We all know that seniors housing census has pretty much increased across the board since the bottom was hit in March 2021, nearly two years ago. But the pace of that increase has been slowing. A case in point is Brookdale Senior Living’s stall in October and November, and we have not even hit the worst flu months yet, and this one is supposed to be a doozy.
Late last year, after Ventas removed the operator for its Eclipse Senior Living portfolio (the former Elmcroft Senior Living portfolio) and basically shut down the management company, the REIT dispersed the management of the roughly 90 communities in 20 states across eight other operators. Maybe some old-fashioned TLC from smaller companies would solve the operational problem.
One of those operators was Priority Life Care, founded and run by CEO Sevy Petras-Wells and COO Bobby Petras. Priority Life Care (PLC) is truly a family business, which was started 14 years ago around the Petras kitchen table by Sevy, Bobby, their mother and sister-in-law. The company has now grown to 47 communities under management, which include the former Eclipse portfolio as well as a new portfolio effective December 1.
Ventas found PLC and hired them to manage 17 communities in Pennsylvania with 946 units, ranging in size from 32 units to 104 units. After removing the largest and smallest (which is a stand-alone memory care community), the average size for the remainder is about 54 units. Not optimal from a management perspective, but we believe most are in secondary markets, so small is not necessarily bad.
When PLC took over operations on November 1, 2021, average occupancy was just 67%. That was well below the industry average at the time, but we do not know how low it actually got at the bottom of the market. Monthly revenue was just $3.3 million with monthly EBITDARM barely above breakeven. In other words, existing operations could not even cover a traditional management fee. Not to worry, and Sevy and Bobby were not worried.
With 14 years of experience, not to mention a few turnarounds here and there, they have become good at expense controls, and one of the first things they did was get rid of some fat. Second, they have been able to lower staffing agency costs by more than 75% across the portfolio, with most of what remains is at one community. There had not been any wage increases for two years, so they did have to increase some salaries, as well as make some new hires to replace the agency staff, but they were still able to keep overall expenses in check.
In fact, monthly expenses were down slightly from October 2021 to October 2022. Pretty remarkable in these inflationary times, especially since census has increased by 105 residents to an average today of 80%. Five of the 17 communities hit 100% occupancy at some point during 2022, which is a high percentage for any portfolio. The portfolio is 100% private pay, and average rates are about $4,733 with a range of $3,000 to $7,000, plus levels of care. The high-end is for the stand-alone memory care community. Iyvonne Byers, the CFO, drives the bus on expense controls as well as meeting the required accounting practices to satisfy Ventas’ publicly traded REIT standards.
The communities are mostly assisted living, with 107 memory care beds today but that is expected to double next year. As a result of the census growth of 1,300 basis points in just 12 months, monthly revenue has increased by $800,000. Combined with some rate increases, monthly net operating income (after a management fee) has gone from negative in October 2021 to about $444,000 today, or just over $5.3 million annualized. That must be making Ventas quite happy with their choice of operator for this portfolio.
Day one the PLC sales team, led by Brandie Petras and Jill Record (both have been with PLC since the kitchen table night), introduced an all-encompassing sales and marketing training program that laid out the plans, expectations and support for each community’s lease up. At the five-month mark, if the sales team was still struggling to meet expectations, or slow on the lease up, PLC then brought in Traci Bild, who is tops in the field for sales and marketing in seniors housing. The Bild team came in to help complement and reinforce PLC processes and to review the status quo, and then help drive home all the PLC training and assistance available in keeping those sputtering marketing departments accountable. It wasn’t all bad, but the sales staff that was in place needed a different approach and the PLC way has been working. The rest, as they say, is history.
In addition, part of the relatively quick success has to do with PLC management and how they approach the business and their staff. Culture was the first thing PLC addressed at the 17 communities they took over, and infusing the PLC culture started with the transition. As turnaround people know, these can be dicey and it is really the first chance you have to make a great initial impression. Ryan Person, PLC’s Chief Strategy Officer, was the quarterback for this operational comeback.
Once operations people took over, PLC was able to retain some of the regionals who were local and had some history with the portfolio. The operations playbook the team put in place was locally driven by Dave Kloster. He had been with the portfolio since the Elmcroft days and helped give valuable insight as to the history of the teams and communities. PLC also felt that being able to have Dave on the team provided some stability for the community leaders, who were going to be nervous and apprehensive about another company coming in. Ultimately, if PLC was going to be successful, it needed their buy in.
Ingrained in their philosophy is to support the staff in what they are doing, and in the case with this portfolio, incentivize them to do the best they can. This is not just a thank you, but financial incentives. If PLC does well financially with this management contract, then the employees who made it happen will also do well. In this day and age, the mission is not enough (it has never been enough), and employees do appreciate being recognized with cash compensation, as opposed to their leadership standing up and asking everyone to clap for the heroes at every conference. Remember the famous line in the movie Jerry Maguire, “show me the money”? It has not been shown enough.
Speaking of that, we are glad to see that the financial interests of Ventas and PLC seem to be in alignment, something that is not always the case with REITs and their managers. From what we understand, PLC has a base management fee, plus incentive fees for certain milestones, and then additional incentives to reach and surpass the 2019 performance of these 17 communities. It is a classic case of, “you win, we win.” We need to see more of that, and the good operators will seize the opportunity. Perhaps some operators will give Ventas a call.
The management contract is for five years, and with four more to go we can’t wait to see what happens. PLC management believes they will hit close to 90% occupancy across the portfolio by the end of 2023, or at least that is the plan. The fact that they are ahead of all their original forecasts with this portfolio tells us this can be done. And, it is being done without major capital improvements, which we believe will be coming next year or in 2024 at the latest.
In 12 months, they have averaged nearly nine net new move-ins a month, have taken revenue to a run rate of nearly $50 million and EBITDARM to $7.8 million, and they are just getting started. And how did Ventas reward them? Effective December 1, PLC is now managing seven Atria Senior Living communities in five states with a similar incentive package as they have with the Eclipse portfolio. These communities were in better financial condition to start, but average occupancy is in the low 70s, with one community at 100%. And remember, Ventas owns about 30% of Atria, so this is a pretty big deal, for both PLC and Ventas. Maybe we can have an update on both portfolios at the end of next year.
