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Six strategies for survival

February 1, 2009
by root
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Based on an interview with Dan Hermann, Managing Director and Head of Senior Living, and Kathryn Brod, Senior Vice President, Ziegler Capital Markets

Recently Ziegler Capital Markets issued six strategies for senior living providers facing economic difficulties due to their faltering marketplace. These strategies are based on our knowledge of the capital markets in this field and how trends in them are impacting our customers. While none of these is a prescription for any one organization, together they lay out general philosophies and approaches that we believe are not only prudent, but necessary for operators to consider moving forward:

  1. Emphasize operational efficiency. For example, review staffing to see whether it is set up to provide services as efficiently as possible. We've learned that more than one provider has gone from a traditional eight-hour shift rotation to a 12-hour assignment approach involving teams of staff that manage the same set of residents. These organizations have found that this has been a help in improving staff efficiency and quality of care, as well as staff satisfaction to the point that they've considerably reduced agency staffing. Other things to look at are re-evaluating the reimbursement mix and benchmarking cost data vis-á-vis other similar facilities. Ziegler and AV Powell & Associates offer a benchmarking service of this type on a benchmarking Web site and professional organizations, such as the American Association of Homes and Services for the Aging, the American Seniors Housing Association and the National Investment Center for the Seniors Housing & Care Industry keep track of data such as salary trends and other senior living statistics.

  2. Maximize occupancy. Are you getting the right marketing message out to the community? Are you focusing on the appropriate market segments and is your marketing material fresh and appealing to them? Also, consider conducting a lost-revenue analysis—in other words, how much downtime you're incurring in your units between the departure (and loss of revenue) of one resident and the moving in (and receipt of revenue) from another. Make every effort to reduce this time frame—for example, by staying on top of resident situations in individual units that might clue you that a change is coming. To do this, you have to listen to your hands-on staff, who are usually the first to know about these changes. When the situation arises, alert the people at the top of your waiting list of the possibility so that they might prepare to be ready when the time comes for a move-in.

  3. Manage your entrance fees. This is of particular importance for CCRCs in areas where the real estate market has severely impacted home sales and values, which are of course the foundation for much of the entrance fee CCRC market. As it happens, not all areas of the country have been seriously impacted by this—areas of rural Pennsylvania, for example, seem to have escaped the downturn thus far—so the situation should be viewed locally and regionally. But for those providers in areas where declining real estate values are a factor, they must act with flexibility and with nimbleness. Individual arrangements can be made as needed with individual potential customers—deferring entrance fee payments, accepting promissory notes, reducing the entrance fees and/or monthly fees to encourage homes sales at lesser prices, and so forth. Appropriate decision making will take considerable focus and planning.

  4. Manage cash and investments. Make sure your organization's investment policy (if you have one) is in order. There may be certain policies or strategies agreed to with the board of directors, but they should be revisited in light of current market conditions. This might be more challenging where investment strategies have been relatively more sophisticated. The organizations that continued to invest in treasuries and CDs, who may have been considered over-conservative not too long ago, may be in pretty good shape right now!

  5. Work on your contributions. If you are a not-for-profit provider who relies on contributions to fund operations or physical plant enhancements (wellness centers, for example), this could be a challenging time. For those providers who have a significant number of residents who have exhausted their funds and rely on charitable support, effective development efforts have become all the more important.

  6. Review debt management plans. If you have projects you expect to finance this year, you need to be in contact with your banker ASAP, because the assumptions that may have prevailed when you discussed this in late fall or early winter are probably no longer valid. Where you can, downsize future projects or place them on hold, or renovate instead of replace. In short, make sure the assumptions underlying capital investments of this type are correct.

You might also want to look at restructuring your existing debt, and for those with only fixed rate debt this will probably mean going the variable rate demand bond route. Due to the interest rate climate, financing fixed rate debt is probably on hold. In general, we're entering a much more conservative period for capital investments than we've experienced in some years, so do all that you can to tighten the ship and develop efficient operations with clearly defined marketing appeal. In the last analysis, this will not only help you get through today's economic challenges, it will help you prosper when things open up.

For more information from Ziegler Capital Markets, contact Kathryn Brod at (410) 884-8302 or e-mail kbrod@ziegler.com.

 

Long-Term Living 2009 February;58(2):32-33

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