Assisted Living Executive - January/February 2011

vices. If, on average, these residents need about two hours per day of assistance (24/7), that translates to about 3,280 hours per month (54 residents x 2 hours per day x 30. 4 days per month). Those 3,280 hours billed at $18.90 per hour yield approximately $62,000 per month in additional revenue. The profit and overhead allocation on those 3,280 hours at $4.90 per hour (profit) and $1.50 (overhead) or a total of $6.40 per hour results in new net cash flow of $20,990 per month or $251,900 per year. Since your basic overhead costs are probably already covered from your larger existing operations, most of that $251,900 will likely go right to your bottom line as profit and cash flow. Using a value capitalization rate of 9. 5 percent would indicate that the potential value of your community has increased by approximately $2.7 million. These numbers may be modest, depending on your unique situation.

Recovery strategy

The current economic environment has directly impacted a typical senior’s saving and investment portfolio, his or her ability to sell his or her home, and his or her overall confidence level. Hence, for the past three years, the industry has

Check out The Wall Street Journal’s Econ Tracker to keep tabs on economic indicators and forecasts: http://graphicsweb.wsj.com/ documents/econtracker/.

been experiencing delayed demand impacting the absorption of senior living units.

Fortunately, construction of new residences is currently at an all-time low, and there are significant barriers to entry for new projects in terms of reproduction cost, approvals, and financing. Very limited senior living product is in the development and construction pipeline. This building slowdown will result in an eventual strong upside recovery in senior living.

No one can accurately predict the specific timing of a full economic recovery so, focusing on organic growth is imperative in 2011. First, focus on enhancing your existing operations. No single strategy will likely have a higher pay-off or return on investment. Optimize stabilized occupancy, enhance existing financial operations, and increase revenue, while possibly reducing expenses. Properly executed, these strategies will lay a strong foundation to benefit from the eventual economic and senior living recovery. ❏

Jim Moore is president of Moore Diversified Services Inc., a national senior housing and health-care consulting firm based in Fort Worth, TX. He has written several books about assisted living and senior housing, including Assisted Living Strategies for Changing Markets and Independent Living and CCRCs. Reach him at 817/731-4266 or jimmoore@m-d-s.com.

Hear more from jim moore at ALFA 2011. Register at www.alfa.org/conference.

Tracking The RecoveRy TRends

Financial success in 2011 rests very heavily on being able to continually track the economic recovery trends. Five leading indicators provide the deepest insight for senior living as the recovery process continues to improve:

improvements in the stock market: Most investment portfolios were devastated in late 2007, 2008, and early 2009. The market is now in the process of recovery. Improvement in savings portfolios will have a significant impact on important senior living decisions to be made by both senior consumers and their adult children. Monitor three primary stock market indicators as the recovery process proceeds: Dow Jones Industrial Average, the S&P 500 Index, and the NASDAQ Index.

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current interest Rates: The senior consumer interest rate metrics to track involve the one-year and five-year Certificate of Deposit rates, one-year Treasury Bills, and Money Market accounts. Current annual returns on these short-run savings instruments are currently less than one percent. Seniors focus heavily on how their cash flow is performing on a monthly basis.

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personal income and net Worth:

These broad economic indices are reported by the government and are important to monitor as we work our way through 2011. Net worth is the ultimate “bottom line” of a senior consumer’s financial condition. Two major elements of seniors’ net worth are the current value and potential liquidity of their home equity and their savings/ investment portfolios. As their net worth gradually improves, so will their confidence in making important and significant future financial decisions that could involve considering senior living options.

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consumer confidence: A general indicator that monitors the pulse of the recovery mentality of the consumer, this index has been improving modestly in 2010, but needs to be continually monitored to determine if consumers continue to believe that the economy is still in a recovery phase.

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Retail sales: Year-over-year retail sales increases are driving the recovering economy and employment and are yet another indicator of consumer confidence. Consider setting up your own dashboard to update and track these indicators over time.