Low Occupancy Prompts Price Discounts in Senior Living — But Providers Wary of Risks

Senior living providers recovering from the pandemic are using discounts and concessions to regain occupancy, raising concerns about price wars as companies across the industry strive to rebuild occupancy.

In November 2020, providers such as Five Star Senior Living (NYSE: FVE) were already observing deep discounts and concessions in the market. Other data, including mystery shops and a reader survey recently conducted by Senior Housing News, also find many organizations utilizing price breaks of various kinds.

The trends are concerning to industry leaders — including Greg Roderick, CEO of Portland, Oregon-based Frontier Management — who say that the Covid-19 pandemic’s pressures have made now a particularly important time to preserve revenue.

“The rental rate, including care, are important to protect as insurance, wages and other weighing factors are facing our profession,” Roderick told SHN. “Deep and multi-month discounting is a high price to pay for occupancy and should be used carefully as the consumer — residents and family — will likely not see the value well into the future.”

Among senior living sales experts, there is also a sense that a wider slate of tools is needed to attract prospective residents. And there is also the possibility that discounts and concessions may not be particularly successful or necessary in driving occupancy in the months ahead.

Just ask Bild & Company Founder and President Traci Bild, whose company has consulted for the majority of the 100 largest senior living providers in the country. In addition to her long industry experience, Bild also recently got a close-up view of the process in helping her mom find a senior living community.

From her company’s “eagle’s nest view,” Bild says she and her team see providers wielding fewer discounts and concessions today than in the months leading up to the pandemic. And when providers do use them, they are not often resulting in closed sales.

“We don’t believe the buyer is necessarily on the hunt for discounts,” Bild told Senior Housing News. “That is not going to make a difference between me going to community A and community B. It is really about relationships.”

Data on discounts

Although discounts and concessions eat into operating income, there is much data to suggest that providers still consider them among their most important levers by which to build occupancy.

An SHN reader survey conducted between March 5 and March 22 showed that more than 67% of respondents are currently using discounts or concessions in their communities.

The sample set is small and the survey is far from scientific, but it does provide some sense of the prevalence and type of discounts and concessions currently in use. In total, 53 people responded to the survey. Among the respondents, 24% work with organizations of more than 50 communities; 20% are with organizations of 20 to 50 communities; 12% are in the pool of 6 and 10 communities; and 30% had between 1 and 5 communities.

Nearly 92% of respondents offered assisted living services, while almost 80% offered memory care and about 78% offered independent living.

Almost 39% of the survey’s respondents said their communities had increased the number of discounts offered since mid-February, while more than 24% reported no change in the level of discounts offered in the past 30 days. About 10% of respondents said they had decreased the number of discounts and concessions offered in that time, and almost 27% are not offering them at all.

Respondents reported offering rent reductions lasting one to three months (50%) and waived or reduced community fees (48%). Other incentives offered included rate locks (28%) and rent reductions lasting four months or longer (18%). Nearly 30% of the survey’s respondents said their communities do not offer discounts or concessions, and another roughly 12% offered a different kind of incentive than rent reductions, waived fees or rate locks.

Those other types of offers include moving assistance, technology packages and meal-related incentives, and one organization is offering $3,500 to $4,500 incentives that new residents can use however they like.

For this story, Senior Housing News also mystery shopped more than 20 senior living communities in Chicago and inquired about ongoing concessions as we have done in the past. Among the 17 communities’ sales staffers who spoke with SHN, seven shared information on discounts upfront when asked, with the most popular discounts offered being temporary rate cuts or waiving at least one month of rent.

Fourth-quarter data from the National Investment Center for Seniors Housing & Care (NIC) helps fill out the picture.

Providers across the board are offering below-average asking rates for residents, with those offering memory care implementing the deepest discounts at 10.2% below average asking rates, according to the organization’s 4Q2020 NIC MAP Seniors Housing Actual Rates Report.

Initial rates for providers with assisted living care averaged 7.1% as of December, 2020, or $364, below historical average asking rates, according to the NIC data. And the average annualized discount for providers with independent living units clocked in at 0.8 months last December, an uptick from December 2019 totals of 0.6 months.

Differing philosophies

Although discounts and concessions are common in the senior living industry, providers have differing thoughts on how to use them.

For example, Brookdale Senior Living (NYSE: BKD) CFO Steve Swain said during the company’s fourth-quarter earnings call that the company was seeing some pressure on pricing in certain markets across the country, but that management was focused on “getting every single unit in service at the highest achievable price.”

“We know that profitable revenue growth depends both on rate — which we’ve done a good job protecting — and occupancy,” Swain said during the earnings call in February.

Atria Senior Living has successfully used discounting to bolster lead growth and volume, helping the Lousville, Kentucky-based provider increase occupancy, Ventas Executive Vice President, Senior Housing Justin Hutchens said on the REIT’s Q4 2020 earnings call.

Five Star also continuously adjusts its pricing to match local demand for its communities and services. The Newton, Massachusetts-based senior living operator is doing this as some of its peers enact “significant concessions to attract new residents,” according to Zehra Abid-Wood, senior vice president of corporate development and strategic implementation.

“This dynamic pricing model ensures our best-in-class services remain attractive to prospective residents while driving rate optimization, no matter the micro-market conditions,” Abid-Wood told SHN.

Chicago-based Enlivant also uses a dynamic pricing program, which shifts rates based on specific data inputs related to local market conditions. This creates a pricing model that sales agents can “believe in,” and that increases consumer transparency, incoming Enlivant CEO Dan Guill recently told SHN.

Frontier’s Roderick has been outspoken about the need to preserve or even increase rates to offset rising expenses, and he believes rental rates at the company’s 125 communities are reasonable given the scope of services offered. Simply put, he says that “giving away rent and care is not a good business strategy.” But, Frontier also will do discounting on a limited basis.

“The discounting that we do would be minimal and short-term — under 90-days — but, would be specific to the needs of the prospect rather than a blanket-style giveaway, such as three months free,” Roderick said. “To provide some minimal assistance with moving costs or to assist with an early termination of the rent from another location would be reasonable.”

And although the operator does see concessions as a sometimes-useful tool to build occupancy, Frontier is more focused on using its services, sales process and reputation as a good steward of the larger community to win over prospective residents. That is a view Roderick has held over the years, and one that was honed during other downturns.

“As an operator of seniors housing for over 30 years, I have seen these times before,” Roderick said. “Discounting may or may not have a nice effect on short-term occupancy, but maintaining a great and beautiful community with a confident team delivering exceptional care is far more rewarding than losing money on every move-in.”

For Hickory, North Carolina-based ALG Senior and its roughly 140 communities in the Southeast, concessions and discounts are only offered sporadically. The provider’s pricing is structured on an all-inclusive model, and that is a “big draw” for prospective residents, according to James Harvey, ALG’s vice president of marketing and communications.

“Any discounts we do make, whether waiving move-in fees or a slight discount on monthly rent, is made on a case-by-case basis,” Harvey said. “We are always seeking to remove obstacles to moving in a resident.”

The type of discounts offered often depends on the makeup of the local market, according to John Spooner, Co-CEO of Irving, Texas-based third-party manager and consulting firm Greystone Communities.

When surveying the senior living landscape, Spooner categorizes markets into three buckets: “educational markets,” where prospects are unfamiliar with senior living; “competitive markets,” where there are many senior living providers for prospects to choose from; and “combative markets,” where providers clash with each other.

“It’s the combative markets where we see the most use of incentives,” Spooner told SHN.

To Spooner, providers looking to win over residents should keep all options on the table, including discounts. But more importantly, salespeople should create a custom toolbox of incentives that are valuable to each individual prospect.

“That’s kind of where Greystone falls: We’re going to recommend that a sales person does enough discovery with a potential move-in and asks, ‘What’s valuable to you?’” Spooner said.

Personal touch

From Bild’s perspective, providers are more successful when they take the time to foster meaningful interactions with prospects.

She recently experienced this firsthand as she helped her mom find a life plan community to move into in Clearwater, Florida. For Bild and her mom, it was the smaller personal touches — a sales director texting outside of normal business hours, an offer to install a cutout in a bathtub, bringing lunch every day for a week — that won them over in the end.

Her top takeaway from that experience for providers is that it is relationships, not discounts, which usually hold more sway over a prospective resident’s decision on whether to move in. Tours also can make the difference between making a sale or not.

“If we slow down and get our people in the sales role to be inquisitive, asking 10, 12, 15 open-ended questions … that is what is going to convert them to the tour and the move-in,” Bild added.

Bild recommends that providers fine-tune their sales approaches instead of simply offering blanket discounts. For instance, a provider might invest money into better furniture for a model apartment instead of reducing rent upfront.

“There are a lot of models you look at, and they always go, ‘Oh, sorry, we’re turning it over, it looks really bad,’” Bild said. “They took my mom to a beautiful model [unit], and I could see my mom’s wheels turning.”

Bild added: “Because it was modeled out, that made all the difference.”