Using Expense Ratio and PPD Analysis
The senior housing investment industry is accustomed to very complex financial statements. Understanding and analyzing these statements is crucial to the success of your skilled nursing or assisted living facility. Proper analysis can provide you with tools and metrics to maximize the profitability at your facility, which in turn maximizes the value. (Read Senior Housing Investment FAQs.)
For those looking to buy assisted living facilities or compare multiple skilled nursing facilities for sale, understanding expense ratios, margins and other methods of measuring expense control, such as per patient day or resident day (PPD/PRD), become important. These numbers tell you very quickly how a senior housing investment is performing.
Be Careful when Reviewing Expense Ratios
The Investment specialists and agents of the JCH Group, a skilled nursing and assisted living brokerage are familiar with how fluid expense ratios can be. Those whose senior living investments include assisted living facilities are most accustomed to expense ratios, which are expressed as a percentage of revue.
However, while these percentages may hold constant, the dollar amount can vary significantly. For example, 70 percent of 100 and 70 percent of 1000 are very different in value. As such, it is unwise to rely on expense ratios alone. For a more accurate view of facility expenses, collect data that ties directly to the revenue source of your facility, the residents or patients.
The PPD/PRD Method for Precise Measure
of a Senior Housing Investment
The per patient day analysis is an effective tool most popularly used in the skilled nursing facility sector of the senior housing industry. In assisted living, this analysis is called PRD, or per resident day. The number produced in these types of analysis focus on expenses for each day, so understanding the facility’s profitability through expense control is both tangible and simple to compare.
PPD divides a given expense line item by the number of patients or residents in a skilled nursing or assisted living facility for that same time period the expense is incurred. This method of measure ties expenses directly to the unit producing the revenue stream. Before you purchase any senior housing for sale, assess the PPD/PRD to identify areas of over and under spending.
In recent years, the PPD measure has spread from skilled nursing to assisted living facilities because of its ease of use, accuracy and efficiency. Calculating PPD is no different than analyzing a facility’s value on a per-unit or per-bed basis.
Your senior housing investment specialist at the JCH Group can calculate this number by collecting documents such as:
- Facility rent roll
- Census report
- Expense Reports
When making a decision on your senior housing investment, PPD or PRD is a great tool to use when comparing side by side assisted living facilities for sale or skilled nursing facilities for sale. It is also a great check and balance system on your existing operations.
The senior housing investment business allows for many opportunities. The right investments specialist is the key to discovering the right facility for sale.
The JCH Consulting Group is a leader in senior housing industry, brokering some of the most high profile senior housing investments. Our experts can provide you with an accurate opinion of what a business is worth through our free business valuation service.
To find your next care home for sale or to discuss what move to you should make next with your senior housing portfolio, contact one of our experts at the JCH Group.