Long-term care — a sanctuary for seniors and investors
by Syd Bojarski

As the fallout from the U.S. sub-prime mortgage crisis grows and threatens to spill into Canada, foreign real estate investors are seeking to park their investment dollars in safe havens.

One strong real estate investment alternative is Ontario's long-term care (LTC) sector. In Ontario, 621 nursing homes provide seniors and the sick, feeble or mentally infirm with a range of care options, such as 24-hour nursing support, daily help with personal needs and supervision.

From a business standpoint, the LTC market is characterized by a high degree of regulation, which has produced a uniquely stable industry with limited competition. Owners of LTC facilities operate in an uncrowded market and receive stable, above-average revenue from both residents and the public purse.

Demand for LTC is linked to the demographics of the Ontario population, which is aging at an unprecedented rate. A recent Statistics Canada report on census data showed that 11 per cent (1,165,855) of Ontarians stated they're in fair or poor health. As a population, we don't feel well and, as a result, many will be headed to nursing homes earlier. To complicate the matter further, we're not treating our bodies well and a health crisis is looming. A 2004 Canadian government survey concluded that more than one-quarter of Canadians aged 31 to 50 get more than 35 per cent of their total calories from fat, the threshold beyond which health risks increase. We're not doing well.

Concentrated ownership

The LTC sector has historically comprised several small regional operators and a limited number of larger corporations that own many facilities.

In 1998, Ontario Premier Mike Harris announced the awarding of 20,000 new licences for nursing home beds. While not-for-profit churches and charities had dominated the nursing care industry up to that point, it was the for-profit companies with ready access to bank financing that snapped up the majority of these new licences. Once awarded, licences become instant assets to be pledged as collateral for bank loans, or to be bought from and sold to other operators.

The total number of LTC beds in Ontario is restricted in two ways. In its role as overseer, the Ministry of Health and Long-Term Care (MOHLTC) considers factors such as available funding and the supply and demand for beds in an area when deciding whether to grant a licence to operate an LTC facility. In addition, operating an LTC facility demands a broad range of skills, creating a further barrier to entry. Not surprisingly, LTC occupancy rates have been consistently high, reaching more than 97 per cent for an established facility.

LTC facilities receive the majority of their funds from the MOHLTC via a well-defined funding model. For the past decade, operational funding has increased faster than inflation. In fact, Ontario's funding of the LTC sector doubled from $1.25 billion in the late 1990s to $2.5 billion in 2004.

Residents are directly charged for accommodation only, and government subsidies are available to offset even some of these costs. In general, seniors receive a stable, fixed and predictable income, and are likely to be adverse to moving once settled in a facility. A greater proportion of residents are now paying additional sums for such premium services as private or semi-private rooms. Moreover, with demand being driven by need, a fluctuating economy tends to have little impact on LTC facilities.

Characterized by stability, restricted supply and high demand, the solid investment potential of LTC facilities is in sharp contrast to the current weakness in many sectors of the U.S. housing market.

Syd Bojarski is an Assurance & Advisory Partner and a member of the Real Estate Team. He can be reached at (416) 644-4300 or by e-mail at syd_bojarski@mintzca.com.

The Key is an e-newsletter written by the Real Estate Team of Mintz & Partners LLP.Please go to http://www.mintzca.com/index.php?section=redirectory to learn more about our Real Estate Team. The issues raised are for information purposes only. Readers are urged to contact their professional advisors before acting on the basis of material contained herein.

This office is an independently owned and operated member of the Collins Barrow National Cooperative Incorporated. The Collins Barrow trademarks are used under license. For more information about Mintz & Partners, please visit our Web site at www.mintzca.com.

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