Brookdale’s 3-Part Plan to Sharpen Its Operations

Turning the nation’s largest senior living company from struggling to stellar may not be as easy as one, two, three, but leaders at Brookdale Senior Living (NYSE: BKD) are putting forward an easily digestible plan to move forward on operational improvement.

The Brentwood, Tennessee-based giant beat analysts’ revenue expectations by $30 million with a second-quarter 2016 revenue of $1.26 billion, but the company’s earnings per share for the quarter of 19 cents missed analysts’ expectations by 7 cents.

Brookdale executives, for the most part, say they are pleased with how the company has evolved. Still, leaders at the nation’s largest senior living provider recognize the areas where the company must improve further—and say Brookdale has some tricks up its sleeve to speed up the process.

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The provider has laid out a three-part plan to achieve “operational excellence,” but it is still figuring out how to raise occupancy without lowering rates, executives said Tuesday during an earnings call with analysts.

A three-part plan

Currently, Brookdale’s primary focus is on operational excellence—and the provider has a three-part plan to strengthen operations companywide, CEO Andy Smith explained during the call.

First, the provider is betting on a resident experience program it calls “The Brookdale Experience.” The program is designed to ensure that Brookdale associates consistently deliver a great resident and family experience, Smith said.

“The Brookdale Experience” involves the implementation of operational and customer service standards, as well as technology, training, programming and performance measurement tools, Smith explained.

Second, the company intends to attract and retain top senior living talent going forward. Namely, Brookdale plans to identify current employees that have the potential for high performance and equip them with coaches or mentors to develop them into engaged leaders, Smith said.

Third, the company plans to better sell the value that it believes it offers to customers.

“We’re focused on sales,” Smith said.

The provider recently enhanced its “Brookdale School of Sales,” and more than 150 sales associates have taken part in the revamped program since April, Smith said.

“This new training focuses on the customer, of course, and on the customer’s journey,” Smith said. “In this training program, our sales associates are challenged to identify where the customers are in their journey, and then to work with them to build a tangible and practical plan that meets their needs.”

Overall, Smith believes Brookdale is positioned well to succeed—and that its success depends on how it leverages its scale and platform.

“No one else has the size, the scale and depth of product offerings that we have,” Smith said. “No one else has an organization with as much senior housing experience as we have. And no one else has the resources to invest in creating best in class systems and customer facing programs as we have.”

Lower rates, higher occupancies 

Brookdale saw “very strong” move-in activity throughout the second quarter, Smith noted. In fact, this past May and June were Brookdale’s two highest months for move-ins for those months in at least four years, with May seeing more than 3,200 consolidated move-ins, Smith said.

In total, Brookdale’s second quarter 2016 move-ins were 11.1% higher than the provider’s second quarter 2015 move-ins.

Additionally, June marked the fifth consecutive month in which occupancies were higher year over year, Smith said. However, the company’s second quarter 2016 average occupancy for the consolidated senior housing portfolio rang in at 85.8%—lower than the 86.1% average occupancy reached in the first quarter of 2016. 

The company relied on “very particularized” rate incentives in specific local markets to achieve increased occupancies and move-ins this quarter, the earnings call revealed.

“We intentionally made some targeted, short-term rate concessions to improve our occupancy, and we were glad that these actions drove improved occupancy,” Cindy Baier, Brookdale’s chief financial officer, said during the earnings call. 

Consequently, in the second quarter of 2016, Brookdale experienced a small sequential decline in its rate growth from the first quarter of 2016, Baier said.

Talk of rate incentives had analysts questioning the company’s guiding principles, especially since Brookdale touted its “aggressive” rate increases in the first quarter. Now, Brookdale has a holistic focus on revenue per available room (RevPAR), Smith noted, adding that incentives are carefully calibrated to local markets.

Investors, meanwhile, seemed to respond well to the earnings call on Tuesday, with the share price up about 3% to $17.89 per share at market close.

All the while, Brookdale has been busy making moves to smooth its rocky integration with Emeritus, including the company’s recent divestiture of 44 properties for $253 million.

Written by Mary Kate Nelson

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