Market Spotlight: Assisted living occupancy slides

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By JENNIFER MALLOY 05.12.08, 4:44 PM ET
NEW YORK – As the housing slump continues and the U.S. economy weakens, many retirees are choosing to remain in their own homes or move in with their children, hurting occupancy rates in assisted living communities.

Construction of assisted living developments increased dramatically in recent years, as aging baby boomers sought to maintain fairly independent lifestyles while having the option for assistance with activities such as eating, bathing and medication management.

But as the economic slowdown spurs layoffs and concerns about family budgets, some assisted living providers, such as Menomonee Falls, Wis.-based Assisted Living Concepts (nyse: ALC – news – people ) Inc., say more private pay residents are moving out of facilities to be cared for at home by relatives.

Assisted Living last week reported earnings which met Wall Street estimates, but said occupied private pay units declined 3.2 percent from the end of the fourth quarter, and occupied Medicaid units decreased 15.4 percent. The company’s stock has fallen from a year-ago high of $12 to bottom at $5.46 in March.

Shares of others in the sector, such as Seattle-based Emeritus Corp. (amex: ESC – news – people ), McLean, Va.-based Sunrise Senior Living (nyse: SRZ – news – people ) Inc., Chicago-based Brookdale Senior Living Inc. (nyse: BKD – news – people ) and Dallas-based Capital Senior Living Corp. (nyse: CSU – news – people ) are also down sharply from 52-week highs reached last summer. Analysts say a protracted slowdown in the residential market threatens to continue hurting growth across the industry.

Emeritus, which provides both assisted living and Alzheimer’s and related dementia care services, last week reported a first-quarter loss that more than doubled to $26 million. The results widely missed Wall Street expectations, and the company lowered its revenue outlook for 2008.

Stifel Nicolaus analyst Jerry Doctrow said Emeritus warned that move-ins remain flat in the second quarter and that expansions and development will drag on occupancy. Capital Senior Living also posted lower-than-expected quarterly results and admitted that occupancy is being pressured by the broader housing market and economy.

Wall Street isn’t bearish on everyone in the sector, however. Jefferies analyst Frank G. Morgan thinks Sunrise Senior Living’s preliminary quarterly results were “quite impressive,” given recent industry headwinds and weak reports from other senior living providers.

“While strong rate growth was largely responsible for the increase in the top-line, occupancy was relatively stable in what has been a tough quarter for the company’s peers,” Morgan wrote.

Sunrise said last week it has not seen any impact on move-in activity or attrition related to the economic slowdown, and indicated that it currently has 40 development projects under construction and another 100 under contract.

Goldman Sachs (nyse: GS – news – people ) analyst Jonathan Habermann said Brookdale Senior Living posted solid quarterly results last week despite soft housing markets. However, he maintained a “Neutral” rating on the stock, believing that Brookdale’s cash flow growth may moderate slightly in the near-term due to the slowing economy and higher integration expenses in the first half of the year.

“That said, the supply and demand dynamics for senior housing remain favorable longer-term in our view and we believe that BKD is well-positioned as the largest senior housing operator,” Habermann wrote in a note to clients.

With Brookdale’s management affirming expectations for improving occupancy in the second half, Jefferies’ Morgan thinks the stock is undervalued and maintains a “Buy” rating.

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