Although the nation’s aging demographics are likely to lead to a surge in demand for long-term care over the next decade, many operators still are feeling pressure from a surplus supply of facilities, according to an analysis Wednesday by Zacks Equity Research.
The firm noted that although construction of new senior living and care facilities slowed in 2020, the industry has experienced several years of significant construction of new communities and other buildings to service older adults.
“This has resulted in excessive supply and put downward pressures on occupancy and the rates that operators can charge for their services to their residents,” analysts wrote. “At the same time, older adults are raising the age limit at which they move to senior living communities or forgoing such a move entirely.”
They also pointed to the high level of new openings and nursing and caregiver shortages as a result of the pandemic, adding that the implementation of higher minimum wages across the country has given way to wage pressures and stiffened competition for community leadership and personnel. Long-term care operators, the analysts note, are facing adverse effects on their results due to increasing salaries, wages and benefit costs.
“Higher costs of food, utilities, equipment and supplies, insurance and real-estate taxes are also denting financial results,” they wrote.
As a result of the lackluster near-term prospects, Zacks expects firms in the sector to underperform for a while.
“Looking at the aggregate earnings estimate revisions, we are not so optimistic about the group’s bottom-line growth potential,” analysts wrote. “Over the past 12 months, the industry’s earnings estimates for the current year have been revised 19.4% downward.”
