Q: Senior living is going through another challenging business cycle. What are some top priorities to focus on?
A: There are many. Here are just three achievable priorities to address:
- Revenue enhancements – For many, stabilized occupancies have dropped from 90% to as low as the 85% range. The good news is that even with lower occupancy, many owner-operators have covered their fixed and variable costs. That means that if these owners can achieve relatively modest occupancy increases over the next few months, many could experience substantial increases in operating profit margins and cash flow.
- Operating expense reductions – A typical 180-unit life plan community – also called a continuing care retirement community – at 89% occupancy currently will experience approximately 58,470 resident-days (180 units x .89 x 365 days). For simplicity, this excludes considerable second-person occupancy. Operating expenses for this life plan community likely will be approximately $130 per resident-day (PRD). =With just a 3% reduction in operating expenses to $126 PRD allocated over the 58,470 annual resident-days, this would result in an annual cash flow increase of more than $233,000.
- The challenge of achieving at least 2.5% to 3% increased net operating income spread – Simply stated, many experienced operators ideally try to sustain at least a 2.5% to 3% positive annual net operating income by reducing their operating expenses versus achieving modest revenue increases for mature, stabilized properties. The best way to achieve and sustain this favorable spread is paying very detailed attention to the aforementioned item No. 1 and No. 2.
The key survival strategy for the remainder of 2018 and beyond is: Focus on basic fundamentals.