How Senior Living REITs, Operators Are Taking On Sizable Portfolio Transitions

Bobby Petras remembers being at a doctor’s appointment when he heard the news of a game-changing opportunity to add 15 properties to the Priority Life Care portfolio.

The call came from Priority’s CEO and Bobby’s sister, Severine Petras. Real estate investment trust Ventas (NSYE: VTR) had tapped them to operate the 15 properties in Pennsylvania if they were interested.

“When [Ventas EVP of Senior Housing] Justin Hutchens came back with the opportunity to deepen our relationship with Ventas, we were really excited,” Severine told Senior Housing News. “But, it was a big jump.”


Priority, a family business based in Fort Wayne, Indiana started in a basement in 2008. Its first building came in 2010. Bobby serves as the company’s COO.

When the dust settled on the Ventas deal, Priority added 17 new properties: 15 independent living and memory care communities in Pennsylvania, and two memory care communities in West Virginia. In one move, the company increased its total portfolio from 20 to 37.

Priority is not alone in pursuing such dramatic growth.


In fact, its 17-property boost is among numerous mass transitions this year, involving various operators and several REITs.

With regional operators quickly taking on scale, the senior living landscape is being reshaped — and future success depends on how well these companies and their REIT partners structure and manage the transitions.

Inside the trend

The properties transitioned to Priority Life Care became available in the wake of Eclipse Senior Living shutting down.

Ventas plans to transition the 90-property Eclipse portfolio to seven operators, with 65 transitions already completed and the rest slated to occur by the end of the year.

In addition to Priority, four operators took on more than a dozen properties:

— Sinceri Senior Living (21 properties)

— Discovery Senior Living (19 properties)

— American House (17 properties)

— Sodalis Senior Living (13 properties)

However, the trend of sizable operator transitions is not exclusive to the Eclipse closure or to Ventas.

Back in April 2021, Diversified Healthcare Trust (Nasdaq: DHC) announced a plan to transition 108 communities from Five Star Senior Living (Nasdaq: FVE) by the end of this year.

That process recently concluded, and involved some sizable portfolio transitions to particular operators:

— Oaks Senior Living (26 communities)

— Phoenix Senior Living (23 communities)

— Charter Senior Living (17 communities)

And, in a $97 million deal, Welltower (NSYE: WELL) transitioned 22 communities from Senior Lifestyle to Pathway to Living, nearly doubling Pathway’s senior housing portfolio.

The reasons behind the mass transitions vary. In Ventas’ case, the REIT needed to either transition or sell its Eclipse portfolio. For Diversified, transitions were necessitated by Five Star’s evolving strategy.

For operators, it could simply be a great time to make a move. Portfolio deals that match their footprints and strategies do not come along all the time — plus, other routes for expansion are difficult at the moment.

“It’s cheaper to buy something these days than it is to build [something],” Justin Dickinson told SHN. Dickinson is senior VP of investment for Pathway to Living at Waterton.

And acquiring larger portfolios also brings efficiencies on a purchase price basis.

“Maybe it becomes a little bit more cost-effective to purchase larger numbers of properties than just a one- or two-off type deal, because you’re being that much more efficient with your time,” he said.

The Ventas approach

For a REIT, successfully executing any operator transition is important, but the stakes are particularly high when a large portfolio is involved.

So, identifying the right operator for a given transition is crucial. For Ventas, the process is multifaceted and begins even before a particular transaction is on the table, Hutchens told SHN.

“Part of what we’re trying to learn about operators is track record both operationally and geographically as well as what asset classes they are comfortable with,” said Hutchens.

Ventas conducted these sorts of operator interviews in 2020 and continued into 2021 with no particular transitions in mind. Then, as transitional opportunities arose from the Eclipse fallout, Hutchens and his colleagues were able to “connect the dots” between the available properties and potential operators.

The REIT takes a methodical approach to evaluating any potential operator and seeks specific qualities to determine whether a transition might be a good fit, according to information that the company shared with Senior Housing News. Among the key criteria are:

— Strong alignment with Ventas from a philosophical and financial standpoint

— Strong leadership in place

— Capacity to transition a portfolio, with a particular focus on the types of communities in an operator’s existing portfolio and “proven operational expertise” across domains such as labor and revenue management

Ventas also keeps in mind its overall portfolio diversification; the REIT currently has 37 operator relationships and added eight new partnerships this year.

When it came time to transition the Eclipse communities, Ventas found operators that had demonstrated growth and that had an infrastructure in place to facilitate future organic and external expansion.

Other factors Ventas considered for the Eclipse communities were regional overlap and market experience.

“Most importantly, they are interested in managing a middle market assisted living product,” Hutchens said.

Even operators that didn’t necessarily have the same middle market experience level, had capabilities.

Discovery, for instance, has a multipronged branding strategy in the middle market as part of their overall plan moving forward, according to Hutchens.

“So, they’re well-positioned to be successful with that product type although they do operate other product types as well,” he said.

The value of local

There is a regional element to the mass additions for operators. Indeed, the age of the super regional providers has arrived, as reported by SHN.

REITs and other ownership groups have praised regional providers for their ability to gauge local market dynamics and maintain quality through close management of their portfolios, and the transitions this year reflect the move toward regionals in various parts of the country:

— Priority: Western Pennsylvania & West Virginia.

— Pathway: Central Illinois & Ohio.

— Phoenix: The Carolinas, Alabama, Missouri, Kentucky & Arkansas

The regional proximity of these recent mass acquisitions creates the necessary advantages for both a smooth transition and for competitive growth within a defined footprint.

And national providers also have observed the advantages that regionals enjoy, and have crafted strategies meant to emulate these strengths. Discovery is one of the 10 largest providers in the United States, but is creating regional sub-brands that will operate with a high degree of autonomy. The company created a new management company and two sub-brands for the former Eclipse portfolio.

There are a few reasons why regional operators are currently flourishing and able to take on ambitious growth, according to Hutchens.

He points to his own time leading an operating company, about 15 years ago. At that time, the senior living sector was highly fragmented, with many operators managing five or fewer communities. Over time, stronger operators were able to grow through acquisition, for several reasons.

First, they stayed committed to certain markets where they had a track record and the ability to raise capital.

Secondly, business technology such as CRM, payroll, and other systems that had previously been the advantage of larger companies became more widely available.

Hutchens’ point has been made by leaders with operators such as Phoenix, which was “built to be scaled,” CEO Jesse Marinko told SHN in September 2021. Phoenix implemented technology from its earliest days to create an infrastructure for growth, which the company is now executing.

So, regionals today have a greater ability to scale than in the past, even though Hutchens acknowledged that large national providers still have the strongest economies of scale, enabling them to carry more complex and expensive overhead.

“The key is, when you’re underwriting regional versus national, you want to be thoughtful about what is it that I’m asking them to do? Is it the right product for them? Is that the right market?” Hutchens said. “We like to say, ‘right market, right operator, right community,’ and make sure that those line up; and whether it’s a regional or a national, you’re going to underwrite it relatively the same way.”

When considering the Eclipse portfolio, the Ventas “ask” for operators was different than the mission given to Eclipse for the communities.

Eclipse was formed to be a national platform that could grow through external acquisitions to fill in the market and create more density, Hutchens noted.

“Coming out of the pandemic, the organic performance became more important,” he said. “We have less interest in filling in a spotty national platform. I’m more interested in making sure that we have more focus on our local communities.”

How to add a bundle

Once an operator has been matched up with a suitable set of communities, the hard work of executing the transition begins. Succeeding in a large transition depends on various factors, and among the most important are:


Management transitions can create disruption at the communities, so the owner and new operator must carefully plan and execute a communication strategy, starting during the negotiation process.

“It’s the seller’s responsibility to ensure that word [of a sale] isn’t spread quickly or doesn’t get out amongst the community level,” said Dickinson. “That could obviously impact cash flow or just the individual employees’ interest in working at the community, which would have a negative impact on the value.”

And the clear communication must continue after news of the transition becomes public.

For Pathway, bringing key community-level leaders on board quickly and educating them about culture and processes is important to gaining trust and buy-in throughout the newly acquired communities.

There’s fear about the future among team members, and the new operator must be sensitive in quelling these concerns, according to Priority’s Severine Petras.

“Everyone thinks they’re going to lose their job,” she said. “And that’s the last thing you want anyone to think about right before the holidays.”

Visiting the properties communicated Priority’s mission and values to the staff at each building individually.

“I think that provided a layer of continuity,” Severine said.

Likewise, Ventas emphasizes collaboration and transparency, which includes site visits and frontline communications.

The team

Priority created a team for the sole purpose of supporting the Ventas communities.

While any transition brings change, maintaining appropriate stability is also important — and retaining valuable team members at the community level is crucial to that effort.

Part of the due diligence process is evaluating the prior performance and culture fit of employees both at the community level and at the regional level, said Dickinson.

“Most of the time you’re going to want to keep those incumbent players in place,” he said. “You’re not going to want to cause more disruption than you’re already causing by likely rebranding and buying real estate of these communities.”

Retention agreements, which usually involve a monetary component, are also essential as tools to ensure stability among key community-level leaders — such as executive directors, sales and marketing directors, and wellness direction — throughout the transition process.

Pathway’s goal during a transition is to maintain tri-party leadership at the regional level as well; that’s operational, sales, and clinical leadership.

“If we didn’t have those existing regional players in place, we would either ask the seller if we could [effectively] purchase their employees to move over and work with us, or work on a simultaneous recruitment plan,” said Dickinson.

A new operator also should evaluate its new team members and leverage their skillsets in the transition period.

Priority found a gem in its West Virginia communities.

“We snuck away with an amazing ‘operation specialist’ named Cassie Kane,” said Bobby. “She’s a nurse and a licensed administrator. She can go in and put out fires.”

For Ventas, strong pre-existing relationships between the REIT and operational leadership can help facilitate the transition process. Hutchens has “long-standing personal relationships and familiarity” with the CEOs of the incoming operators for the Eclipse portfolio.

Finding Value

In many transition scenarios, an incoming operator is aiming to drive upside by building occupancy and increasing efficiency. In a large transition, identifying where to focus these efforts can be challenging.

“It takes time to create your own assessment business plan towards where the value creation opportunities are,” said Hutchens.

To speed this process, Ventas deploys its data analytics capabilities, evaluating each community’s ability to drive margin and identifying markets supportive of organic growth.

“The operator would sit down in a face-to-face meeting and we walk through where their time would be best spent to create value,” said Hutchens. “That accelerates the timetable for them by 90 days at least.”

Regardless of growth opportunities, many operators of all sizes are dealing with a tough operating environment, with challenges that are hard enough to surmount in their established portfolios, much less in new communities they are taking on.

Global supply chain issues, labor shortages and rampant inflation are among these issues.

To address the labor market, Pathway will be among the first to integrate a technological tool Dickinson calls an “RPO” model or recruiting process outsourcing model.

The RPO is a centralization for the recruiting process, he said. This tool will allow Pathway to leverage a third party and their resources to handle recruiting.

Outsourcing recruiting will disrupt the current system of having property-specific employees handle localized recruiting, effectively clearing the task off their plates.

“The best use of our community’s time is to manage the problems that arise at that community,” Dickinson said. “Not to handle the administrative components.”

Labor remains hard to find and hard to retain.

Priority recently supplied employees with rideshare credits so that transportation isn’t a deterrent to joining the Priority team, in addition to sign-on bonuses and shift differential bonuses.

“For [perhaps] one of the first times in history, there are three generations working in our communities,” said Severine. “And what makes someone from one generation feel appreciated may not work for an employee from another generation.”

Revolutionizing the way employees are appreciated has been tasked to Priority’s “Corporate Soul” team, a rebranding of the traditional human resources department.

Prior to the pandemic, the communities now under Priority’s management performed well, according to Bobby. The goal, of course, is to return to pre-pandemic occupancy as soon as possible while making each individual community feel part of the family.

The VP of Priority’s corporate soul division is Severine and Bobby’s mother, Debbie Petras and the VP of sales and marketing is Bobby’s wife Brandie Petras.

While the early days of a portfolio transition are critical to success, the ultimate goal is a mutually beneficial long-term relationship between owner and operator, Hutchens said.

To that end, financial alignment between Ventas and its operators comes via management agreements which are NOI-driven and revenue-driven, according to Hutchens.

“Our operating cash flows ought to be equally as important to our manager as they are to us,” he said.

Financial alignment is not the most important factor, however.

“The first thing that’s the most important is that we believe that a company has a mission and philosophy that is geared around taking care of people,” said Hutchens. “ … If those three things are working together, you can build a well-aligned relationship which can also work well on a long-term basis.”

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