Former Holiday, Archstone executive rights the ship of a once-troubled owner-operator
By Jeff Shaw
Managing Editor
When private equity firm TPG bought seniors housing owner Assisted Living Concepts (ALC) in 2013 for $280 million, there was a major reputation problem to fix.
ALC, which was founded in 1981 and went public in 2006, was suffering under a massive string of scrutiny and bad press. The company was kicking Medicare residents out of its facilities to make room for more profitable private-pay residents, the chief executive was fired and became a whistle-blower, and entire states were threatening to revoke the company’s license to operate due to substandard care.
Upon acquisition of the struggling company, TPG created Enlivant to own the 200 former ALC communities and installed Jack Callison as chief executive officer for the unenviable task of repairing the company’s reputation.
The changes were swift and comprehensive. The top 16 executives in the company were immediately replaced, followed by the vast majority of divisional and regional managers. The idea, according to Callison, was to create a complete culture change.
The company owns and operates its entire portfolio, which includes approximately 200 communities in 19 states.
Seniors Housing Business spoke with Callison about the turnaround, what’s in store for the next few years, and what it means to change a company’s culture.
Seniors Housing Business: Walk us through the acquisition and turnaround project. How bad were things and what did you do to repair them?
Jack Callison: It’s clearly been a huge team effort to steer the organization to where we are today. I’m truly blessed and humbled to partner with such a talented, intelligent and compassionate group of professionals at Enlivant, who deserve the real credit for the successful turnaround.
This is a wonderful, 30-year-old company with a rich history, providing care and service to seniors across 19 states. From the beginning we thought we were acquiring terrific assets. The company had some cultural issues and people issues that needed to be addressed.
In most places, it’s about fixing costs. Here it was not the case. Strategically and financially, the plan was to invest in culture, people and training programs.
There were a number of very specific tactical plans in place.
No. 1, was overhauling culture. This started with establishing a very clearly defined mission (defines our higher purpose), vision (what we aspire to become) and values (how we behave).
No. 2 was the rebrand-ing, from Assisted Living Concepts to Enlivant. We rallied around Enlivant because what comes to mind is alive, vibrant, growing. That resonated with the direction we wanted to take the company.
No. 3, we moved from Milwaukee to Chicago right out of the gate.
No. 4, there was a complete reconstitution of leadership. The top 16 executives were replaced immediately. About 90 percent of all our divisional and regional managers across the country were replaced. That’s operators, clinical and sales/marketing professionals.
No. 5, we invested very heavily in training programs.
SHB: Why did you move from Milwaukee to Chicago?
Callison: We are a national operating platform with a concentration in the Pacific Northwest, Texas, Arizona, the Southeast, the Midwest and the Northeast. Milwaukee was a very difficult place to commute to and from to be actively managing our portfolio of assets.
Milwaukee is a beautiful city, but there’s a much deeper pool of talent in the Chicago metro area we could tap into. This helped us turn around the company and position it for dramatic long-term growth.
SHB: Is the turnaround complete or ongoing?
Callison: The turnaround is certainly ongoing. I’m proud of the progress the organization has made, but I don’t think there’s a finish line. We’re continuously improving and growing.
We’ve invested in hiring and retaining the right people, transformed the culture and built a highly scalable operating platform. We’ve achieved tremendous success relative to where we thought we’d be. Many of the goals we care most about we achieved in three years when we thought it would be at the five-year mark.
When we signed up to lead this turnaround, we knew this was a larger opportunity than just repositioning the portfolio. That includes everything from regulatory compliance to occupancy to rate to employee satisfaction. They’re all moving in the right direction, to the point where our investor, TPG, approached us about growing our platform.
TPG is actively providing more capital to grow through acquisitions. That’s a very strong sign of how pleased it is with the operational transformation we’ve achieved so far. Growth will clearly be a key focus for us over the next five years. We currently have a very large and robust pipeline of acquisitions under contract that you’ll be hearing more about in the near term as they close.
A simple capital structure
SHB: What is the relationship between Enlivant and TPG?
Callison: There’s a complete strategic alignment of interests. TPG owns the real estate and operations. We’re fully integrated. We own and operate 100 percent of our portfolio.
That’s a fantastic thing in that we really have simplicity. One of the keys to success in any turnaround is how you simplify the business. We have a very simple capital structure that is completely aligned with management’s strategic vision.
TPG can fund things like the improvements in systems and supporting us in the move to Chicago — which was no small undertaking — to improving the training programs.
SHB: Does that mean Elivant is a subsidiary of TPG?
Callison: Enlivant is a wholly owned organization that TPG capital acquired and funded.
SHB: In 2014, Enlivant bought 16 communities from LTC for $26.5 million. How did that fit into the overall turnaround strategy?
Callison: With all of our acquisitions we’ve done to date, we have meaningful concentrations in many markets across the country. We were able to strategically add assets to our portfolio in markets that we knew and wanted to increase our presence in. It was in line with our existing operational strategy.
We’ve also closed acquisitions in Georgia and Iowa, and today we have an incredibly robust pipeline of almost 60 communities [to possibly acquire] in markets where we already have a presence. We want to continue to grow and scale and leverage the operation we’ve developed. You’ll see a lot of news in the next couple years about continued growth.”
SHB: Enlivant owns and operates 100 percent of its portfolio. Why do you have such an emphasis on doing both?
Callison: We’re very opportunistic and open to different structures, but we have such a tremendous relationship with TPG and they have been able to fund all our incremental, external growth. We haven’t had to tap an outside resource and partner with anybody else.
SHB: Is that a strategic advantage in the market?
Callison: There are different benefits to different structures. It’s not that one is good and one isn’t. But if we underwrite an asset, like the market, have an existing presence and like the idea of owning that on the balance sheet, it’s as simple of a capital structure that you’ll find.
Establishing trust
SHB: On your website, you tackle cost concerns pretty directly. Many operators wait until later in the sales process to do so. What are the effects of talking about price upfront?
Callison: We’re in the relationship-building business. Trust is the cornerstone of any relationship. We embrace transparency and simplicity and candor. That goes back to our ultimate goal, which is our vision of becoming the most trusted provider in America.
We need to provide upfront transparency on things including cost. What happens if mom needs additional care four years from now? What does that look like?
We are usually able to show there are ample resources for mom to live with us for the rest of her life. It quickly becomes clear that mom actually can afford to live with us when you consider security concerns, the equity from mom’s house, and not having to buy groceries, utilities, insurance and transportation. It’s not a luxury. It’s something mom has earned and saved for.
SHB: You annually go on a “CEO Listening Tour” where you go into your communities and speak one-on-one with residents and ground-level employees. Why do you embark on these tours?
Callison: The tours were to connect with our on-site associates as well as state regulators in the states where we do business. It was also to connect with our vendors and business partners.
We try and get out on a recurring basis. It’s not just a one-time thing. It’s a big part of our culture. We spend a lot of time reinforcing our mission, vision and values. I love hearing stories about how we’re living our core values, and recognize employees living our mission.
I do a lot of listening and not a lot of talking. I ask a simple series of questions that are basically what should we start doing, what should we stop doing, and what should we continue doing.
SHB: What are some changes the company has made as a result of the tours?
Callison: Sometimes the answers are very strategic, like “I wish we had memory care at this community to serve the population that wants to age in place.” In other cases, it’s things like training. If there is someone that needs stronger computer skills, we could add additional classes to our online learning platform. It might be support services we can continue fine-tuning to increase resident satisfaction.
In the early rounds, a lot of employees said they didn’t like the legacy uniforms. They wanted vibrant color polo shirts that represented Enlivant’s new, robust culture. We agreed, and we made that happen.
By simply asking open-ended questions and listening actively, it’s amazing what you’ll learn. It’s had such a profound impact on our business. It’s a great way for me to keep my finger on the pulse of the organization. I look forward to it.
SHB: You mentioned including state regulators on your listening tours. Did the company have regulatory issues before it became Enlivant?
Callison: There are very many well-chronicled examples of the challenges the company faced prior to the acquisition, where the communities in entire states lost their licensing because of some of the operational performance issues. One of the things we decided to do, similar to with our employees, is engage in a regulatory listening tour.
We proactively knocked on the state regulators’ doors. We said, “We view this as a partnership. We want the same thing, which is to deliver exceptional resident care. We see opportunities to come in and make significant improvements. We have a business plan we’re happy to share, but we don’t want to be presumptive about what your concerns are. “
We had wonderful conversations. If they had concerns, we discussed those and said we would add those to our list. We worked very hard to re-establish trust with the regulators, and we got our entire portfolio re-licensed quickly as a result.
From multifamily to IL to AL
SHB: Before Enlivant, you were CEO at Holiday Retirement for several years working with independent living. Before that you worked with Archstone, a high-profile apartment owner. What have you noticed is the same across all three sectors?
Callison: There are certainly far more parallels than there are differences.
In all three cases, the similarities are the importance of developing a strong culture and surrounding ourselves with smart, compassionate professionals. Also, it’s important to reinvest heavily in creating engaged employees. That ultimately drives resident satisfaction in all businesses.
When you do those things well, you’ll be pleased with the P&L (profit and loss) results six months down the line.
The ultimate intrinsic value of the underlying real estate is the strength of the operations inside the four walls you operate.
SHB: Did you face any curveballs as you transitioned from one real estate niche to another?
Callison: A curveball for me, which I didn’t anticipate, is how much I would fall in love with seniors housing.
Multifamily is less operationally intensive. It’s more about the real estate, the great product in the right location. In senior living, you’re caring for someone’s mother. It’s a special bond we share with our residents and their families.
One of the rewarding things I didn’t see coming is the volume of letters you get from the seniors and also their family members. Whether with Holiday or Enlivant, there is a profound impact we have on people’s lives — enriching lives means nutritionally, physically, spiritually. It’s a holistic approach.
I get letters from daughters saying we’ve tapped an inner spark that makes mom feel more engaged. They say we’ve given them peace of mind. They aren’t the caretaker. They can go back to a healthy mother-daughter relationship.
You get choked up every time you read these letters. You realize the work we do is so important. It’s a privilege and an honor to serve.
If I could shout from the mountaintops, I’d tell young people starting their careers about the care we provide for people’s families and mothers, and what a rewarding career our industry offers.
SHB: What’s something people in the industry would be surprised to learn about you?
Callison: I am kind of an adrenaline junkie. I love scuba diving, and I’ve gone in places like the Maldives (an island country in the Indian Ocean). I’ve gone Caribbean reef shark diving. I’ve gone on night dives with manta rays.
My entire family — all four of us — loves diving. I have two older teenage boys that have picked up on this love of diving. It’s a blast to have this family time with them.
Compared with the hustle and bustle of daily life, when you’re underwater you have to maximize your breathing. Life just slows down.
Over 70 percent of the surface of the earth is water. I have a lot of places on my bucket list I’d like to explore.