Brookdale Battles Growing Pains to Boost Occupancy, Revenue

After months of occupancy woes and integration struggles, Brookdale Senior Living (NYSE: BKD) experienced a slight turnaround in the third quarter of 2015, suggesting that the major senior living provider could be on the upswing following its acquisition of Emeritus Senior Living Corp. last year.

In the quarter that ended Sept. 30, Brookdale saw cash from facility operations (CFFO) drop to $0.59 per share, down from $0.60 per share the company reported in the second quarter. However, the figure marginally beat analyst expectations by $0.01, and average occupancy for all consolidated communities was 86.7%, an increase of 10 basis points from the second quarter.

“We’ve done a host of things, but in returning to normalcy, a lot of it frankly is simply getting the pain-in-the-neck part of the integration largely behind us,” Brookdale CEO Andy Smith said Thursday in a quarterly earnings call with analysts.


Since the completion of its merger with Emeritus, Brookdale has undergone its share of growing pains, from community management turnover to ineffective marketing campaigns. The Brentwood, Tennessee-based provider saw a 70 basis point decline in occupancy in the immediate aftermath of the merger. And as recently as the second quarter of 2015, Brookdale hung below its expectations of near-term operating performance with a 90 basis point decrease in occupancy from the first quarter. Smith placed the blame on challenges with integration.

Now, Brookdale appears to be slowly but surely bouncing back, and earnings results for the third quarter suggest at least some stability. Total revenue hit $1.2 billion for the quarter including Emeritus’ operations, relatively flat compared with the second quarter of 2015. Still, it reflects a 14.3% increase from the third quarter of 2014, primarily due to the acquisition of Emeritus and new units added to existing communities.

“The systems and infrastructure cut-overs are, in fact, nearing completion,” Smith said. “That doesn’t mean we’re done with integration…but the great bulk of the work, it’s so distracting out there in the field, is getting behind us.”


This has included addressing executive director turnover, which had plagued the provider in the months after the merger. While Brookdale hasn’t implemented incentives or bonuses as a means of retaining community leadership, Smith said improved training techniques and a new executive director mentorship program have made a difference in maintaining a dedicated leadership.

“We’ve now had a year of operating Emeritus under our belt—we’ve gotten people more with the program and people are more committed,” Smith said. “Those who weren’t committed to going forward have left the company.”

Brookdale also recently enlisted a new chief operating officer, Labeed Diab, who previously served as the president of health and wellness at Walmart’s U.S. division and was responsible for the retailer’s full-service health and wellness offerings. Lucinda Baier will also come on board as chief financial officer as part of a larger executive team shakeup after having served as executive vice president and CFO of Navigant Consulting, Inc., a specialized global expert services firm.

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By furthering the integration process, though, Brookdale doled out a significant sum of money. Facility operating expenses reached $699.7 million for the third quarter of 2015, an increase of $62.6 million, or 9.8%, from the third quarter of 2014. The provider pointed to the Emeritus acquisition as a pitfall in this respect.

“We’re going to get rate growth in the Emeritus portfolios by running the play that we’ve run many times in the past, and that’s to get those communities onto our systems and our programs, to get them onto our pricing procedures,” Smith said. “We have to make those investments so that we’re in a place to sell value as compared to what’s been happening historically.”

A bump in occupancy in the third quarter helped bolster Brookdale’s generally solid quarterly performance, and the provider indicated it expects an increase of 20 to 30 more basis points in November and December. This is due, in part, to discounts being implemented throughout Brookdale’s communities, more aggressively so in the Emeritus portfolio.

“The pricing strategies and therefore the promotional incentive programs are stratified and targeted based on different markets with different dynamics,” Brookdale President and CFO Mark Ohlendorf said of the provider’s discount strategy.

Typically, such programs are stimulative in nature to prompt someone to move in, and they usually don’t last for the duration of his or her stay at a facility, Smith said.

“Over time, that incentive burns off such that their rate jumps back to a more attractive rate for us,” he said.

Moving forward, Brookdale intends for the vast majority of renovations to 150 former Emeritus communities to be started and completed by the end of the year, Ohlendorf said. Meanwhile, Smith noted the disposal of about 30 assets is “in accordance with our expectations in valuation.” The transactions should be completed by the end of the year or in early 2016, he said.

The proceeds from the asset sales will be used to pay down the Brookdale’s credit line, Ohlendorf said. Otherwise, Brookdale isn’t likely to see any significant financial changes in the short-term.

“The next moment that we will cause a meaningful change in the rate structure in the business will be at the beginning of the year when we change in-place rates,” he said.

Written by Kourtney Liepelt

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