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How do you calculate RevPOR in senior living?

Revenue per occupied unit is the pricing half of senior living performance, and three unstated choices change it.

Julian R. Sterling · from Senior Living and Healthcare Real Estate

RevPOR is resident revenue for the period divided by the average number of occupied units, per month. An illustrative 120-unit assisted living and memory care community with $9.52 million of resident revenue and an average of 108 occupied units has a RevPOR of $7,345 a month, up 4.3 per cent on the year although rents rose only 3.0 per cent. Divided by all 120 units instead, the same revenue gives RevPAU of $6,611, which is a different measure.

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 →

What RevPOR measures, and what it does not

Revenue per occupied room or unit is the senior living equivalent of a hotel's average daily rate: the price the community actually realises from the residents it has, after discounts, care fees and second-person charges. It is the pricing half of performance. The occupancy half sits in occupancy itself, and the two together sit in RevPAU, revenue per available unit, which is RevPOR times occupancy.

Three choices change the number and are rarely stated: whether the denominator is average or period-end occupancy, whether care-level fees are included, and whether community fees, the one-off charge on move-in, are included. The convention used here, and the one that makes RevPOR comparable over time, is average occupancy, care fees in, community fees out.

The assumptions

Illustrative community: 80 assisted living and 40 memory care units, monthly averages

Input	Year 1	Year 2
Assisted living, average occupied units	70	72
Assisted living base rent a month	5,200	5,356
Average care-level fee per assisted living resident	1,100	1,250
Memory care, average occupied units	34	36
Memory care all-inclusive rate a month	8,400	8,652
Second residents; fee a month	4; 1,500	4; 1,545
Move-ins; community fee each	25; 4,000	22; 4,000

The calculation, step by step

Year 2 resident revenue

Line	Working	Annual revenue
Assisted living, rent and care	72 × (5,356 + 1,250) × 12	5,707,584
Memory care	36 × 8,652 × 12	3,737,664
Second-person fees	4 × 1,545 × 12	74,160
Resident revenue		9,519,408
Community fees, excluded	22 × 4,000	88,000

9,519,408 divided by 108 occupied units and 12 months is $7,345. In year 1 the same calculation gives $8.79 million over 104 units, $7,044. The segment figures, $6,606 for assisted living and $8,652 for memory care, average to the total in proportion to occupied units, which is why a community's RevPOR moves when its mix moves even if no price changes. For readers used to weekly care home fees, $7,345 a month is $1,695 a week, or $241.49 a day.

The result: why RevPOR grew faster than rents

Year 1 to year 2, RevPOR per month

Step	RevPOR	Change	Share
Year 1	7,044
Rate increases on rents and fees, 3.0 per cent	7,233	189	63%
Higher care levels, 1,100 to 1,250	7,334	101	34%
Mix and occupancy: memory care 32.7 to 33.3 per cent of occupied units	7,345	11	4%
Year 2	7,345	301

Almost two-thirds of the growth is price; a third is acuity, residents moving onto higher care levels. That third is real revenue, but it comes with care hours attached, so it does not carry the margin a rent increase does. RevPAU grew 8.3 per cent, twice as fast as RevPOR, because occupancy also rose from 86.7 to 90.0 per cent.

What if the mix shifts?

Year 2 rates, 108 occupied units, different splits

Memory care occupied	Assisted living occupied	RevPOR	RevPAU
30	78	7,232	6,508
36	72	7,345	6,611
40	68	7,421	6,679

With the same occupancy and the same price list, filling four more memory care units instead of assisted living lifts RevPOR by $76 a month. Comparing two communities' RevPOR without their mix compares their floor plans, not their pricing power. The same discipline applies to a care home's payor mix, worked in how payor mix changes a care home's average weekly fee.

The common mistake

Dividing by period-end occupancy. If the community ends year 2 with 112 units occupied, dividing the year's revenue by 112 gives $7,083, understating RevPOR by $262, 3.6 per cent, because the four extra residents arrived during the year and did not pay for all of it. The error makes pricing look weaker than it is. The second mistake is folding community fees in: they add $68 a month in year 2 and make growth depend on the number of move-ins, so RevPOR with fees grows only 4.1 per cent as move-ins fell from 25 to 22.

RevPOR is a revenue measure. Two communities with the same RevPOR can earn very different margins if one gets there through care fees and the other through rent. Pair it with EBITDARM per occupied unit before drawing conclusions about value.

Takeaway

• RevPOR = resident revenue ÷ average occupied units ÷ months; RevPAU = RevPOR × occupancy.
• Here: $7,345 a month, up 4.3 per cent on a 3.0 per cent rate increase, a third of the growth from care levels.
• Exclude community fees, use average occupancy and always quote the mix.

How the same revenue line turns into EBITDARM and rent cover is worked in how to calculate EBITDARM for a care home, and the book's resident engine and payor mix tracker are in the free workbooks for this book.

Questions readers ask

What is the difference between RevPOR and RevPAU?

RevPOR divides revenue by occupied units, RevPAU by all available units, so RevPAU equals RevPOR times occupancy. In the illustration year 2 RevPOR is $7,345 and RevPAU $6,611 at 90.0 per cent occupancy. RevPAU grew 8.3 per cent and RevPOR 4.3 per cent, the difference being occupancy.

Should community fees be included in RevPOR?

Usually not, because they depend on move-ins rather than on price. In the illustration they add $68 a month in year 2 and make RevPOR growth read 4.1 per cent instead of 4.3, simply because move-ins fell from 25 to 22. Report them separately, or amortised if your accounting does, and say which.

Why does memory care raise a community's RevPOR?

Because its rate is higher and RevPOR averages the segments by occupied units. At year 2 rates, memory care earns $8,652 a month against $6,606 for assisted living with care. With 108 units occupied, moving the split from 30 to 40 memory care residents lifts RevPOR from $7,232 to $7,421 without any price change.

Also on this site

• How does payor mix change a care home's average weekly fee?Weight fees by occupied beds, not admissions: 50 per cent self-funding admissions leave 28.5 per cent of beds private and an average fee of 985, not 1,065.
• How do you calculate EBITDARM for a care home?Revenue less staff and running costs, before rent and the management fee: a 64-bed home at 90 per cent and £1,150 a week earns £1,043,737 of EBITDARM.
• How are care home fees calculated from the cost of care?Costs and rent, grossed up for charges and margin, over resident-weeks at budget occupancy: £1,404 a week for a 60-bed home at 92 per cent, £1,514 at 85.
• What occupancy does a care home need to cover its rent?Fixed costs plus rent times cover, over contribution per bed: 78.4 per cent pays the rent and a 1.40x covenant bites at 85.8, against 60.0 for EBITDARM.
• How much does it cost to build a care home per bed?All-in, including the months the home takes to fill: 260,631 per bed on an illustrative 80-bed scheme, against 216,358 before finance and a 264,000 value.
• How fast does rent cover fall on an index-linked care home lease?When wages outrun fees, EBITDARM grows slower than an indexed rent: a 1.80x lease falls to 1.51x in ten years on illustrative inputs, and 1.40x by year 14.

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