Keppel, the Singapore-listed global asset manager and operator with $79 billion of funds under management, is making high-profile inroads in the senior living field. In 2020, Keppel purchased a 50% stake in Watermark Retirement Communities, the operator of approximately 70 communities in the U.S. More recently in May, Keppel held the official grand opening of the 400-bed Sindora Living Nanjing Qixia in Nanjing, China, its first senior living facility in Asia, with a company executive calling it “a launchpad for our expansion into other senior living markets in China and beyond.”
With fast-expanding aging populations igniting demand for quality senior care services in many parts of the world, Kai Hsiao, CEO for Healthcare at Keppel, said Keppel sees opportunities to cater to this large and generally underserved market. Crucially, the profound demand for senior living is “not just a U.S.-centric need,” he said.
“There’s a global need, and therefore there’s an opportunity that is global, too,” Hsiao said.
In China, in particular, Keppel has pointed to “buoyant” senior living sector fundamentals due to an aging population, rising affluence, an increasing market acceptance of elder care solutions and a tight supply of senior living facilities – the company has cited statistics that China has 297 million people aged 60 or above but just 41,000 registered senior living institutions with about 8.2 million beds. The number of seniors in the country is projected to reach 400 million in 2035.
Hsiao is a veteran of the senior living industry. Prior to Keppel, he served as CEO of Eclipse Senior Living, EVP, Senior Housing at HCP Inc., now HealthPEAK (NYSE: PEAK), a healthcare REIT, and as president and CEO of Holiday Retirement.
Hsiao, who is a member of the Argentum board of directors, spoke with Senior Living Executive about Keppel’s global health care strategy and reflected on what he sees in senior living abroad. At last count, Hsiao said he has visited 1,192 senior living communities in the U.S., Canada, China and the United Kingdom.
Why is senior living a good fit for Keppel?
Keppel’s investment thesis is that health care and senior living are global needs. So we want to fill that. And one aspect that Keppel has always had in our DNA is our deep capabilities in engineering, developing, owning and operating specialized real assets. A lot of people shy away from heavy-operator businesses, but that’s part of our DNA. Senior living is a very operationally intensive business. So, the first thing Keppel wanted to do is align with an operator such as Watermark in the U.S., for instance.
At Keppel, before we invest, we want to understand how it works. Because a lot of folks just invest and don’t necessarily understand the ins and outs of the business. But Keppel has always believed that we’ve got to understand it because it makes us better investors.
What has Keppel brought to Watermark?
First and foremost, what we bring to the table is the capital to invest in the platform, such as systems and resources, and the capital for new development projects. In today’s world, where it’s hard to find capital for development because of the markets, we’re very helpful there. And then the other thing I think we’re helpful with is that Paul Boethel, my CIO, and I have been in the senior housing business since 2008. We bring to the table a lot of experience, and we have the ability to work with outside capital and help with relationships. Also, based on our experiences with larger-scale platforms, we help with some of the biggest challenges and questions for operators. Those are questions like, “How do I scale up? What new resources do I need? What new systems do I need? What new policies or procedures do I need?”
Keppel’s assisted living community that opened in Nanjing – its first in Asia – was described as a launchpad for the company’s senior living developments in the region. Could you share what’s behind those plans?
It is still a nascent sort of industry there, and so for us the question is, “Do we build, or do we buy?” Looking around, we just didn’t see that there was a platform that provided the kind of services as rich in scope that we wanted. So we thought the best thing is to go build. As we’re building this out, we’re building out with staffing models in mind and with systems in mind. The system that we have is sort of an all-inclusive system that does everything from CRM to property management to financials to HR so it’s a comprehensive tech package. In the U.S., a lot of senior living operators do it more a la carte, meaning that they get different systems for different components instead of a full suite of services. We took the viewpoint that it’s going to be hard to take anything in the U.S. and translate it, so, in this case, it’s not just the platform that we decided to build, but the systems that we decided to build as well. I think what we’ve done in China is take the lessons that we’ve learned in the U.S., along with some of the lessons that we’re learning in the UK through our satellite office, and we’ve tried to address them upfront versus down the road, while adapting our offerings to the local context and culture.
What kind of interest are you seeing in China in senior living?
There’s definitely a lot of interest, and it’s getting bigger. I call it the population age pyramid. It used to be that it was a pyramid where you had a lot of youth down at the base and seniors up at the tip, but that pyramid has now become a rectangle, and soon will become an upside-down pyramid. So that need for senior living is going to be pretty great. In China, because of the previous one-child policy, now you can have one couple in charge of four parents. That makes the need even greater. Because in the U.S. or in other countries where you may have multiple siblings, they can share in the responsibility, but not so much in China, because of the long-term effects of that one-child policy. You also have fewer people taking care of more people. So how do you become more efficient with that? That’s something that the U.S. is experiencing now as well. If you ask most operators, their no. 1 problem is labor, so how do you become more efficient? In China, we’ve adopted more technology, which culturally is a bit more accepted in China.
And what are you seeing in the senior living field in the United Kingdom?
We have a satellite office in the UK, where we’re looking to do investments. If you take a look at where UK senior living is today, they’re about 15 to 20 years behind where the U.S. was. So if you just rewound the tape, the UK looks like the U.S. 20 years ago in terms of inventory, in terms of quality of product. The one data point that sticks out for me is that 35 to 40% of the units in the UK don’t have their own en suite – they have a shared bathroom. It’s no different than the U.S. was 20 years ago. They’re following the same patterns – they just started later than we did. Because of that, it’s definitely interesting to see how that evolution is now occurring in the UK.
What are some key differences between the senior living industry in China and the U.S.?
Who owns the actual community is different in China. In China, the largest owners of senior living are actually life insurance companies. In the U.S., you’ve got a mix of health care REITs, private equity companies, developers. These life insurance companies in China have basically said, “Look, if you buy our policy, you will then get access to a senior living community for either yourself or your parents.” It’s like a CCRC (a continuous care retirement community) in the U.S. where you pay an entrance fee that gives you access to the community. It’s the same model except instead of putting down cash, you’re buying a life insurance policy. A group that we’re working with in China has sold over 5,000 of these policies, and now we’ll be working with them to satisfy a portion of those 5,000 clients’ senior living needs.
Culturally, it’s interesting, because when residents do activities in China, the participation rate is incredibly high. If they’re going to do exercise, everyone’s doing the exercise. If you’re doing calligraphy, everyone’s doing calligraphy. And part of it is just the mentality of, “I’ve paid for it, and I should get my money’s worth and do it.” While sometimes you’re in a U.S. community, they’re doing chair yoga, and you’ll see only five or six people out there. It’s just a different mentality in China. I’ve been to a community where there were about 500 units, and I saw 250 people all doing Tai Chi in the courtyard. It’s an amazing thing to see.
From an ownership standpoint, could we see something similar in the U.S. to the role of life insurance companies in China’s senior living industry?
There may be some day when the largest owner of senior living in the U.S. is not a life insurance company, but a health care insurance company. Think about this: If as a health care insurance company, you see that you could save $200,000 a year worth of medical costs by taking care of your client in an assisted living community rather than if they were at home – and then you multiply that by the number of residents in a community – then you might actually want to own that assisted living community. In senior living, you have the ability to be more efficient in terms of labor because you’ve got the density and you don’t have to pay for “windshield time” – caregivers going back and forth to different homes – and because of the socialization, the mental acuity becomes a lot higher and that helps, too. I can see a day when a health insurance company could be the largest owner of senior living because they see that they get more value if residents are living in that type of environment.
In the U.S., when you think about it, this industry was really born and bred by real estate developers, not health care companies. So, a lot of the operating companies are really just extensions of a development company, and the viewpoint has always been real estate-based and the financial drivers have always been about the real estate whereas in China, their driver is life insurance policies. In the U.S., though, someday we might see health care saying, “Well, my business driver is value-based care, and can I get more value with my client in a senior living community versus a non-senior living community?” And that would lead to a big shift.
