HRA CEO: Creating New ‘Revenue Outlets’ Key to Margin Growth

Faced with industry-wide expense headwinds, Harbor Retirement Associates (HRA) is getting more creative in how it is generating revenue.

Like many other senior living operators in 2022, the company is paying a premium on labor costs, which are higher than they were in 2021. Commodity expenses for the Vero Beach, Florida-based luxury operator also are up significantly.

As such, the coming year will also be one where HRA gets “a little more aggressive with rent increases,” according to CEO Sarahbeth Hanson.

The luxury senior living operator is planning to bump rates across its 36-community portfolio by as much as 8% after increasing rates by about 6% in 2022

“In order to continue to deliver the excellent service and hospitality that our residents expect from us, there will be an increase,” Hanson told Senior Housing News.

But in addition to preparing the operator’s most aggressive rent increases yet, HRA management is also now viewing dining, salon and spa venues as independent revenue sources instead of cost centers. HRA plans to achieve that in part through spend-down accounts for residents, and by appropriately pricing those services inside the communities where they are offered.

“Because we’re charging competitive pricing … for the meals and services that we’re providing, there is an opportunity to more than pay for itself and drive a margin at each of the restaurants,” she told Senior Housing News.

‘Delicate balance’ between costs, revenue

In 2022, the senior living industry has seen costs rise in many line items. For HRA, two big areas of expense growth are labor and food. Helping to lead those efforts is COO Karin Batemen, who came aboard in July after a stint as senior VP of operations with Senior Lifestyle Corp.

Hanson said the company is paying about 16% more with regard to labor than it did in 2021 — “a big number.”

Although she sees wage pressure stabilizing or coming down slightly throughout the company’s portfolio, those increases have eaten into the operating margin.

Food is another area of steep cost increases. For example, the company’s chefs have at certain times seen raw food costs as much as triple for certain items, such as pre-cut chicken breasts. Other non-food costs, such as fuel, have see-sawed and served to erode the company’s margin at times.

Those rising or unexpected costs are why she is laser-focused on increasing margins in the months and years ahead. And she believes that the company’s luxury communities, plus creative expense management, will see it through in the coming quarters.

“That’s going to be a delicate balance, really getting to the right price point in our assets in addition to being very innovative in the use of our labor dollars,” she said.

Regarding food, the company is simply buying in bulk in some cases. For example, instead of ordering a box of chicken breast or pork chops, the operator is “ordering the whole loin, and our chefs are able to trim the meat themselves,” said Hanson.

HRA leadership is coping with those costs by increasing resident rate increases, and by leveraging the luxury operator’s many unique dining and drinking venues. Each HRA community offers upscale cuisine with a variety of venues designed with multiple intimate spaces for dining and other services.

“We’re expecting that all of our restaurants will become revenue outlets for us over the next year,” Hanson said.

On the resident rate increase side, Hanson sees the company’s quality of services as a competitive advantage.

“There’s a reason why people are willing to pay $7 for a cup of coffee — it’s common now, because you get to order it exactly the way that you want it,” she said. “We … will customize your senior living specifically for you.”

Choice is also the cornerstone of the company’s dining revenue strategy. Residents who move into an HRA community automatically are enrolled in the operator’s Chef’s Fare Dining program, which allows them to spend dollars toward dining.

HRA is not alone in following this model. Another example in the senior living industry lies with Watermark and its luxury-focused Elan and Elite collection communities, which also give residents spend-downs to use on any of the community’s amenities and services.

Though HRA residents can through their dining dollars add up to three meals per day, they don’t need to. For example, residents can skip a meal and keep their credit, or apply their dollars toward hosting family members.

If a resident goes over their allotted dining dollars, HRA adds the cost as a surcharge to their rent that month. Through this approach, residents can get the choices they want while the community ensures that all of the services in the community are paid for.

To achieve that effort, HRA is now managing, monitoring and promoting each of its dining venues with efficiency and profit in mind. She also said the operator aims to bring in revenue by servicing family members or vendor partners who are in the community that day.

The company even prices its restaurants like local restaurants, Hanson said.

“We’re charging competitive pricing in our restaurants for the services that we’re providing,” Hanson said. “There is an opportunity [for this] to more than pay for itself and drive a margin in each of the restaurants.”

Growth strategy

Harbor Retirement Associates has been active in the past five years, opening 25 luxury communities for its HarborChase portfolio. Now at 36 luxury communities in 14 states, the senior living operator is gearing up for more growth and evolution, albeit at a cautious pace..

HRA’s pipeline will continue its progress in the coming months, churning out two new communities by March of next year. The first,an IL, AL and memory care community in Boynton Beach, Florida,will open its doors before the end of 2022. The second, an IL, AL and memory care community in Shaker Height, Ohio, is slated to open in the first quarter of 2023.

And while there’s only one development planned to open in 2023, the company is actively planning its future growth beyond that. The company is working with partners, which includes REIT Welltower (NYSE: WELL), on growth initiatives that might include new development or acquisitions.

HRA’s growth strategy over the next 24 months is likely to include repositioning projects of “classic communities” that might be in need of a turnaround.

“We have experience in that,” she said. “All of our classic communities — the ones that did not develop since 2012 — we have fully repositioned and really brought them within brand standards.

Already, the operator is working with “a few capital partners that are looking at us to see if we can come on board as the operator and help reposition some of their assets,” Hanson said.

Even so, she sees plenty of cautious sentiments in those potential partners.

“The capital is cautious right now,,” she said. “I think on the development side, it’s just hard right now to get construction numbers and the interest rates and all of that to come in line and pencil out.”

She also senses the industry is anxious about the economic and political climate ahead, given looming midterm elections and the potential for a recession.

Even so, Hanson still believes that “communities in the right markets with the right product will come out very successful” despite all of the headwinds hitting the industry today. Included at the top of that list are luxury communities.

“The luxury senior housing product is the place to be right now,” Hanson said. “The baby boomers have accumulated the most wealth of any generation and, quite frankly, they are willing to spend their money for the services that they want.”

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