Occupancy for skilled nursing facilities (SNFs) increased nationally by 40 basis points month-over-month through October 22, 2023, following a prior increase of 15 basis points, according to BMO Capital Markets’ analysis on SNF REIT occupancy data for October.

Real estate investment trusts (REITs) have been outperforming this overall increase, with a 45 basis point rise in their occupancy levels, investment analysts noted.

The rise in occupancy can be attributed to factors such as improving labor conditions and a reduction in the share of the market taken by home health services.

Since January 2021, REITs have witnessed a modest recovery in occupancy, increasing by an average of 30 basis points per month, BMO analysts wrote. Over the past month, most REITs saw sequential improvements, with Welltower (NYSE: WELL) and Ventas (NYSE: VTR) experiencing the most significant gains. However, Omega (NYSE: OHI) and National Health Investors (NYSE: NHI) showed less improvement.

The report suggests that as labor challenges improve and occupancy levels rise, the probability of SNF rent cuts diminishes, although “idiosyncratic” risks remain.

“Within healthcare, we favor senior housing, operating with a view towards multi-year recovery, but remain positive on SNFs given compelling spread investing opportunities relative to other REIT sub-sectors,” BMO analysts wrote.

Researchers from NIC MAP Vision also found that skilled nursing property occupancy increased by 59 basis points from July to the end of August, reaching 82.3%. Compared to August 2022, this represents a substantial increase of 142 basis points, indicating a continued recovery from the pandemic’s low point in January 2021.

Despite the positive occupancy trend, staffing shortages still pose challenges in some markets, limiting the ability to admit new residents. The report also highlighted the gap compared to pre-pandemic levels, with occupancy remaining 6.9% points lower than the February 2020 levels of 89.1%.

NIC researchers said managed Medicare has been steadily increasing, while Medicaid and Medicare have shown fluctuations in revenue per patient day and patient day mix.