Maintaining occupancy rates, improving operations and adjusting to declining reimbursement rates are the top three operational challenges facing senior living operators, according to results of the 7th Annual Senior Living Survey, conducted by Cleary Gull Advisors, a Milwaukee-based financial advisory firm specializing in not-for-profit providers. Findings represent feedback from CEOs, CFOs, and COOs at senior living organizations representing a range of rating categories and portfolio sizes.

“We have seen the senior living industry battle several challenges head on, both economic and regulatory,” Steven J. Backus, vice president, client advisor and the study’s author, said in a statement. “Strategic thinking and planning are more important than ever before.”

The survey also found that participant’s top concerns regarding portfolio performance are market volatility, interest rates and international turmoil. Nearly three-fourths of respondents (74%) anticipate that their 2015 portfolio returns will not exceed 6%, in line with the study’s projection of 4% to 6% return.

The survey, conducted Feb. 15 to May 31, compiled information on asset allocation, investment policies, governance practices and financial ratios as of Dec. 31, 2014. In 2014, the fixed income and cash holdings of survey participants increased 5.7% to 53.17% compared with the previous year. Equity holdings decreased 3.8% to 40.85%, and alternative holdings decreased 17% to 5.91%.

“We continue to believe that diversification is critical,” Backus said. “With uncertainty about the pace at which interest rates will rise and senior living organizations’ high commitment to fixed income and cash in their portfolios, it’s important to develop a plan and take steps to mitigate risk.”

Other highlights from the survey:

  • Reversing a trend from the previous two years, in 2014 the average allocation of participants moved toward a higher percentage of fixed income and cash and lower allocation to equities.

  • 72% of participants indicated that they have just completed or are in the midst of implementing strategic plans.

  • For the third consecutive year, an increase was seen in the average debt service coverage ratio, to 3.04x, versus last year’s average of 2.91x.

  • An increase in operating margins was seen for the second consecutive year, with this year’s average of 3.65% compared with 3.24% last year.

The full survey results are available online.