Last month brought news that non-traded REIT Healthcare Trust would transition 20 senior living communities managed by Cedarhurst Senior Living to other operators. This portfolio change is part of a comprehensive effort that Cedarhurst is undertaking, which involves new strategies and operational practices shaped by the challenges and disruptions of the last two years.
“We fundamentally re-approached everything because of Covid,” CEO Joshua Jennings told Senior Housing News during a recent interview at the company’s headquarters in St. Louis. “You get to a big inflection point and you’re forced to look at things differently.”
Cedarhurst is far from the only provider to make changes in response to the pandemic, but the company provides a striking example of just how transformative the last two years have been for some operators. Labor practices, resident engagement and enrichment, the company’s footprint and growth strategy, and its philosophy on capital partnerships all are different today compared to just three years ago.
Going forward, Cedarhurst is doubling down on being a large regional player in the Midwest and has moved away from third-party management, with its executives joining a growing chorus of industry voices questioning the viability of standard, 5% management fees.
Cedarhurst also is relying more on business intelligence in its approach to workforce management and has elevated its dining and life enrichment offerings. Jennings and other executives are confident that these changes are responsive to the needs and desires of workers and consumers, and despite ongoing challenges such as inflation, Cedarhurst’s leaders are optimistic.
“The industry is in a far different place than it was a year ago, and I think it’s exciting,” Jennings said.
Today, Cedarhurst’s portfolio includes 53 communities across the Midwest. Cedarhurst is part of The Dover Companies, an integrated developer, builder, owner, acquirer and management firm.
New workforce practices
For Cedarhurst as for many other senior living operators, the story of 2022 so far has been largely focused on leads and labor.
The company’s leads are exceeding pre-pandemic levels, and conversion ratios such as leads to tours and tours to move-ins are holding steady. A new website, geared toward the adult daughter and featuring sales enablement tools, has helped propel about a 20% increase in leads in the first two months of the year, Chief Revenue Officer Kelly Reed said.
But while Cedarhurst has momentum on occupancy, the labor situation has posed challenges.
The company got hit with omicron “pretty bad” in late 2021 and early 2022, leading to agency labor expenses that were busting the budgets that had just been set in November 2021, Jennings noted.
However, omicron infections had faded as of early March, at which time nearly all of Cedarhurst’s buildings were fully staffed at normalized levels, he said. The company’s quick bounceback and workforce stability are due to multiple changes meant to improve recruiting and retention, he believes.
One of the most basic and successful changes: Raising wages.
Jennings described reading many recent interviews with business owners frustrated at their inability to solve the worker shortage. Cedarhurst’s leaders could “cheekily smile” and say that they had figured out the answer, he said. That answer:
“Just pay people more.”
Cedarhurst’s decision to raise wages stemmed in part from a recognition that most frontline caregivers historically have held two jobs to make ends meet. Workers who previously held two jobs now are able to work a single job as more companies have boosted pay, which is driving the worker shortage, Cedarhurst’s executives believe. They want Cedarhurst to be the employer of choice for people making a decision about which job to keep.
“We think we’re getting a better workforce because they’re more dedicated to us and more dedicated to our residents,” Jennings said.
Beyond raising wages, Cedarhurst’s executives reevaluated “every step” of the hiring process, setting up a weekly recruitment meeting and a weekly retention meeting. Changes have included creating a short-form application and enabling text-to-apply. The company also has changed its approach to evaluating applicants, focusing more on “disposition and mentality” rather than specific skillsets, on the premise that skills can be taught.
Cedarhurst also made a significant investment in a business intelligence solution called Domo; the process of standing up this new system has been ongoing for about 18 months, with significant progress in the last six months, CFO Stephen Wertman told SHN.
The system connects disparate operational platforms to enable more data-driven decisionmaking, and at this point is being used largely for labor management, eliminating “exhaustive” manual efforts to match labor and occupancy.
“If you’re budgeted to be at 85% occupancy this month, but you’re at 93%, you’re being delivered what that labor plan is,” Wertman said. “There’s no guesswork, and there’s no frustration. It’s available in real time.”
Cedarhurst also has implemented or tried sign-on bonuses, retention bonuses, and mentorship and buddy programs to create more supportive work environments, looking for incremental improvements in labor metrics.
“None of these individual instances are going to fix the problem, but if they all move the needle at half-a-percent, they’re worth doing,” Jennings said.
Elevating dining and life enrichment
As Covid-19 has changed what workers want and expect, so too has the pandemic reshaped what residents and prospective residents are looking for in senior living. To gain clearer insight into these changes and inform “big decisions” in how to evolve operations, Cedarhurst held focus groups.
“We took that research and implemented it in every aspect of how we’re currently serving our residents,” Reed told SHN.
For instance, the company recently rolled out a new dining program, “Crafted by Cedarhurst.” To create this program, Cedarhurst added new dining talent, including a new corporate chef, Christian Gullet.
The program involves new all-day dining menus that expand options and elevate quality, Reed and Jennings explained. A particular focus is on creating truly restaurant-quality offerings.
“You go to a lot of senior living websites, and they have beautiful pictures … but historically, a lot of the food in senior living communities doesn’t look like the website, it almost looks like a diner,” Jennings said.
In a quest to achieve true restaurant quality, Cedarhurst invested in equipment and supplies, from mason jars to fry baskets.
Cedarhurst also recently launched a new life enrichment program, dubbed “Living True.”
“That’s just really honoring each resident — things that bring them joy every day, and really continuing to deliver that,” Reed said.
Introducing that program has involved training staff to be the “real best friend to the resident” and focus on empowering residents to still do activities that they have enjoyed throughout their lives.
And Cedarhurst is in the midst of rolling out other programs, including a new memory care model.
These operational overhauls are already increasing Cedarhurst’s consumer appeal as Covid-19 “doesn’t dominate the conversation anymore,” Jennings said.
“The consumer wants to know how good your food is, [and] am I going to see a different caregiver every day or am I going to see the same one that I’ve created a relationship with?” he said.
Moving away from management fees
Cedarhurst’s new workforce practices and resident-facing programs have come at a cost.
The new dining program alone generated costs for the additional culinary leadership talent and the new equipment, while raw food costs have been rising due to inflation and supply chain issues, Jennings said.
The good news is that the operational overhaul has supported rate increases to cover some of the new expenses.
“We’re able to compete in most of our markets on value rather than price,” Jennings said. “When existing residents [ask] why did my rent go up, rather than just pointing out all the caregivers, we’re pointing at additional offerings. You’re getting more for your money.”
And pre-pandemic margins can eventually be achieved as rate continues to offset costs, inflation hopefully moderates, and operational efficiencies are realized, Wertman believes.
“When we forecast out about a year, 15 months, we’re confident we can get back to where we were, if not even a little better, on a dollar basis,” he said.
But the economics of Cedarhurst’s new model did play a role in the decision to exit the 20 communities owned by Healthcare Trust. These were the only communities that Cedarhurst operated purely on a 5% management fee basis.
Operating communities on a 5% fee is difficult “even in the best of times,” much less in the current environment of rising labor costs, Covid expenses and depressed margins, Jennings said.
Even before Covid-19, senior living leaders such as Aegis Living CEO Dwayne Clark were challenging the feasibility of 5% management fees. Now, even more executives in the sector have cast doubt on the management fee model. Jennings agrees. In particular, he’s concerned about operators being “almost disincentivized” to put boots on the ground, due to the costs of doing so in an inflationary period.
“I don’t think the economics can be done,” he said. “Maybe at scale, if you’re managing 200-unit independent living buildings where you have a lot of units and not a lot of staff.”
Transitioning out of the Healthcare Trust portfolio also tightened Cedarhurst’s footprint, eliminating a Southeastern presence and enabling the company to pursue a more singular focus on its stronghold in the Midwest.
This puts Cedarhurst on-trend in an era when regional and super-regional providers are growing rapidly and favored by many investor groups.
“You really need to be high-touch in our business, and if you’re amassing a portfolio that is very far from your corporate footprint, you’re not that high-touch,” Jennings noted.
In terms of growth, Cedarhurst has five buildings currently under construction and ideally would like to start construction on another five this year while also acquiring five communities.
Deal flow has not been particularly robust, however, with a bid-ask spread persisting. Jennings believes that with properties buoyed by governmental Covid-19 relief and capital provider flexibilities, probably another year will pass before more sellers accept that their buildings are “broken,” with “broken prices” following.
While there are some new programs and operational changes still to execute or cement, Jennings said that 2022 will largely be about getting “back to basics.” And he’s pleased with Cedarhurst’s direction and the prospects for the sector.
“I just feel really optimistic about the industry,” he said.
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