By Ann Lovell
RICHMOND, Virginia—Joe Kelley is a stereotypical accountant. A quiet guy with a dry sense of humor, you’ll most often find Kelley sitting quietly at his desk in his corner office surrounded by mounds of paperwork.
As LifeSpire of Virginia’s Chief Financial Officer, Kelley spends his work days analyzing the financial situation of LifeSpire’s four continuing care retirement communities. For financial reporting purposes, Kelley explains, LifeSpire’s Lakewood in Richmond, The Chesapeake in Newport News and The Culpeper in Culpeper make up what’s known as “the obligated group.” The Glebe in Daleville is a separate financial entity.
Although he’s always up for a good laugh, co-workers say Kelley rarely gets excited. When he’s happy, those closest to him notice a slight smile and a twinkle in his eye. Based on the consolidated financial statements released in LifeSpire’s 2016 Annual Report, Kelley’s smile is broader than usual — for very good reasons.
“For the first time in nearly 20 years, LifeSpire posted a net operating gain in 2016,” Kelley reports.
Kelley gets particularly excited about debt service coverage ratios. The debt service coverage ratio compares debt payments to adjusted net operating income, Kelley explains. Anything over 1 means a company has enough cash to cover its debts. Generally, banks require a debt service coverage ratio of at least 1.2. The higher the ratio, the stronger the organization is financially.
“Our debt service ratio for the obligated group is 2.09 and for The Glebe it’s 2.11. That’s amazing considering where we were just a few years ago,” Kelley says.
Jonathan Cook, LifeSpire’s president and CEO, also appreciates the significance of these numbers.
“A few years ago, it was very common for the financial benchmarks in each of our communities to hover around debt compliance levels,” Cook says. “Thanks to the hard work of staff in each of our communities, we now have the opportunity to build some reserves to sustain us in the event of future economic downturns.”
Kelley has a number of charts that accompany his presentations on LifeSpire’s financial position. One of them highlights the downward slide of operating income that began with a $1 million loss in 2000 and bottomed out with a $9 million loss in 2007 at the start of the global financial crisis.
“If I had looked at the financials when I came to work here, I might not have come,” Kelley jokes. “The auditors thought we were going out of business; we received ‘going concern’ audit opinions from 2008 through 2011.”
A number of factors contributed to the financial difficulties of VBH: the development and startup losses at The Glebe, the recession and capital market collapse in 2008 and 2009 and The Glebe’s Chapter 11 bankruptcy in 2010, Kelley says. These factors impacted all VBH communities.
“Because of the organizational distraction and the costs associated with the bankruptcy, VBH was unable to adequately reinvest in our communities the way we wanted to,” Kelley says.
But the problems actually began two decades before the economic downturn of the 2000s, says Cook, who recently discovered a 1980s-era letter from then-VBH board chair, Hunter Riggins. Titled “Facing the 80s: Problems and Solutions,” the letter begins, “Virginia Baptist Homes, Inc., faces the greatest challenge it has ever faced in the decade of the 80s. This challenge is at or nearing crisis proportions. The challenge facing the Homes is how to put the overall operation on a firm financial foundation and at the same time maintain current operations and continue the substantial work done in the past and the present for elderly Virginia Baptists.”
“In reality, the organization had been struggling for years before 1999 because we focused more on the spiritual and mission components of our business and less on fiscal stewardship,” Cook says.
LifeSpire board chair Susan Rucker defines it as a “downward spiral.”
As a result of the flagging economy, “losses had begun and were accelerating,” says Rucker, who joined the LifeSpire board in 2014. “One or two years of losses are not a disaster, but you don’t want to get in a position where you can’t recover.”
Fortunately, both the board and senior leadership realized the organization’s dire predicament and took steps to reverse the trends. “Sustainability became the board’s goal,” Rucker says.
The reversal began in early 2008 when, in response to The Glebe’s escalating difficulties, an external management firm came in to oversee operations.
“The management company provided the chief operating officer, the chief financial officer and other operational expertise,” Kelley says. “They brought a level of proficiency VBH didn’t have in-house at the time.”
Specifically, this management expertise helped VBH communities receive Medicare certification, adding “$4 to $5 million in annual reimbursements for services we were already providing,” Kelley says. “This coupled with economic recovery was the turning point.”
VBH utilized the company’s services for about three years and then moved to hire the talent they needed, Kelley says. In 2014 the board hired Cook, and the steepest recovery began then.
“We understood the next CEO had to have financial acumen,” Rucker says. “Part of the job was getting the communities on track to be profitable and sustainable.”
But, financial stability is more than just “good business,” Rucker stresses.
“Being financially stable positions us to live up to our commitment to our seniors. When we are financially stable, we are able to try new things and invest in new ventures and new technology. We want to help seniors age where they want to age and continue to look at ways to serve seniors outside the walls of our CCRCs,” Rucker says.
Rucker says LifeSpire’s current situation is “night and day” different, and the future is very promising, thanks in large part to the commitment of staff at each community. Sustainability can’t be achieved “by senior management alone.”
Cook agrees, “Our goal is to provide lifestyle-based services with hospitality, dining and wellness as the focal points,” noting this vision relies on the full buy-in of staff at every level.
“We want to build on being a place where people want to come,” Rucker says. “Over the next five years, we envision significantly refreshing our physical plant, offering new programs and finding other ways to serve the market that are relevant to seniors.”
Kelley and Cook share Rucker’s vision and enthusiasm for the future.
“LifeSpire has been transformed,” Kelley says. “We are actively engaged in becoming one of the premier mid-sized senior living companies in the mid-Atlantic region, financially and operationally. The groundwork we have been laying recently will enable LifeSpire to meet its commitments to current and future residents for many years to come.”
Cook agrees, adding, “If these trends hold, and I have every reason to believe they will, we may even hear Joe start to whistle.”
Ann Lovell is Corporate Director of Communications for LifeSpire of Virginia, formerly Virginia Baptist Homes. For more information, email email@example.com or call (804) 521-9192.
LifeSpire of Virginia operates four continuing care retirement communities in Virginia: The Chesapeake in Newport News, The Culpeper in Culpeper, The Glebe in Daleville and Lakewood in Richmond.