The Bottom Line: Springpoint Contends with Wage, Insurance Costs as Occupancy Ticks Up

With communities in New Jersey and Delaware, Springpoint Senior Living was at the epicenter of the first wave of Covid-19 last spring — and the challenges came fast and furious.

“It was like drinking from a fire hose,” CFO Garrett Midgett told Senior Housing News.

Labor costs skyrocketed, and occupancy dropped significantly from mid-March through July 2020. Then, the second wave of the pandemic last fall put a stop to steady gains Springpoint made last September and October. With vaccination clinics proving successful, however, the provider is beginning to see some promising developments in sales and marketing metrics, and development of a new strategic plan for growth is underway. However, costs remain a pain point as the organization strives to meet its 2021 budget, with elevated insurance and wage rates among the challenges.

Springpoint’s portfolio includes eight life plan communities in New Jersey and Delaware, as well as 19 affordable senior housing apartment communities. The Wall Township, New Jersey-based provider offers a home care component, Springpoint at Home; an off campus life plan program, Springpoint Choice; and operates a rehabilitation facility.

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?

Our biggest challenge always revolves around occupancy and staffing. That was priority number one last year, as well as the health of our residents and protecting them as best we could.

We experienced a sudden drop in our census, beginning in mid- to late March. We also had a significant increase in our move-in cancellations. Our highest census in independent living was in April, because those people who committed in January, February, March moved in. After that, we saw a steady decline in the independent living side census.

I would [also] involve myself in helping the facilities with negotiating contracts, working with our CPAs [because] we’re self-insured. It was like drinking from a fire hose back then, trying to get everything running on all cylinders relative to Covid-19: testing for staff in the field, dealing with a regulations coming from the state of New Jersey, dealing with staff that were rightfully afraid to come to work — a lot of them that had pre-existing medical conditions.

We were spending a lot on contract labor. Attracting staff became harder, and it was hard to begin with, as the state [is moving] to a minimum wage that ramps up to $15 an hour [by 2024]. There are employers that were paying well above $12 or $13 an hour before the pandemic even started.

Has Springpoint’s reliance on contract labor subsided as you were able to better manage the pandemic?

We’re getting back to normalcy. Many providers, including us, only use contract labor as a last resort.

Our biggest challenge with contract labor last year, particularly from April until July, was there was such a heavy demand for it because some of our staff was not coming to work. [Pre-pandemic], where we would spend [up to] $30 an hour for a CNA, we were paying $50 to $60 an hour. And we were paying $80 to $90 for LPNs. We needed to move pretty quickly on how to kind of stem the tide.

We looked at hero [pay] and temporarily increasing pay rates in certain communities. The need for contract labor started to abate in mid-June. Then it started [increasing] at the end of the year when the pandemic [entered a second wave].

Do you see this creating a new, permanent minimum wage floor in a post-pandemic operating environment?

We’re going to establish a new floor. [For entry level workers], we’re competing with Walmart, Amazon, even convenience stores are paying $15 an hour.

It creates wage pressure on the other members of the organization that are in housekeeping and dining and maintenance that may be below that number. We had some people that transitioned out of those positions into a CNA role, because of the higher wage rates. The offset to that is it’s a very difficult job. Being a CNA has to be the hardest job in our communities. There’s a balance there where employees might see the difference between the wage rate that they get paid and the difficulty of the job.

Did Springpoint experience an increase in demand for other service lines such as home care as census across its communities decreased?

We acquired Senior Care Management in 2015 and re-launched it as Springpoint at Home, our home care/care management business. But that business didn’t change too dramatically, that I can remember. It ran into the same issues: some aides were afraid to come to work. And quite frankly, some of the families, I think, had a fear, as well.

We also have 19 affordable housing communities. Aside from the safety issues with residents and transmission of the virus, we didn’t see any real financial impacts in those communities. We also have a life plan without walls program, Springpoint Choice, we didn’t see much of a change, nor a rush of people to get into that program.

Where was Springpoint at when you started at the company, and what were its priorities at the time?

I was a controller for two of our skilled nursing [facilities] and I reported [directly] to the CFO. And at the time, we were a decentralized finance department. After a few years, we centralized the finance department and I was promoted to corporate controller.

In 2008 I became the CFO, when the financial world went off the cliff and the real estate market tanked. It was a baptism by fire. We were much smaller. We only had five life plan communities, and 13 or 14 affordable properties. Our revenue back then was around $120 million annually; it’s over $200 million now. It has grown quite a bit. We’ve divested of some facilities over that time period, as well. 

When I started as CFO, [our] debt service was a real challenge. And our occupancy started to come down slowly because of the real estate market, although not as dramatic as what happened last year. It was a slower decline, and we didn’t really see an impact on the [higher care levels].

How did you address the debt obligations, and what is Springpoint’s debt load currently?

We have a bond issue for our newest facility in Delaware. Prior to that, [the previous owners] put it out as a fixed rate mortgage. So we have those bonds that are out there, they’re “BBB-” rated. We formed a new obligated group that just completed a $200 million refinancing — 60% of it was tax exempt, the rest is taxable that we placed to two local banks.

It took us a lot longer than we planned. We started planning in October 2019, with the hope that it would be completed by April 2020. Of course, the pandemic changed that. In New Jersey, we have to get approval through the Financing Authority, but they postponed their meetings. We decided to go another route. The pandemic extended the time it took to get that done by another 10 months.

How quickly do you expect Springpoint to return to pre-pandemic levels in occupancy and net operating income?

We always knew that the ride down was going to be faster than the ride back up.

Delays in surgeries [had a] dramatic impact on inflows on the Medicare side of our nursing facilities. By the summer that leveled off and then we started to see an uptick in September and October, over a six- to eight-week period where average occupancy started to climb.

Unfortunately, by early November, it started going in the opposite direction again. Now we’ve started to see lead generations improve in independent living over the past six weeks. March was our best month in terms of lead generations since before the pandemic, and sales have been going great. We’re clearly hoping that continues. We’re also starting to see skilled nursing, assisted living and memory care [census] start to recover, as well.

A lot of that has to do with the vaccinations and the fact that the vaccines have been available for about four months. My hope would be that, you know, by the end of this year, we’re getting back to normal.

How is Springpoint’s availability to capital at the moment?

We had a number of banks that put in proposals on the refinancing that, once the pandemic started, [pulled back]. That added to some of the duration. Once the [capital markets] settled down and we were ready to move forward with it, it took a little longer than we anticipated to find the banks that we needed to put it together. One bank, we had a relationship with already. They were financing one of our buildings. The other one, we knew the relationship manager. It took a while because the banks were very cautious.

Do you expect Springpoint’s margins to be under more, less, or the same amount of pressure in 2021 than in 2020?

The first quarter [of 2021] is not where we wanted to be, when we put our budget together last October: things were looking a little rosier back then. But we’re seeing some good signs and we’re not tracking that far behind our budget right now.

We certainly think that we’re going to be able to get closer to our budget as the second quarter comes to a close. But there are always pressures on the margins. The insurance market right now is not favorable, for general and professional liability. Insurers are leaving the marketplace. Last year, we had over a 20% increase [in premiums], and so did other providers that I’ve talked to. There will always be pressure, with more health care costs going up. It’s tough, it’s tough business.

How is Springpoint approaching M&A activity in 2021?

We are currently developing a three-year strategic plan. We get calls on a regular basis from folks who want to develop one-off assisted living and memory care communities, paired with a big rental independent living building. We’ve looked at a number of things over the years: some we move forward on, some we acquired through other nonprofits, others we purchase outright.

We can be selective. We don’t need to jump at all the opportunities because we don’t want to spread ourselves too thin. We will have some type of growth built into [our strategic plan], but we can’t speak specifically to what that would be, since we’re in the middle of developing it.

We get calls from investment banks directly, inquiring about [a community] having struggles. We hear about some of the single sites that weren’t as strong financially, before the pandemic came along. We’ll take a look at them and, if we think that we can provide a benefit to them as an organization and they can increase our mission, we would certainly take the necessary steps to move that forward.

From a geography perspective, certainly, we’re not going to take a one off in areas that aren’t geographically close to where we are. We have looked at other areas like Pennsylvania, Delaware and Maryland. New York is very tough because of the regulatory environment for life plan communities.

Where does expanding access to affordable housing fit within Springpoint’s strategic plan?

It’s a challenging space. We’re looking at tax credits as an opportunity to move forward with some deals.

We are having conversations with another group that has some properties in New Jersey. There is an application process — almost like a bidding — that goes on. The [providers] that scored the most points were selected for new development.

It comes down to where it is located. How much of a contribution is being made from the township for property taxes? It is a difficult thing to develop. We’ve been doing it for a long time. There is a need for affordable senior housing.

Is Springpoint exploring Medicare Advantage plans?

We do have membership in an organization that allows us access to some of the Medicare Advantage providers. It’s tough. We have some contracts [but] we don’t have as many as we’d like.

One of the unique things about us is we have residents who are under contract in our life plan communities. They know their entry fee agreements. They go to the hospital for an event, and they may have Medicare Advantage. Now we’re able to take care of them when they come back, predicated upon our relationships with the providers. We can work that out on a single case agreement basis, for those that we don’t have agreements with.

How does Springpoint strike a balance between mission and margin?

All nonprofits share a similar challenge between operations and finance, trying to strike that proper balance. From our perspective, we love to have an operating margin of 3% to 4% in our life plan communities, and I’d actually love to see higher than that. If we can get there, we’re doing pretty good.

We have a great group of folks. I do have to remind them that we need to have the money in order to do some of these great things that everybody wants to do. From time to time, the CFO could be considered the killjoy in the room, trying to gracefully identify the reality check of things that we need to do in order to get from point A to point B.

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