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Discovery CEO: Recap Will Fuel New Growth, Begin Next Stage of Our Evolution

In 2018, Discovery Senior Living CEO Richard Hutchinson had a vision for the future of the company — and for the industry. Four years later, he is executing on that vision with major plans underway and new partners in tow.

On Wednesday, the company announced a new recapitalization with Coastwood Senior Housing Partners and Lee Equity Partners. With the move, Coastwood Chairman and industry veteran Dan Decker will chair Discovery’s board of directors.

Hutchinson sees the senior living industry at an inflection point, and on the precipice of a new era of consolidation. And with two new major partners along for the ride, he believes there is a real opportunity to not only grow the company’s portfolio, but also bring about its next evolution with new service offerings.

“There’s a sophistication requirement as this industry is maturing in the business process,” Hutchinson told Senior Housing News. “And we want partners that are willing to advance that.”

Discovery went into the recap with the wind at its back. Hutchinson said in 2022 the company had clawed back occupancy, shifting from approximately 74% occupancy to start 2022 and moving to a spot occupancy of 85% in October.

“This has been a very aggressive, very active and very successful year for us,” Hutchinson said.

Coupled with four record-breaking months of move-in conversions and seven record-breaking months of leads, Discovery is bringing some momentum into 2023.

Riding occupancy, move-in and lead generation tailwinds, Hutchinson said demand for senior living remains “very, very strong.” To boot, the company’s Botana Springs, Florida headquarters and a host of its Florida properties rode out Hurricane Ian earlier this month, with some residents moving in “literally days after the hurricane,” Hutchinson said.

“We’re feeling very bullish on our ability to continue to drive through this challenging time,” Hutchinson said.

Discovery Senior Living is the nation’s eighth largest provider according to Argentum, with 120 communities,two projects under construction and four communities under development and pre-construction.

Recap to sustain, extend growth

Discovery Senior Living’s recap is taking the company into its “next stage” of expansion and evolution.

As he looks across the industry’s history, he sees a landscape littered with failed growth projects and operators that tried to grow but ultimately failed. For years, Hutchinson has had the mantra that Discovery seeks to “scale, not fail,” and that is what the recapitalization is aimed at.

“What we’ve done is looked at a better way to scale,” he said.

Both of Discovery’s newest partners, Lee Equity and Coastwood, bring a host of experience to the table, and will help the operator build out its operational platforms.

“The reason why we have started a partnership with Lee Equity, and Coastwood is, first and foremost, their experience — that, and the synergy that they can bring to our vision,” Hutchinson said. “And our vision is to scale and actually outperform rather than move to mediocrity.”

Hutchinson added: “They’ll be able to go ahead and look at how we are scaling and provide feedback on similarities they have seen in other industries. I am looking for partners who can do more than write checks.”

While he didn’t disclose the specifics of the deal, Hutchinson noted that the funding mechanisms in place for the recap “will be substantial” going forward. He added that the recap came at a timely point for senior living, as the industry is maturing and the business model for the product offering evolves.

“It will allow us to continue the accelerated growth of the platform over the next few years without hesitation,” Hutchinson said. “We needed that funding to not only grow the organic side, but to take advantage of all those visionary things we have been talking about.”

Central to Discovery’s growth plan is a focus on structure, systems and order. In addition to its national presence, the company has a growing list of regional brands, including Morada Senior Living, TerraBella Senior Living, SummerHouse Senior Living.

Within that umbrella, Discovery has a growing portfolio of “experiential living” communities that use business intelligence data to create more customized resident experiences for residents, with a la carte pricing and communities located near amenities and other services.

But Discovery’s strategy is not simply to have brands on the national and regional level. The bigger goal is to build out a regional brand management structure that will allow for sustainable scaling. That starts with keeping operations manageable, Hutchinson said.

Discovery will limit its brands to about 30 to 35 communities under a regional management company with its own divisional president, COO and CEO. The operator is also keen on supporting communities with additional resources and staff. Having a regional manager and understanding each local market helps Discovery provide senior living care in a “very nuanced way,” Hutchinson said.

The regional brands help personalize the pre-sales experience for families, Discovery is able to customize the look and feel of each brand to the area where they are located, including through marketing and web materials.

But, Discovery is only able to do this through vertical integration. In addition to its senior living operating companies, Discovery also has a development company, a marketing agency, home health and hospice and other functions. And that area will evolve over time, too.

Looking to 2023

Hutchinson believes that next year, Discovery will be positioned to take on more value-and add and other opportunities, from new strategic partnerships to new development and acquisitions.

That also includes being prepared for the next generation of senior living customers, and evolving to meet the changing definition of what the “home” is by offering home-based care services to residents of Discovery communities.

“We can …expand those service offerings and be set up to be part of the solution for the lower-cost delivery of health care services in America,” Hutchinson said.

Hutchinson hinted at future home health-related offerings, while also teasing at some new things coming down the pike for Discovery to partner with other companies that would be aimed at “accelerating their business process.”

“We can play a role in delivering healthcare-related services more holistically to the broader market beyond just our communities,” Hutchinson said, alluding to the company’s to-be-revealed future plans.

Discovery also is building on its partnerships in 2023 with companies including Welltower (NYSE: WELL), Ventas (NYSE: VTR), National Health Investors (NYSE: NHI), White Oak Healthcare REIT, Kayne Anderson and Loan Star Funds.

“That gives you some indication of their bullishness on the direction we are going,” Hutchinson said. “There are numerous providers, capital [partners], and owners in this space that we are speaking with that are very excited about the direction we are going.”

With margins tight across the board for operators, and the runaway ending for properties with lagging occupancy, 2023 could serve to be a year full of transactions, something Hutchinson said he wanted Discovery to “play a big role in that.”

Looking ahead, Hutchinson expects a “leveling-off of expenses” while labor will continue to be a major thorn in the side of operators looking to recoup shrunk margins and stretched employee rosters.

Hutchinson said the high rate of employee turnover is an “anchor” weighing down the industry, and added that Discovery is working to “start turning the tide” on turnover rates.

“That’s going to be a huge initiative next year that we’re trying to tackle,” Hutchinson said.

But, given that industry occupancy is on the rise and new construction is not, Hutchinson feels positive about the year ahead.

“From our standpoint, the demand side of the equation — given the lack of new supply that’s coming out, our ability to take value-add communities, renovate them and bring them to market standards — that is a really tremendous opportunity that we will take advantage of,” he said.

The post Discovery CEO: Recap Will Fuel New Growth, Begin Next Stage of Our Evolution appeared first on Senior Housing News.

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