When Rate Increases Aren’t Enough: How Juniper, Goodwin Are Decompressing Senior Living Margins

When Rate Increases Aren’t Enough: How Juniper, Goodwin Are Decompressing Senior Living Margins

Senior living operators have for the last few years been laser-focused on generating more revenue to re-elongate margins compressed during the pandemic, and on that front operators have made some progress.

But for all the revenue operators have won back through occupancy gains and rate increases, margins have in many cases not returned to pre-pandemic levels. Expenses are a big reason why – and it’s not just staffing costs, either, as the price of line items such as food remain stubbornly inflated.

In 2024 the pace of rate increases is now moderating after several years of double-digit growth. That leaves operators with even fewer tools with which to battle high costs, which is why companies and organizations including Juniper Communities and Goodwin Living are getting more creative about how they charge residents for services.

Operators are exploring ways to generate revenue, such as through ancillary services, to supplement the amount of money they can bring in at the end of the day. At the same time, they are using new business intelligence and other tools to better understand and forecast for an uncertain financial future.

“We really have a long-term outlook, recognizing there are going to be storms,” said Goodwin Living CFO Xan Smith during a panel at the recent Capital + Strategy Conference in Washington, D.C. “We just have to be able to weather those storms.”

When rate increases aren’t enough

Bloomfield-based Juniper Communities has increased resident rates on average about 7% each year for the last three years, according to CFO Chuck Hastings. He added that “revenue has come back, pretty much full bore.”

Even so, the company’s margins are still about 1.5% off from where they were pre-pandemic. The stubborn and high state of certain expenses such as staffing and food are the big reasons why.

“We have not caught up with those rate increases on the expense side,” Hastings said during the Capital + Strategy panel.

When Rate Increases Aren’t Enough: How Juniper, Goodwin Are Decompressing Senior Living Margins Hastings (left) and Smith; Photo by Merz Photography for WTWH Media

“Our margins, at the end of the day, have gone down over the course of the last four years,” he added. “We don’t think we’re going to be able to sustain rate increases in the next few years … and I think expenses are going to continue to rise, particularly on the staffing side.”

Faced with high expenses and stubborn margins, Hastings and Juniper have explored more unique ways of generating revenue. The company has in recent years gone big into sources of ancillary revenue, and today it dabbles in a variety of business lines from physician practice and home health services to Medicare Advantage plans and even selling food on DoorDash.

“This is what we’re hoping we can do: Get into additional ancillary businesses where the margins are a little higher, and see if we can offset some of these inflationary pressures,” Hastings said.

A similar trend has played out at Alexandria, Virginia-based Goodwin Living, but Smith said the organization’s life plan community entry fees have helped buoy its financial position. Goodwin takes a holistic approach to margins, with not only resident rates but also things like debt service playing into how the organization thinks about its balance sheet.

One line item that has put pressure on Goodwin’s bottom line is staffing, and the organization has raised its minimum wage by 60% since 2019, according to Smith. Goodwin uses a staffing model that includes a path to U.S. citizenship for staffers who desire it.

That model has helped the organization keep average turnover to an average rate of about 25%, and has kept the use of agency staffing low, according to Smith.

“We will help pay for team members to gain citizenship. We will set them up with resident mentors who help them,” he said. “If you can embrace immigration, I’m telling you, it really pays benefits in terms of the virtuous cycle down downstream.”

Another aspect helping Goodwin manage expenses is business intelligence technology. The organization first rolled out a new business intelligence tool over a year ago, and since then, it has boosted financial accountability.

“It helps us to predict what our revenue is going to be, it helps us to predict our personnel expenses,” Smith said.

Hastings is also a believer of using data to better forecast and strategize financial decisions. The company is currently looking to use its deep “data lake” to predict when one of its 28 communities is about to experience a downturn.

“We’re going to test it out on historical data, and see if [our] model actually predicted that a building was going to go downhill,” Hastings said. “And then if it does, we have some confidence that maybe it can work on our existing portfolio.”

Pricing for the boomers

For years, the senior living industry has operated in anticipation of the baby boomers. Now, they are on the cusp of arriving – and yet, figuring out what they will want out of community rates is still somewhat of a mystery.

Some operators have in recent years adopted the belief that older adults will only want to pay for the services they use, and have devised new ways of breaking down and charging for the cost of senior living services.

In recent months, Juniper piloted a program in one community wherein it unbundled many services from independent living residents’ rates, effectively only charging them for base services. The result was a lower initial rate than is typical in Juniper communities – but the boomers who learned about it weren’t all that interested, Hastings said.

“We started that about two months ago, and then we just got back our first round of customer satisfaction surveys – we got kind of obliterated, like, ‘You’re nickel and diming us,’” he said. “This was so frustrating, because we thought we were giving the customer what they wanted.”

Although Hastings previously believed that older adults would want flexibility in pricing, that process has given him the notion that they actually want what they have in cable TV: Bundled pricing that includes everything they will want, but few of the things they don’t.

“They’re going to want a bundle price, they’re going to want every possible service and they’re not going to want to be up-charged for it,” Hastings said.

Smith said that he believes boomers will desire transparency in the cost of their services, and to that end Goodwin is clear about what senior living will cost each step of the way. But outside of that, the organization is also experimenting with adding new fees for residents who use certain services.

“We don’t feel like we can just say everybody’s going to collectively pay for our clinic when only 10% or 20% of residents use it,” he said.

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