted living, we adopted a consensus approach to pick out the most suggested alternatives from sources such as US News & World Report, A Place for Mom, Arbor Company, Investopedia, Senior Living, and Caring Advisor. We also inculcated retiree experiences as to what they believe are the best alternatives to nursing homes and assisted living options. Scores were summed up and alternatives were ranked based on the number of times they were recommended in an ascending order from the lowest to the highest scores.
By the way, Insider Monkey is an investing website that tracks the movements of corporate insiders and hedge funds. By using a similar consensus approach, we identify the best stock picks of more than 900 hedge funds investing in US stocks. The top 10 consensus stock picks of hedge funds outperformed the S&P 500 Index by more than 140 percentage points over the last 10 years (see the details here). Whether you are a beginner investor or a professional one looking for the best stocks to buy, you can benefit from the wisdom of hedge funds and corporate insiders.
Here are the best alternatives to nursing homes and assisted living:
10. Adult Day Care Services
Insider Monkey Score: 3
Who says only children get to have daycare? There are adult day care services too, and are one of the best alternatives to nursing homes and assisted living. Adult daycare services are the perfect opportunity for seniors to have a busy, structured day that allows them to socialize with others. Adult day care services, also called ADC, are different from Adult Foster Care Services. Family members who can't watch over their aging relatives 24 hours a day can utilize these daycare services so that they can work or run errands. For adults looking for adult daycare services in their area, there is an official government Eldercare Locator that can help them discover locations.
9. Respite Care
Insider Monkey Score: 5
If you are a caregiver for a friend or family member and get drained mentally or physically from the full-time care, yet don't want to send your loved one to a nursing home or an assisted living facility, respite care may be what you're looking for. The CDC notes that unpaid caregiving is associated with a high risk of many medical conditions such as mental health problems, compromised immunity, and even early death. As such, respite care can come in many forms such as adult day centers, in-home care, and short-term stays in residential facilities.
8. Continuing Care Retirement Communities
Insider Monkey Score: 6
Next on our list of best alternatives to nursing homes and assisted living facilities is continuing-care retirement communities. Also known as CCRCs or Life plan communities, Continuing Care Retirement Communities offer seniors various personal care and living options depending on the level of care that they need. Seniors get to "age in place" or live in one location, even if they require more assistance in the future. These communities are designed in a manner that they can cater to seniors as per their growing needs and levels of care.
7. Independent Living
Insider Monkey Score: 8
Independent Living is another alternative to nursing homes and assisted living. Seniors who don't want to give up on their independence, yet don't want to live alone either, can avail the option of independent living. Senior apartments, retirement communities, and senior communities are all designed with independent living in mind. Such a housing arrangement entails seniors required to do activities throughout the day to live comfortably, such as dressing, feeding, bathing, etc. Active seniors can make use of such options and choose to live in communities that offer the best facilities and amenities.
6. Convalescent Homes
Insider Monkey Score: 10
Ranking sixth on our list of best alternatives to nursing homes and assisted living are convalescent homes. Such types of homes are basically facilities that provide temporary care and support to patients recovering from an injury or illness. The goal of such a facility is to help the patient recover properly so that they can be independent again once they leave.
