Steve Monroe: We’re here today with Dan Madsen, President of Leisure Care, one of the largest privately-owned senior housing companies in the country. Dan, after working at Leisure Care for many years, you purchased the company a few years ago from the Lytle family. What has changed the most since you made the purchase?

Dan Madsen: Our ability to grow. Our ability to really leverage senior management. I worked there 15 years before I purchased the company three years ago, so now we’re up to 18, and during that time we continued to grow and really work with upper management, bring people through the ranks; and there are several senior management members of our team that are in the teens with working with our company. The Lytles – the real reason for the purchase was really focused on succession planning: how do they secure that their assets would continue to be managed by us, that we wouldn’t leave and do something else, and how would we all just kind of come out and continue to do the same thing we did.

We could grow our management team, give them opportunities to become investors in other companies and in our own company, and still protect the assets of the Lytles. Since that time three years ago, we’ve been able to grow at a pace that we like, not extending ourselves too greatly, but really focused on what level of management we have. We’ve been together a long time, under-leveraged for many, many years, and now we’re just kind of coming into our own, so taking new opportunities.

Steve Monroe: Okay. And as you know, I loved your new brochure you came out with over a year ago, and you’ve been marketing your communities as “happy” places, where residents and staff are happy and working and living in a fun environment. How is that atmosphere at your communities different than at communities not under the Leisure Care umbrella?

Dan Madsen: I think it’s more than a marketing campaign. When we decided to really come out with what would be considered as five-star fun as the theme, we didn’t come out with an ad campaign to figure out how to do it. What we did was look at ourselves: who are we? And then talked about it. So it very much came from our personalities and who our executive family was, so it was real easy to talk about, and we just really, really believed internally that people have something in common – all people, at least all people we want to be associated with – and that is, that we like to laugh. And that if we could build a company on those principles, where we could enjoy life, we could enhance lifestyles. An honest example, as unsophisticated research as it was, on a Saturday morning driving by a library and seeing that nobody was standing in line, and driving by Disneyland and seeing thousands in line, that’s the route we chose to take.

Steve Monroe: As you know, your brochure made me laugh with almost every page I turned. You once told me that a few of your executive directors at your communities didn’t quite go for the “happy” culture. How could that be possible? How could someone not want to be associated with a happy work environment?

Dan Madsen: I think traditional business is serious, and we were taking a very different approach to business, one that we said we wanted dream jobs for employees. We wanted them to be able to be as passionate about what they do every day as we are about what we do as owners. We said, how is that possible? Well, we write our own job descriptions, so we’re excited to come to work every day. We wanted to eliminate that Sunday, 5 o’clock to 7 o’clock p.m. burning in the gut thing before you go to work on Monday, and we set out to do that.

Some more traditional business people in our company didn’t like that. They liked the role of intimidation. They liked the role of order. They liked the role of more of a – I don’t want to say an organized approach, but a more methodical approach to business, versus just saying, great people do great things. Hire, attract great people and the rest will go smoothly.

Steve Monroe: Has the cultural change, if you want to call it that, and that might be too strong, has that affected your marketing?

Dan Madsen: Extremely. It is so easy today to market. We love our brand because it really is who we are, and we internally marketed first, so we would attract the right employees, the right executives – the right entry-level employees out in the field, where people would want to come and enjoy their lives and really have a good time. By doing that, it’s taken a few years, because it takes time to turn a big ship in the water. It’s not a speedboat, it’s a sizable company. But we’ve been able to attract fun employees, people that really want to have a good time in life and enjoy life and have a joie de vivre. That in turn has attracted those types of residents, and continues to attract those types of residents. So the cultural change is significant.

Steve Monroe: Let me ask you, on the residents: Has this had more of an impact on the incoming residents? Have they gotten it? Or on their children?

Dan Madsen: Both. The incoming residents got it, once we saw some reasonable turnover in our buildings. There were traditionalists as residents as well. There are people in the world – residents, employees, families, anybody from the age of five, six, seven, eight years old to 110 – who choose to be miserable. They do. “I’m going to be a miserable person.” And it took a while for us, we had to stick to our knitting. We had to say no, we’re not going to be a miserable place, and therefore attract people with energy, people that really like to enjoy life. And there was a conflicting culture there for a while until that move was made. But the impact it’s had on families has been fantastic.

Steve Monroe: That’s great. Let’s change the topic for one minute and talk about a recent acquisition. You recently did announce – and I know you’re not buying it directly—but I want to say your largest acquisition in the company’s history, in the Las Vegas market, the Templeton Development Group. You bought it with two large equity investors. These properties are a bit different from the Leisure Care model. Most of them are limited service, serving more of a middle market. Are you going to go after these types of communities in other markets, and do you think you’ll expand beyond this initial group in the Las Vegas and greater Nevada area?

Dan Madsen: Yes, we will. We love this market. I think that the Las Vegas acquisition has allowed us to really chase a dream, and we’ve re-branded that company, which was once Carefree Senior Living, to Destinations. The Destinations brand and company is about $240 million today and we’re expecting to expand that to a billion dollars.

Steve Monroe: Wow. A billion dollars. How soon do you think you’ll be able to do that?

Dan Madsen: We’re going to be opportunistic. We’re looking at developments at different places even outside the United States, in Rocky Point, Mexico, and some other areas where we think that people would like to travel to. It’s the 55-plus market, more active seniors, people looking to enjoy their lives and enhance their lifestyles. We see it as a very opportunistic market for us.

Steve Monroe: My impression is that as a company, you operate mostly independent-living-oriented properties with some assisted living. Is that a fair statement?

Dan Madsen: Yes.

Steve Monroe: Do you see Leisure Care getting more into the assisted living market, and do you see yourselves getting into the CCRC market?

Dan Madsen: We don’t see ourselves progressing more into the assisted living market. In fact, we’ve gone away from the assisted living market more and more each year. At one point it made up about 35% of our revenue and today it’s below 20% of our revenue. We’re focusing more on the active adults, more independent-oriented, health and wellness type lifestyles. Our programs – our travel company that we own, our PrimeFit brand with health and wellness and so on – have really expanded. We’re focused on that leading-edge baby-boomer and the lifestyles they may want to choose, versus the need-driven model of yesteryear.

Steve Monroe: Did you just say you have 1800 units under development or construction right now?

Dan Madsen: Yes.

Steve Monroe: Are those large, active-adult campuses?

Dan Madsen: No. Most of them are in the traditional area of 150 to 200 apts. They’re large apartments, fairly upscale. We’re looking at some condominium arrangements where we would have – maybe 30 to 35% of our apartments would be condominiums. We’d condominiumize those and help defer some of the land costs and construction costs that we see today that are so extravagant –

Steve Monroe: That’s what I was going to say: We have talked to many operators around the country who are finding they can’t build right now because when they pencil it out, the rates they have to charge that cover all the costs are well above the market, so you are obviously – you have 1800 units under construction and development. Are you not running into that similar problem?

Dan Madsen: We’re looking at the opportunities and we say – we have the largest population in the United States in our demographic to ever hit the United States, with the greatest amount of wealth, and we look at these as hurdles. We say, maybe we can’t traditionally approach our business, both in development, construction and operating, and we need to change the way we price; we need to change the model; we need to focus more on the senior today, not yesterday, where people may want to own. They may want to travel, they may want to be in other areas. There may be a senior timeshare concept that’s available that can help defer some of those costs of construction and land ownership.

Steve Monroe: You mention pricing, and that’s one of the things that other operators tell me, because of the lack of development in a lot of their markets, they are able to now, as opposed to when they were filling up six years ago, they’re able to increase annual rates 6, 7, 8, 9%. Do you see that in some of your markets as well?

Dan Madsen: We definitely see it in some of our markets. I think where we are able to drive pricing the most is where we provide the most value, and that’s generally – we’ve moved into more of a hospitality company for seniors than a healthcare company, and the hospitality acceptance of what it is that we do for seniors is primarily coastal and metropolitan areas. Where we’ve had some challenge in driving pricing has been in more of the mountain states and the Midwest.

Steve Monroe: How long do you think this ability to charge relatively high annual increases is going to last?

Dan Madsen: I think we’re catching up. We had a depressed market in our sector for a while, where it was a challenge; we had census-challenged communities all over the nation, regardless of the company, and I think they were somewhat conservative in driving rates when we had to start paying more for employees, and benefits and everything else was increasing. So I think we’re catching up.

The ability to drive pricing in the future I think is really going to be what our ability is to provide more value. It’s going to be a choice-driven market here very shortly, and consumers are going to make that decision.

Steve Monroe: Last question: With the construction you’re doing, how are you finding construction finance? Is it plentiful? Do you have a lot of lenders calling you up?

Dan Madsen: Capital is very plentiful. I think we’re in a good position right now where we say we’re in a good season. Our census is high, our results are strong. Our operations are strong. We’re a well-seasoned company with a strong brand. Lenders are looking for good operators. There are a lot of developers out there that we can partner with. We’re choosing them wisely. We’re discriminating very, very highly on who we choose to do business with. We like the Canadian markets. The international markets are just as strong as the U.S., and some great partners there.

Steve Monroe: Okay. Thank you very much for your time today, Dan.

Dan Madsen: Thank you, Steve.

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