In this Priorities, Plans & Perspectives interview, Skilled Nursing News sits down with Pam Kessler, Co-President and CFO of LTC Properties, to learn how she drives results by maintaining flexibility and doing whatever it takes to support her team members in achieving their own objectives.
Read on to discover how Kessler is advocating for health care inside and outside of the industry, and the parallels she has drawn between endurance sports and the business world through her newfound passion for cycling.
Skilled Nursing News: What was your first job in health care technology, and how has your perspective changed since your first day in the industry?
Pam Kessler: I entered the health care industry back in 2000 when I started at LTC. Prior to that, I had spent my career in real estate, beginning in college. I was an intern for a real estate consulting firm that did market studies and appraisals for home builders. From there, I joined the audit practice at Ernst & Young (EY) in the real estate group. I did have one health care client though, an acute care hospital in Laguna Niguel, overlooking Laguna Beach. Auditing in the summertime in Laguna Beach…everyone wanted that job. I was lucky enough to get that and very nice summers. That was my first introduction to health care, reimbursement and how the industry worked in general.
The year 2000 was interesting and challenging because the skilled nursing industry was reeling from the sudden reimbursement changes that resulted from the Balanced Budget Act. Simultaneously the senior housing industry, which was still somewhat in its infancy, was suffering from an oversupply as all the units developed during the building boom of the late ’90s had yet to be absorbed. So it was kind of a perfect storm, much like our present-day situation as a result of the pandemic. Both sides of our business, senior housing and skilled nursing, were challenged when I started in 2000, and they’re challenged today.
When I was thinking about this question, I was like, “Wow.” My perspective hasn’t really changed since the beginning. Although, if you had asked me during the great financial crisis, I would have said, “Yes. It’s different because only one side of our business is challenged at a time.” Our businesses are countercyclical, so that’s a nice balance and now I’m back to full circle. There are times when both of our businesses are affected even though we are diverse in our asset class between skilled nursing and senior housing — that’s what we’re seeing right now.
I always understood the two sets of challenges from reimbursement pressures on the skilled nursing side, and pressures from the general real estate development cycles on the senior housing side. Two different things cause the pressures, but they both are certainly industries that feel that. The pandemic though, has certainly opened my eyes to a whole new set of challenges, labor being the biggest. That affects both sides of our business, skilled nursing and senior housing. Attracting and retaining talent is probably our operators’ No. 1 concern right now, on both sides.
SNN: How do you define and execute your professional priorities?
Kessler: By listening to our stakeholders, which includes our operators, investors and employees. This, together with the direction from our board of directors, helps us formulate a strategic plan that we can execute. Within that construct, the board and I work with our management team to set priorities and timelines.
SNN: Can you name three of those priorities?
Kessler: First and foremost, to support our operators during this challenging time. By listening to our operators, we at LTC realized we could help with the normal rent escalation during a time in which our operators were faced with rising costs and decreased occupancy resulting from the pandemic. At the beginning of the year, we announced a 50% reduction in the 2021 escalations for our eligible operators. I believe we were the only health care REIT that I know of, to give this across-the-board support.
Additionally, we have given support to those operators whose portfolios were not yet stabilized when the pandemic hit, because that’s where distress became apparent first. I think you saw that building and lease-up mode across the senior housing industry until the pandemic hit it.
Declining occupancies and a portfolio that hadn’t yet reached stabilization are really tough financially. The skilled nursing side is a little different because the government has supported that industry. Without the government support, the skilled nursing industry would be having an incredibly difficult time. I think everybody recognizes that. Certainly, Congress has recognized that and that’s why they continue to support that industry. Because on that side, when the elective procedures were cancelled, the census in skilled nursing plummeted. It’s been very difficult. Then, as we talked about, the labor costs have added to the difficulties.
We’re certainly thankful to Washington for supporting them and hopefully they’ll continue the support. This week, there was another announcement of more aid coming, which is good. The industry certainly needs it because we’re not back to pre-pandemic levels yet.
Another priority that we have is to be creative and flexible in how we provide capital to the industry. This has stemmed from listening to our operators, understanding their needs and being responsive to the changing landscape of investments. We’ve developed an array of capital products for operators to choose from. We strive to custom tailor a solution to fit our customers’ needs.
In addition to traditional sale-leaseback, we offer unitranche mortgage loans, mezzanine financing and preferred equity. This is in contrast to when I started in this industry 20 years ago, where everything was pretty plain vanilla. It was like, “This is our product. This is the one thing we have to offer you, sale-leaseback.”
LTC started out as a mortgage REIT in 1992 and I started in 2000. By 2000, we were already starting to morph out of the mortgage REIT, doing fewer mortgages and predominantly offering sale-leaseback. In the 21 years, we’ve adjusted our offerings to suit our operators’ needs. You have to be responsive to the market, which obviously should be a priority to any business. If you’re not listening to your customer and giving them what they want, then they’re going to go find someone who does. It’s really important to listen.
That leads me to my third priority, which is providing support and mentoring to our employees, and those that are looking to start their career in health care. Listening to your employees and all your stakeholders is very important. As difficult as it is for our operators to attract and retain talent, we are not immune to that either. LTC enjoys a very low turnover rate. We work hard to motivate, reward and retain our employees. That’s really important because a company is built from its employees.
SNN: How do you look at planning when a large degree of uncertainty is involved?
Kessler: It’s tough but it’s always been tough. Our industry is rapidly evolving and changing, and it has been for the 21 years I’ve been in it. Flexibility is the key to surviving in that kind of operating space. You put together a plan based on everything you know today, all the inputs from your stakeholders and what you know and you believe, but it has to constantly evolve. I think of planning as an evolutionary process. You’re constantly making adjustments to it as new challenges arise.
It’s that flexibility and the ability to detect when things are changing, and not just be reactive to it but to be proactive to it. You are recognizing change before it happens, and you’re trying to anticipate which way it’s going, so that you can be prepared for it.
SNN: How do you keep track of your professional plans and progress?
Kessler: I don’t have a whiteboard to mark points on. With it being an evolutionary process, it’s more touch points in the road and being reflective of what’s worked. What hasn’t worked? What are the takeaways? We just had our big strategic planning retreat with our board. Prior to that, we had an in-house meeting with all of our management to formulate strategic plans and lessons learned, like what is everybody seeing right now in their different facets of the business? Listening to everybody’s point of view enables us to make more informed decisions.
I say informed means you’ve listened. [laughs] Uninformed means you’ve stayed put in your little silo and made your, “Here’s what I think,” followed by a decision. Blindly making a decision based solely on your own view and experience leads to blind spots, and I wholeheartedly believe in a 360-degree view. Sometimes that’s painful to listen to because either I do not agree, or I don’t see it that way, but after reflection and contemplation, generally — I’m always very appreciative.
That’s really important in leadership because sometimes, it means acknowledging that our first thought might not be absolutely true or correct, or might not be the one way things need to get done. I’m also very appreciative that there are multiple ways to achieve a goal and objective. It doesn’t always have to be done my way. I can appreciate that others have different styles and other ways of accomplishing the task. As a leader, it’s not my job to tell them how to do their job. It’s my job to support them in doing their job and achieving their goals, because in the people around me achieving their goal, I achieve my goal.
When you get into a leadership position, there’s less output. I’m not spending my day physically doing a lot of things that have a measurable output, like writing reports, doing spreadsheets. Although, I still love to geek out with a spreadsheet now and then. It’s really giving direction, supporting, being a sounding board to people’s ideas, helping them think through their decision-making process. It’s a little bit more esoteric.
SNN: What do you do when something does not go according to plan?
Kessler: It goes back to being flexible, being reflective, listening to those around you and formulating a change of plan. For us, it meant a lot of things got put on hold last year, as our main focus was supporting our operators and helping them get through this. That’s reflected in our investment volumes last year, which were down because we shifted gears to help our existing partners. We’re hoping that 2022 is going to see continued recovery for the industry as we move back to pre-pandemic levels.
I think anyone’s guess is as good as mine as to when that will be, because just as we thought we were on our way there, the Delta variant showed up. I think now we’ve all adjusted to realize that, hey, there could be another Delta. I It has slowed the rate of recovery, but as the nation puts the Delta variant behind us, we will continue to increase the vaccination rates.
SNN: What do you do to listen, to read or watch to gain perspective?
Kessler: When I get on one thing, I glom onto it and I take a deep dive. Right now, cycling is the focal point of that dive. Saturday I’m going to Belgium to watch my son race in the World Championship of cycling.
He just graduated from high school and he races as a junior now, but he’s preparing to race professionally. One of the books I’m reading now is Sprinting Through No Man’s Land, and it’s about the first Tour de France after World War I ended, the 1919 Tour de France. It is a reflection on the challenges of that race with the guys just coming back from horrific war, and why in the world, after experiencing the horrors of World War I, they wanted to go get on a bike and race for 21 days straight. We don’t know. They didn’t even have real roads back then. It was an amazing story of overcoming challenges, not just on the bike, but your mental demons resulting from the war. They didn’t have that term PTSD back in 1919, right after the war, but certainly, I think these guys had that. The things they saw were horrific.
Then the other book that I’m reading has a very similar theme, and it’s called The Rider. It details the thought process, strategy and the mental calculation of this rider through a 150-kilometer race. It’s interesting to glimpse into the mind of an athlete because I think all endurance sports have mental toughness. You need the physical skill, the training and the natural talent, but also the mental toughness. When these athletes are maybe halfway through their race, and already their body’s aching at every part, every fiber of them is telling them to quit. What do they do? How do they muster up that strength and fortitude to keep going.
The metaphors for business and life are pretty amazing, because whether it’s a 21-day race like the tour de France, or a one-day 150-kilometer race, you face challenges in the race and unexpected things happen. You have mechanical failures of your equipment and have to adjust quickly. You hopefully have thought about that possibility and prepared as best you could.
It’s a marathon, but a marathon that also has sprints in it and you’re reacting to what other people are doing.You’re obviously not going all out for the entire race, but when someone goes into a sprint, you’ve got to keep up with that guy or you will lose the race right there. A lot of races are lost in the attack. If you can’t follow and make the break, you might have lost the race before you’re even at the midpoint. As a business leader, it’s interesting to channel the endurance athlete’s resilience and flexibility.
When things don’t go as planned, do you turn into a puddle of mush, or does it motivate you to keep going?
Companies featured in this article:
