What is NOI in senior housing?
Direct answer
NOI, or net operating income, is a community's revenue minus its operating expenses, before debt service, depreciation and income taxes. It is the core input to value: a community's value equals its stabilized NOI divided by the cap rate.
What to know
Operating expenses include staffing, which typically runs 50% to 70% of the total, along with food, insurance, utilities, maintenance, marketing and management fees of 5% to 8% of revenue if a third party manages the community. Well-run communities typically earn NOI margins of 15% to 30%.
Stabilized means the NOI reflects normal operations rather than a temporarily good or bad year. Buyers and lenders underwrite stabilized NOI, and adjustments for one-time items are expected and scrutinized.
Because value is NOI divided by cap rate, small NOI changes have an outsized effect: at cap rates of 6% to 8%, every $1 of added NOI adds about $12 to $17 of value.
Example
A community with $500,000 of stabilized NOI at a 7.0% cap rate is worth about $7.14 million. The same NOI at a 6.5% cap rate is worth about $7.69 million.
How Haven helps
Haven's valuations start from your real operating statements and a stabilized NOI analysis. Read our assisted living valuation guide.