Senior Living Industry Giants Face Defining Year in 2022

Last year, the expansion of regional senior living operators generated a lot of headlines. But heading into 2022, I’m most interested in how the year will unfold for several of the largest national providers.

In fact, I believe that 2022 could be a defining year for a number of industry behemoths, and many of the most interesting stories will involve how they execute on a diverse set of strategies.

Already, some of the largest operators are dominating the news in the first week of 2022:


— LCS announced a recapitalization

— Discovery Senior Living has added 8 new properties

The coming year will be an important one for LCS, as the provider begins to execute on its post-recap priorities to grow and achieve operational enhancements — for more details on those plans, check out our recent coverage.


In this week’s exclusive, members-only SHN+ Update, I take a closer look at why 2022 will be a crucial year for Discovery and four other industry giants: Brookdale Senior Living (NYSE: BKD), Atria Senior Living, Sunrise Senior Living and Five Star Senior Living (Nasdaq: FVE).

Brookdale: Pursuing innovation

After years of struggle following the Emeritus acquisition, Brookdale has trimmed its portfolio, restructured leases, strengthened its liquidity and risen to Covid-19 challenges.

As my colleague Tim Regan wrote, Brookdale arguably is in a position of surprising strength. This year should be the time for Brookdale to go from being a company in turnaround to one that is staking out a clearer, stronger brand rooted in its competitive differentiators.

The emerging Brookdale is a company focused on higher-acuity assisted living and memory care communities. This seems a shrewd move, given the increasing competition vying for the younger active adult demographic, and the potential for a memory care boom starting this year.

However, I think Brookdale needs to drive toward greater innovation in order to stand out as a best-in-class operator for this higher-acuity segment. Such innovation has been difficult at Brookdale in the midst of turnaround efforts — Dr. Kevin O’Neil has spoken of these challenges to innovation as one reason he stepped away as the company’s chief medical officer.

But innovation is needed to keep pace with a number of other providers that have rolled out new memory care offerings in recent years, and/or they moved into the Medicare Advantage (MA) space.

I also think the future of higher-acuity senior living lies in being able to provide more integrated and coordinated health and wellness services to residents, including through more on-site primary care. Brookdale’s home health JV with HCA Healthcare could lead in this direction, and 2022 should provide some indication of how creative, nimble and fast-moving the two large organizations can be in working together to create mutually beneficial care models.

Brookdale’s occupancy also will become a more pressing issue in 2022. Month-end occupancy for Nov. 2021 was 74.3%, lagging the 80.1% Q3 2021 average senior housing occupancy reported by NIC MAP Vision. Brookdale has been wisely exercising rate discipline to guard its margin, which perhaps has constrained the occupancy numbers.

A push to upgrade sales practices should help drive occupancy. But for the moment, the census level is impeding Brookdale’s access to agency credit, as Jefferies analyst Brian Tanquilut recently pointed out in a note. As a result, Brookdale’s refinancing of $100 million in mortgage debt came with a 3-year rather than 10-year term — not something investors are keen on, given the shorter timeline to the next refinancing, presumably in a higher interest rate environment than today.

“While we acknowledge that BKD’s mortgage maturities are spread over multiple years, the recent refinancing and restricted access to agency credit underscore the importance of meaningful occupancy/operational improvements for the company over the next 12-36 months,” Tanquilut wrote.

Discovery: An inflection point

When the annual “largest senior living providers” lists come out in 2022, Discovery Senior Living will be a new presence in the top 10, thanks to the company’s recent expansion.

But while Discovery is now among the very largest U.S. providers, its growth in 2021 came mostly through the formation of affiliated regional management companies, which operate largely independently but receive support and resources from Discovery’s corporate office.

The transaction announced last week with White Oak Healthcare REIT continues this strategy, adding to the Southeast-focused TerraBella affiliate and the SummerHouse sub-brand (which will be converted to a full-fledged regional affiliate when the portfolio gains further scale).

In the past, Hutchinson has spoken about his willingness to pay some “dumb tax” to innovate and be an early mover. The next year will provide an indication of how steep the dumb tax will be on this regional affiliate strategy.

Certainly, Discovery is learning lessons along the way — for instance, adding a few different positions to TerraBella, based on the early experience in standing up the Morada affiliate.

But Hutchinson is confident that years of strategizing and “tens of millions of dollars” in investments to get the needed infrastructure in place will pay off.

The concept and early results have been promising enough to gain the confidence of several capital partners — notably White Oak, which has 27 communities in its portfolio with Discovery, most of which are being operated by regional subsidiaries. NHI also plans to transition some communities to Discovery early in 2022, and Ventas tapped Discovery to take on some former Eclipse properties.

“We’re driving good results … and we want to continue to expand,” Hutchinson said.

And 2022 also will be a milestone year for Discovery’s national brands, with its first Discovery Place “experiential living” community breaking ground. The concept is to utilize business intelligence data to create more customized resident experiences, enabled by a la carte pricing and locations that facilitate easy access to amenities and services provided by nearby businesses.

Hutchinson believes that the senior living industry as a whole has reached an “inflection point,” and gaining a clearer understanding of the consumer is key to success for Discovery and other providers in 2022 and beyond.

In fact, Discovery is “going back to the future” and doing consumer surveys, Hutchinson said.

“We really need to connect with our current and future customers, and … not just read a report, and then start developing your product around a report,” he said. “I want to see the whites of their eyes and have them telling me, with all the nuance, what’s important to them.”

Sunrise: The Callison era

For Sunrise Senior Living, 2021 was a year of transition, with Jack Callison entering as CEO.

Callison embarked on a “listening tour” of Sunrise communities and brought in a new leadership team, including a COO, CFO and chief clinical officer. His overall strategy should come into clearer view over the next 12 months, but there are some hints as to where he is steering the provider.

One goal appears to be a leaner, more focused enterprise. Sunrise exited the U.K. market in July 2021 and has transitioned out of certain U.S. communities, including several under the Sunrise Villa brand.

These moves suggest a desire to reestablish the clarity of what the Sunrise brand means. The challenge will be doing so not by turning back the clock to the days when Sunrise was synonymous with its senior living “mansions,” but by updating that legacy for a new era.

Part of updating that legacy could involve more urban development, led by the recent opening of Sunrise at East 56th in Manhattan.

And like Brookdale, I believe that Sunrise — which also operates a higher-acuity portfolio — will do well by pursuing innovations related to more coordinated care for residents. Already, Sunrise has launched a Medicare Advantage product, and Callison also made an interesting pick for COO in Nick Stengle, formerly COO of Kindred at Home. The home health care giant was acquired by MA behemoth Humana, meaning Stengle brings expertise from different parts of the continuum and an appreciation of the move toward value-based care.

Furthermore, Sunrise is partially owned by Welltower (NYSE: WELL), which is a strong proponent of health system integration with senior living communities, and finding ways to leverage Medicare Advantage to increase care options for senior living residents.

In his previous role as CEO of Enlivant, Callison focused in particular on creating a strong workforce and corporate culture, so expect him to also play to these strengths at Sunrise — an important priority, given the extremely challenging labor environment.

With 2022 being the first full year of the Callison era, he has his work cut out for him — as do all senior living executives, facing the rise of omicron and other issues. But, the pieces appear to be in place for Callison to make his mark on the company.

Atria: Lifting the dumbbell

Out of all the largest senior living providers, Atria made the most dramatic move in 2021, with its acquisition of Holiday Retirement. In 2022, the rubber will meet the road in terms of how the two companies integrate and pursue their plans for Holiday’s large portfolio of independent living communities.

Unlike in the last blockbuster combination of top-10 providers — Brookdale and Emeritus — we will not have a window into the Atria-Holiday integration via public earnings calls. However, the publicly traded REITs that work closely with Atria will provide some readthrough into how the acquisition is playing out.

There are some complications, with news this week of National Health Investors (NYSE: NHI) suing Welltower over a dispute involving 17 legacy Holiday properties. But this suit should not derail the big-picture plans that Atria and Welltower are pursuing.

These plans include capex investments on the 86 Holiday properties that Welltower acquired, concurrent with Atria acquiring the Holiday management company. The next year will shed more light on how these projects will put “new engines” on the “B-52s of senior living,” as Atria CEO John Moore put it at SHN’s recent BUILD event in Chicago.

The next year also should indicate how effectively Moore and Holiday CEO Lilly Donohue can work together to create “Holiday 3.0,” by combining the best practices of their respective organizations.

But integrating and evolving the Holiday portfolio is just one of Atria’s 2022 priorities. The next year also will see the opening of Coterie Cathedral Hill, the first ultra-luxury urban project from the joint venture of Atria and Related Cos. A successful launch would get this ambitious development pipeline off to a strong start, while Atria also will be gleaning lessons to inform future Coterie projects.

And, Atria is continuing to conceptualize and bring to market a middle-market assisted living product, potentially with Medicare Advantage playing a role in defraying costs to residents by covering certain services.

With its multiple brands serving the most affluent consumers and those in the middle market, Atria is pursuing a “dumbbell strategy” focused on two different ends of the market. If Atria succeeds in lifting the metaphorical dumbbell, it will be an impressive feat; of course, the risk is that the dumbbell becomes too heavy or imbalanced to keep aloft.

But Atria appears to have made steady progress on its strategy over the last several years, despite the challenges of Covid-19; the next 12 months will further test the company’s operational strength, but the dumbbell could rise higher, if new communities lease up and the boomer demand wave starts to manifest more strongly across various price points.

Five Star: A necessary transformation

Out of the 10 largest senior living providers, Five Star arguably made the most significant strategic shift in 2021. The provider decided to focus on larger communities and transitioned out of 107 smaller properties, while also exiting the skilled nursing space.

With this portfolio restructuring completed in Nov. 2021, Five Star’s leaders are entering the new year poised to create the next iteration of the company.

Part of the strategy is to align with new partners, and two recent announcements show that Five Star is not wasting time. The company will be working with Compass Group on its dining programs, while DispatchHealth will now be bringing acute care into communities.

Bringing various services together to create a more seamless and elevated lifestyle for older adults appears to be the vision for the company. In this vision, some services would be provided by Five Star — such as its Ageility rehabilitation and wellness offering — while others would be provided by partners.

Indeed, CEO Katie Potter has spoken of making Five Star into a “life services” company to empower older adults across physical, emotional, intellectual, social and other domains.

“I think this concept of life services that empower a lifestyle … is going to be really important in how we approach securing the business of this demographic,” she said.

In the next year, expect more moves to diversify the company, perhaps including the addition of more home health care.

And while Brookdale is positioning itself for a higher-acuity resident, Five Star is moving in the other direction. The recent restructuring shifted the portfolio from 38% independent living to 52% independent living.

While the competition for the younger baby boomer is intensifying, Five Star is focused on creating a more personalized resident experience to attract this sought-after demographic. In this regard, Five Star is joining other senior living providers — including Juniper Communities, Mather and Kisco — in pushing toward greater customization of the resident experience.

“Today’s customer is seeking a more independent lifestyle with access to a vast array of what we call concierge services,” Potter said. “These services are designed to enhance and customize the resident experience, differentiate our offering from the competition and provide us the opportunity to engage the customer earlier in their aging process.”

If Five Star can achieve these goals and become a “life services company,” that would be a dramatic shift and a necessary reinvention of an enterprise that was in dire straits when Potter took the helm.

So, 2022 will be a critical period in achieving the reinvention of Five Star — and could prove a decisive period in determining how strong and successful all of these large industry players will be in the coming years.

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