Who is behind the curtain? Why should you care? 

The real person behind the curtain pulling the levers in the Wizard of Oz has parallels in senior living and housing. The name of the local community doesn’t necessarily tell you who is actually developing or managing the local property. The company (or companies) behind the curtain is a significant part of the success of a local Continuing Care Retirement Community (CCRC).  And the mutual funds invested in these companies matter.

You can look at companies that invest in senior living and housing alternatives from a couple different angles.

  1. First, as a prospective resident, you care about the managerial and financial success of the community. Its owner, developer, and/or manager make a difference. Excellence is a product of repeatable processes. Troubles tend to be contagious. In the complex world of CCRCs and other forms of senior housing, an entity may wear all these hats or the roles may be farmed out and divided up.
  2. Second, as an investor focused on a strong portfolio, you’re interested in portfolio companies.  Companies that invest in a market where you see big opportunities for growth, driven by both demographics and innovation.

In both cases, watching Real Estate Investment Trusts’ (REITs), mutual funds’, and exchange-traded funds’ (ETFs) collective judgment is a way to vet the managerial performance of the companies behind the curtain. This indirect measurement relies on the collective expertise of others. Further, a public company’s performance is routinely reported, giving us a view of trends over time and not just snapshots in time.

Few Publicly-traded Players

First it’s important to note that many of the senior housing industry’s for-profit players are privately held and not publicly traded. Only a handful of the biggest players are publicly-traded. These few give us our best financial view behind the curtain.

Real estate, development, and management

The underlying real estate is often separately held in different legal entities from the operating entities performing development and management services. The devil is in the details when following the money into different pockets.

Industry Trends

The Senior Housing industry will likely continue to see relatively high mergers and acquisitions activity. The regulatory burden is rising. The professionalism required for success is rising. Information technology empowers health informatics and marketing data intelligence. That IT investment offers significant economies of scale. Combine these with opportunities for innovation in supply chains (e.g., group purchasing), back office management (e.g., finance), and human resources (e.g., training and recruitment). We expect the industry to continue to consolidate. It won’t always be the name you see, but there are many providers of contracted services behind the scenes in most local senior communities. Not all the players are for-profit. Many nominally non-profit communities have contracts with significant for-profit players. You should focus on managerial performance more than tax status.

Inside Drivers

Another factor that will drive capital restructurings is the aging of founding management teams in many of the senior living companies. As founders move towards retirement, new management and new money must come in, to finance the exit. This can mean as few changes as an employee stock ownership plan (ESOP), or more drastic steps like the sale of the company (mergers & acquisitions), or even going public. The industry is ripe for a roll-up.

Brookdale Senior Living — example. So for instance, Brookdale Senior Living loaded up on debt to acquire Emeritus Senior Living for $1.4 Billion in July 2014. Several funds and analysts that benefitted from the run up enjoyed by both Brookdale and Emeritus also called the subsequent post-merger fall in financial performance, Brookdale’s may revive the farther past the acquisition they go as interest rate risk decreases with the outstanding debt balance. New management is expected to continue to innovate in service delivery. For instance, Brookdale uses centralized dietician planning and group food purchasing to significantly reduce local operating costs and reduce cost variance.

EFTs and Mutual Funds

So here is our inaugural list of the publicly held companies active in senior living or housing alternatives. The top 3. Also listed are the associated mutual funds or ETFs that cover senior living. If a company is a member component of an index like the Standard & Poors (S&P) 500 we list the index and not necessarily all of the funds that track the index. (e.g., Welltower, Inc. is an S&P 500 component.)

2016 Top Publicly-traded Senior Housing Companies
NYSE 1-yr 3-yr
BKD Brookdale Senior Living Inc., Bentwood, TN -58.45% -43.97%
ETFs Holding This Company
NASH LocalShares Nashville Area ETF -21.12% 0.71%
XHS SPDR® S&P Health Care Service -9.37% 44.70%
IHF iShares U.S. Healthcare Provider -5.88% 59.74%
FXH First Trust Health Care AlphaDEX® -15.69% 48.18%
SIZ QuantShares U.S. Market Neutral -14.65% -18.19%
Mutal Funds Holding This Company
AGTHX Growth Fund Of America Inc -12.83% 8.15%
SMCWX Smallcap World Fund -16.17% 2.69%
NAESX Vanguard Small-Cap Index Fund -13.39% 7.13%
VTSMX Vanguard Total Stock Market Index Fund -8.04% 9.89%
VISGX Vanguard Small-Cap Growth Index Fund -15.65% 5.84%
BSCFX Baron Small Cap Fund -17.73% 3.80%
VEXMX Vanguard Extended Market Index Fund -14.92% 6.79%
TAVFX Third Avenue Value Fund, Inc. -18.35% -0.40%
FSPHX Fidelity Select Portfolios – Health Care -14.91% 21.28%
IARAX Invesco Real Estate Fund -5.26% 6.91%
NYSE 1-yr 3-yr
FVE Five Star Quality Care, Newton, MA -27.45% -60.40%
ETFs Holding This Company
PXSV PowerShares Russell 2000 Pure Value Portfolio -11.76% 15.74%
WMCR Wilshire Micro-Cap ETF -14.65% 12.85%
FDM First Trust Dow Jones Select MicroCap Index Fund -3.42% 28.00%
PRFZ PowerShares FTSE RAFI US 150 -9.08% 18.87%
IWC iShares Micro-Cap ETF -14.91% 13.97%
Mutal Funds Holding This Company
DFSVX DFA U.S. Small Cap Value Series -14.00% 5.56%
IWM iShares Russell 2000 ETF -15.00% 5.80%
FSCFX Fidelity Strategic Advisors Small-Mid Cap Fund -3.77% 10.89%
VTSMX Vanguard Total Stock Market Index Fund -7.96% 9.92%
FSEMX Vanguard Extended Market Index Fund -14.86% 6.85%
BRUSX Bridgeway Funds Inc-Ultra Small Company Fund -24.79% 2.36%
IWN iShares Russell 2000 Value ETF -13.40% 4.30%
TFSMX TFS Capital Investment Tr-Tfs Market Neutral Fund -6.85% -0.84%
DFSTX DFA U.S. Small Cap Series -10.42% 8.20%
DFFVX DFA U.S. Targeted Value Portfolio -13.07% 6.50%
NYSE 1-yr 3-yr
CSU Captial Senior Living Corp., Dallas, TX -28.27% -32.01%
ETFs Holding This Company
XHS SPDR® S&P Health Care Service -9.37% 44.70%
RYJ Guggenheim Raymond James SB-1 Equity EFT -11.04% 21.86%
IHF iShares U.S. Healthcare Provider -5.88% 59.74%
VTWG Vanguard Russell 2000 Growth Index -13.83% 19.89%
IWO iShares Russell 2000 Growth ETF -13.74% 19.80%
Mutal Funds Holding This Company
BREFX Baron Real Estate Fund -20.16% 3.94%
FMILX Fidelity New Millennium Fund -11.03% 7.56%
JAVTX Janus Venture Fund -14.60% 9.18%
FSTMX Vanguard Total Stock Market Index Fund -7.96% 9.92%
IWN iShares Russell 2000 Value ETF -13.40% 4.30%
MNDAX MFS New Discovery Fund -17.04% 0.82%
WFSAX Wells Fargo Small Company Growth Fund -21.78% 6.09%
HHCAX Highland Fds I-Highland Long/Short Healthcare Fund -28.96% 5.31%
FREAX Nuveen Real Estate Securities Fund -4.14% 7.72%
DFSCX DFA U.S. Micro Cap Series -9.93% 8.27%

*(3/13/16) Information for EFTs and Mutual Funds was gathered from Charles Schwab, Yahoo Finance, and Moringstar.

Where others rate on company size or assets under management, we’re more focused on managerial quality, innovation, national presence, and influence. Leadership, innovation, and consistency in execution vary widely. Excellence typically requires success in all three.We’re also composing two other lists:

  • Top for-profit industry players with a CCRC LifeCast Power Ranking that considers multiple factors.
  • Top non-profit industry players, again using the CCRC LifeCast Power Ranking to allow comparisons across the tax status divide.

Talk to Us

Are you choosing to invest in this industry? Why or why not? Which companies and/or mutual funds are you tracking?

Conflicts Disclosure. Among other investments, we own shares in iShares US Healthcare Provider ETF (IHF) and S&P 500 index funds that include mentioned companies. We are not advising on investments but using market opinion as a surrogate to examine the management of companies in the senior housing market.  Investors should recognize that REITs and Private Equity Limited Partnerships are illiquid investments compared to stocks, mutual funds, and ETFs.