Senior living operator Chancellor Health Care is finding success as a growing operator in National Health Investors’ (NYSE: NHI) senior housing portfolio — in part by shaking up tired memory care practices the overall industry “should be embarrassed about.”
The Windsor, California-based company is particularly unique in that it’s changing the traditional senior living model with innovative offerings that include person-centered care for memory care residents and plant-based meals. Behind the scenes, Chancellor has a robust corporate culture, with many long-term employees and low turnover, according to NHI President and CEO Eric Mendelsohn.
“They’re really good at building their brand and corporate culture, which makes for a good operator,” Mendelsohn told Senior Housing News.
Chancellor currently operates 16 properties in California, Oregon, Texas, Illinois, Colorado and Maryland. All but one are owned by NHI, with the other belonging to Ventas (NYSE: VTR). The company currently makes up up about 3% of the REIT’s annualized cash revenue.
The senior living provider has an “eclectic mix” of independent living, assisted living, memory care and skilled nursing, according to CEO Michel Augsburger. The company is also a provider of standalone memory care, with eight such communities in its portfolio. But it wasn’t long ago that the company had just three.
Autumn Leaves transition
Earlier this year, Chancellor Health Care took on five memory care properties for NHI. The properties were previously leased to Dallas-based LaSalle Group and operated by Autumn Leaves, a management company under the same ownership as LaSalle.
The Autumn Leaves communities fell out of compliance with lease obligations, however, and began to weigh down the REIT’s earnings. The LaSalle Group — which filed for chapter 11 bankruptcy in May — had been in default on its rent payments to NHI since November 2018, according to a recent SEC filing. NHI is currently in litigation to recover funds owed under that lease.
While the Autumn Leaves properties themselves were cash-flow positive and physically in good shape, they needed a refresh to continue the momentum into the future, Mendelsohn said. And some C-suite departures at Autumn Leaves raised concerns about that company’s operating structure. .
So, NHI brought in Chancellor to turn things around. The REIT already had a history with the senior living operator, as the two companies first partnered when NHI bought the Chancellor-managed Linda Valley community in Loma Linda, California, for $12 million in 2012.
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“The Autumn Leaves portfolio fit nicely into [Chancellor’s] growth plans,” Mendelsohn explained. “It was just the perfect fit at the perfect time.”
Soon after the transition, Chancellor got to work hiring more permanent staffers at the former Autumn Leaves buildings, in an effort to replace more expensive temporary workers. The company also made changes to some of the buildings’ sales processes and rebranded the communities from the Autumn Leaves name.
In the end, Chancellor ended up keeping four of the five communities’ executive directors. As of June 30, the five properties had a 70.7% occupancy rate, according to public filings.
It’s well-known that memory care is a troubled sector in the industry, and that Autumn Leaves is far from the only dementia-focused senior living provider facing a slow road to recovery for the product type. But despite those headwinds, savvy operators can still carve out a niche and even thrive, provided they land on a winning combination of services and culture, Augsburger explained.
“I know there is a fair amount of noise in the senior living press about whether or not that’s a good business model,” Augsburger said. “But we do believe that, with the right philosophy, culture and programming, in fact it can be a very successful.”
And many senior living providers do not have it right, he added. Shortly before bringing the Autumn Leaves communities on board, Augsburger took stock of the competition by mystery-shopping local communities and observing their activities and dining programs.
He saw a lot of memory care programs that fell short of the mark.
“The level of some of the programs that we’re offering as an industry, we should be embarrassed about,” Augsburger said. “One provider had 15 recliners in rows in front of a TV screen.”
Plant-based fare, person-centered care
Instead of parking memory care residents in front of televisions — and TV-watching in senior living is a “big negative,” at least in his company’s communities, Augsburger said — Chancellor gives them nutritious food and engaging activities meant to prolong cognitive ability and stimulate memories.
As part of Chancellor’s “Honoring Choice” memory care program, staffers consult “recipe cards” to understand who residents were before their cognitive abilities changed. Typically, those cards will have a resident’s past occupation, significant moments or other tidbits about their life.
“We try to understand who they were, how they are, what type of things they like to do and what they liked to do before they suffered memory loss,” Augsburger said. “And we try to program our life enrichment activities that will include things to bring back some of those memories.”
To that end, memory care residents cook, sew using sewing machines, drum, dance and make art — whatever keeps them feeling happy.
“We know that socialization and engagement is one of the things that slows down the advancement of dementia,” Augsburger said. “So we really try to … do whatever we can to encourage participation in activities, life enrichment and socialization.”
Dining is another area where Chancellor stands out. Its most unique dining program is found in the independent living wing at Linda Valley in Loma Linda, a region known for its large population of vegetarian Seventh-Day Adventists.
Linda Valley’s chefs prepare a wide range of plant-based fare. The community only slings vegetarian and vegan fare for residents, including at least one legume-heavy dish per day. All of the dishes are made with fresh, farm-to-table produce.
“We don’t even serve any meat options in that building,” Augsburger said. “By last count, I think we offer eight different types of milk in that building, from almond and soy to 2% and whole.”
Even in other buildings where the provider serves meat, the focus is still on promoting healthy dietary choices, Augsburger added. The overall goal is to try and capture the elements that make the surrounding community of Loma Linda into one of the world’s seven “Blue Zones,” or places where people are thought to live much longer because of their diet and lifestyle.
These and other elements appear to have made a winning formula for Chancellor, as the company currently has a 96% occupancy rate among its original 11 “legacy” properties.
Looking ahead, Chancellor is focused on finding growth opportunities that make sense, including with REIT partners like NHI. And, NHI is open to that idea, too.
“We constantly review opportunities for new buildings in their footprint,” Mendelsohn said.