Brookdale Off to Rocky Start Post-Merger

Big growth doesn’t come easy. Brookdale Senior Living (NYSE:BKD) knows all too well.

After offering a preliminary glimpse into the company’s financials for the fourth quarter last week, Brookdale today released further insight into its performance, reiterating many of the same factors that have increased expenses and led to a 70 basis point drop in occupancy in the months following its merger with Emeritus.

For the quarter ended December 31, 2014, Brookdale reported a net loss of $106.5 million, or $0.58 per share, attributable to common stockholders, far more than the net loss of approximately $1 million, or $0.01 per share, the company reported in the fourth quarter of 2013.


The large disparity reflects the company’s high-profile transactions within the past year, most notably its $2.8 billion merger with Emeritus, as well as the $1.2 billion joint venture transaction with HCP, Inc. (NYSE:HCP) that will develop and operate continuing care retirement communities. It seems that the former of those two deals has weighed heavily on Brookdale, but the company continues to make strides to overcome its growing pains.

“Though we are not where we need to be, we are making progress toward normalization,” said Brookdale CEO T. Andy Smith during an earnings call with analysts Thursday morning.

Brookdale anticipates that normalization could arrive as early as this summer, when it can manage the business “more uniformly” after further integrations of its systems have taken effect.


Such integrations that occurred during the fourth quarter have included transitioning to a new customer relationship management sales system on October 1 to better acclimate the absorbed Emeritus sales teams into its processes, as well as an electronic medical record (EMR) rollout costs of $38.3 million during the quarter.

Already having completed the EMR rollout in its ancillary services business, including outpatient therapy and home care, Brookdale plans to focus this year on rolling out the technology into Nurse On Call, the home health care platform of Emeritus, said Brookdale President and Chief Financial Officer Mark Ohlendorf.

“From a rollout standpoint, most of the activity this year will relate to EMR rollout in the Brookdale portfolio and Nurse On Call,” Ohlendorf said.

Excluding the integration, transaction and EMR rollout costs, Brookdale reported cash from facility operations (CFFO) of $0.53 per share for the fourth quarter, an $0.18 per share decline from the fourth quarter of 2013.

The company also saw average occupancy for all of its consolidated communities drop 70 basis points year-over-year in the fourth quarter to 88.3%.

“The occupancy shortfall was attributable to lower lead generation and conversion rates as our sales force acclimated to a reorganized field structure and, for many, new systems and procedures, as a result of the Emeritus integration,” said Smith.

Revenue for Brookdale’s consolidated senior housing portfolio, which totals 1,143 communities nationwide and 1110,859 units, grew 61.1% in the fourth quarter to $928.5 million versus the comparable quarter in 2013. Operating income for the portfolio also posted significant growth, increasing 52.1% year-over-year to $314.3 million in the fourth quarter.

The road since last February, when news of the merger between Brookdale and Emeritus had first surfaced, has been paved with considerable challenges for Brookdale as it continues to integrate what was previously its rival and the second largest senior living provider in the U.S.

And the company remains confident in its integration efforts as they continue to progress in the coming year. Looking ahead, Brookdale expects CFFO per share in a range of $2.60 to $2.75 per share, excluding integration, transaction-related and EMR roll-out costs.

“During 2015, we expect to see the benefits from the uniform systems and processes we are putting in place, from our accelerated capital investments and from a fully rationalized management structure,” Smith said. “We remain fully confident in the long-term economic thesis of the merger with Emeritus and the anticipated year-three revenue and expense synergies.”

Written by Jason Oliva

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