Age-Care Live-in facilities market of Tallinn, Riga and Vilnius areas. Comprehensive analysis. By Senior Group. Paris- Riga- Tallinn- Vilnius. 2016 1. Objectives of research. The research was performed by the team managed by Senior Group experts as part of preparation of a detailed business plan for “Senior Baltic” project — to create the network of aged-care live-in campuses in three Baltic States: Estonia, Latvia, Lithuania. 2. Research Area The researched geographical areas — the metropolitan areas around the three Baltic capital cities — represent the most populated and well-off parts of Baltic states. We are going to create our 6 campuses there. 3. Results. In summary, our research shows that the unmet demand backed by purchasing power exceeds 10,000 beds and ALF units in the capital regions of the Baltic States. The total purchasing ability is estimated at 15,400 beds compared to 4649 available. This means that the market can easily absorb our planned expansion of 612 beds & ALF units. Research into pricing at existing residences shows that we should be able to charge 30–40 euros per bed per night. 3.1. Need (Demographical and Geographical Background) 1 At the end of 2013 there were 36,856 Long Term Care beds in the 3 Baltic States: Estonia, Latvia, Lithuania- ​BaS​. (We use LTC data of1 OECD, which we assume includes the Assisted Living Units.) We estimate the additional need to be 18,038 beds between now and 2030. The estimate is based on the expected increase in the number of people over the age of 65 ​— by 133,856 through 2030 ​— and the expectation of reaching the current average OECD level of 44 LTC beds for 1000 persons over 65. This conservative estimate means that the demand will grow at the rate of 1,202 beds per year. (We do not take into account the changing family models of care for the elderly in Eastern Europe or increase of the income of households — the factors which significantly stimulate the penetration of the European Senior Care model into society). So from 2016 till 2019 we can estimate the growth of necessary quantity of Senior Beds in region as 4,810 beds approximately. We intend to develop additional 400 beds/units, or 8% of this conservative estimate. The geographical strategy of development pursues the “footprint” approach. We plan to assure presence of the network in three capital areas of Baltics: Riga, Tallinn, Vilnius. Approximately 1,690,000 people, or 26% of all the population of Baltic states, live in the 20km radius areas around our residences. That gives us 307,383 people over 65 living within a 20 min driving distance from our Nursing Homes and Assisted living facilities of Senior Campuses. “ At the end of 2013 there were 36,856 Long Term Care beds in the three Baltic States- ​BaS​ (Estonia, Latvia, Lithuania) . stats.oecd.org ” 3.2. Demand (a need backed by purchasing power) We’ve analysed 35 residences that have 4649 beds in total in the 20 km radius areas around Tallinn, Riga, Vilnius. 1 http://stats.oecd.org//Index.aspx?QueryId=30140 2 Here are the occupancy rates by type of residence2. SUM of Q of empty SUM of Q-ty of Beds beds Occupancy Church 15 1 0.93 Municipal 2704 8 1.00 Private 977 102 0.90 State 953 54 0.94 So the average occupancy rate is greater than 90% for each type of residence. 3.3. The pricing of existing residences In order to compare residences we developed a single measure of the completeness of services and of the level of quality of residences. We call it the "A-score". It varies from -100 to +100 points. We can see that the average price per day of existing residences varies from 16.50 to 53.00 euros per day. 2 https://docs.google.com/spreadsheets/d/1kiRnLh-SxkVhTJPO9RsKgWVJcvzRj86KyVfFNKjwBVM/ed it?usp=sharing 3 3.4. Target audience. We consider upper middle class families as our clients. The aged people belonging to these families use our services but they are not in a position to pay for - in Baltics as in France. We should emphasize that we are talking about families, not about households. A family can have multiple households: the household of aged parent(s) and several households of adult children. All these households participate in financing of the stay of aged relative in Senior Care live-in facility. Based on the research of existing residences we plan to set the price of our residences at the 900–1200 euros level (30–40 euros per day). 3.4.1. French comparision We have to compare our target regions (around the capitals of Baltic States) with Ile-de-France — the region what includes Paris in France. The total quantity of beds in live-in facilities in the region is 93730 beds & ALF units (62% of them nursing beds) for the population of 12 million (or ​18.2 percent of the population of France.)3 ​ The average pension in France is around 13004 euros The residential part of price of retirement facility is 3 294 euros in Paris 5 (2501 euros in Ile de France). This sum exceeds the pension almost 3 times. We know that in Baltic states the pensions vary from 2506 euros per month (Lithuania), through 350 euros per month (Latvia)7 to 380 euros per month (Estonia)8, which is 2-3 times lower than prices charged by totally filled functioning commercial aged-care residences. 3 ​https://en.wikipedia.org/wiki/%C3%8Ele-de-France 4http://www.latribune.fr/economie/france/la-pension-moyenne-de-retraite-s-eleve-a-1-306-euros -bruts-mensuels-475756.html 5 “La France face à la pénurie de maisons de retraite”- OBSERVATOIRE 2014 CAP RETRAITE 6 http://greece.greekreporter.com/2015/06/26/eurostat-greek-pensions-average-e882/ 7 ​https://lnkd.in/eNq4B-7 8 ​https://lnkd.in/eXBtGNd 4 So the situation is the same as in France. The families of the upper middle class pay for the private live-in aged-care service, not residents themselves. So we have to compare the income of upper middle class of Baltic states with prices of the residences to be constructed. 3.4.2. Upper middle class We will consider as “middle class” the 60% of population — from 3rd to 9th deciles — according to the distribution of income. Upper middle class will be the seventh, eighth and ninth deciles of population — or 30% of all the households. We see that the distribution of income by quantiles in Baltic States is quite homogeneous and resembles the distribution of income in France.9 To get the total income of the upper middle class, we’ll summarise the values of the Seventh, Eighth and Ninth deciles 9 ​http://appsso.eurostat.ec.europa.eu/nui/show.do?dataset=ilc_di01&lang=en 5 QUANTILE Estonia Latvia Lithuania France First decile (%) 2,2 2,2 2,5 3,7 Second decile (%) 4,3 4,3 4,4 5,3 Third decile (%) 5,3 5,4 5,5 6,3 Fourth decile (%) 6,3 6,4 6,5 7,2 Fifth decile (%) 7,5 7,6 7,5 8,1 Sixth decile (%) 9,0 8,8 8,8 9,1 Seventh decile (%) 10,6 10,4 10,3 10,2 Eighth decile (%) 12,8 12,6 12,4 11,5 Ninth decile (%) 16,1 15,7 15,4 13,9 Tenth decile (%) 26,0 26,6 26,7 24,6 And we’ll get the upper middle class shares of Income. Estonia Latvia Lithuania France Upper middle class share of Income 39,5 38,7 38,1 35,6 Not surprisingly the the income of upper middle of Baltic States is higher than of French one. 3.5. How many spots in residences can the middle class afford in the capital regions of Baltics. We know that the population of the capital regions of Baltics (Riga, Tallinn, Vilnius regions) is 1,7M, or 26% of total population. Mean net income data are available from Eurostat10 10 http://appsso.eurostat.ec.europa.eu/nui/show.do?query=BOOKMARK_DS-053408_QID_575E70E7_ UID_-3F171EB0&layout=TIME,C,X,0;GEO,L,Y,0;HHTYP,L,Z,0;INDIC_IL,L,Z,1;UNIT,L,Z,2;INDICATO RS,C,Z,3;&zSelection=DS-053408INDICATORS,OBS_FLAG;DS-053408INDIC_IL,MEI_E;DS-053408 HHTYP,TOTAL;DS-053408UNIT,EUR;&rankName1=HHTYP_1_2_-1_2&rankName2=INDIC-IL_1_2_ -1_2&rankName3=UNIT_1_2_-1_2&rankName4=INDICATORS_1_2_-1_2&rankName5=TIME_1_0_0 _0&rankName6=GEO_1_2_0_1&sortC=ASC_-1_FIRST&rStp=&cStp=&rDCh=&cDCh=&rDM=true&c DM=true&footnes=false&empty=false&wai=false&time_mode=NONE&time_most_recent=false&lang= EN&cfo=%23%23%23%2C%23%23%23.%23%23%23 6 Mean equivalised net income Estonia Latvia Lithuania France 2014 11 287,00 € 8 912,00 € 9 408,00 € 22 444,00 € Based on it we can calculate the net income for 1 person of upper middle class per year Estonia Latvia Lithuania France Upper middle class share of Income 39,5 38,7 38,1 35,6 Upper middle class share of population 30% 30% 30% 30% Equivalised net income for upper middle class person (each of household) per year 14 861,22 € 11 496,48 € 11 948,16 € 26 633,55 € So taking into account the population of each of the countries we’ll get the equivalised net income for upper middle class person (each of household) per year for all the 3 Baltic Countries of 12 417,47 € Now we will calculate the population of the households of Middle Class of the capital regions of Baltics — 507 000 (30% of 1690 000).