Asbury CFO Jeanneret: Innovation Is More Oil Tanker, Less Speedboat

Asbury Communities is known for its innovative programs — but the senior living provider is also careful not to take big risks too quickly.

Frederick, Maryland-based Asbury is one of the largest senior living nonprofits in the U.S., with seven senior housing communities in four states. The company has this year touted four technology pilot programs, including one involving a robot named Pepper. Asbury has been an innovation leader in other regards, including opening a new corporate headquarters with no private offices.

These new programs are part of a careful effort to position the operator for the future while meeting three key goals: be an employer of choice, provider of choice, and have financial strength. That’s according to CFO Andrew Jeanneret, who spoke with Senior Housing News for its ongoing Bottom Line series of CFO interviews. He joined Asbury in 2017 after serving as CFO for Learn It Systems, a company that provides behavioral health solutions and supplemental instructions for schools.

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The following interview has been edited for length and clarity:

Would you say that senior living has gotten more operationally and financially complex over the last few years, and if so, how has that placed new demands on you as a CFO?

For sure, it’s gotten much more complex. I think it could vary across the spectrum of providers, if you’re a single-site vs a muti-site provider. I think it’s the same whether it’s for-profit or not-for-profit.

If you look down the road for demographics and you see out 7 to 10 years, you have these baby boomers that you thought 10 years ago might be moving into your community sooner than they are.

And when you ask each one about what it means to leave your house and look for a place like a senior living community, it varies across the baby boomers. So, I think that adds a lot of challenges.

I also think there’s been a cycle of debt, where [companies] have borrowed money in the past and gone through repositionings and growth cycles and you’re starting to see a little bit of that turn back around, and people need to reinvest into their properties.

And you’ll start to see, I think, what does the resident really want? And different communities are trying to address that through different ways. So, do I upgrade my dining area? Is it more retai? Is it wellness? What are the other amenities that might be appealing to the consumer? And it sort of depends on the geographic location.

Another trend is a little bit more mix of IL and AL, where people might start to deemphasize the health centers or the skilled nursing. Is that going to be a long-term trend? Potentially so. I think the for-profits look at that a little bit closer. We’re still in the continuum of care, so it’s integral to our mission.

When you started with Asbury in 2017, where was the company at and what were your main priorities? Coming from a different industry, was there a big learning curve?

I spent some time trying to learn the industry. It’s a collegial atmosphere. You’ll see people that want to share ideas back and forth.

What we have in our system today is the same now as it was almost two years ago. But the emphasis has been on looking further down the road and saying, where do we want to be in 7-10 years, and how do you get there?

If you picture a large oil tanker, if you want to move it, you’re not going to move it really quickly. You‘re really trying to take care of your residents, so you don’t want to make many risky decisions.

Our focus on looking at technology and innovation to try and help make our resident experience better is one of the key things that was in [CEO Doug Leidig’s] mind when I came on board.

You mentioned trying to figure out where Asbury is going in the next 7-10 years. What’s your vision for the years ahead? Where will your priorities lie?

We’re ultimately trying to make the residents have a great experience so that they tell everyone around, you should come live at Asbury. Word of mouth is best. If a resident has a good experience at your community, they’ll bring other people in.

From a technology perspective, some of the initiatives we’re looking at today are around the experience of the resident and making it better. One of the biggest things in the senior living industry is falls. So, we’re looking at ways to detect people that might have a condition where they could fall. We’ve got a couple test pilots where we’re using technology to assess people — the way they walk, their gait — who might be at a higher risk for falling.

So, what kinds of things we can do today to improve your muscles, the way you walk, so that you won’t fall.

And you saw Pepper. So, we’re looking at things like that. That could be something where it’s your greeter. There’s a touchscreen and Pepper can talk back to you.

We’re trying new things. We look for that in our partners, too. We’re not going to be able to come up with everything on our own. We stress with our partners that this is our mission. Pepper came through one of our core partnerships.

Part of that 7-10 year journey is, people don’t want to leave their homes, necessarily. So, we know that we can extend the boundaries of our continuum of care to people that aren’t in our communities through our home- and community-based services company. We’ve started to grow that and we’re looking for more opportunities along the way so that we can touch a future resident in their home, offer care they may want, and then ultimately if they get to the point where they no longer can stay in their home, they know our name, they know our community, and we’re an obvious first choice.

We also have a foundation which works hard to provide benevolent care to residents when they outlive their funds through no fault of their own.

How are you thinking costs/expenses for 2019? Are there items on the balance sheet that are of concern, or areas where you expect to make significant investments, or achieve cost reductions?

There are two key metrics on the financial strength side. One is our operating ratio. If you look at your cash operating revenue and your cash operating expenses, and if you’re below 100, that shows you’re bringing in more cash revenue than your expenses.

We also look at our cash to debt ratio. In the not for profit world, you’re looking at tax exempt debt to help to finance expansion and growth.

So, people understand what dollars we need to bring in to maintain what our communities look like and how we can expand them through repositioning. Those are probably the largest or most impactful items to track.

If we want to reposition a campus, we need to understand what it’s going to cost and do we have the funds to do that. If we do, great, and if we don’t, what do we need to plan to do it?

To tie this back to another challenge, we have over $300 million of external debt across all our communities. In 2018, we worked with one of our strategic partners to look at our Maryland obligated group and refinance some debt that was there. The market conditions were good, and it was a way for us to lower our interest costs over time and still have the cash to do what we wanted to.

It takes a while to do that. Over about two and a half months, we were able to lower the cost of capital, which ultimately should help our residents pay less over time or not have the same rate increase over time, and/or put money into your capital expansions.

Are margins under pressure this year?

One of our keys has been to try to have strategic partnerships with vendors. It may be that there’s one vendor you center on for a particular service, or you may have one or two you look at for some healthy competition.

Labor is about 50% of our P&L statement. So, that’s the first cost to look at. If we can lower our turnover, it’s going to help our cost. Salaries and wages are part of that, also medical expenses. We’ve looked at ways to still offer the same or better [medical benefits], but restructure what our medical plans look like in order to offer choice but still control our costs.

I think it’s true for any not-for-profit CCRC, you usually have compression on your prices for skilled nursing and health centers. If you have a lot of Medicare and Medicaid, the reimbursement rate drops. And so the pressure is to increase your wages, because you have to attract people in a labor force that’s tight.

We look at our CMI, or our case mix index, we try to stay ahead of the change in reimbursement, PDPM [the Patient-Driven Payment Model]. A lot of things get set in stone before that, so you have to do some planning. We have a cross functional team looking at that to make sure we can take advantage of how we do things in order to set our rates at the maximum that’s possible for us.

How’s the availability/cost of capital at the moment, and do you expect any tightening of the debt or equity markets in the near term?

The chairman of the Fed spoke the other day and said, yep, no more interest rate hikes. The data doesn’t suggest a problem either way. And so, you saw the market rally, you saw the 10-year drop to one of its lowest levels ever. So, the next six to nine months, things look pretty good from an interest rate perspective.

If somebody was looking to refinance, the rates are a little lower now than they were last year for the same credit rating. So, in the foreseeable future, I think there’s some opportunity there. It depends on what you have on your balance sheet.

We look at that all the time, and if it made sense, we would do that, particularly given what rates are today. So, 5-10 years, hard to tell, but historically we’re at a pretty good low for interest rates, so if you can lock in some longer term money I think that’s good for the communities.

What’s your take on M&A, affiliations and development at the moment?

On the not-for-profit side, affiliations are always the big thing. People tend to think it’s free, it’s another entity. When you bring an entity into the fold under an affiliation, it comes with all its history and the things it wants, too.

Those are far and few between. They take a long time to work on because you have one board ceding control to another board. But, we look for those, especially those that are more strategic, fit with our mission and are geographically close to where we are.

On the acquisition front, not-for-profits can compete there, too. The larger systems have a little bit of an advantage if they have some cash on their balance sheet.

We’ve been looking at this since before I got here, but also in the last two years. What you find on the acquisition front is a lot of troubled properties, and if you could get one at a good price and then layer on the way you manage, you can make them successful. The problem is, there’s a lot of people looking for those.

We’ve looked at a few over the last 18 months, and we’ve passed on a lot of them because the price that people wanted was way too high, in our opinion, and we didn’t want to commit ourselves to something that’s not going to be useful to the system.

It’s a dual strategy, affiliations and acquisitions. We’ve talked about joint ventures. If it was the right thing, we would do it.

For instance, on the Medicare Advantage plan that a couple others have put together, that’s the kind of JV that would be appealing because everybody benefits. There are reduced costs, and it helps the resident. So, that’s one we’re starting to take a look at.

So if I’m hearing you right, Asbury is open to making a play for the MA space?

I think we are. I’d say we’re starting to look at it.

I think it’s an advantage for everybody. It controls your resident through the continuum of care, and if you can do that, you hopefully can provide the same or better care and at the same time it costs less.

What types of data/metrics are you most interested in analyzing, and is this informing your leadership as CFO more today than in the past?

Over the last 18 months, we have been trying to take a tool that we’ve had, that we haven’t deployed to the rest of the organization, and create dashboards. It’s data.

The idea is to make it accessible to as many people as you can. And you can see it on a daily basis. We’ve always had our occupancy at every unit across our communities, you can see that on a daily basis. It wasn’t easy to get to, but people could. So we’re trying to expose key bits of data to everybody to see what’s important.

[Operating ratio], cash to debt, and average age of plant are the three financial pieces to this. And to that extent, you expose that data to the rest of the organization. You can understand and measure where you’re going, and everybody can see it. They can see what’s important, whether it’s on the finance side, on the HR side, on the operation side.

We have a CEO dashboard. When everybody knows what the CEO is looking at, they want to be able to hit or exceed their targets.

On the clinical side, we’ve always had data people could see. But again we’re looking to expose that out to more people and be consistent across our organization about what a statistic means.

Mission vs. margin is a theme in senior living and maybe a challenge. Do you ever feel like you’re fighting to protect margin while others in the organization are freer to focus on mission? How do you define a healthy margin in this business and ensure that you’re striking the right mission/margin balance?

That’s a great question I often struggle with, coming from a for-profit background. I think you can do both. For-profit companies have mission statements, value statements and they make profits. We look at what we price for our residents, so it doesn’t look like we’re trying to make a really high margin, because that’s not what we’re about.

But what you need to understand is, in that operating ratio calculation, why do you want to have more revenue than expenses? It’s really back to the cash. You want to have sufficient cash down the road to be able to reinvest into your community. So, you have to look down the road longer to understand the upgrades and changes I need to do to stay relevant.

You always have to look at that balance and make sure you’re putting enough cash in the bank so you can serve today and serve tomorrow.

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