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Senior Housing Expansion Strategy: Keys to Intelligent Growth in 2017

Moore Diversified Services, Inc. teams up with Senior Housing News to bring you the most up-to-date industry information you need to succeed.

Senior Housing Expansion Strategy: Keys to Intelligent Growth in 2017

The past few years have been busy for the senior housing industry as existing owners pursued growth opportunities and new players made investments in the sector.  Senior housing transaction volume in the first quarter of 2017 alone hit $4.4 billion, according to the National Investment Center for Seniors Hosing & Care (NIC).

Recent data show some markets are stabilizing while others are overbuilt, and yet in other markets, supply is still well below demand for senior housing.

This landscape means there are still many opportunities for new investors and existing owners and operators to target expansion, whether through organic growth, portfolio acquisition, or through other avenues if necessary.

But today, more than ever, it’s important to have a calculated approach to that expansion – both in understanding the markets and ensuring every deal makes sense from a financial perspective.

With the help of market studies and financial analysis expertise, today’s senior housing players do not have to navigate this market alone.  Instead, they can leverage industry experts to bridge knowledge gaps to make better investment decision.

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SELF-MANAGED COMMUNITIES – CHALLENGES AND OPPORTUNITIES

SELF-MANAGED COMMUNITIES – CHALLENGES AND OPPORTUNITIES

Looking to the future, a growing number of operators of individually owned, self-managed senior living communities have two major concerns; 1) they may not be fully aware of all of the issues that need to be addressed in order to keep up with the current state-of-the-art and the growing complexities of the senior living business model and 2) once they identify all of the issues, can they really afford to pay for them?

Multiple property portfolios and large third-party management companies have significant economies of scale and can spread the cost to develop and  implement the necessary strategies to keep up with changing trends.  The future challenges for individual self-managed operators involve two key time frames; 1) short-run, what must operators consider in the next 18 to 24 months? and 2) longer-range, how can they really address the future; at least over the next 24 to 60-months?

Examples of these current and future needs include: sophisticated systems and procedures, comprehensive and expanded business practices, growth and expansion of Information Technology (IT), enhanced business operations efficiency including financial benchmarking, enhanced sales and marketing, human resources, risk management, and increased purchasing power.  One issue is very clear; financial viability and available cash flow is a must in order to procure additional services, resources and professional advice and counsel.  The trends of increasing minimum wage will also impact entry level workers in senior living.

There are four basic property management decision options for senior living communities; 1) continued individual self-management, 2) purchase as-required, short-term third-party management company services and resources while sustaining full self-management autonomy, 3) procure selective management support on an ongoing basis from either local providers or through a negotiated contract with a full service, third-party management consulting firm and 4) full scope long-term outside third-party management support.

Most self-managed operators desire to remain in complete control.  That’s understandable.  But it will be increasingly difficult to achieve.  Some not-for-profits and for-profit operators may think they are somewhat immune to these future challenges.  That’s not true.

To remain successfully self-managed in the future, sponsors and owner/operators must essentially create the same service mix and resources that they might otherwise get from a qualified third-party management company. 

Here is but a sample of some existing and future self-management issues to address.  There are actually about 25 that will surface over the next few years:

  1. Systems, Procedures and Policies – Having sophisticated, yet practical, and cost-effective systems, software, operating strategies, controls and performance enhancements.
  2. Achieve Economies of Scale – Realizing the potential for creating significant ongoing operations and procurement economies of scale that deliver substantial (and necessary) financial benefits to an individual community.
  3. Staying on the Leading Edge – Sustaining the ability to stay on the leading edge of the state-of-the-art in operations strategies and technology in an ever-changing complex industry.
  4. Providing Innovative Operating Strategies – Executing cost-effective, consistent and focused market positioning, sales and marketing initiatives, along with cost-effective operations that result in high resident satisfaction and clinical excellence.
  5. Implement Risk Management – Having leading edge risk management knowledge, experience and systems. Contractual and resident care litigation will continue to increase along with potential cost exposure.
  6. Succession Planning – Operators must recognize that leadership can change by both planned and unpredictable events. Developing existing “bench strength” with existing staff  and forward looking succession planning will also be a mandatory initiative.
  7. Growth In Community Based Services – Progressive communities are creating an expanded seamless continuum beyond their campus into their Primary Market Areas. This generates additional revenue and sharpens the image and market positioning of the original senior living campus.
  8. Enhanced Organic Growth – That’s a fancy term for expanding service delivery and realizing efficient financial proceeds from an existing asset – the current community.
  9. Increased and Sharpened Board Involvement – Board members should no longer be selected or retained as an honorary position. Boards should be carefully diversified based on their specific experience and the ability to directly benefit the community on a continuing basis.

The complexity of the senior living business has increased substantially in the past 10 years.  This trend is projected to dramatically increase over the next 10 years.  A frequently used cliché is still very appropriate; “evaluate the past with 20/20 hindsight . . . look to the future with an entrepreneurial vision.”

MDS can help you evaluate your current position and the ability to continue to self-manage. You must know where you are in order to know how to get to where you want to go. Call us today for an appointment. 

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Top Five Strategic Challenges and Priorities for 2017

Top Five Strategic Challenges and Priorities for 2017

“You’ve Got Questions . . . We’ve Got Answers”

What are some top priorities I should focus on to become more market-responsive, operationally focused and successful in 2017 and beyond?

I’ve identified five top strategic challenges and priorities for sponsors and owner/operators to successfully address in 2017 and future years.

1) Increasing Resident Age and Higher Acuity – Many independent living communities are turning into “naturally occurring assisted living communities.”  The need for assistance in living for residents is increasing.

2) Aging Physical Plants – Some of today’s older designs are not state-of-the-art or fully market-responsive.  Physical plant retrofit and cosmetic enhancement is a mandatory initiative for many campuses.

3) Increasing Capital Expenditure Requirements – These investments can include functional design modification, cosmetic enhancement and adding market-responsive features like additional dining venues.

4) The Senior Living and Health Care Continuum Is Expanding – Many operators are specifically addressing Alzheimer’s/dementia, memory care and Continuing Care At Home (CCAH).  They also recognize that the psychographics and “birthmarks” of today’s prospect and their adult children/decision influencers have changed considerably.

5) Market Positioning/Sales and Marketing – Key strategies include sharpened marketing positioning, improving the lead management programs, have very targeted and quantified performance objectives and sophisticated social media strategies.

The next steps for you should be to objectively address three critical questions.  1) What will be your strategic position in 2017?  2) What specific action are you implementing?  3) What are your expected outcomes in 2017 and beyond?

Keep in mind I’ve only identified five strategies.  There are at least 25 initiatives that could be considered.

Let MDS help you develop and define your strategic focus. From a quick situation review to a full strategic analysis we can tailor a service just for your needs.  MDS helps clients to accomplish their goals. Contact us today.

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Qualified Leads and More Move-Ins for 2017

Qualified Leads and More Move-Ins for 2017

“You’ve Got Questions . . . We’ve Got Answers”

What’s one creative way to increase qualified leads and hopefully more move-ins in 2017?

 

Referrals from existing residents is one of the leading sources of leads and move-ins.  That’s because Seniors trust and listen to their peers.  A carefully planned and executed resident panel discussion is an excellent way to get these messages to prospects.  A broad spectrum of moderated discussion issues can be especially effective in overcoming specific concerns, misconceptions and important financial concerns that can deal with price, value, affordability and prudent financial planning.

Invite about 12 articulate residents and several immediate family members for a discussion session.  Tell them the meeting will last about 90 minutes and they will be discussing how they went through the decision process to move to your community.  A carefully planned moderator discussion guide could contain a broad spectrum of up to 25 important issues.  A typical example of group discussion of financial issues includes; 1) First reaction when you discussed pricing, 2) How did it initially compare with your current cost of living, 3) Your initial reaction regarding pricing versus affordability versus value, 4) Did it change during your decision process, 5) How do you now define the “value” of your community, 6) Were you concerned about future monthly fee increases (then and now), 7) Did you have to reduce your current savings portfolio or did you use some of your newly acquired home sale proceeds, 8) Do you now consider living here a sound financial planning decision and Why,  9) What advice would you give other Seniors like yourselves as they go through the financial decision process.

This is just a sample of issues to discuss.  Consider recording the session and create a 12 to 15 minute DVD as an innovative sales and marketing asset.  You will likely be pleasantly surprised with the results.

MDS will assist you in the outline and development of such a panel discussion for your prospective residents.  We can make this a part of a comprehensive marketing program.  Contact us today for an appointment to see how we can help you implement this valuable marketing tool.

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Addressing Cost Increases with Residents

Addressing Cost Increases with Residents

“You’ve Got Questions . . . We’ve Got Answers”

We struggle with a very real and emotional issue; the annual increase in monthly service fee increase for senior living residents.  How do we address this issue with our residents?

You are dealing with a very significant financial challenge. First, the facts; 1) seniors will only get a Social Security increase of 0.3% in 2017, 2) short-term CDs and money market funds have returns of less than 0.3%, 3) inflation as reported by the September, 2016 Consumer Price Index (CPI) for all items is currently 1.5%.  These indices may reflect inflation of individual commodities, but the CPI does not appropriately track the real world of a senior’s typical costs incurred in senior living communities.  The two areas of highest cost for sponsors and owner/operators are dietary, representing approximately 20% of total operating expenses and direct care, typically representing over 40% of operating expenses.  In 2016, the annual increase in employee wages represented approximately 2.5% to 3.0%.  Similar increases are planned for 2017.

Current industry benchmarks reflect annual monthly service fee increases of approximately 2.5% to 3.5% for 2017.  The industry typically attempts to realize a 0.5% to 1.0% positive spread between a community’s annual increase in overall operating expenses and offset moderate increases in monthly service fees.

In attempting to make these numbers work, consider at least the following; 1) occupancy enhancement, 2) responsible expense reduction and 3) optimized unit pricing.  Enhanced financial performance represents both a pressing need and a huge opportunity frequently overlooked by many owner/operators.  In in 2017 and beyond, it will become a significant imperative.

 

An operations analysis by MDS will identify opportunities for improvement. A detailed overview includes Optimizing Income statements; expense management while increasing Net Operating Income, Operating Margin, Cash Flow. Contact MDS today for an appointment.

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Organic Growth – Getting More Out of What You Already Have

Organic Growth – Getting More Out of What You Already Have

“You’ve Got Questions . . . We’ve Got Answers”

 Is there something really important that I should focus on in 2017?

 

You should focus heavily on “organic growth” in 2017.  My definition of organic growth is reducing expenses and enhancing revenues of existing properties.  Committing substantial capital investments in terms of new development and construction is not the only way to realize additional future growth.  Here are three basic organic growth strategies:

  1. Revenue Enhancement – Sharpening your pricing strategies while staying competitive and market-responsive.
  2. Improving Occupancy – Since most of your fixed costs are probably already covered, the incremental profit margin for each additional unit occupied soars to approximately 65% for assisted living and up to at least 80% for independent living.
  3. Expense Reduction – As an example, a community consisting of 120 independent living and 35 assisted living/memory care units operating at 90% occupancy results in approximately 50,000 annual resident-days. Reducing operating expenses by just $2.00 per resident-day (PRD) would result in $100,000 of additional cash flow in 2017.  The median operating expense benchmark for the above defined community is approximately $112 PRD.  A $2.00 PRD expense reduction would decrease operating costs by 2%.

The central budgeting theme for 2017 should be – organic growth – getting more out of that which you already have.

 

MDS can tailor our services based on your need of revenue enhancement, occupancy and/or expense reduction. An operations analysis can uncover a way to increase your cash flow.  Call us today and let’s get started on your success.

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