Senior Living Operators Repositioning Assets to Boost Revenue

With new development in the pipeline and coming onto the market, senior housing operators and landlords are looking for ways to reposition existing properties to target future generations and achieve return on investment.

“There’s more segmentation [in the senior living industry]. People are trying to brand,” said Daniel Decker, founder and principal of investment firm CoastWood Senior Housing Partners, LLC, during SHN’s 2013 Senior Housing Summit in July. “For new development, the question is really, will the product evolve sooner? Will the next generation trump the existing generation?”

Capital Senior Living (NYSE:CSU) launched a new branding strategy during the second quarter involving an integrated marketing program that included a “refreshed” corporate logo, enhanced marketing content, and an updated website with a new color palette and image scheme.


“Our new responsive website was designed to make searching for senior living communities easier than ever.The complete makeover of our branding strategy and website unites the company’s 104 communities under one corporate identity and facilitates the assimilation of newly acquired communities in a consistent manner,” said Lawrence Cohen, CEO of Capital Senior Living, during the company’s second quarter earnings call.

The new branding strategy has already produced a 36% increase in web-based lead generation, according to Cohen, and numbers are expected to increase more as the company’s online reputation and search engine optimization efforts take hold.

Barriers to building new CCRCs are “extremely high,” making it another segment that’s under the repositioning microscope, said Rick Exline, executive vice president and director of operations management at LCS, during the Senior Housing Summit.


“We’re seeing a lot of repositioning of older assets on the CCRC side,” he said. “These are 25-35 year old assets, and the consumer is changing. The are requirements for multiple food venues, etc., that need to be built into the community.”

CSU is in initial stages of repositioning two of its CCRCs that it has previously looked to sell off. The company’s “plan B” was to reposition the two properties by enhancing private pay revenue, and is currently seeking approvals and working with families of residents.

“We believe that the strategy could actually double or triple the value of this property from the offer that we ended up receiving [when the properties were brought to market] through the process,” Cohen told an analyst during the second quarter earnings call.

Recommended SHN+ Exclusives

Additionally, Capital Senior Living is investing in cash-flow enhancing renovations, refurbishments, and conversions of units to higher levels of care in its portfolio. Combined with the company’s operating leverage, the initiatives are expected to increase revenues, margins and cash flow, Cohen said. For every 3% increase in average monthly rent, about $10.4 million of incremental revenue is generated, he said, while every 1% improvement in occupancy is expected to generate $3.5 million of revenue.

“We have had much success in converting units to higher levels of care to meet the needs of our residents and allow them to age in place, as well as generate excellent financial returns to our company,” said Cohen. CSU is in the process of converting 210 units of independent living to assisted living and expects the conversions, when stabilized, to add approximately $3.4 million of incremental revenue.

The company is also considering conversion opportunities at 10 other communities to license all or part of them for assisted living, a strategy that could increase levels of care by about 300 units with the potential to increase revenue by nearly $4 million.

REITs are interested in repositioning assets in their portfolios in search of returns. Ventas, Inc. (NYSE:VTR) has $151 million of approved redevelopment deals in its pipeline, and $240 million of development projects overall.

“The redevelopment pipeline targets assets in our portfolio where we can add additional value by adding programming such as memory care or upgrading the facilities to drive rate. So far, with the projects that we’ve completed and that have stabilized, we’re achieving 11% returns,” said Ray Lewis, president of Ventas, during the REIT’s second quarter earnings call. “I would say the pipeline is very consistent with the projects that we’ve done, historically. So we would hope that they would achieve similar types of returns as we implement and stabilize those.”

Reinvestment in Brookdale Senior Living’s (NYSE:BKD) portfolio “continues to be our highest priority for capital investment,” said CEO Andrew Smith during the company’s second quarter earnings call. So far in 2013, Brookdale has completed seven Program Max projects with 16 more under construction and another 18 in active development.

Brookdale is spending about $150 million on Program Max in 2013, although returns won’t be seen right away, said Mark Ohlendorf, co-president and CFO.

“We have to get the capital deployed, build the assets, open the assets and fill them up,” he said. “So while we target mid-teens yields based on project costs, you probably don’t see that until three to four quarters after the project opens and has an opportunity to stabilize.”

Written by Alyssa Gerace

Companies featured in this article:

, , , ,