With a reconstituted executive team in place, financial restructuring of one life plan community complete, and occupancy beginning to recover from 2020 lows, Lifespace Communities is now turning its attention to growth. Diversifying service lines and affiliating with smaller providers may be part of its strategy.
The West Des Moines, Iowa-based nonprofit most affiliated with Senior Quality Lifestyles Corporation in May 2019 — a merger that brought with it two underperforming life plan communities, one of those in bankruptcy.
As Lifespace works to stabilize the operations and financial positions of those campuses, it is receiving inquiries from smaller providers interested in affiliation. But it will do its due diligence before striking any deal, CFO Nick Harshfield told Senior Housing News.
“We have a fairly solid selection process that looks at multiple dimensions of potential opportunity,” he said.
Harshfield joined Lifespace in May 2020, as part of an overhaul of the Dallas-based nonprofit provider’s executive suite. He was most recently CFO at Johnston, Iowa-based provider WesleyLife, and also served in the same capacity at Ascension Senior Living, Exceptional Living Centers and Christian Care Communities. Harshfield and Lifespace CEO Jesse Jantzen worked together at Ascension.
This interview has been edited for clarity.
Senior living has become more operationally and financially complex over the last few years. How has that placed new demands on you?
Not only is the industry more complex today, it keeps changing on us. I’ve had to get a better understanding of how the operations and finance need to be in concert with each other, to ensure that you are receiving proper reimbursement.
[We’ve also learned] how to work with health systems — which adds to the complexity — although now we’re used to it and understand how that works. Over the past year, we’ve seen declining occupancy, particularly within skilled nursing. That placed pressures on margin.
You joined Lifespace last May, during the first wave of the pandemic. What are your priorities as this continues?
I’m responsible for finance, procurement, development and redevelopment, as well as the technology team. The biggest change that I’ve been working through with our team is — and we’ve been doing with this [in a work from home environment] — is retooling our central office to be more of a support center, make sure that we’ve got the right tools and resources in place, and that we’re providing all the support to the communities that we can to enable them to be successful as they can be. That’s taken a different mindset to really get into that perspective.
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And what were some of the challenges that you identified once you started at Lifespace?
Covid-19 overshadows everything. At some point, it’s hard to figure out what the pandemic caused versus what it didn’t.
The overarching financial impact of Covid-19 is the pressure on occupancy. Along with that comes pressures on margins.
For us, the biggest impact has been on sales, which impacts our net entrance fees, which is a significant part of the economics of our business. The decline in sales, even though we still had a strong year, was well under our expectations for 2020, before the pandemic and significantly hindered us from meeting our goals for last year.
Are there specific expenses that are of concern to you in 2021?
We’re in pretty good shape right now, as far as our cost structure. We saw some opportunities early last year, with some of our contracts that we had in place, and we’ve been working on those and got them where they need to be.
[When I joined Lifespace], I was blessed with a strong balance sheet going into the storm of Covid-19. I’ve preached for years that a big part of the CFO’s responsibility is to make sure that we have a balance sheet that can weather the storm.
Lifespace not only had a balance sheet that can weather the storm, we actually ended in a very strong position at the end of the year. When you look at our obligated group, our days cash on hand remained fairly steady from the beginning of the year to the end.
Will margins be under more, less, or the same amount of pressure this year?
With the momentum that we’re starting to see on our sales and some improvements we’re seeing within our higher [acuity levels] on occupancy, I’m fairly positive that our margins will be in good shape. We actually ended 2020 with strong margins, because of funds that we’ve been able to put in place around what we call operational excellence. Now we’ve got those fairly institutionalized in many respects. You always have to watch your margins and protect them. With where we’re heading, I don’t see any additional pressures.
How are the campuses that are under financial duress, The Stayton at Museum Way in Fort Worth and Edgemere in Dallas, faring?
The Stayton’s financial restructuring is complete. We are in forbearance negotiations with the bond trustees on Edgemere, and there is a small liquidity support agreement extended to the state.
We have those communities segregated from our obligated group, which is the core of our credit. Those two properties aren’t having an impact on the obligated group.
How is Lifespace’s availability to capital at the moment?
We have a financing plan that we’re expecting to bring to market later this year. Fitch Ratings already factored that into their credit rating update last fall. Even with that anticipated, they affirmed our “BBB” rating. We don’t have any issues with going to market.
How is Lifespace approaching M&A activity in 2021?
We see three areas of growth. One is looking at our current communities and making sure we have the right marketing strategies and approaches to grow our current occupancy, as well as our redevelopment projects that we have out there to expand our current communities.
We’re also looking at opportunities to bring new communities into the Lifespace family. And we’re starting to think about diversifying our lines of service to have more diversity in our revenues.
We have many [affiliation] opportunities come across our desk, but we’re not actively looking for opportunities. We have a fairly solid selection process that looks at multiple dimensions of potential opportunity, from market position to culture to financial. We use that with good discipline when we are reviewing [opportunities]. There is a bifurcation in the industry between single site and smaller multisite [providers], and [larger] multisites. We’re starting to see more interest in Lifespace from those smaller organizations looking to join a larger organization, to take advantage of our bigger [platform].
What new service lines are you considering?
We have a solid home health agency. It’s licensed in various markets, but it’s not certified for Medicare. We see that as a foundation for some future growth. As far as really developing [other service lines], that’s something we’re still working through.
Is Lifespace considering entering the middle-market or affordable senior cohorts?
It’s something that’s under consideration, but it’s not an active pursuit, at this point.
Is Lifespace exploring Medicare Advantage plans?
I’ve been a part of other organizations that looked hard at that. With Lifespace it’s really not something that we’ve had any conversations about.
How does Lifespace strike a balance between mission and margin?
We are fully aligned [in both]. We start with quality: delighting our residents. Part of that is making sure that we’re excellent stewards of our resources. It is a balance that this leadership team is in alignment on. We want to have delighted residents and we want to have an organization that is financially sustainable for the long haul. To ensure that, we [must] have resources to reinvest back into our team members [and] our residents.
At the end of the day, margin is about what you’re able to reinvest. Balancing that is making sure that we’ve got the reports that are relevant for folks who are operating the day-to-day business of our mission, they have measurable outcomes and expectations, and they have the ability to monitor progress. That’s been a big part of our focus over the past several months.