Forbes  Aug 7  Comment 
Neglect and abuse are continuing problems in a number of nursing homes.
WA Business News  Aug 1  Comment 
The owners of The Richardson Hotel & Spa in West Perth are evaluating their options to convert the building into a nursing home, in the wake of reduced demand for hotel rooms in Perth.
New York Times  Jul 28  Comment 
Nearly two-thirds of people in nursing homes rely on Medicaid to pay at least some of the bill. And many of them rely on specialists like Estelle Stasz for help.
Forbes  Jul 20  Comment 
Simple and practice technology is helping improve care and save lives in long-term care facilities.
New York Times  Jul 11  Comment 
Anbang bought a retirement home chain despite United States questions about the Chinese company’s murky ownership. With its chairman detained, some officials are worried.
Financial Times  Jul 6  Comment 
Care Quality Commission says 32% of homes inspected are ‘inadequate’ or need improvement
New York Times  Jul 6  Comment 
Homes forced to undergo the federal government’s strictest scrutiny often slide back into providing dangerous care.
MarketWatch  Jul 3  Comment 
Cuts will cascade just as baby boomers age into need for nursing home care.
NPR  Jun 29  Comment 
The bacterium C. difficile causes one of the most common infections in hospitals and nursing homes. After climbing for decades, the rate of new infections is now falling.  Jun 29  Comment 
Alice Jacobs, 90, once owned a factory and horses. She raised four children and buried two husbands.


As of 2007 there were approximately 1.7M elderly Americans in 17,000 skilled nursing facilities across the United States.[1] These nursing homes provide care for elderly patients who require constant medical treatment, but do not require advanced care and specialized doctors in a hospital. Residents suffer from a wide variety of physical or mental disorders, and some have simply reached the age when they are simply unable to move about on their own.[2] As the Aging Baby Boomers reach 65, the demand for nursing homes is expected to increase dramatically. This is good news for nursing home owners and operators, the majority of whom are private, for-profit institutions.

Industry Structure

The great majority (93%) of nursing homes are operated by the private sector.[3] Of those 67% are operated by for-profit insitutions.[4] Historically the nursing home industry has been highly fragmented, and as of 2007 no public company owned or operated more than 2% of the nation's 17,000 nursing homes. However, in the past decade there has been a movement towards consolidation, with large corporations emerging that own or operate hundreds of properties and control thousands of beds.[5] Increasing government regulation gives an advantage to large, multisite nursing home owners and operators.[6] The reason is that the large corporations can spread the costs of regulation over many properties and can spend more to develop expertise in regulatory compliance.[7]

There is also an increasing movement towards privatization. Since 2000, private equity groups have agreed to buy six of the ten largest nursing home chains, representing about 10% of the nation's total nursing home beds.[8] In total, private equity groups control 12% of beds in U.S. nursing homes.[9] Private equity groups that have purchased nursing home owners or operators in the last 8 years include Warburg Pincus, Formation, National Senior Care, Fillmore Capital Partners and Carlyle Group. Because revenues at nursing homes are often determined by Medicare and Medicaid reimbursement rates, private equity groups usually attempt to increase net income at nursing homes by cutting costs. At many homes, this strategy was quite effective; net income at nursing homes operated by private investment companies was 41% higher than the average of all U.S. nursing homes in 2005, according to reports filed by the facilities. However, cutting costs is controversial. According to data collected by the centers for Medicare and Medicaid research, 60% of nursing homes acquired by private equity companies cut the number of nurses on staff.[10] It also showed that the typical resident at a nursing home owned by private equity companies received one hour of nursing care a day, compared with 1.3 hours at the average home, and that nursing homes owned by investment groups had 19% more regulatory deficiencies than the average nursing home.[11] This has led many to criticize private equity groups for providing insufficient care.

Nursing Home Owners

Federal regulations prohibit Real estate investment trusts from operating healthcare properties, including nursing homes. For this reason the ten health care REITs in the U.S. that own nursing homes lease them out to operators on a triple net basis. Leasing the facilities shields health care REITs from the risks of an operator, including malpractice liability, declining occupancy rates and fluctuating government reimbursements. Below are healthcare REITs which own or operate skilled nursing facilities.

  • Health Care Property Investors (HCP): HCP owns 63 nursing homes comprising approximately 7,500 beds.[12] During 2007, approximately 40% of HCP's nursing homes were leased to Kindred Healthcare (KND) and 25% were leased to Trilogy Health Services, a private operator.[13] Neither of these tenants accounted for more than 2% of total revenues, however, as in 2007 HCP's skilled nursing facilities produced only 5% of total revenues.[14] Though it has only a small portfolio of nursing homes, as a whole HCP is quite large. As of September 17th, 2007 HCP was the largest Healthcare REIT in the United States by capitalization, with $14.0B in enterprise value.[15] HCP is the only Health Care REIT to operate life science centers, and one of the most acquisitive. Over the last three years HCP acquired over $10B in new assets, trying to position its portfolio towards private pay assets.[16] As of December 31st, 2007 HCP owned 753 properties in 37 states,
  • Ventas (VTR): The majority of VTR's properties cater towards the elderly. VTR owns 197 skilled nursing facilities comprising approximately 25,000 beds.[17] During 2007 skilled nursing facilities accounted for 20% of VTR's total revenue, with 165 of VTR's 197 skilled nursing facilities leased to Kindred Healthcare (KND). VTR also has a large portfolio of senior housing assets. In 2007 VTR acquired Sunrise Senior Living, a portfolio of senior housing communities, for $2.0B. Over the past five years VTR has spent $5.0B on acquisitions trying to position its portfolio away from government reimbursement assets like nursing home towards private pay assets.[18] As of December 31st, 2007 VTR owned 519 properties in 43 states.[19]
  • Health Care REIT (HCN): HCN owns 227 skilled nursing facilities comprising approximately 31,000 beds and leased to 21 different tenants.[20] As of December 31st, 2007 skilled nursing facilities accounted for 25% of the company's total properties, by dollars invested.[21] HCN is attempting to move away from their skilled nursing portfolio, however, and focus on building a portfolio of private pay assets. In 2006 and 2007 HCN focused on establishing its Medical Office portfolio. In 2006 the company acquired Windrose Medical Properties, a portfolio of Medical Office buildings.[22] In May 2007 it acquired Paramount Real Estate Services to act as property manager for the newly acquired Windrose Portfolio and 17 new medical office buildings from affiliates of the Rendina compines.[23] HCN's revenue increased from $265M in 2005 to $486M in 2007 due to HCN's medical office acquisitions. HCN owns 638 properties, scattered across 38 states.
  • Nationwide Health Properties (NHP): NHP owns 162 skilled nursing facilities comprising approximately 18,000 beds and operating in 30 states.[24] At December 31st, 2007 skilled nursing facilities accounted for 26% of the company's total properties, by dollars invested.[25] NHP also owns senior housing and long term care properties catering towards the elderly.[26] The company was acquired 78 properties in 2007, the majority of which were senior housing or skilled nursing facilities.[27] NHP operates its medical office buildings and leases all its other properties to operating tenants. As of December 31st 2007 the company had a diversified tenant base, with 83 different operating tenants. Only two tenants, Brookdale Senior Living (BKD) and Hearthstone Senior Services, accounted for more than 10% of rental revenue.[28] As of December 31st, 2007 the company owned 560 properties in 43 states.
  • Senior Housing Properties Trust (SNH): SNH operates 58 skilled nursing facilities comprising approximately 6,000 beds in .[29] As of December 31st, 2007 skilled nursing facilities accounted for approximately 11.5% of all SNH's properties, by total investment.[30] SNH's properties also include senior housing facilities where residents can receive various levels assisted living and health care services and two rehabilitation hospitals.[31] The company leases all its properties on a triple net basis, holding no operating properties. The company leases 2/3 of its properties to one tenant, Five Star Quality Care (FVE), and the majority of its leases extend through 2020.[32] As of December 31, 2007 the company owned 220 properties in 32 states.

The following REITs make up 10% of Health Care REIT sector by market cap. They are listed in descending order by market cap.

  1. Omega Healthcare Investors (OHI)
  2. Medical Properties Trust (MPW)
  3. LTC Properties (LTC)
  4. Universal Health Realty Income Trust (UHT)
  5. Cogdell Spencer (CSA)

Nursing Home Operators

Many non-REITs both own and operate nursing homes. Most of these owner/operators have a core portfolio of assets they both own and manage and a management business that leases properties from third parties. Below are U.S. public nursing home operators, organized by market cap. This list encompasses all public nursing home operators listed on U.S. exchanges; however there are many private nursing home operators that are also active in this space.

  • Kindred Healthcare (KND): KND operates 228 skilled nursing facilities comprising approximately 29,000 beds in 24 states.[33] KND owns 15 of its facilities, leases 165 from Ventas (VTR) and leased 48 from other parties.[34] The company also operates 84 long term acute care hospitals for patients who require more medical services than are provided in a skilled nursing facility, and operates a rehabilitative services division.[35] As of May 17, 2008 KND had a market cap of $1.06B.[36]
  • Sun Healthcare Group (SUNH): SUNH operates 190 skilled nursing facilities comprising approximately 23,000 beds in 25 states.[37] SUNH owns 131 of its facilities and leases the remainder.[38] The company also operates 15 assisted living facilities for seniors who need help with everyday tasks but don't require the medical support of a nursing home, and eight mental healthcare centers specializing in Alzheimer’s patients.[39] As of May 17, 2008 SUNH had a market cap of $623.48M.[40]
  • Skilled Healthcare Group Inc (SKH): SKH operates 74 skilled nursing facilities comprising approximately 9,000 beds. Its facilities, approximately 69% of which the Company owns, are located in California, Texas, Kansas, Missouri, Nevada and New Mexico and are generally clustered in large urban or suburban markets.[41] SKH also operates 17 assisted living facilities for residents who don't require the medical care provided in a skilled nursing facility. As of May 17, 2008 SKH had a market cap of $63.78M.[42] As of May 17, 2008 SKH had a market cap of $511.13M.[43]
  • Five Star Quality Care (FVE): FVE operates 49 skilled nursing facilities comprising approximately 4,500 beds.[44] The company leases 47 of its skilled nursing facilities from Senior Housing Properties Trust (SNH) and owns two of its facilities.[45] The company also operates 112 independent and assisted living communities, 95 of which were lease from SNH.[46] As of May 17, 2008 FVE had a market cap of $210.32M.[47]
  • Advocat (AVCA): AVCA operates 50 skilled nursing facilities comprising approximately 6,000 beds in eight states.[48] It's skilled nursing facilities, 9 of which the company owns and 41 of which it leased, are concentrated in the Southeast and Southwest United States.[49] The company has almost no other operations than its skilled nursing facilities. As of May 17, 2008 AVCA had a market cap of $63.78M.[50]

Trends and Forces

An Aging Baby Boomers Population Is Likely To Increase Demand For Healthcare and Nursing Homes

Health Care is the single largest industry in the United States based on GDP.[51] According to the National Health Expenditures report released in January 2007 by the Center for Medicare and Medicaid Services (CMS) the healthcare industry is projected to represent 16.5% of the U.S.’s GPD in 2008.[52] The CMS projects this will expand to 22% by 2015 as the number of Americans 65 and older is expected to grow 36% between 2010 and 2020, compared to a 9% growth rate for the general population.[53] This trend will expand the market for nursing homes, as in 2005 over 90% of all nursing home residents were over the age of 65, with half of residents 85 or older.[54]

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Government Regulation of Skilled Nursing Facilities is Increasing

Operators of skilled nursing facilities are subject to strict government regulation, and that regulation is only increasing. State inspectors visit facilities once a year at most nursing homes, many times accompanied by a federal inspector.[56] If a skilled nursing facility fails to meet federal regulations, the state and federal government can deny Medicare or Medicaid reimbursement or close the facility.[57] If a facility is closed, government regulations typically cause significant delays in reopening. To combat Medicare deficits, states have increasingly been passing CON laws.[58] These laws require a health care property owner to show need for a facility before opening a facility or signing a new tenant.[59] If the nursing home operator fails to show need for the facility under CON laws, it would result in a revocation of the facilities operating license.[60] Even if it does show a need for the property, the approval process is often long and arduous. Penalties for failing to meet regulations are also increasing; Sens. Chuck Grassley (R-Iowa) and Herb Kohl (D-Wis.) have introduced a bill into the Senate that seeks to raise penalties for deficiencies in nursing homes. The bill would increase the fine for serious deficiencies to from $10,000 to $25,000 per instance, and increase it to $100,000 in the cases where deficiencies have led to the death of a patient.[61]

Declining Medicaid Reimbursement Rates Nursing Home Revenues

Eighty five percent of nursing home residents receive some sort of government reimbursement.[62] Nationally, nursing homes receive about 70% of revenue from government reimbursement programs; 50% from Medicaid, 12% from Medicare and 8% supporting Veterans Administration nursing homes. with 85% of patients receiving some form of government reimbursement.[63] Medicare, which is federally funded, will only pay for the first 100 days in a nursing home. Residents must rely on Medicaid after that first 100 days. Medicaid reimbursement is often considered more variable than Medicare because it is partially funded by the states. During budget deficits many states look to save money by decreasing Medicaid reimbursement rates, directly impacting income at skilled nursing facilities. On the federal level, the Deficit Reduction Act of 2005 reduced funding of the Medicaid program by $4.8B over the next five years, leading many to believe Medicaid will cut reimbursement rates over that period.[64]


Nursing homes are just one of many assisted living options for older Americans. Below is a breakdown of the different options available in senior housing, listed in increasing order of assistance provided.

  • Independent Living Facility: These are age-restricted, single home or multifamily properties often with central dining facilities and other convenience services, such as housekeeping, linen service, transportation, and recreational activities. Residents in independent living facilities live there based on convenience, but do not require assistance to go about their daily lives. Charges at independent living facilities are generally paid by private sources.[65]
  • Assisted Living Facilities: These are age-restricted, single home or multifamily properties that cater to residents who require some assistance with daily activities. Staff is available to assist residents with bathing, grooming, eating, administering medication or other day to day tasks. However, residents at assisted living facilities do not require the constant supervision and medical expertise of a skilled nursing facility. Charges at assisted living facilities are generally paid by private sources.[66]
  • Skilled Nursing Facilities: Skilled nursing facilities provide skilled nursing and medical treatment for residents who do not require the high-technology, care-intensive setting of an acute care hospital but do require some constant medical services. Medical services performed at skilled nursing facilities include intravenous drug treatment, rehabilitative care and therapeutic programs. Charges at skilled nursing facilities are generally paid by government reimbursement sources.[67]
  • Long Term Acute Care Hospitals: These are intensive facilities that provide inpatient services for patients with complex medical conditions that require more intensive care, monitoring or emergency support. They are for ill elderly patients who require constant medical attention and technologically advanced treatment. Charges at long term acute care hospitals are generally paid by government reimbursement sources.[68]


  1. NYTimes.Com, October 18th, 2007
  2. Long Term Care Link, Article By Dr. Thomas Day
  3. Walsh, Kieran "Regulating U.S. Nursing Homes, Are We Learning From Experience?" Health Affairs, ONLINE
  4. Walsh, Kieran "Regulating U.S. Nursing Homes, Are We Learning From Experience?" Health Affairs, ONLINE
  5. Walsh, Kieran "Regulating U.S. Nursing Homes, Are We Learning From Experience?" Health Affairs, ONLINE
  6. Walsh, Kieran "Regulating U.S. Nursing Homes, Are We Learning From Experience?" Health Affairs, ONLINE
  7. Walsh, Kieran "Regulating U.S. Nursing Homes, Are We Learning From Experience?" Health Affairs, ONLINE
  8. The Herald Tribune, September 24, 2007
  9. The Herald Tribune, September 24, 2007
  10. The Herald Tribune, September 24, 2007
  11. The Herald Tribune, September 24, 2007
  12. HCP 2007 Form 10-K page 6
  13. HCP 2007 Form 10-K page 10
  14. Reuters
  15. HCP Investor Presentation, September 17th, 2007 Page 3
  16. 2007 Annual Report, Letter to Shareholders
  17. VTR 2007 Form 10-K page 17
  18. Investor Presentation, April 2008, Pages 14, 17
  19. Reuters
  20. HCN 2007 Form 10-K page 4 and 42
  21. HCN 2007 Annual Report Letter to Shareholders
  22. HCN Investor Presentation, February 2008, Page 29
  23. 2007 Annual Report, Letter to Shareholders, Page 11
  24. NHP 2007 Form 10-K Page 6
  25. NHP 2007 Form 10-K Page 63
  26. Reuters
  27. Reuters
  28. Reuters
  29. SNH 2007 Form 10-K Page 2
  30. SNH 2007 Form 10-K Page 2
  31. Reuters
  32. Reuters
  33. Reuters
  34. KND 2007 Form 10-K Page 17
  35. Reuters
  36. Google Finance
  37. SUNH 2007 Form 10-K Page 12
  38. SUNH 2007 Form 10-K Page 12
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  53. Forbes.Com "Sector Snap-Health Care REITS", Associated Press
  54. Long Term Care Link, Article By Dr. Thomas Day
  55. Investor Presentation, September 17th, 2007 Page 3
  57. HCP 2007 Form 10-K, Page 13
  58. 2007 Form 10-K, Page 16
  59. HCP 2007 Form 10-K, Page 16
  60. HCP 2007 Form 10-K, Page 28
  61. The
  62. Long Term Care Link, Article By Dr. Thomas Day
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  65. Reuters
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