Technology Merges REITs And Senior Living Communities
More than Electronic Health Record Software Is Needed to Attract REIT Partners, which are now focusing on senior living.
James Evans
5/1/2015
Hardly a day goes by without another story of new Real Estate Investment Trust (REIT) activity in the senior living market. REITs have evolved greatly since they were created by Congress in 1960.
Entering New Markets
A REIT can choose to invest in many categories of real estate such as office spaces, hotels, shopping malls, apartments, and, increasingly, senior living. Whatever the underlying investment, it needs efficiency and effectiveness to operate at a profit and yield the desired returns.
Typically, a REIT focuses on one segment and leverages its expertise in that segment to drive maximum returns for its investors.
As noted, many REITs are now focused on senior living because it has become a very attractive and profitable market. With the number of Americans 65 and older growing at a rate four times faster than the general population, the demand for senior living is undisputed.
Software Used By REITs
REITs with expertise in apartments or other rental properties tend to leverage facility management software to ensure their properties are being run efficiently.
Without a doubt, the software does help operate rental properties more efficiently by ensuring maintenance and other administrative duties are performed adequately.
In addition, while skilled nursing has been the dominant market for long term/ post-acute care electronic health record solutions, the number of skilled nursing centers is now declining, while senior living care settings are increasing in volume. As a result, many electronic health records originally designed for skilled nursing are taking a run at the senior living market. But, are these solutions optimal for senior living communities? In a word, no.
Any REIT needs to maximize “funds from operations.” However, the way to widen funds is significantly different for a senior living community than it is for a traditional rental property because of the service delivery aspect of the business. Also, the potential for legal liability in a senior living community can be significant and must be mitigated. Substandard care, noncompliance with governmental regulations, and a host of other concerns must be closely monitored.
All that said, key measures such as occupancy and days sales outstanding (the average number of days that a company takes to collect revenue after a sale has been made) must also be managed to ensure a profitable business. If the senior living organization does not make money, it may not have the ability to pay its lease obligations, and the performance of the REIT will suffer.
Why Software Matters
So a true, complete solution for a senior living community will provide greater benefit to REITs by augmenting both the profitability and reliability of its tenants. A comprehensive solution, purpose-built for senior living, helps maximize return and minimize risk in the following ways:
■ Reduces the potential for litigation by having accurate and timely documentation of services delivered;
■ Improves the ability to buy/sell an asset with market-leading software in place to demonstrate, monitor, and manage performance;
■ Increases the ability to partner with managed care providers and quickly determine how well they are performing both operationally and financially;
■ Allows new buyers to quickly gauge the quality of the investment, making it more liquid in the case of a need to sell; and
■ Handles the increasing acuity of residents in senior living communities. (Facility management-oriented solutions typically have gaps in their clinical functionality.)
Quid Pro Quo
A purpose-built senior living solution implemented across all investment communities helps REITs maximize return by:
■Helping the “partner” maximize its earnings and make it a good customer via
--Maintaining census, delivering greater returns;
--Maximizing revenue by capturing and billing for ad hoc services provided; and
--Automating tasks, thus requiring less administrative overhead and providing more flexibility.
■ Standardizing across all communities for common reporting and improved analysis of portfolio performance.
REITs can benefit greatly from standardizing the systems used in their investment properties. Senior living communities can demonstrate their value to their REIT partners by implementing systems purpose-built to maximize occupancy, ensure the quality of care delivered, optimize the efficiency of operations, and report results on a timely basis to drive decision making.