New Year's resolutions.

Growth and prosperity can be just around the corner

NEW YEAR'S REVELERS WHO DIDN'T HAVE THE LUXURY OF sleeping in on January 1 are probably still cursing their alarm clocks. But another alarm--a wake-up call to the senior housing industry--has been clanging away, and many owner/operators appear to be ignoring it.

While numerous issues will face our industry in the years ahead, be sure to address these eight major concerns right now.

* Stand up for your industry's strong fundamentals. In the past year, public assisted living companies have seen their stock prices hammered because Wall Street requires meeting or beating every quarterly projection--a near impossibility given current fill-up rates. The industry has also been sucked into the vortex of bad news flowing from the hospital and nursing sectors.

Many of these same companies, however, have good operating margins, excellent cash flow, and, once stabilized, high occupancies. What's more, the product they offer is both market-driven and need-driven: Properly communicated, assisted living gets a favorable response from adult children while serving the significant needs of their parents. And though some local markets have experienced slower-than-expected fill-up rates, long term demand remains strong.

* Don't write off the sector's investment potential. An assisted living facility at stabilized occupancy should be able to deliver annual cash-on-cash returns in the 13 to 17 percent range. After three or four years, an internal rate of return in the mid-20 percent range is not unusual. For many operators, profit margins are between 37 and 40 percent. What's more, lenders look for a debt service coverage ratio of 1.3 ($1.30 in cash on hand for every dollar owed to them)--clearly achievable with a purpose-built, highly competitive project. Also, many public assisted living companies are undervalued, with stock prices 10 to 15 times earnings compared with the S&P 500 average of 28 times earnings.

* Trim your bloated budgets. While you must continue to focus on providing the best care and highest quality of life for residents, these objectives must be pursued within the context of increased cost controls. Departmental budgeting and financial benchmarking must become accepted practices-- not derided as insensitive, capitalistic concepts typical of for-profit enterprises. Many well-intentioned but misguided department heads argue that any cost reduction will immediately lower quality of care. In fact, there is a lot of wiggle room where neither quality of care nor quality of life is compromised.

* Expand your range of products and services. There are many opportunities for enhancing income while, at the same time, spreading fixed costs across more revenue-producing entities: By developing communities with a wider range of services and innovations, you avoid the trap of becoming a price-sensitive commodity. And by thinking "holistic" and "continuum," seniors benefit by receiving seamless care.

* Rehab aging campuses. In recent decades, hundreds of not-for-profit communities have performed their missions, developed excellent reputations, and prospered. But the marketplace is now reacting negatively to aging products and physical plants. To remain competitive, modernization is a must. Not-for-profits must rehabilitate their existing facilities and develop new, state-of-the-art campuses. To benefit from economies of scale, they should also create regional networks, a trend that is under way.

* Exploit technology to the fullest. Go for the latest hardware and software to improve everything from collections to care. Use the Internet for marketing, communication, and training. Demand that technology vendors tailor their offerings to your industry's needs.

* Be more proactive in sales and marketing. Try to gain a deeper understanding of the financial planning issues facing seniors and their families, then incorporate this into your sales and marketing activities. The tendency has been to play "don't ask/don't tell" with regard to finances. But research indicates that this is a hot-button issue that properly addressed can turn a procrastinating prospect into a paying customer.

* Recognize that consolidation is inevitable. Medium-sized public companies will merge to form larger entities that are more attractive to institutional investors. Single-facility operators will exercise beneficial exit strategies while larger multi-facility operators enjoy increased economies of scale. And organizations from different sectors or cultures will continue to form win-win partnerships. For example, hospitals are branching out into assisted living by joint venturing with ALF operators who have experience running residential models and avoiding institutionalized approaches. And rather than sitting on $20 to $25 million worth of assets when they could put those assets to work, not-for-profit providers may seek out for-profit partners.

A contributing writer to Contemporary Long Term Care, Jim Moore is president of Moore Diversified Services, a Fort Worth-based senior housing and health care consulting firm, and author of Assisted Living 2000.