Every resident admitted is a resident who will leave, so occupancy curves towards admissions times length of stay and slows as it gets close.
A new care home does not fill at its admission rate, because every resident admitted is also a resident who will leave: occupancy climbs towards admissions × average length of stay, and slows as it gets there. An illustrative 80-bed home admitting 3.5 residents a month with a 26-month average stay reaches 92 per cent in 42.2 months, twice the 21.0 months a straight-line estimate gives, and burns 1,299,179 of cash, 16,240 a bed, before it turns.
Worked in full in Senior Living and Healthcare Real Estate by Julian R. Sterling, with every figure reproduced in a free workbook.See the book on Amazon →
The fill-up is the riskiest part of a care home's life and the part most often drawn as a straight line in a development appraisal. Residents leave, mostly because they die, and the longer the home is open the more residents it has to lose each month. The arithmetic of that is simple and it changes both the time to stabilise and the cash needed to get there.
| Input | Value |
|---|---|
| Registered beds | 80 |
| Gross admissions a month | 3.5 |
| Average length of stay, months | 26 |
| Monthly leaving rate, 1 ÷ stay | 3.85% |
| Stabilised occupancy target | 92% |
| Average weekly fee | 1,200 |
| Revenue per resident a month | 5,200 |
| Variable cost per resident a month | 800 |
| Fixed operating cost a month from opening | 190,000 |
Residents next month = residents × (1 − leaving rate) + admissions
Ceiling = admissions ÷ leaving rate = admissions × average stay
Months to reach n residents = LN(1 − n ÷ ceiling) ÷ LN(1 − leaving rate)
In Excel: =LN(1-73.6/(3.5*26))/LN(1-1/26) returns 42.2. A monthly column with =MIN(80,B5*(1-1/26)+3.5) gives the same path and lets you add the cash flow alongside.
The ceiling is 3.5 × 26 = 91.0 residents. The 92 per cent target is 73.6 residents, 81 per cent of the way to the ceiling, and each step towards it is slower than the last because departures grow with the resident count. Reaching half the target, 36.8 residents, takes 13.2 months; the second half takes another 29.0.
| Month | Residents | Occupancy | Monthly EBITDARM | Cumulative |
|---|---|---|---|---|
| 6 | 19.1 | 23.9% | −106,042 | −836,552 |
| 12 | 34.2 | 42.7% | −39,689 | −1,232,984 |
| 18 | 46.1 | 57.6% | 12,751 | −1,281,583 |
| 24 | 55.5 | 69.4% | 54,195 | −1,055,284 |
| 36 | 68.8 | 86.0% | 112,835 | 3,524 |
| 42 | 73.5 | 91.8% | 133,293 | 754,475 |
Each resident contributes 4,400 a month against 190,000 of fixed cost, so the home covers its operating costs at 43.2 residents, 54.0 per cent occupancy, reached in month 16.4. The cumulative loss bottoms out at 1,299,179, 16,240 a bed, and is recovered in month 36. All of this is before rent: under a lease the operator needs a rent-free or a stepped rent through the fill, or the burn is larger and lasts longer.
The trough is the operator's working capital requirement, and it is the number to check against the operator's balance sheet before signing a lease on a new home. An operator who cannot fund 1.3 million of losses through the fill is a covenant that fails before the rent cover is ever tested.
| Admissions a month | Ceiling, residents | Months to 92% | Months to break-even | Cash trough per bed |
|---|---|---|---|---|
| 2.5 | 65.0 | never | 27.8 | 25,978 |
| 3.0 | 78.0 | 73.3 | 20.6 | 20,003 |
| 3.5 | 91.0 | 42.2 | 16.4 | 16,240 |
| 4.5 | 117.0 | 25.3 | 11.7 | 11,714 |
At 2.5 admissions a month the ceiling is 65.0 residents, below the 73.6 target: the home never stabilises at 92 per cent however long it waits. Length of stay works the same way. At 3.5 admissions, a 20-month stay gives a ceiling of 70.0 and the target is never reached; a 32-month stay gets there in 33.7 months. A home whose residents arrive frailer, and stay less long, needs proportionally more admissions just to hold its occupancy.
Months to fill = LN(1 − target ÷ (admissions × stay)) ÷ LN(1 − 1 ÷ stay): 42.2 months here, with a 16,240-per-bed cash trough before rent. Check admissions × stay against the target first. The book's resident engine, with admissions decaying against a hazard of leaving and a sheet for the fill curve and the development cost, is in the free Care Home Model. The occupancy the home must reach to pay a rent is in what occupancy a care home needs to cover its rent, and the earnings line in how to calculate EBITDARM.
It is the time from opening to stabilised occupancy, and it depends on admissions and length of stay together. An illustrative 80-bed home admitting 3.5 residents a month with a 26-month average stay reaches 92 per cent in 42.2 months; at 4.5 admissions a month it takes 25.3 months.
Sum the monthly operating losses until they turn. On an illustrative 80-bed home with 190,000 a month of fixed cost and 4,400 of contribution per resident, the cumulative loss peaks at 1,299,179 before rent, 16,240 per bed, and is recovered by month 36.
Yes. Occupancy tends towards admissions times average length of stay, so if that product is below the target, time does not help. An illustrative home admitting 2.5 residents a month with a 26-month stay tops out at 65.0 residents, short of the 73.6 that 92 per cent of 80 beds requires.
This article is one calculation from Senior Living and Healthcare Real Estate. The book takes the same case from first principles to the decision, chapter by chapter, and every figure it prints is a live formula in the free companion workbooks.
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