Financial Analysis Of Senior Housing Companies

The population of China is ageing rapidly. The traditional mode of retirementplanning using a family unit is facing stiff challenge because of the "One-child policy"leading to one young son to support2parents and4grand-parents (the4-2-1issue). Dueto the residence system and the imbalance in the state of development of urban and ruralregions, urban residents can make use of the real estate in urban to finance theirretirement, which is a huge long-term liability. The prospect of China’s senior housingindustry is huge.The biggest bottlenecks of senior housing industry are land, finance and tax policies.Many successful cases in this new industry make use of the advantage of cheaper landobtained. In order to reduce their tax costs in the high tax regime, many players havecreated innovative business models. However, how to replicate the success and roll out tothe whole country will need the participation of the capital market, which is a bigbottleneck. If the company can get financing channels, such as the use of public fundingin the longer-term low-cost funds such as pension funds, insurance funds, it can quicklycopy the successful model and roll out to the whole country and gets first moveradvantage.In countries with more developed capital markets, such as the United States; thereare more developed financing regimes such as the Real Estate Investment Trust, REIT.Through the decades-long evolution, the REIT is an effective financing channel to spear-hear the diversification of the senior housing real estate investors from the operators. Theinvestors can make better use of their advantage of low-cost funds while the operators canspecialize in developing superior senior housing management know-how.The author of this thesis is a member of the Shanghai REIT preparatory group ofexperts, and has been involved in advising how to formulate the China REIT policydesign. This paper analyzes the financial situations of a senior housing case in China, andanalyzes the largest REIT in the U.S. It provide an insight on the prospects forsecuritization of senior housing, and the policy advice on real estate, financing, taxationand other policies to the senior housing industry.