We have always stated the belief that smaller providers are nimbler and more on top of operations at the community level. That being the case, they are usually better able to turn around operations of a struggling community. Not always, but they have a better chance. This should also hold true with turning around communities after COVID. Large companies such as Brookdale Senior Living, while steadily increasing occupancy, are still far below where they were before the pandemic.
So here is a case study about two turnarounds with the same community. In May 2019, a small provider, Bloom Senior Living, purchased a 78-unit assisted living/memory care community in Kokomo, Indiana from Capital Senior Living (now Sonida Senior Living). At the time, occupancy was 80%, revenue about $3.3 million and the community was losing money. They paid $65,000 a unit, and expected to get EBITDA to $750,000 in a few years.
In less than a year, census hit 88% (93% in the AL units) and it was cash flow positive on an annualized basis, somewhere close to $400,000. That was the first turnaround, but they obviously were not done. Then the pandemic hit.
Overall occupancy hit a low of 62% (that’s a 2,600-basis point drop), much worse than the average community or company, but they had several COVID breakouts. The breakdown was 56% in AL and 35% in MC. Obviously, the community was back to losing money again. That must have been tough on the staff after all their hard work to turn around the community so quickly after the purchase. But, that didn’t stop them.
Then, as COVID started to recede from the landscape and visitation protocols loosened, census started to rise, like it did for the entire industry. After hitting that bottom of 62% in April 2020, it rebounded strongly to 96% in October 2022, a more than 50% increase. We are sure others have experienced similar increases, but not too many. Memory care, which had fared worse than assisted living, is now at 100% with a wait list.
Annualized revenue is now at about $4.1 million, and annualized EBITDA is nearly $650,000 after a management fee. Revenues will soon be $4.3 million and rising, and EBITDA is on the move as well. While the operating margin is on the low side at 15.7%, part of the reason is that unit rates have been kept relatively low, despite recent increases. AL averages nearly $3,500 per month and memory care is at $7,100. With overall census approaching 100%, we would expect another bump in rates, at least for new residents, especially if the memory care units are full with a wait list. Even though cap rates should be rising, the current value is probably above $10 million now, or double the purchase price, not that they are selling.
The point is that this is a real success story of a small operator being able to push their people to do their job and get out of the COVID hole. It is difficult to do that with 100 properties, let alone 600. But hands-on management, with the right staff, can get the job done, but being hands-on with hundreds of communities is a tough task.
