Pro Forma Development for Assisted Living Facilities
A well-constructed pro forma is essential for securing financing, evaluating acquisitions, and planning new developments. This guide walks you through creating accurate financial projections that lenders and investors expect to see.
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Table of Contents
- What is a Pro Forma?
- Key Components
- Revenue Projections
- Expense Projections
- NOI and Cash Flow
- Sensitivity Analysis
- Common Mistakes
- Sample Pro Forma
What is a Pro Forma?
Definition
A pro forma is a forward-looking financial projection that estimates future revenues, expenses, and cash flows for a property or business. For assisted living facilities, pro formas are used to:
- Evaluate acquisition opportunities
- Secure financing
- Plan new developments
- Assess renovation ROI
- Support refinancing requests
Who Uses Pro Formas
| User |
Purpose |
| Lenders |
Underwrite loans |
| Investors |
Evaluate returns |
| Operators |
Plan operations |
| Sellers |
Support valuations |
| Appraisers |
Determine value |
Types of Pro Formas
| Type |
Timeframe |
Use |
| Stabilized |
Year 1 at stabilization |
Permanent financing |
| Development |
Construction through stabilization |
Construction loans |
| Acquisition |
Current + projections |
Purchase analysis |
| Turnaround |
Current through improvement |
Value-add deals |
Key Components
Revenue Section
| Line Item |
Description |
| Resident Revenue |
Room and board charges |
| Care Revenue |
Level of care fees |
| Ancillary Revenue |
Additional services |
| Other Income |
Miscellaneous revenue |
| Less: Vacancy |
Occupancy adjustment |
| Effective Gross Revenue |
Total collectible revenue |
Expense Section
| Category |
Typical % of Revenue |
| Labor |
45-55% |
| Food |
5-8% |
| Utilities |
3-5% |
| Insurance |
2-4% |
| Property taxes |
2-4% |
| Maintenance |
2-4% |
| Marketing |
1-3% |
| Administrative |
3-5% |
| Management fee |
4-6% |
| Total Expenses |
70-85% |
Bottom Line Metrics
| Metric |
Calculation |
| NOI |
Revenue - Operating Expenses |
| EBITDA |
NOI + Non-cash items |
| EBITDAR |
EBITDA + Rent |
| Cash Flow |
NOI - Debt Service |
| DSCR |
NOI ÷ Debt Service |
Revenue Projections
Resident Revenue
Base Rate Calculation:
| Factor |
Example |
| Number of beds |
80 |
| Occupancy rate |
90% |
| Occupied beds |
72 |
| Average daily rate |
$175 |
| Annual revenue |
$4,599,000 |
Formula:
Beds × Occupancy × Daily Rate × 365 = Annual Resident Revenue
Care Revenue (Level of Care)
Tiered Care Model:
| Care Level |
% of Residents |
Monthly Add-On |
| Level 1 (Low) |
30% |
$500 |
| Level 2 (Medium) |
40% |
$1,000 |
| Level 3 (High) |
25% |
$1,800 |
| Level 4 (Memory) |
5% |
$2,500 |
Care Revenue Calculation:
(Residents at Level × Monthly Add-On × 12) = Annual Care Revenue
Ancillary Revenue
| Service |
Typical Revenue |
| Beauty/barber |
$50-100/resident/month |
| Transportation |
$25-75/resident/month |
| Guest meals |
$5,000-15,000/year |
| Laundry (personal) |
$50-100/resident/month |
| Medication management |
Included or $200-500/month |
Vacancy and Collection Loss
| Factor |
Typical Allowance |
| Physical vacancy |
5-15% |
| Collection loss |
1-2% |
| Concessions |
0-2% |
| Total |
6-19% |
Revenue Growth Assumptions
| Scenario |
Annual Growth |
| Conservative |
2-3% |
| Moderate |
3-4% |
| Aggressive |
4-6% |
Expense Projections
Labor Costs
Staffing Model (80-bed facility):
| Position |
FTEs |
Annual Cost |
| Administrator |
1.0 |
$85,000 |
| Director of Nursing |
1.0 |
$90,000 |
| Nurses (RN/LPN) |
4.0 |
$240,000 |
| Caregivers/CNAs |
16.0 |
$560,000 |
| Activities |
2.0 |
$70,000 |
| Dietary |
4.0 |
$120,000 |
| Housekeeping |
3.0 |
$90,000 |
| Maintenance |
1.5 |
$55,000 |
| Reception/Admin |
2.0 |
$70,000 |
| Total |
34.5 |
$1,380,000 |
Add Benefits (25-35%): $345,000-$483,000
Total Labor: $1,725,000-$1,863,000
Food Costs
Calculation:
Occupied Beds × Food Cost/Day × 365 = Annual Food Cost
| Quality Level |
Cost/Resident/Day |
| Basic |
$8-10 |
| Standard |
$10-14 |
| Premium |
$14-18 |
Utilities
| Utility |
Cost/Bed/Year |
| Electric |
$800-1,500 |
| Gas |
$300-600 |
| Water/Sewer |
$200-400 |
| Trash |
$100-200 |
| Total |
$1,400-2,700 |
Insurance
| Coverage |
Annual Cost |
| Property |
$500-1,000/bed |
| Liability |
$800-1,500/bed |
| Workers Comp |
3-5% of payroll |
| Other |
$100-300/bed |
Property Taxes
Calculation:
Assessed Value × Tax Rate = Annual Property Tax
Typical Range: 1-3% of property value
Management Fee
| Structure |
Typical Range |
| % of Revenue |
4-6% |
| % of NOI |
10-15% |
| Flat fee |
Varies |
Expense Growth Assumptions
| Category |
Annual Growth |
| Labor |
3-5% |
| Food |
2-4% |
| Utilities |
2-4% |
| Insurance |
3-6% |
| Property taxes |
1-3% |
| Other |
2-3% |
NOI and Cash Flow
NOI Calculation
Example (80-bed facility):
| Line Item |
Amount |
| Gross Potential Revenue |
$5,500,000 |
| Less: Vacancy (10%) |
($550,000) |
| Effective Gross Revenue |
$4,950,000 |
| Less: Operating Expenses |
($3,960,000) |
| Net Operating Income |
$990,000 |
Cash Flow Calculation
| Line Item |
Amount |
| NOI |
$990,000 |
| Less: Debt Service |
($720,000) |
| Cash Flow Before Tax |
$270,000 |
Key Ratios
| Ratio |
Calculation |
Target |
| Operating Margin |
NOI ÷ Revenue |
15-25% |
| DSCR |
NOI ÷ Debt Service |
1.25x+ |
| Cash-on-Cash |
Cash Flow ÷ Equity |
8-15% |
Sensitivity Analysis
Why Sensitivity Analysis Matters
Lenders and investors want to see how your projections hold up under different scenarios. Sensitivity analysis tests key assumptions.
Key Variables to Test
| Variable |
Range to Test |
| Occupancy |
±5-10% |
| Average rate |
±5-10% |
| Labor costs |
±5-10% |
| Expense ratio |
±3-5% |
Scenario Analysis
Base Case:
| Metric |
Value |
| Occupancy |
90% |
| Average Rate |
$5,250/month |
| NOI |
$990,000 |
| DSCR |
1.38x |
Downside Case:
| Metric |
Value |
| Occupancy |
85% |
| Average Rate |
$5,000/month |
| NOI |
$780,000 |
| DSCR |
1.08x |
Upside Case:
| Metric |
Value |
| Occupancy |
95% |
| Average Rate |
$5,500/month |
| NOI |
$1,200,000 |
| DSCR |
1.67x |
Break-Even Analysis
Calculate:
- Break-even occupancy
- Break-even rate
- Break-even expense ratio
Example:
Break-even Occupancy = (Fixed Costs + Debt Service) ÷ (Revenue per Occupied Bed - Variable Costs)
Common Mistakes
Revenue Mistakes
| Mistake |
Impact |
| Overstating occupancy |
Inflated revenue |
| Ignoring seasonality |
Unrealistic projections |
| Aggressive rate growth |
Unsupportable assumptions |
| Omitting vacancy |
Overstated revenue |
| Ignoring payor mix |
Unrealistic rates |
Expense Mistakes
| Mistake |
Impact |
| Understating labor |
Major cost underestimate |
| Ignoring turnover costs |
Hidden expenses |
| Static expense growth |
Unrealistic over time |
| Omitting reserves |
Cash flow issues |
| Ignoring management fee |
Understated expenses |
Structural Mistakes
| Mistake |
Impact |
| No sensitivity analysis |
Incomplete picture |
| Unrealistic assumptions |
Credibility issues |
| Inconsistent methodology |
Confusing presentation |
| Missing documentation |
Lender questions |
| No market support |
Unsupported projections |
Sample Pro Forma
80-Bed Assisted Living Facility
Year 1 Stabilized Pro Forma
Revenue
| Line Item |
Monthly |
Annual |
| Resident Revenue (72 beds @ $5,250) |
$378,000 |
$4,536,000 |
| Care Revenue |
$54,000 |
$648,000 |
| Ancillary Revenue |
$7,200 |
$86,400 |
| Other Income |
$2,500 |
$30,000 |
| Gross Potential Revenue |
$441,700 |
$5,300,400 |
| Less: Vacancy/Collection (5%) |
($22,085) |
($265,020) |
| Effective Gross Revenue |
$419,615 |
$5,035,380 |
Expenses
| Category |
Monthly |
Annual |
% Revenue |
| Salaries & Wages |
$115,000 |
$1,380,000 |
27.4% |
| Benefits |
$34,500 |
$414,000 |
8.2% |
| Food |
$21,600 |
$259,200 |
5.1% |
| Utilities |
$12,000 |
$144,000 |
2.9% |
| Insurance |
$10,000 |
$120,000 |
2.4% |
| Property Taxes |
$12,500 |
$150,000 |
3.0% |
| Maintenance |
$8,000 |
$96,000 |
1.9% |
| Marketing |
$6,000 |
$72,000 |
1.4% |
| Administrative |
$10,000 |
$120,000 |
2.4% |
| Management Fee (5%) |
$20,981 |
$251,769 |
5.0% |
| Reserves |
$6,667 |
$80,000 |
1.6% |
| Total Expenses |
$257,248 |
$3,086,969 |
61.3% |
Net Operating Income
| Line Item |
Monthly |
Annual |
| Effective Gross Revenue |
$419,615 |
$5,035,380 |
| Less: Operating Expenses |
($257,248) |
($3,086,969) |
| Net Operating Income |
$162,367 |
$1,948,411 |
Debt Service & Cash Flow
| Line Item |
Monthly |
Annual |
| NOI |
$162,367 |
$1,948,411 |
| Debt Service ($12M @ 6.5%, 30-yr am) |
($75,847) |
($910,164) |
| Cash Flow Before Tax |
$86,520 |
$1,038,247 |
Key Metrics
| Metric |
Value |
| DSCR |
2.14x |
| Operating Margin |
38.7% |
| Cap Rate (on $24M value) |
8.1% |
| Cash-on-Cash (on $12M equity) |
8.7% |
Pro Forma Best Practices
Documentation
| Element |
Purpose |
| Assumptions page |
Explain all assumptions |
| Market data |
Support projections |
| Comparable analysis |
Validate rates/expenses |
| Historical data |
Show trends |
| Management bios |
Demonstrate capability |
Presentation
| Best Practice |
Benefit |
| Clear formatting |
Easy to read |
| Consistent methodology |
Credibility |
| Multiple scenarios |
Complete picture |
| Supporting schedules |
Detail available |
| Executive summary |
Quick overview |
Frequently Asked Questions
How many years should a pro forma cover?
Typically 5-10 years for acquisitions and permanent financing. Development pro formas should cover construction through stabilization plus 2-3 years.
What occupancy should I assume?
Use market-supported occupancy. Stabilized facilities typically project 88-93%. New developments should show lease-up trajectory.
How do lenders evaluate pro formas?
Lenders stress-test assumptions, compare to market data, and focus on DSCR under various scenarios. Conservative, supportable assumptions are preferred.
Should I include capital reserves?
Yes. Most lenders require reserves of $250-500 per bed annually for replacement reserves.
What if my projections don't support the loan I need?
Revisit assumptions, consider value-add strategies, or adjust loan request. Don't inflate projections to fit desired loan amount.
Related Resources
Disclaimer: This guide is for informational purposes only. Pro forma assumptions and projections should be based on market data and professional analysis. Consult with qualified professionals for advice specific to your situation.