Operators share how they conquer staffing, oversupply challenges

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Workforce development issues are the top concern for two operators represented on LTC Properties' earnings call for the first quarter of 2016, held May 3.

Mark Rockwell, principal of privately held Anthem Memory Care, and Craig Flashner, M.D., principal of privately held Prestige Healthcare, shared some strategies that their companies are employing to address staffing challenges. Rockwell also shared thoughts on senior housing oversupply in the marketplace.

“Our biggest concern is finding well-qualified caregivers,” said Rockwell, whose company has developed six stand-alone memory care communities in five states since its founding in 2008; operates eight other communities in four states, including seven owned by LTC; and is developing three more with LTC. The company is designing a program focused on staff recruitment, training and retention, he said, and also is implementing a bonus program.

To optimize care quality yet keep it affordable in the private-pay environment, Rockwell said, “we need to do a better job of identifying the right person, then onboarding them correctly so that they really understand their job — they don't become demoralized because we've loaded them up with so much information that they can't processes it — and then work to retain them.”

Anthem, headquartered in Lake Oswego, OR, has seen some upward pressure on wages, he added, but it has been “pretty manageable, 2% to 3%.” But as pay increases, the company still comes out ahead if it can reduce turnover, Rockwell said. And when turnover is reduced, the company can reinvest in higher wages.

So hiring the right people is imperative, he said. “If you raise your wages dramatically but you didn't hire the right person, you're still going lose them,” Rockwell said. “They're just not well-suited for the job.”

Having multiple properties enables Anthem to have an efficient training and care model, he said, and limiting the company to 25 to 50 properties will keep processes from becoming “unwieldy.”

Flashner said that employee retention is the top concern for Prestige, too. The Louisville, KY-based company provides independent living, assisted living, post-acute care and other rehabilitation services at 68 facilities in seven states, including 22 properties in LTC's portfolio.

When the company recently took over 33 facilities, it conducted market studies and increased wages at 23 of them, Flashner said. “When you're a $12-an-hour employee and the building up the street is paying $12.10, even if you love that building, you're tempted to go,” he said. “So we constantly are looking at that.”

Turnover not only affects the balance sheet; it also affects care quality, Flashner said. “And our main concern in our industry, at least on the skilled side, is quality of care,” he said. “Because I don't care how well you can market a program; if you're not quality care, the preferred providers are going to know, the hospitals know, the community knows, and you'll never keep your buildings occupied.”

Getting around oversupply in the market

Regarding oversupply in the marketplace, Rockwell said, “I don't know if we're at the peak and we're just now going to see it start to subside. When I was at [the National Investment Center for Seniors Housing & Care Spring Investment Forum], it appeared that, overall, development may be hitting a kind of cresting point and that we may now be seeing things starting to equalize.”

To help ensure against the effects of oversupply, he said, Anthem is focused on going into markets with high barriers to entry. The company conducts in-depth market studies, examining major metropolitan areas by breaking them into smaller submarkets, Rockwell said. It examines the demographics of the population and whether unmet needs exist, then looks for sites in quadrants that seem promising. If a third party validates the company's research, then Anthem looks to acquire the site.

“That's really the way we believe we have to look at any major metropolitan area, because there are supply and need issues in every quadrant of the city, and that will vary pretty dramatically,” he said.

Anthem focuses on memory care in general because “we think it is not only a really large and unmet need, but it's one that's growing, and we felt as though it was an important enough need that it deserved our complete, undivided attention,” Rockwell said. “When you say to a family, ‘Entrust the care of your mother or father to us,' that's a pretty heavy moral responsibility.”

Faith in local / regional operators

LTC Properties Chairman, CEO and President Wendy Simpson said she invited Rockwell and Flashner to share their insights during the earnings call in part because of investor and analyst concerns that “non-public” operators may be “less sophisticated” and less able to respond in competitive environments.

“LTC believes the local / regional operator has many advantages over the larger national operator,” she said. “These operators are dedicated to the space in which they operate and know the regulators, regulations, legislative proposals, licensing requirements and issues, competition, networks and referral sources, labor environment — just to name a few. Also, the local / regional operator usually can make decisions about costs and revenue streams and effectuate needed operational changes more quickly than the large national provider.”

The self-administered real estate investment trust continues to value and support its larger operators, Simpson said. Via the earnings call, however, “We're opening a discussion of our large investment in the local/regional operator and why LTC maintains a very positive view of these operators,” she said.

After the first quarter closed, LTC completed transactions with Anthem and Prestige — specifically, the $125 million purchase of two memory care communities in Kansas with a total of 120 units, the $14.3 million purchase of a 60-unit memory care community in Kentucky, and the origination of a $12.3 mortgage loan secured by two skilled nursing centers in Michigan totaling 216 beds.

Prestige represented 15% of LTC's annual income as of March 31, and Anthem represented 4%.

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