Brookdale Pushes ‘Aggressive’ Rate Increases to Beat Revenue Expectations

The nation’s largest senior living provider is touting its success in raising rates during the first quarter of 2016—even in the historically difficult legacy Emeritus portfolio.

Brentwood, Tennessee-based Brookdale Senior Living (NYSE: BKD), which operates more than 1,100 senior living communities across the country, raised rates “aggressively” on its in-place residents this past quarter, CEO Andy Smith said Tuesday during the company’s first quarter 2016 earnings call. But the rate increases were fair and led to positive outcomes, he said.

“Those rates held, and we didn’t see any elevated move-out activity as a result, so that’s good news,” Smith said.


Brookdale also successfully raised rates in the legacy Emeritus platform “for the first time in very a long time,” he added. In fact, Brookdale considers its rate performance on the Emeritus platform “pretty good”—which may come as welcome news to investors who have long been on the hunt for signs of a turnaround post-Emeritus integration.

“Over the past three to four years, rates [in the Emeritus platform] grew zero to 1%, and we’re well north of that this year,” Smith said. “We’re pleased with that.”

For the quarter, Brookdale’s adjusted cash from facility operations (CFFO) totaled 58 cents per share, which was in-line with analysts’ expectations. The company’s first-quarter 2016 revenue of about $1.26 billion beat analysts’ expectations by approximately $50 million, and marked a 1.2% increase over its first-quarter 2015 revenue of $1.25 billion.


In 2016, Brookdale is prioritizing improving revenue, improving occupancy, and simplifying and streamlining its business, Smith said during the earnings call. Simultaneously, the company is concentrating on expenses—because that’s something it can control.

“With respect to the revenue side of things, it’s a balance between rate growth and occupancy growth,” Smith explained. “We are laser-focused on trying to maximize that balance so that we can maximize the revenue that we can generate through the platform.”

Of course, striking that balance is no simple matter.

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“There’s science to that, but there’s also art to it,” Smith said.

New supply, new opportunities

New supply is presenting a headwind in some of Brookdale’s markets, but the company has strategies to address new supply where it arises.

There are some developers with new product who have been very aggressive with their pricing strategies, presumably to buy occupancy in a place where they can get the cash flow to break even, Smith said. Brookdale has experienced this in some of its own markets—but it isn’t worried.

A Brookdale community in California, for instance, lost five residents to a new competitor, Smith said. But, after 90 days, all five of the residents came back to Brookdale, with others in tow. Quite simply, the new operator couldn’t provide the services they were promising because of their price point.

To justify returns against cost of developing a particular asset, the prices have to come to equilibrium, Brookdale believes.

“The phenomenon of new competition actually buying occupancy is a real one, and it is something we have to combat,” Smith said. “Over time, it becomes an opportunity for us.”

Aiming to be the ‘B.E.S.T.’

At the same time that it is working to put the right rates in place, Brookdale is actively working to reduce the administrative burden on its communities’ executive directors, sales directors, and health and wellness directors, Smith said.

“The goal is to reduce turnover for these three key positions below historical norms,” Smith said. “These folks are so critical to success at the local level.”

To do so, Brookdale has implemented a proprietary system that it calls the Brookdale Excellence Standards Tool, or “B.E.S.T.” The tool is meant to simplify the work of these three community-level team members, as well as ensure compliance with Brookdale’s operating standards. The tool has both follow-up and feedback mechanisms for the employees to use to measure their progress, Smith said.

Turnover at the community level proved a major problem for Brookdale during the integration with Emeritus, with the company citing executive director departures as one drag on occupancy. 

Written by Mary Kate Nelson

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