How do you really know how financially strong the place you will call home really is? How does its financial strength impact you?
These are very important questions – especially for prospective Lenbrook residents (and their loved ones) who have invested a lot of time downsizing, determining geographically where they want to live, touring various Life Plan Communities, and evaluating their various offerings.
According to a recent New York Times article, here are a few ways to evaluate a Life Plan Community’s financial health. From my perspective as Lenbrook’s VP of Finance and CFO, I’ve added additional information specifically regarding Lenbrook that may be helpful to you as well:
Occupancy: If 90 percent or more of Independent Living units are occupied, and they have been for the past few years- that suggests the community is doing something right!
Lenbrook has averaged a 95 percent occupancy rate for the last three fiscal years.
Rate Increases: In recent years, Life Plan Communities have had an average monthly service fee increase of 3 to 3.5% per annum. If you see anything above that, ask for an explanation. Similarly, if rates have remained unchanged for several years, it could be struggling to maintain its occupancy rate.
Lenbrook’s rate increases have averaged 2.4% over the past five years.
Debt Rating: Most communities finance their campus and expansions with bonds, however only approximately 6% have Investment Grade bonds resulting in lower financing costs.
Lenbrook was awarded a “BBB” investment grade rating with a “Stable” outlook from Fitch Rating Agency during 2016. The $750,000 in annual interest savings helped lower costs for our residents.
Profitability: You want to choose a community that brings in more cash than it spends. The key ratio is the Operating Ratio which measures cash operating revenues against cash operating expenses. A ratio of below 100% indicates the community is generating enough cash to cover expenses. Communities with investment-grade ratings from Fitch Rating Agency have a median Operating Ratio of 96.1 percent.
For the past five fiscal years, Lenbrook’s operating ratio has been 94.6 percent, exceeding the aforementioned investment grade median.
Capital Improvements: Is your community spending enough on its upkeep? One way to gauge this is to compare annual capital spending to depreciation. Communities that maintain their campus’ generally spend at least 50% of their depreciation in capital spending.
Lenbrook has a 20-year capital plan to ensure that every asset within the community is maintained and replaced at the end of its useful life. Because of this, over the last three fiscal years Lenbrook’s capital expenditures have averaged 65% of annual depreciation.
Reserves: Financially sound communities typically perform regular actuarial valuations which is an analysis of its future risks and liabilities. The report gives you a sense of whether the community has the reserves, income and cash flow to meet its promise of providing housing and health care for the rest of your life. Leading industry actuaries such as A. V. Powell in Atlanta determines whether a community has a “satisfactory actuarial balance.”
A. V. Powell & Associates does an annual actuarial valuation for Lenbrook confirming our ability to cover our future obligations.
Resident’s Role: How involved are residents in making major financial decisions?
Lenbrook has a Resident Finance Committee that meets with the CFO quarterly to discuss the communities financial position including annually to review the budget. The President of Resident Association and the in-coming President also attend regular meetings of the Board of Directors where information is shared.
While selecting the Life Plan Community that is right for you is hard enough, the last thing you want to have to worry about is whether the community is financially sound and professionally run.
Lenbrook enjoys a rich 36-year history as a 501(c)3 not-for-profit organization and is proud to be accredited by CARF, and to be awarded a 5-Star Medicare Quality Rating and a Fitch Investment Grade Rating.