Anyone can hold the helm with the sea is calm.
There’s a shift in senior living that is playing out publicly in each new restructure deal. Whether you look to Holiday and New Senior, or Brookdale and Welltower, to the most recent Five Star and Senior Housing Properties, restructuring is the new lifeline (likely to be followed by a new operator). In theory, moving from a triple-net lease to a RIDEA will give relief to the operator and a piece of the upside to the investor. That’s correct if the asset is meeting it’s rent and escalator agreements to start.
Restructures aren’t done because the teams are successful. Restructures are done because a change needs to be made. However, changing the structure of a deal without changing the strategy will leave you with the same bottom-line results.
Assets with restructured agreements are often followed by a change of operator.
According to the NIC Investment Guide, Fifth Edition, chain operators are operating 56% of IL communities, 54% of AL communities, 62% of MC communities, and 37% of Nursing/SNF assets. As a result, changing one operator for another results in the same industry metrics.
In addition, changing an operator in this climate to another operator requires time for new branding, policies and procedures, culture, etc. Time is not on the side of investors, operators, staff, residents, or their families.
ETROS Management Firm is hired by investors to manage the asset and work with the operator. The operator is able to continue using their systems with no interruption to staff or residents on their team. ETROS is responsible for the niche strategy by location and increased bottom-line results.
“SENIOR LIVING IS NOT REAL ESTATE AND CANNOT BE MANAGED AS A TRADITIONAL REAL ESTATE ASSET.”
The dual operator/manager mentality brought over from multi-family housing (MFH) struggles in a backdrop of higher price points, higher labor and wage pressures, and a complex regulatory environment. It may have worked in an environment of low supply and plentiful labor and now requires two different skill sets.
“IS THE ANSWER INTERNAL MANAGEMENT?”
To the investor whose answer is internal management, take a hard look at the performance at New Senior (SNR). New Senior is the only pure-play senior housing REIT in the United States and is internally managed. New Senior consists of 102 IL properties and 28 AL/MC. Their latest performance in Q4-18 earnings reported (2.7%) year-over-year loss on same store cash NOI.
Internal management works under the presumption of a senior living asset being managed as real estate (medical office buildings (MOBs), luxury apartments, etc.). After all, what is another luxury price point service that no one wants to buy?
This is a luxury product and service requiring an ability to deeply understand the local market and the emotional behavior of the individual community.
“IS THE ANSWER CHANGING OUT OPERATOR FOR OPERATOR?”
Many times, we’ve watched one operator be replaced with a new operator on the hopes of new results. Time and effort of a new branding campaign combined with the uncertainty of the market to adapt to those changes is rarely a profitable venture in the short-term. The multi-year agreements lock in the operator to the ownership group giving the operator a safety net for poor results.
“IS THE ANSWER TO TAKE A NEW LOOK AT OPERATIONS AND MANAGEMENT AS SEPARATE SERVICES?”
Yes! Senior living is unique in its regulatory environment, demand, talent pool, and structure expectations.
Management is the focused strategy and delivery of key performance indicators: revenue, labor and EBITDAR. Operations is the daily running of the back-end business.
By adding ETROS to your portfolio management strategy, you will save your operator while changing your manager. This change will increase your results month-after-month, quarter-after-quarter and year-over-year. All contracts have a 45-day no fault termination agreement. Learn more about ETROS services.
