Senior Living Operators Walk ‘Delicate Balance’ in Quest for Higher Margins

After margins hit a near-low point in late 2022, senior living operators have spent 2023 strengthening their bottom line with hopes that growth will continue into the new year.

In many cases, margin gains have been a direct result to operators improving census across their portfolios, shoring up labor pressures and increasing resident market rates.

Some of the industry’s largest players are feeling bullish on the return to bottom line growth and operating performance, with companies such as Welltower (NYSE: WELL) noting positive tailwinds for operating performance driven by “major breakthroughs” in data. This also comes as lower-acuity senior living, like active adult, have attracted more investors as of late with the prospect of margins of 55% to 65%, according to a September 2022 report by the National Investment Center for Seniors Housing and Care (NIC).


But the industry is still mired in many challenges, from still-deflated revenue to a generally higher cost of doing business. Those challenges mean senior living operators must now walk a “delicate balance” to get back to pre-pandemic margins, according to Ally Senior Living CEO Dan Williams. That balance stems from operators needing to right-size rates for their portfolios so as to not disrupt the pace of move-ins and build-back of occupancy gains.

“We will get pretty close, but I don’t know if we’ll ever get back to what the expectations were as an industry when we were underwriting these investments five years ago,” Williams told Senior Housing News.

‘Shift from surviving to thriving’

Senior living providers are taking similar paths towards building back margins, with results ranging from marginal to significant rebounds in total.


Frontier Management is reporting pre-pandemic margins across its eastern and central U.S. portfolio, with the west coast lagging behind those areas, according to Chief Operations Officer and Clinical Officer Kandice Alcorn. Across Frontier’s entire 126-community portfolio, the company has reported an increase in profit margins this year between 10% and 15%, Alcorn noted.

“We’re seeing margins that are equal to or better than what we had pre-Covid,” Alcorn told SHN.

The company previously joined a group purchasing organization (GPO) called Pure Solutions, which has helped the operator negotiate better pricing with vendors. Frontier Management is “streamlining vendors and products” to bring consistency, and lesser expense, to the bottom line, she said.

“It’s been a huge help and allowed us to be able to help really drive margins,” Alcorn added.

While labor continues to moderate for operators, Alcorn said the trend continued within Frontier as labor was “more stable” than in recent years, having success on employee retention. One area that has remained challenging has been lingering supply chain issues, but those expense pressures have largely eased, she said.

“I think our biggest opportunity is revenue and occupancy growth,” Alcorn said.

12 Oaks Senior Living has expanded its portfolio significantly in the last 18 months, having reached 39 communities in total. With some communities still recovering, margins for the organization currently range across the board, according to Senior Vice President of Operations Aaron Catoe.

Catoe said margins ranged between break-even net operating income (NOI) at some of its recently-acquired communities to nearing 40% across its stabilized portfolio. That range is common across the senior living landscape, with many operators seizing on a buyers’ market to beef up their portfolios with distressed assets.

At the same time, demand for senior living is likely to continue to rise given the demographic wave ahead, and Catoe said 12 Oaks’ sales teams have focused heavily on the “selling zone” of prospects this year to drive margins. The selling zone is the time in which a prospect’s interest turns into a tangible gain for an operator’s bottom line after agreeing to move into a given community.

“We’re able to measure selling zone time for a salesperson and from an executive director, and as it has increased, that’s directly correlated to increased move-ins,” Catoe said. “The higher the selling zone time, the higher the moves ins and that’s been a huge focus since Covid and the shift from surviving to thriving mindset.”

The senior living industry has gone “from the covered wagon train to Star Trek” with regard to digital marketing, Catoe said. Catoe added that automation has been an “amazing” asset with online behavioral targeting with search engine optimization (SEO) and geo-fencing that indirectly lead to increased margins.

“We hadn’t focused on those things before and those are key items that have benefited us,” Catoe added.

Williams said Ally’s push to increase margins this year came through occupancy gains and market rental rates between 10% and 12%. Coupled with the lack of agency staffing and improvements on labor-related expenses, Williams said the effort made by Ally this year “have contributed the most to being able to get margins” on the right path.

“They’re not back to where they used to be,” Williams said. “We’re creative and we’re figuring out how to operate buildings and get the margins that are necessary, so I am positive on better margins going into next year.”

Ally’s transitioned portfolio has improved margins from pandemic lows that were reporting negative NOI to a positive and being able to cover debt service with 32% margins. Compared to last year, Ally has been able to swing on average 8% better margins this year across its stabilized portfolio, Williams said, even with “almost the same census” through rate increases and cutting out labor expenses.

“The strategy we use in certain markets could backfire but we’ve been able to do it,” Williams added. “Trying to get those margins we used to get, we risk pricing ourselves out and it’s a delicate balance to try and get margins back.”

As with 12 Oaks and Ally, Distinctive Living has also seen a bifurcated recovery, with communities still in lease up having different benchmarks than stabilized assets. The Freehold, New Jersey-based operator reported stabilized portfolio margins ranging between 24% and 35%, with occupancy of the stabilized portfolio at 91% and 83% of communities in lease-up, according to CEO Joe Jedlowski.

Distinctive Living has focused on driving ancillary revenue, coupled with rate increases, to boost margin, with the company adding a private sitter and point-of-sale systems to add additional recreational-type revenue from alcohol sales. That focus on additional revenue also comes as Distinctive Living examined its care model and scrutinized where residents were at within the continuum to right-size, and bill correctly for, care.

“I think as we continue to increase revenue opportunities, we expect our margins to grow,” Jedlowski said.

Margins one indicator of success for life plan communities

While the recovery is at hand for for-profit operators and their nonprofit counterparts, the recovery’s pace may be a bit slower in the nonprofit arena.

Alexandria, Virginia-based Goodwin Living reported margins of 22% when adjusting to account for entrance fees at its life plan communities prior to the pandemic, and that remains the same range at which margins are at now, between 20% and 23%.

Even as the bottom line’s health returns, Liebreich said the company viewed its net operating margin as “one indicator of a successful life plan operation,” noting some wiggle room afforded to life plan operations as compared to strictly-rental concepts.

“But net operating margin adjusted was really a better proxy for success,” Liebreich said. “We figured out how to increase our cash flow to do better at receiving entrance fees. So there’s other factors involved than just margin at the life plan community basis.”

To position itself for long-term health, Goodwin Living has made capital investments at its life plan communities to “reposition and get things moving,” Liebreich said.

Those investments are paying off in the short-term, having increased occupancy from 68% census at-acquisition one year ago to 90% as of September. 

“We’ll be able to invest those dollars back into the capital and positioning for a better future,” Liebreich said. “I have great optimism and because I think we never strayed from staying focused on delivering a great product to those who choose us, and quality and consistency matters.”

The life plan community sector of senior living could face increased operating performance pressure, and that’s according to an updated report by Fitch Ratings released earlier this month, which had already termed the sector’s outlook as “deteriorating” in December of last year.

Margin growth steady, demand provides optimism

As demand for senior living remains stronger than ever, operators continue to prioritize new revenue opportunities to spur margin growth. In 2024, operators that spoke with SHN feel that, as a whole, margins will improve heading into next year.

Williams said he believes census and margin will improve to pre-pandemic levels by the end of 2024.

“I think they’ll get a little bit better next year but you can’t keep up with the revenue and not keep up with expenses, and I think margins will take a little bit longer to recover,” Williams said. “Will they ever go back to what they were is the question.”

For 12 Oask, Catoe added that he felt 2024 would see similar trends for margins, with operators having to work diligently to reduce expenses and maximize unit sales to execute.

“We’ve had a month-over-month increase in occupancy across the board,” Catoe said. “We think margins will continue to be spread across the board, but I do see positivity out there.”

Looking ahead, Jedlowski said Distinctive Living would focus on driving stabilization across its portfolio, and capturing the “low-hanging fruit” on move-ins.

“Our mission going into 2024 is taking those stabilized assets, pushing them to really high occupancy and really increasing our margins,” Jedlowski said.

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