Seniors Housing Weekly Update - Seniors Housing Margins On the Rise

October 21, 2014

 

October 21, 2014. 60 Seconds with Steve Monroe. Beware of stories that don't tell the entire story, especially if the numbers just don't add up...

Seniors Housing Margins On the Rise

We were quite surprised to read recent stories about a new report stating that senior living operating margins had doubled in just one year, from 2.13% to 3.24%. All I can say is that, if that was the whole story, we would be in a lot of trouble. And…we would not be seeing huge amounts of capital flowing into the sector. Even skilled nursing facilities have “operating margins” much higher than these paltry numbers. So what gives? First of all, the study from Cleary Gull was based on surveys of not-for-profit providers only, something the news stories failed to disclose, even though Cleary Gull did. Second, the term “operating margin” usually refers to income from operations before debt costs and depreciation, as a percentage of revenues. Since we now know the study only included not-for-profits, it makes some sense that they would equate operating margin with net margin, as we seriously doubt that these providers could survive on a 3.24% margin before interest and depreciation, unless they have no debt. The operating margins of the for-profit providers are also rising, but trust me, they are much, much higher. As the old saying goes, no margin, no mission, but a 3.24% operating margin leaves little margin for error, let alone the mission.

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