The Bottom Line: Westminster Communities of Florida CFO on Toughest Workforce Challenges, Possible Bond Rating Changes

Like many nonprofit providers, Westminster Communities of Florida is balancing stability amidst Covid-19 pressures with maintaining its bond rating. And that may prove to be a greater challenge in 2021, even as there are signs that pandemic-related pressures felt by the industry could soon ease.

Fitch Ratings, the New York City bond rating agency, is reviewing its guidelines for rating the providers it tracks in 2021, and informed Westminster that these new standards and findings may result in a change to its bond rating, CFO Hank Keith told Senior Housing news.

Last August, Westminster completed a $107 million bond issuance that was rated “A-” by Fitch. If the rating agency’s revamped guidelines result in a downgrade to Westminster’s credit rating, it could affect the provider’s ability to raise capital in future bond issuances.


“It’s something that I’ve always worried about with any rating agency — they could just decide to change their standards,” he said.

The Orlando, Florida-based nonprofit provider operates a portfolio of 10 life plan communities and 20 rental communities across the Sunshine State totaling 4,155 units, and ranks 11th on the 2020 list of the largest nonprofit senior housing providers compiled by industry group LeadingAge and investment bank Ziegler.

As he monitors the situation with Fitch, Keith also is facing a persistent challenge in senior living: labor costs. The pandemic increased staffing challenges and competitors like Amazon and Walmart are adding additional pressures. Raising wages while revenue is down, and recruiting and retaining workers in a post-pandemic environment, are difficult goals to achieve.


Keith joined Westminster in 1993 as a controller, and assumed his current position a year later.

This article was edited for length and clarity.

Senior living has become more operationally and financially complex over the last few years. How has that placed new demands on you?

Of course, Covid-19 has presented major challenges: adjusting budgets; reductions in capital spending; occupancy levels lower than I have ever seen here at Westminster, and I’ve been here 28 years.

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For us, [our objective] was how to support the community staff and to support marketing, because they couldn’t do on-site visits anymore. But even before Covid-19, the biggest issue that I had was how to increase labor rates with relatively flat revenue increases. How do you pass these on to existing residents, where the unemployment rate was so low?

Before the pandemic, we were having a very difficult time [staffing] for all departments, especially in nursing and certified nursing aides. And now with the pandemic, we lost them because they went home to take care of their children and some were probably in the 60 to 65 age range. They just said, “We’re just going to stay at home [instead of] be around all these potentially sick people.”

The biggest issue I see coming out of this is those staff [have options] — you’ve got the Targets, the Amazons, and the Walmarts being very happy to raise [wages] to $15, $16 an hour. We’re having to move our wage rates when our occupancy is down, and our revenues are pretty flat for the year. How does a CFO do that, and where do you find the savings to do that?

The biggest thing we’ve done throughout our history is we’ve never had layoffs or furloughs, and not during this time. But we’ve had people who have left, and if they weren’t considered as essential positions, we might not have refilled some of those positions.

Has Westminster been able to find replacements for the staff that opted to not return to work during the pandemic?

Outside of nursing, dining is always a challenge, because you have younger workers who come and go pretty quickly. They’re not really there to stay long term. Housekeepers generally stay long term. We’re in Orlando. So we had our pick of the Disney World, Universal [Studios] housekeepers that were let go, because they shut down all the hotels.

With certified nursing aides, we’re filling [vacancies] with overtime and contract labor. And even contract labor has gotten worse, because now it is having [its own] shortages at the same time. Agencies have gotten to the point where they say, “You told us you need this employee on this day. If that changes, it doesn’t matter, you still have to pay us for that employee.” It’s gotten very expensive. We’re looking at some different ideas, but it’s my biggest worry.

At some point, we won’t be able to take as many patients because we have state-required staffing ratios. Where is that line where we’re paying a certified nursing aide or a licensed nurse so much, it doesn’t make sense to move in residents?

The American Rescue Plan includes an increase in Federal Medical Assistance Percentages (FMAP), for states to enhance home- and community-based services during the pandemic. How will that affect Westminster in the short term?

We do a lot of home health for existing residents in independent living, and a little bit in assisted living, but they all pay for it privately. I’m not sure how many of our current residents would even qualify for any Medicaid funding.

Is Westminster keeping an eye on, and considering, exploring the Medicare Advantage space?

[Medicare Advantage plans] haven’t hit our markets very heavily. I think we only have one, maybe two, buildings with any Medicare Advantage plans at this point. I keep hearing it’s coming. But it just hasn’t quite made it for some reason.

For unskilled labor, is Westminster considering a flexible worker model, where an employee can be tasked with covering shifts across multiple departments?

We do some of that now, but we don’t do it formally. Our biggest [goal] for our dining programs coming out of Covid-19 is we’re going to multi-seatings. Most life plan communities generally were, “Hey, it’s five o’clock. Everybody comes to dinner at the same time.” Now, we realize that we can be safer and have the same dining experience, with multiple seatings.

So we might have two or three seatings instead of just one big seating where everybody shows up at once. Our residents seem to have grasped on to that and they’re fine with it. Some of them said, “Why didn’t you do this earlier? We were tired of coming in at five o’clock every day.” That helps with staffing because we don’t have to have as many dining staff at the same time.

When you started at Westminster, where was the company at and what were your priorities?

We had five life plan communities and three rental retirement communities or HUD communities. We now have 10 life plan communities and 20 rental retirement communities. That’s over 28 years. We had $24 million in reserves in 1982. Now we have a little over $190 million in reserves. As the company has moved along through this period of time, most of the growth has been through takeovers, or turnovers. And that’s most of our growth for the organization throughout those years.

What were some of the challenges you encountered during those years?

The last major challenge was during the Great Recession. We saw our occupancy drop — not to the levels we’ve seen today. We had to become creative with financing programs. [In some cases, we] actually agreed to buy somebody’s house for the entrance fee, and [either] refund the difference, or they’d have to pay the difference. We had to flex our budgets much more than we had before. We always had some form of flex budget, but we had to enhance it in other departments to adjust the occupancy.

Fortunately, as an organization — I don’t know what it is, we just perform better in down times. It’s odd. And we’re performing better than we have in years right now during Covid-19. Our staff rises to the occasion. They understand their budgets, they’ve adjusted nicely, and that’s a part of our challenge, make sure the budgets are adjusted properly.

Besides labor costs, are there other items on Westminster’s expense ledger that are concerning for 2021? How are you approaching reductions in expenses?

Depending on the site, we might not replace roles here and there, depending on workload. We’re looking at where we overstaffed during the good years, and it’s become a concern of our residents. They’re saying, “You don’t have as many staff as you had before.” Well, that’s true. But we also don’t have the revenues we had before either. As [occupancy and revenues] come back, we will rehire. I just don’t know, [if] we hire to the same levels that we had before.

[Our] Covid-19 expenses [totaled] $1.4 million of nonpayroll, which we probably won’t see again. Now, it’s mostly labor and labor rates; we’re getting ready to do a 7% to 10% increase in our skilled nursing labor rates this year, hoping to retain and recruit new staff.

Then we’re going to spend $3.5 million on capital improvements related to [the pandemic]. We had to create these acute treatment units for residents who came back from the hospital, so they would be in a private room in a private area — we’ll probably make those permanent. We’ve also taken 45 [nursing] beds offline to create these rooms. I’m pretty sure that that’s going to be the norm for quite a long time that those 45 beds will stay offline. I would guess we’ll end up taking another 45 offline in the next couple of years to create more private rooms to be ready, if there is another [extreme viral outbreak]. We will have the same kind of [enhanced] infection control that going forward for residents.

Did the pandemic force Westminster to pause or halt any CapEx expenditures in 2020? And will CapEx allotments for 2021 be higher, lower, or the same as they were budgeted for last year?

They will definitely be higher this year; we’re just waiting to see how entrance fees react. I’ve been told our leads are getting back up to the pre-pandemic levels, which is good. We’re starting to do more live tours on the campuses. I’m expecting entrance fees to go up, so we need to catch up. We didn’t do a lot of capital improvements during Covid-19. We did do basic repairs or replacements. We also made sure all of our units, if they were vacant or vacated during the pandemic, were turned over.

There is going to be pent-up demand. We believe there will be a large wave of residents who are ready to move in. We’re getting prepared for that going forward. We’re finishing up, but we just completed a large 75-apartment [independent living expansion] in Baldwin Park, here in Winter Park. We’re finishing up a 50-unit complex at Shores in St. Petersburg. After that, we’ll add another 100 to 150 units in the next three years.

How is Westminster’s availability of capital at the moment?

We closed a [$107 million] bond issuance last year that was A- rated by Fitch, and the bond sold in around 45 minutes.

We haven’t seen a problem getting access to capital; if anything, we’re being told something totally opposite. [There are no lenders] in the market doing anything. It’s a good time to be in the market, even though rates have moved a little bit. We were just getting ready to kick off a refinancing, then the rates moved and cut the savings [almost] in half. I don’t know if we’ll do that move at this point or not.

How is Westminster approaching M&A activity this year?

We’ve always grown through campus expansions throughout my time here. That said, we continue to look at communities to see if there is some potential for [acquisition]. We had one hit my desk last week, with a lot of [distress]. We haven’t seen many of those. We thought during Covid-19 that there would be some communities failing, but we haven’t really seen the life plan communities failing.

We’ve always offered assisted living, skilled nursing — we see tons of those. But we’re not interested in just buying the one-off [communities. If anything, we don’t want anything to do with skilled nursing, and if an acquisition did not have [it], that would be a big plus.

How do you define a healthy balance between mission and margin?

Everybody thinks a nonprofit is not supposed to make any money. Our budget philosophy is fairly simple: our operating fees pay for the operating expenses on that campus. We expect every campus to at least break even or make somewhere between 3% to 5%, and then the entrance fees — net of any refunds — go to pay the debt and for capital improvements. That helps from an operating standpoint, that the community needs to have that [alignment of] mission and margin. That still held true this year.

Even with all the reduced entrance fees that we’ve had, our staff went through a long budget process with the communities. We work as a group, we put them all together and we compare costs between each other, and we look for efficiencies.

I’ve been doing this a long time and I’m amazed that we still find efficiencies in either payroll or non-payroll [expenses]. We continue to work on budgets and expect our staff to understand theirs. Each department needs to understand what they’re doing. At the end of the day, they know that we have to make margin and we have to take care of our residents. It’s just that simple.

Did you ever envision working in senior living earlier in your career?

I did not. I graduated college, went to a CPA firm that specialized in long-term care, and ended up doing Medicare and Medicaid cost reports; I probably did 1,000 of those throughout my young career.

One day, I saw an ad [at Westminster] for a controller, and that was it. About a year after that, I was promoted to CFO and time just flew by. It’s a great industry to work in. It has its challenges, but no different than any other business. But it’s hard being a CFO; I tell people that I have to pretty much be right all the time. Sometimes you have to make decisions quickly that are going to be right for the residents and be right for the communities.

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