Seniors Housing Business is the magazine that helps you navigate the evolution of the seniors housing industry.
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42 www.seniorshousingbusiness.com Seniors Housing Business n February/March 2017 By Jeff Shaw On its face, net operating income (NOI) is a simple formula: revenue minus operating expenses. Therefore, increasing NOI is only a matter of increasing revenue or reducing expenses. Of course, all operators know it's not nearly that simple. Where can you unlock new rev- enue, or cut expenses without also damaging that revenue? There are thousands of different ways to do so, but the "secret sauce" that keeps revenue high and expenses low is a difficult recipe to uncover. What's more, sometimes the most logical source of good NOI — high occupancy — isn't enough. Dana Wollschlager, principal with senior liv- ing real estate consulting firm Plante Moran Living Forward, has tales of clients who were 100 percent occupied and completely private pay, yet somehow still losing money. "They were grossly underpriced for their ser- vices," says Wollschlager. "They were taking a $300 loss per resident per month." Thinking about occupancy on its own is too simplistic, according to John Shafaee, founder and CEO of Chicago-based Medtelligent, whose software product ALIS (Assisted Living Intelligent Solutions) provides operators with the tools needed to maximize workflow. An operator has to consider dozens of factors to find a truly optimized NOI. "The way most people manage NOI is purely through occupancy — they make sure the beds are full," says Shafaee. "You can't just build a beautiful building. Both occupancy and NOI are a lot more complicated than that." Data illuminates issues Plante Moran Living Forward uses a tool called Price Point to help clients compare total expenses to income from service fees and rents, as "most operators have no idea" what the hard costs of services are, according to Wollschlager. It's important to consider even less obvious factors, such as principal and interest paid on the mortgage compared to the competition. "The answer isn't necessarily to increase fees. It's a math problem. Staff can become more effi- cient, for example," says Wollschlager. "Opera- tors need to make sure costs are commensurate with what they're charging, because 98 percent of the time they're not even close." Data becomes the key component. If an oper- ator has hard numbers to work from, then find- ing and solving shortcomings becomes easier. At continuing care retirement community operator LCS, benchmarks are used across the Des Moines, Iowa-based company's port- folio of 37 properties. Those benchmarks give management a basis of comparison, and are put up against the indus- try standards from the National Investment Center for Seniors Housing & Care (NIC). Common benchmarks for the company include expense per occupied unit, operating margins and labor cost per resident. "Those are the drivers of the bigger ticket items," says Judi Buxo, director of senior living management for LCS. "We operate from a key principle: that which gets measured gets managed. It gives everyone a common ground to work from." Staff training pays off Many operators fall short on tracking labor costs, according to Tra- vis Palmquist, vice presi- dent and general manager of the senior living divi- sion for software vendor PointClickCare. In many cases, a staff member will perform a ser- vice without logging it or accounting for that time because it's faster and simply easier to complete the ser- vice and move on. Known as Unlocking NOI n Operations Operators find new ways to generate income, cut expenses through innovative methods. North Oaks is an LCS-owned continuing care retirement community in Pikesville, Md. LCS used a predictive financial planning tool, allowing the community to forecast NOI results over a 10-year period and make important operating decisions. Judi Buxo LCS Travis Palmquist PointClickCare