Nonprofit senior living margins increased by 50%, survey finds
Average operating margins increased dramatically in the last year for nonprofit senior living companies, according to a recent survey of C-suite executives.
The sector's average net operating margin reached 3.24%, up from 2.13% in last year's report. The improvement is due to better management of occupancy rates, broadened business lines and services, and the implementation of strategic plans, according to Milwaukee-based financial advisory firm Cleary Gull. The company conducted the survey between February and May of this year via an online tool provided to “all known” not-for-profit senior living organizations.
However, service expansions and campus repositioning efforts also create “periods of operational stress” and lower margins for companies going through these changes, the report states. This means that Clearly Gull analysts expect to see “extreme” spreads between margins at either end of the spectrum. This year, some companies reached as high as 14.5% while others reported margins as low as minus-24.6%.
While occupancy ticked up for most companies polled, it remains a challenge. Average occupancy currently is at about 91%, while the C-suite leaders said they are aiming for 94% to 95%. Affordable Care Act changes and lower reimbursements were cited as two other primary challenges.
In terms of how these companies are allocating assets in their investment portfolios, fixed income and cash were down more than 6%, now making up just over half of holdings. Equity holdings increased by more than 4%, to make up more than 42% overall.
“The key takeaway is that diversification is critical,” stated Steve Backus, client advisor at Clearly Gull. “Since uncertainty persists about when and at what pace interest rates will rise, and senior living organizations continue to carry high percentages of fixed income and cash in their portfolios, it's important to develop and begin acting on a plan to mitigate risk.”
Backus and the company's president, Stephanie Chedid, AIF, will be available to answer questions on the report at next week's LeadingAge conference in Dallas. Click here for the complete document.