Discovery CEO: NOI will be a positive story in 24 months

By the end of the month, Discovery Senior Living will cover 110 communities in 18 states, making it one of the largest providers of senior housing in the United States.

And the growth of the Bonita Springs, Florida-based company doesn’t stop there. In 2022, Discovery plans to build on its national and regional identities across the country; and in the first quarter of the year, the company will also launch the first of its innovative Discovery Place communities, which focus on an “experiential living” philosophy of care, service and amenities.

Occupation has been a positive for Discovery, and although financial results lag behind due to high expenses, Hutchinson is confident in future margins. While the operator still has some hurdles to overcome this year and beyond, co-founder and CEO Richard Hutchinson believes the company has reached a critical ‘waypoint’ on its journey in 110 communities, and has the wind in its sails for future growth.

“It’s gratifying that we can get here, but we’re not done with the imagination,” Hutchinson told Senior Housing News. “Our platform is well positioned to take advantage of new product development, national brand expansion and certainly the middle market. “

At the same time, Hutchinson believes that some dismay-causing short-term pressures, like inflation, will not weigh as heavily on the industry in the long term as some worries.

While 2021 has been a turning point for the retirement home industry full of hard-won battles and progress, Hutchinson sees 2022 as a year to consolidate and build on that progress.

“I feel like we now have a really good platform… which will allow us to evolve without fail,” said Hutchinson.

Richard Hutchinson, CEO of Discovery Senior Living, by Nick Klein for Aging Media Network

Rocking inflation

Cost inflation is an area senior retirement home businesses are watching closely in 2022, especially with margins as squeezed as they are. But while inflation is a big concern for some, Hutchinson ultimately sees it as a neutral force that will be ironed out in the long run.

“It’s a seesaw, it’s a balance,” Hutchinson said. “As you end up with hyperinflation on spending – right now it’s 7.2% in our basket of goods over the last year – that will be offset by passing these structural increases on to your customer over a period of time. of time. “

Hutchinson isn’t the only one who thinks the rate increases will help balance cost pressures. He believes such increases can be passed on for around 12 to 18 months, leading to long-term margin growth.

“NOI today is not the best thing to say,” Hutchinson said. “But we know 24 months from now that’s going to be the thing we want to talk about.”

A rebound in occupation helps recovery from NOI. In April 2021, Hutchinson said Discovery was pushing to return to pre-pandemic occupancy levels by the end of this quarter.

“We exceeded same-store pre-Covid levels in July – we had come full circle – and by year-end we had increased from 350 to 380 basis points on comparable store occupancy.” , Hutchinson told SHN earlier this month.

Indeed, Discovery’s re-establishment initiative has been dubbed “Full Circle” and has relied on several strategies to reconstruct the census. One facet of Full Circle involved the company’s centralized sales hub, which launched in March 2021.

Theme for 2022

To get a glimpse into the future of Discovery Senior Living, just look at where the business has been.

Last November, Discovery elevated its sub-brand TerraBella to a regional management company called TerraBella Senior Living, placing it in the same category as Morada Senior Living, the company’s other regional management company.

As subsidiaries, the two brands operate largely independently, with dedicated leadership, support and resources from Discovery headquarters. Discovery has also created two new regional brands called SummerHouse and Seaton.

More recently, Discovery continued its expansion by partnering with White Oak Healthcare REIT to acquire a portfolio of 10 properties with communities in Louisiana, Mississippi and South Carolina, to be divided among the TerraBella, Seaton portfolios. and SummerHouse.

Covid-19 has accelerated the company’s growth plans as owners of senior residences “have sought … to implement mid-market strategies to achieve good results,” Hutchinson said.

He explains that Discovery’s regionalised strategy has made the company an attractive partner for these ownership groups.

“My new theme for 2022 and the talking point that you’re going to hear me talk about a lot is the different companies that make up senior housing,” he said. “We have recognized and I do recognize that running a middle market business is different from running a national branded product in the primary market. “

In the past, too many national operators have stumbled in trying to operate different types of communities under an essentially one model, he argues.

As Discovery did with TerraBella and Morada, the company intends to “differentiate” both Summerhouse and Seaton in their own region-focused management companies, according to Hutchinson. Seaton focuses on the Mid-Atlantic from Virginia to Delaware and New Jersey, while SummerHouse caters more to southerners.

Hutchinson added that the optimal number of communities to set up a management affiliate with at Discovery is between 25 and 30.

But forming a regional affiliate involves more than defining a geography and reaching a particular size – the process involves carefully determining where consumers share common traits. Discovery tailors marketing and operations to the customs, wants and needs of customers, an effort informed by years of experience working in certain geographies.

“What [are] the most important things for customers in these regions? That’s really the determining factor in it all, ”said Hutchinson.

As the company’s expertise in certain localities grows, its number of sub-brands will also increase, and Hutchinson said it was only a matter of time before Discovery launched into the launch of subsidiaries for the markets of the Midwestern and Western regions of the country.

“It’s not just because geographically it’s easier to manage in this area,” Hutchinson explained. “It’s because… there is a very great similarity in the aftermarket in these states of what the customer really wants as an experience. “

Discovery is also growing the business in a way that goes beyond a regional focus. Later in the first quarter of 2021, the company will launch its first Discovery Place experiential living community. The concept uses business intelligence data to create more personalized resident experiences, with pay-per-view pricing and communities located close to amenities and services provided by neighboring businesses.

While working on this product line, Discovery is “looking back to the future” using consumer surveys to refine its resident experience.

“We really need to connect with our current and future customers, and… not just read a report, then start building your product around a report,” Hutchinson said. “I want to see the whites of their eyes and have them tell me, with all the nuance, what is important to them.

To prepare for this moment, Discovery has spent years and “tens of millions of dollars” setting up its platform and infrastructure. And, Hutchinson credits Discovery’s financial partners with understanding the vendor’s strategy.

“We have capital partners who get it,” he said. “We are going to let ourselves be guided by the data; I will let our experience over a period of time teach us what we need to know.

Discovery has already learned a few lessons. For example, from the experience of setting up Morada, the launch of TerraBella involved additional positions. Going forward, Hutchinson recognizes the need to be agile and learn from lessons learned on the fly, but also from the vast experience of the company.

“[Discovery] The number of units and communities is growing rapidly in recent times, but it has taken decades to figure out how to do it right, ”he said.

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