Enlivant Reaches Crossroads With New CEO, Ownership Uncertainty

Enlivant — the 11th-largest U.S. senior living provider in 2020 — is at a crossroads, with new CEO Dan Guill officially taking the reins this week, while questions about the company’s future ownership remain to be settled.

With the CEO change, the story is largely one of continuity. Guill has been with the company since 2014, helping build Enlivant from the troubled portfolio of Assisted Living Concepts.

But, having worked alongside outgoing CEO Jack Callison to achieve that turnaround, Guill faces new challenges as he ascends to chief executive — namely, leading the provider out of Covid-19, and driving more innovation to serve the company’s mid-market consumer.


On the ownership side, the story also could be one of continuity, if Sabra Health Care REIT (Nasdaq: SBRA) expands its minority stake. Or, Sabra could sell its stake and majority owner TPG could exit, ushering in a new ownership group.

I don’t expect any new owner to push for dramatic changes in Enlivant’s strategic direction, but the possibility of new ownership raises some tantalizing possibilities — particularly if, as BMO Capital Markets analysts recently suggested, the new investor is Welltower (NYSE: WELL).

Ownership scenarios


Of Enlivant’s total portfolio of roughly 230 properties, the majority — about 160 communities — are held in a joint venture between TPG and Sabra, with the PE firm holding a 51% stake and the REIT holding 49%.

In Aug. 2019, Sabra’s executives said they were considering buying out TPG — which they have an option to do — while simultaneously bringing in a new minority partner. Sabra CEO Rick Matros said the REIT still desired 100% ownership of Enlivant but did not want to create “an overhang on the stock” by writing the big check at that time.

No new JV partner emerged, but some sort of transaction was expected by Jan. 1 of 2021, per the terms of the joint venture. That did not come to pass, with Covid-19 being a complicating factor. TPG wants a resolution this year, and a decision will likely be made in the “next several months,” Matros said on Sabra’s Q4 2020 earnings call.

Also on that call, he stressed that any resolution has to work for Sabra economically; maintaining leverage below 5.5x has been a priority for the REIT and could be even more important now, given the possibility of further pandemic-related rent reductions for triple-net tenants, BMO analysts Juan Sanabria and John Kim observed in a March 23 note.

To maintain that leverage and experience only modest dilution to estimated 2020 and 2021 FFO, Sabra could pay about $414 million ($115,000/unit) for the 51% JV stake, financed with 65% equity, the BMO analysts calculated.

But they believe a “creative structure” will be needed to get Sabra to transact, considering their target price represents a 41% discount to the original JV transaction, which was executed at $196,000/unit. Furthermore, exiting the JV could deleverage Sabra and allow the REIT to use the proceeds for accretive deals.

Matros has commented on the difficulties of finding interested parties, in part because this is an operating company deal and not just a real estate transaction. But the BMO analysts floated one possible buyer: Welltower.

They flagged Welltower because the company holds a minority stake in Sunrise Senior Living; Callison is leaving the CEO role at Enlivant to fill that position at Sunrise. So, Welltower could glean inside knowledge of the Enlivant assets from Callison, plus the REIT has strong cost of capital to compete, Sanabria told me via email.

From a strategic viewpoint, I think Welltower ownership of Enlivant raises interesting possibilities.

Enlivant’s portfolio is largely assisted living and concentrated mostly in secondary and tertiary markets; the company therefore serves a more middle-market consumer. Welltower is interested in the middle market, having made moves into more affordable active adult and independent living with partners like Clover, and the welltowerLIVING brand.

I can imagine Welltower using the Enlivant portfolio as a means to extend its middle-market strategy into the AL realm, perhaps by integrating Medicare Advantage-reimbursed health services with partners like ProMedica and Geisinger.

Enlivant has 20 communities in ProMedica’s core market of Ohio and 29 communities in neighboring Indiana. In Geisinger’s home turf of Pennsylvania, Enlivant has 17 communities.

Fortress connections

Two other companies pop into my head when I play the “who might buy Enlivant” game: Fortress (NYSE: FIG) and New Senior (NYSE: SNR).

Private equity firm Fortress may be on the hunt for senior living investments, with rumored interest in Colony Capital’s portfolio. And, there are intriguing synergies between Enlivant and Fortress-owned Holiday Retirement. Guill was a vice president at Fortress for almost four years, when he began working closely with Holiday and its then-CEO Jack Callison.

Enlivant and Holiday have some operational similarities, including dynamic pricing models, and in recent years both companies have focused on workforce initiatives. They favor similar markets, with each of the companies having a presence in smaller cities or suburbs such as Menomonee Falls, Wisconsin; Boise, Idaho; Omaha, Nebraska; and Charleston, South Carolina. They also have overlap in larger metros, including Houston, Atlanta and Phoenix. And given Holiday’s focus on IL and Enlivant’s on AL, they could operate in tandem.

Alignment between Enlivant and Holiday could also be achieved if New Senior were to purchase the JV portfolio. Until recently, New Senior was externally managed by a Fortress affiliate, and the firm has about 100 Holiday properties in its portfolio.

New Senior recently disposed of its assisted living assets and the REIT’s leaders might be happy to remain a pure-play IL REIT. But, an Enlivant acquisition would help diversify the portfolio’s large Holiday concentration.

The Guill era begins

However the ownership situation is resolved, Enlivant is starting a new era on April 1, when Guill officially becomes CEO.

Guill understands the world of finance — in addition to Fortress, he worked with LPO Capital Management, Parthenon Capital and Thomas Weisel Partners — and he has led Enlivant’s operations as COO for nearly eight years.

In a recent interview, it was clear that he is passionate about talent management and team building. He told me that “building bench” and driving diversity, inclusion and belonging in the company are top priorities. His own rise to CEO demonstrates smooth succession planning. And Enlivant’s retention was up 6% year-over-year in 2020.

Guill had less to say when I asked about potential innovations in how health care might be delivered in assisted living. If Welltower were to buy the Enlivant JV portfolio, I think such innovation would become a bigger focus, given the REIT’s health system relationships.

Sabra, if it retains ownership, also could help drive progress in this area. Juniper Communities CEO Lynne Katzmann — the architect of the Connect4Life integrated care model and a driving force behind provider-owned Medicare Advantage plans — sits on Sabra’s board.

In my view, implementing new health care delivery models should hold some appeal to Guill, as one option for tapping fresh referral streams and helping Enlivant gain occupancy, which is imperative.

Before the pandemic, Enlivant was improving its margin and NOI (thanks largely to its dynamic pricing system), but occupancy was more stubborn. Census sat at 82% when Sabra acquired its stake in 2017, and occupancy was at 82% in Q4 2019. As Covid-19 infections surged in late 2020, occupancy in the Sabra JV portfolio fell to 71.6% and same-store cash NOI was down 50% year-over-year.

It seems to me that Guill deserves credit for his role in bringing Enlivant to where it stands today, with a well-defined culture and strong workforce. The future might rest on his ability to not only keep the momentum going, but move in new directions.

Companies featured in this article:

, , ,