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Senior living operators in recent years have moved beyond occupancy recovery mode and are refining their approach in securing stronger margins.
Providers have pushed to improve census in the last 12 months, and that has led to the industry reaching an average occupancy of 87.2% through the fourth quarter of 2024. While occupancy remains an important metric, operators are putting greater emphasis on their net operating income (NOI) goals in 2025.
That’s because making short-term occupancy improvements could potentially jeopardize future revenue if operators are relying too heavily on discounting or waiving fees related to move-ins or flat rates on health care services.
Digging into the dynamics that lead to future NOI growth, operators can improve occupancy incrementally while at the same time preserving a healthy balance sheet.
“Occupancy is not a financial indicator or a key performance indicator to track financial health—it just isn’t,” Aegis Living CEO Dwayne Clark told Senior Housing News.
The focus has shifted from recovering lost occupancy to finding ways within operations to improve NOI. That’s being done through operators being more aggressive on market rates at higher-occupied buildings, rather than offering wide-ranging concessions for the sake of census improvement.
“The reality in my world is that occupancy is what fuels NOI potential,” Merrill Gardens President Tana Gall said. “You have the opportunity to play with your market rates more and do more in-place rental increases at higher occupancy because it’s harder to do that if you’re at a lower occupancy.”
NOI growth remains ‘an art not a science’
Senior living providers are reporting stronger margins and improved occupancy, which is fueled by industry’s supply of new units remaining low compared to increasing demands.
Whether it’s a newly-opened community or an existing property, Priority Life Care CEO Sevy Petras said it’s important for senior living providers to first set realistic and attainable NOI and margin expectations. That is often easier said than done.
For example, operators must act quickly if a recently acquired community is “CapEx deprived” in a competitive market and make investments that can improve its future revenue potential, Petras said.
“It’s an art, not a science, and it depends on where you are in the life cycle of the building,” Petras told SHN. “Building occupancy and reputation is step one and when you’re at a certain level, you can start pulling levers to improve margin and improve NOI.”
In 2024, Aegis notched an approximate 9% improvement in NOI compared to 2023 —while maintaining 6% to 8% rental rate increases.
Clark has seen first-hand the effects of an operator pushing too hard on occupancy through concessions or all-inclusive rates. In one instance, Clark said he witnessed an operator offering a $3,500 rental rate with waived community fees, which set the property up for month-over-month losses in the end.
To Clark, deep concessions and too-low rates erode the broader senior living industry’s value proposition, especially with prospects who likely don’t understand the true cost of senior living operations.
That means accurately explaining the costs incurred for operations and care delivery, going after customers who can afford higher rates rather than fill up a building through discounts and risk future move-outs when affordability comes into question, Clark added.
“Occupancy is the temptress and it’s a fallacy to think occupancy even matters if you’re discounting and it’s a big problem—how long is it going to take you to dig out of that hole?” Clark asked. “You need to have the right customer and that’s why it’s essential to qualify people upfront.”
NOI per unit the ‘uber measure’ to track operations success
In 2023, the year most recent data was available by NIC MAP, the senior living industry reported average NOI growth of 4.6%. To continue improving the bottom line, senior living operators must prioritize operating tactics that can ultimately drive NOI growth.
This has led some operators to focus more intently on NOI per occupied unit. Pegasus Senior Living CEO Chris Hollister said this data point is the “uber measure” to gauge a community’s overall health.
“A lot of folks get focused on margin and I think that leads to faulty thinking,” Hollister said. “As I have said many times, independent living has a higher margin than assisted living, [but] it doesn’t mean it’s a more profitable business.”
This means “the right decision,” Hollister said, is for operators to have “flexible but fair” pricing to get paid adequately for the services provided rather than offer flat rates or concessions.
“Acuity is both higher and changing faster than ever,” Hollister said. “You cannot have a static pricing structure in assisted living or memory care.”
Tracking NOI per unit is the “only matrix that matters” for Aegis, Clark stressed, noting that NOI includes insights on census and expenses.
Gall added it was a “fine line” when high occupancy is “not as healthy” as it may appear if an operator is unable to push on rates or if expenses increase. This tight rope forces senior living operators to keep in close communication with their various ownership and investor groups. In 2024, NOI increased 1.8% for Merrill Gardens from 2023.
For example, due to delays in construction materials and construction labor shortages in investing CapEx improvements, Priority Life Care worked closely with ownership partner Ventas (NYSE: VTR) to re-forecast NOI expectations at a property, Petras said.
“Don’t keep missing your mark, you need to go back to the drawing board and talk about where you’re missing and go from there,” she said.
Protecting, improving NOI in 2025
Protecting operating margins remains a challenging task for senior living operators in the wake of rising expenses.
To improve NOI potential, Petras said it was critical that operators take control of their expenses, especially in being mindful of the different vendor relationships paid for to support operations, care delivery and sales and marketing.
“Manage the things that you can control—don’t bring in extra expenses and stick to your plan on your expenses, and understand your market and know where your pricing is and what tools are in your toolbox,” Petras said.
To protect and improve NOI potential, Clark said operators must be “very fluid” in billing for resident care while not discounting services provided, on top of not waiving community fees.
“The goal is profitability and you have to think about what the end goal is here,” Clark said.
As properties move from recovery into growth mode, Gall said 2025 will be about improving operations for the sake of margin and value preservation.
“Our focus is on margin recovery,” Gall said.
