Brookdale Focusing on Care Continuums, Higher Acuity Units to Drive Revenue

Brookdale Senior Living is repositioning many of its units to meet current demand metrics, and it’s trending toward higher acuity, according to the senior living operator’s first quarter earnings call

“The product that is coming into the investment profile tends to be a higher acuity product. There’s a fair concentration there of adding assisted living where we only have independent living, adding dementia care where we only have assisted living, adding skilled nursing in markets,” said Mark Ohlendorf, co-president and CFO of Brookdale, during the call. “So the rates are going to be higher in any case. But the returns, I think, are at or above what we had expected, below the mid-teens or looking like good numbers.”

In some of the company’s retirement communities where Brookdale has converted independent living to memory care, it’s seeing higher occupancy rates and revenues. “We have seen as high as almost a 20% increase in the independent living rates, once that project is completed at a non-converted basis based on the strength of that repositioning in addition to getting the higher revenue and gross margin dollars out of assisted living and Memory Care,” said CEO Bill Sheriff. 


On creating a care continuum: Turning some independent living units into higher acuity care can in some cases make the independent living units that are left more attractive, according to the CEO, citing an example of converting some retirement center units into assisted living and memory care.

“It strengthened the IL product component. And in many acquisition opportunities out there, they… have that kind of opportunity to make that home product more attractive, make independent living more attractive because it has assisted living and Memory Care available to it,” Sheriff said.

Basically, residents appreciate being able to stay in one community as they reach higher levels of care, and Brookdale benefits from the “higher gross margin dollar and return factors” it gets from an assisted living and memory care component of a campus setting. 


“We like the perspective of looking at products all the way across the spectrum,” he said. 

On modifying communities to reflect current trends: What’s happening is that as people are living longer, more are experiencing multiple chronic conditions and increased physical limitations, along with memory impairments such as dementia of Alzheimer’s-related disorders. 

Across the industry, more than half of those moving into independent living (51%) have walkers or wheelchairs, according to Sheriff. Considering that and the fact that the nation’s oldest cohort is expanding considerably, there will be an increasing element of needs-based care, he said during the earnings call, adding that this means Brookdale needs to change its units accordingly.

Brookdale plans to modify some of its common areas as well to accommodate “the next generation of elderly coming into our market” who have some different expectations on what retirement living looks like, he said.

In the past nine months, the operator has completed eight “Program Max” projects, encompassing nearly 1,800 units and adding 159 new units; it’s currently working on 17 projects encompassing another 1,700 units, and will add 400 new units in the next year. Additionally, another 19 projects are in the approval process, encompassing 4,000 units and adding 800 more.

Brookdale has spent $13 million of cash equity and said it continues to expand to invest between $60 million and $70 million this year on Program Max activities.  

On ancillary services: Brookdale also noted that its home health business has grown, and higher revenue helped soften the impact of the 11.1% Medicare reimbursement rate cuts.

“The actual impact [of the cuts] in the first quarter was about $2.4 million from home health rate change, largely becuase we have a larger caseload now than we did early last year,” said Ohlendorf. 

In the first quarter, Brookdale purchased two home health agencies as part of its growth strategy for an aggregate purchase price of approximately $3.7 million.

On acquisitions: Although Brookdale is busy with its new development of “Sweet Life” campuses, it’s still looking to be active in the market and make opportunistic moves.

“We’ll end up being in a year with a fair amount of transactions,” said Sheriff. “We will still be looking at what really strategically measures little difference in our company.” 

Earnings highlights: In the first quarter ended March 31, 2012, Brookdale reported a net loss of $10.3 million, or $(0.09) per diluted share. This is a slight improvement from the previous year’s loss of $12.3 million and $(0.10) per share. 

Revenues increased about 16% to $683.5 million, mostly derived from resident fees. 

Average occupancy increased 60 basis points to 87.8% compared to the first quarter of 2011, but remained flat from the previous quarter. 

Read the full earnings call transcript

Written by Alyssa Gerace 

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