Lawyer finds her passion for seniors housing with a publicly traded operator.
By Jeff Shaw
Katie Potter did not take the traditional route into the seniors housing industry.
A lawyer by trade, Potter assisted Five Star Senior Living Inc. (NASDAQ: FVE) with a few transactions. Impressed with her work, Bruce Mackey, then the CEO of the Newton, Massachusetts-based operator, brought her in to replace the outgoing general counsel in 2012.
Potter quickly found herself intrigued by every part of the business, not just the legal aspects. She became heavily involved in human resources and operations.
When Mackey decided to retire at the end of 2018, Five Star’s board asked Potter to take over the company, which today includes a portfolio of 268 senior living communities totaling 31,272 units in 32 states, as well as 244 rehabilitation clinics. The company’s portfolio is largely private pay, made up of 41 percent assisted living, 36 percent independent living, 12 percent memory care, 7 percent continuing care retirement communities (CCRCs) and 4 percent skilled nursing.
Seniors Housing Business spoke with Katie Potter about her transition from law to seniors housing operations, and the upside and downside of being one of the few publicly traded operators in the industry.
SHB: Walk me through some of the history of Five Star.
Katie Potter: Five Star was really built out of a tough situation. Our investment partner, Diversified Healthcare Trust (NASDAQ: DHC), formerly Senior Housing Properties Trust, had been leasing several skilled nursing facilities to operators. In 2000 to 2001 there was a change in the Medicare payment system, causing many providers to go into bankruptcy.
DHC decided it was going to create its own operator. Five Star became that operator and became its own public company in 2001.
Over time, Five Star significantly grew by acquisition. Although we started as a skilled nursing company, we have really committed to the independent living, assisted living and memory care arenas. We quadrupled in size over a 10-year period and became better known as a private-pay senior living company, though we do continue to operate several skilled nursing facilities and CCRCs.
SHB: How did you become involved?
Potter: I’m a corporate and securities lawyer by training, and Five Star was a client of mine while working for a firm in Boston. I got to know the former CEO, Bruce Mackey, and worked on several transactions with him.
When the prior general counsel left Five Star, Bruce approached me about taking that position. I laughed because I’m not a healthcare lawyer, I’m a corporate lawyer. He said, “It’s fine, you’re smart, you’ll learn.”
I joined in 2012. Bruce gave me a lot of opportunities to dive into the business. In addition to taking on legal issues, I also oversaw HR and participated in operational projects. I learned the regulatory side of the business. I feel very fortunate that Bruce saw me as a partner. It was a nice evolution and opportunity for me to grow with the company.
Then, when Bruce retired, he and I had been talking about strategic initiatives to deal with the changes the industry was experiencing. The board saw this side of me and clearly thought I had some good ideas, so I was elected CEO on Jan. 1, 2019.
SHB: How have the transition and your first 18 months gone? What’s been accomplished so far?
Potter: At the time I took over, Five Star was experiencing financial difficulties. The top priority was addressing that issue, revisiting and restructuring our business relationships so Five Star would be financially viable going forward. We restructured our business arrangements with DHC on Jan. 1, 2020.
Prior to that date, DHC was our biggest landlord. Given the economics of the situation, the financial structure was not favorable to us. We terminated our leases and entered into a management agreement with DHC. This change allows us the financial flexibility to focus on our core competencies and for DHC to focus on investment in communities that generate a positive return.
One of my main areas of focus has been on our team members. I knew we had to do more for the team members in this organization. It was very important for that to be at the forefront of my agenda. We put people first, and as a service organization, that starts with our team members.
Delivering a consistent and exceptional resident experience has been another focus area. We worked with J.D. Power to create the criteria for its new Senior Living Community Certification program, and then we implemented those criteria. Last year we had 32 Five Star communities achieve that certification and began to develop our internal processes and frameworks to align with the certification criteria. It represents the standard by which we want to operate.
Finally, our goal was to figure out how to build a culture of transparency, accountability and innovation across the enterprise. We built out a financial planning and analysis department, launched new employee engagement programs and established a resident experience department.
Our director of communication is also brand new. There was a disconnect between the corporate level and the communities. Closing that gap was critically important. We’ve been marching toward transparency becoming part of our DNA. With transparency comes accountability.
Being a public company, transparency is paramount. That’s simply an expectation of our shareholders. We feel we owe the same level of transparency to our residents and our team members. As an organization, that helps us be nimble and react proactively.
Lastly, innovation is critically important. It’s no secret that some of the bigger providers have shared our financial challenges. What the baby boomers want out of their post-working years in terms of lifestyle and options is quite different from our current residents. It’s important for us to think differently in terms of how we change and adapt, and how we leverage technology.
SHB: Bruce’s retirement also coincided with him leaving the Argentum Board of Directors, as you transitioned into that role as well. What have you done in that position so far, and what are your goals?
Potter: It’s only been a few months, so I’m just trying to learn from the other industry leaders on that board and develop relationships. There’s a breadth of experience there.
Argentum is a unique organization. It allows us to collaborate and speak as an industry. One of my main goals is to address labor challenges. There’s a huge opportunity to rebrand senior living as a great place for a career. There’s also a great opportunity to reposition seniors housing.
Unfortunately for this generation, seniors housing is perceived as a place where you go when you need care or assistance. We as an industry have to turn that back to talking about lifestyle — to make seniors housing a place where you can thrive and flourish.
SHB: What has been COVID-19’s impact on Five Star, and what has been the company’s response to the pandemic?
Potter: I believe that we were able to execute a proactive and effective response to the COVID-19 crisis with a focus on clinical frameworks and procedures, as well as operational support and business continuity.
We had to re-evaluate some of our strategic initiatives. But we did, and still do, continue to build and refine foundational capabilities to support COVID-19 response.
At this point, we are focused on establishing the “new normal” where we regroup, assess the impact of the COVID-19 crisis and leverage our learnings to adapt and evolve so we can move beyond the pandemic.
Our response was multi-pronged. Like many of our peers, we secured our premises and implemented robust infection control procedures to reduce transmission.
We also enhanced our surveillance, contact tracing and testing protocols.
Most importantly, we focused on providing our residents support through the entire process, including with devices, connectivity options, complimentary counseling services and enhanced virtual programming opportunities.
Serving multiple masters
SHB: Five Star is one of the largest operators in the country with over 30,000 units under your management. How do you balance maintaining quality of care and profitability while keeping stockholders happy with such a large portfolio?
Potter: We have a lot of constituencies, including investors/shareholders, residents, clients and team members, but there is a common interest in providing an exceptional experience to our residents and clients. We’re constantly evaluating how to improve the resident and client experience and support our team members in that effort.
If we can do that, the business will be successful.
SHB: Can you explain the relationship between Five Star and its affiliated companies under The RMR Group umbrella?
Potter: RMR provides certain management services to Five Star as well as five publicly traded REITs, two additional real estate-related operating companies, a real estate securities mutual fund and a firm specializing in commercial real estate. As examples, RMR supports strategic acquisitions and dispositions and investor relations services. The other great benefit RMR provides is alignment across many of the companies. So, we have an opportunity to leverage the scale and resources of all our affiliated companies.
It can be very productive to leverage our partner companies as thought partners. For example, recently all heads of HR met to talk about employee engagement. Things might be working at one company and not another and we can learn from each other.
It’s been nothing but a positive for all the companies. It allows great collaboration and the opportunity to leverage a much broader scale.
SHB: Five Star is one of the few pure-play operators that is publicly traded. What are the advantages and disadvantages of having public stockholders?
Potter: The advantage of being just an operator is we focus on the resident experience. As I mentioned earlier, we are entirely focused on providing the best possible experience.
In terms of being publicly traded, there are benefits and challenges. A culture of transparency and accountability are a necessary component of being public, but that culture forces us to be both nimble and thoughtful about our decisions, which is good for the business. Our successes, our failures, they’re all out there for the public to see.
SHB: With allowances given for COVID-19 and the fact that most publicly traded operators have had low stock prices over the last few years, Five Star stock has fallen far from its peak in 2015. What needs to happen to break the stock price out of its doldrums?
Potter: I believe that we will be able to instill confidence and trust in the investor community as we continue to execute on our strategic initiatives, and demonstrate that we can generate expected financial results.
Facing the challenges
SHB: Two of the most talked-about challenges facing the industry right now, besides COVID-19, are affordability for middle-income seniors and recruiting/retaining quality staff. What does Five Star do to try and overcome these challenges?
Potter: We’ve made a significant investment in wages and benefits. We made a commitment to invest in the people who are here and attract the best possible talent.
We are also invested in learning and development. We elevate and promote people from within. In order to do that we have to develop them and give them the tools to be successful. Our learning and development department went from one person to six people in 2019. I always say to our team members, “Whether you stay here your whole career or leave for another opportunity, you’re always part of the family.” We have a lot of people who leave and come back.
We’ve done a lot to improve employee engagement, improve retention, to be intentional about hiring the skillsets we’re looking for, to upgrade the skillsets in key positions like the executive director. We want to be an employer of choice.
It’s a very difficult labor market. Trying to draw entrepreneurial people to senior living can be challenging. However, the industry has great growth potential. If you’re an executive director, you are essentially running your own business. What could be more entrepreneurial than that? On top of that, at Five Star you are able to carry out our mission to “honor and enrich the journey of life, one experience at a time” in serving both our residents and our team members.
We are also creating an internal leadership development program, but we haven’t launched it formally. We hope to launch it by the end of the year.
SHB: What is in the works for that program?
Potter: It’s focused on the skills that are needed to be an excellent manager. As examples: emotional intelligence, thoughtful decision-making and leveraging available information to make sound business decisions — essentially, the qualities necessary to be a good leader.
SHB: How are you tackling the affordability piece of the puzzle?
Potter: We have many communities that are what people today would call middle market, but nobody put a name on it until that NIC report came out last year. [The report, titled “The Forgotten Middle: Many Middle-Income Seniors Will Have Insufficient Resources For Housing And Health Care,” appeared in an April 2019 issue of the journal Health Affairs.]
Like most of the larger operators, we have a spectrum of communities, varying by size, geography and level of service. We operate each tier within our portfolio for the particular customer segment we are targeting. We evaluate our service offerings, our dining experience, the physical plant, and try to understand whether we’re meeting the needs of that target customer segment.
With the changing preferences of an evolving demographic, what seniors housing is used to delivering may not be successful in the future. We’re trying to learn from our customers in order to evolve our product.
We are strategically focused on becoming a platform of services for older adults. One of the things that works in the middle market is letting the resident choose his or her services — more of an à la carte menu versus an all-inclusive rate. That’s one way to approach value.
SHB: What are some of those service offerings?
Potter: Our first foray into this has been with Ageility, our rehabilitation and fitness division. It started out as a service offering to differentiate Five Star from competitors — an outpatient or inpatient rehab product inside our communities.
In 2019, we started offering those services outside our communities, to allow it to grow outside our footprint. It’s been quite successful.
We’ve partnered with several other chains and we opened 50 clinics in 2019. Roughly 25 percent of these clinics are outside Five Star communities, and that number continues to grow. Ageility is also operating in active adult communities, which is another exciting avenue.
Regarding home-based services, we’ve looked at our internal areas of expertise such as memory care or fitness products. We offer some concierge-type services at our higher-end communities, and we may take that platform and expand it outside seniors housing.
We also have a small home-health component that supports some of our communities. Other providers have struggled with that business, so we’re being very thoughtful in terms of understanding whether that makes sense.
Our new customers are going to want to stay at home as long as they can. All of us in the industry have to consider what that means for the services we provide.
From counsel to CEO
SHB: Your personal history is in law. How has that impacted your approach to the seniors housing industry?
Potter: There are some basic skills of law that serve me well in my new role. One of them is communication. As a lawyer, communication is critical, both written and verbal. I’ve leveraged that more than ever in this role.
My background in law has also given me intellectual curiosity. I wasn’t an operator by training, but I was here at Five Star for seven years before coming into this role. During that time, I dug into areas of the business that I was interested in, and sometimes saw opportunities to do things better. I like to think that intellectual curiosity is a legal trait.
Law firms are also a client service business. I take our resident experience and how we serve our customer very seriously. There’s a definite learning curve because I’ve never operated a community, but that offers me a fresh perspective on how operations can be conducted.
We’ve developed a really strong team. In 2019 we had a lot of transition, but we brought in a lot of people from both within and outside the seniors housing industry. That was by design. With the challenges in the industry, we need those different perspectives to approach our opportunities in the best possible way.
SHB: What’s something people in the industry would be surprised to learn about you?
Potter: I’m a big sports person. I follow all the teams in Boston and I have played sports all my life — soccer, basketball and lacrosse. I used to be on the board for a nonprofit called Good Sports that provided equipment for the less fortunate.
The lessons I learned playing sports are still part of my life today. I really believe I learned important life lessons on the field. My belief in the power of teamwork, physical activity and healthy competition also led to our collaboration with the National Senior Games. It’s a fantastic organization that allows athletes 50 and over to compete in a variety of sports.
I went to the games in Albuquerque in 2019. It was a truly inspirational experience. I’ve been to the Super Bowl, I’ve been to the Final Four, but this group of people was special in terms of their passion and drive. We had a resident at our local community, Montebello on Academy, Bonnie Colton, who participated in the event. She’s in her 80s and only started swimming six to eight years ago because her granddaughter started to swim. They wanted to do it together.
I really hope we’re able to continue partnering with and supporting the National Senior Games. I’m pretty passionate about the partnership and the opportunity it creates for our residents and team members.
A group of our team members came out to Albuquerque for the games and talked about what a fantastic experience it was. I will do whatever I can to promote it. It’s near to my heart. The next games will be 2021 in Ft. Lauderdale. n