A year ago last month, I wrote about how the dramatic decline in the economy had affected ABHOW. At that time, we were grateful to have experienced only minor impact on operations, although our reserves had dropped in value by a significant amount.
Today, the market recovery has helped our investments regain over half of what was lost, but our operating performance has suffered due to declining occupancy in all levels of care.
While occupancy has fallen, new sales and move-ins have been strong. In fact, new sales have exceeded the previous year’s sales for each of the last two years. This means that while the lifestyle and services available at ABHOW communities continues to attract prospects, an unusually high number of residents have moved from residential living to higher levels of care or have died. Therefore, sales are up, but occupancy is down, and adjustments have had to be made.
As stated in that 2009 column, our management team developed plans to respond to various scenarios that might require a measured response. We identified a significant decline in occupancy as one scenario that would call for an offsetting corrective response. As we developed budgets then for this fiscal year, we reduced occupancy assumptions in anticipation that a difficult real estate market might result in declining occupancy and revenue.
It turns out that occupancy fell even further than projected. For that reason, we must implement plans at the CCRCs and the home office to bring expenses into line with decreased revenues. Unfortunately, these plans include a reduction in force. We minimized the impact on employees by first keeping vacant positions unfilled and then reducing hours for some positions before eliminating selected positions.
We made these difficult decisions with great care. Our fundamental concern is to protect the quality of life enjoyed by our residents. But we understand that when occupancy declines, we must act to reduce expenses accordingly.
With these actions, the financial strength of the organization will be maintained, and we hope to avoid further corrective action. As we develop budgets for next year, we will again pay close attention to occupancy trends and set realistic targets based on the best information available.
