REIT Relationship Helps Landmark Recovery Fuel Expansion, Navigate Pandemic

Amid the COVID-19 emergency, behavioral health providers are struggling. They’re grappling with increased costs and decreased revenues, while also seeing more demand for their services.

As a result, 71% of organizations have had to cancel, reschedule or turn away patients over the past three months, according to a recent survey by the National Council for Behavioral Health.

However, one substance use disorder (SUD) treatment provider is doing the opposite: Despite the pandemic, Landmark Recovery is expanding.

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The comprehensive addiction treatment provider has plans to open three new locations this year, in addition to another six in 2021. That’s on top of the five facilities it already has across Kentucky, Indiana and Oklahoma.

Landmark Recovery’s unique real estate ownership structure — in which it owns rather than rents most of its buildings — is helping to make it all possible.

“It is rare for a substance abuse provider to own their own buildings,” COO Matt Boyle told Behavioral Health Business. “Owning our own buildings makes banks and real estate investment trusts (REITs) more open to working with us because of the financial stability that comes with owning our properties.”

So far, that strategy has worked well for Landmark Recovery, whose centers provide the full SUD care continuum and accept commercial insurance, along with Medicaid at select locations.

REITs serve as landlords to operators in a variety of health care settings, from nursing homes and assisted living facilities to tenants of medical office buildings.

So far, REIT companies — many of which are publicly traded — have largely stayed away from behavioral health providers. But last year, Landmark became one of the few to enter into a relationship with a REIT when Sabra Health Care REIT (Nasdaq: SBRA) purchased two Landmark Recovery buildings in Carmel, Indiana, and Louisville, Kentucky, for $14.8 million.

Sabra now leases the spaces back to Landmark Recovery, giving the SUD treatment provider the opportunity to capitalize on its value without giving up ownership of its business. That capital comes in handy from a growth perspective: It’s helping finance the opening of the facilities Landmark Recovery plans to add later this year.

Plus, the money helps when it comes to navigating the economic disruption of a pandemic.

As such, Landmark is doubling down on the REIT relationship.

Sabra has been a tremendous partner … especially during COVID,” Boyle said. “We have been extremely grateful to be working with them, and we have two new deals with them in the works right now — plus we are looking to do more in the future.”

Real estate roots

While it’s fairly unusual for behavioral health providers to own their buildings, Landmark Recovery’s existence is deeply rooted in real estate.

The SUD treatment company was founded in 2016, but its origins date back to 1988. That’s when Boyle’s father, real estate developer Clifford Boyle, formed Simsbury Associates, Inc.

Back then, the goal was to rehab neglected historical properties and turn them into affordable housing options for the residents of South Boston. That is, until Clifford noticed an even greater housing need for seniors in the 1990s.

He turned over his properties and reinvested the money into creating a senior living company, known today as Landmark Senior Living.

Fast forward to 2014 — two years after the younger Boyle joined the business — and the company began to shift its focus again, with the goal being portfolio diversification.

“Assisted living is just very capital-intensive,” Boyle said. “It’s hard to grow quickly, and we couldn’t really figure out how to have a competitive advantage in the space.”

Pursuing SUD treatment seemed like the most logical next step.

For one, the family is well-acquainted with the space: Boyle’s mother has been in recovery for more than 20 years, and his stepfather is the former president of the National Association of Addiction Treatment Providers (NAATP).

SUD treatment was a good fit for other reasons, too.

“The buildings are a lot less expensive, so it’s a lot less of the capital outlay,” Boyle said. “The margins are higher potentially, so it’s a little less risky in some sense. In assisted living, you’re putting out $20 million and hoping to get your money back in seven to eight years if things go well. [SUD treatment has] a little shorter turnaround time, which is what we were looking for.”

Thus, Landmark Recovery was born. Officially, it’s a holding company under Simsbury Associates for SUD treatment center properties.

Simsbury Associates, Inc. manages all the properties and programs for Landmark Recovery, which pays a management fee to Simsbury for programming, central office overhead and other services. With five assisted living facilities, Landmark Senior Living also exists as a holding company under Simsbury.

While the company’s assisted living brand is no longer a focus of growth, it’s still an important part of Landmark’s portfolio, where it will remain indefinitely, according to Boyle. Additionally, Landmark Senior Living has played an important role in sparking Landmark Recovery’s growth.

“Everyone in senior living uses REITs,” Boyle said. “We never worked with Sabra on our assisted living portfolio, but we would go to the same conferences. We also bought [a couple of] Sabra’s vacant nursing homes, which are in our [SUD treatment] pipeline to open.”

From there, Sabra asked if Landmark would be interested in working together on the SUD side. After a six month courtship, the pair made it happen.

As part of their relationship, Landmark has calls with Sabra once a quarter, in addition to reporting monthly financials.

“In general, the important thing to remember is that REITs don’t have an ownership stake in the business,” Boyle said. “Their number one concern is just making sure that you have at least a baseline level of profitability so that you can afford to pay the rent.”

Landmark remains profitable by offering all levels of care across most of its locations, reducing the risk of patients being lost in the shuffle, Boyle said. Plus, employees get an hour-by-hour schedule for every shift, on top of detailed processes, procedures and centralized training designed to increase efficiency.

To this day, the Boyles own nearly all their own properties.

Growth plans

When the coronavirus hit, Landmark Recovery — like every SUD treatment provider — had to pivot. It added new cleaning and personal protective equipment (PPE) protocols, in addition to implementing COVID-19 testing and screening during the intake process.

Despite all that, demand increased, while cost per admission and cost per patient day remained 50% and 40% below the industry average, respectively, according to Boyle. Meanwhile, occupancy remained steady at around 85% to 90%, he said.

Another constant amid COVID-19: the company’s growth plans.

“By 2022, we expect to have 18 to 20 facilities operational,” Boyle said.

While the pandemic hasn’t changed Landmark Recovery’s long-term growth trajectory, it has delayed it.

When BHB connected with Boyle in early March, he said the company planned to open four new facilities in 2020. Amid COVID-19, he knocked that projection down to three, with another six slated for 2021. He chalked it up to logistics.

“When you are acquiring a new building you need a lot of reports, licenses and studies completed — and with COVID, a lot of those things are shut down or significantly slowed down,” Boyle said. “And when you can’t get an environmental report or have a zoning hearing, you can’t close on a commercial building purchase.”

Meanwhile, Landmark Recovery’s relationship with Sabra has accelerated amid the pandemic — though that’s not entirely surprising.

Before the pandemic hit, Sabra CEO Rick Matros told BHB he was committed to growing Sabra’s behavioral health business by slowly completing more deals in the space, with an eye toward opportunities that are “a little bit more institutional” over “fancy Malibu retreats.” Five months later, that’s still the plan, Matros recently told BHB.

“The statements still hold true, and we continue to be committed to the space,” Matros said. “In fact, we just concluded a deal with Landmark who is converting one of our memory care properties to an addiction and treatment center.”

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