[Updated] Brookdale Shares Take a Dive on Earnings News

The stock market up-and-down continued for Brookdale Senior Living (NYSE: BKD) Tuesday, as the nation’s largest senior provider saw its share price drop in the hours after its third-quarter earnings call.

Last week, the Brentwood, Tennessee-based company’s share values jumped on news that the company is pursuing a multi-faceted series of transactions with its longtime landlord, HCP Inc. (NYSE: HCP). Brookdale’s stock slid about 14% on Tuesday, to $8.81 by the time the markets closed*.

Today’s share price slippage came less than one day Brookdale reported a GAAP net loss of $413.9 million for the third quarter of 2017, compared to a $51.7 million loss in the third quarter of 2016.

Advertisement

A 12.2% decrease in year-over-year revenues was linked to the disposition of 136 communities in the last 12 months. While the operating environment remains challenged with new supply, there are promising signs that initiatives to improve operations are bearing fruit, executives emphasized Tuesday.

“Our management team is focused on improving our operating performance,” Brookdale President and CEO Andy Smith said during Tuesday’s call. “We are making progress in key areas to overcome the near-term headwinds, and we believe that we are laying the foundation for success in 2018 and beyond.”

The company also confirmed during the earnings call it is still looking into strategic alternatives, but said it could not disclose more detailed information at this time. Shareholder Land & Buildings recently pressed the company to be more transparent about what’s going behind the scenes, given that rumors have circulated that Brookdale is in talks to sell the company in whole or in part.

Advertisement

Silver lining

Despite ongoing fierce competition and labor cost pressures, some key metrics for the company look good, Smith said. For one, the company is seeing occupancy trending up at many of its senior living communities.

“We grew occupancy sequentially from the second quarter of 2017 by 20 basis points,” Smith said. “In fact, we grew occupancy every month of the quarter and that trend continued in the month of October.”

Brookdale also saw its best net move-in, move-out performance for a third quarter in the last several years, Smith said. The company also boosted its Net Promoter Scores (NPS), which help gauge customers’ overall satisfaction and loyalty.

“Our NPS scores improved dramatically in 2016 and again improved significantly this year, evidencing our team’s focus on customer service,” Smith added.

Additionally, Brookdale last week struck a “win-win” deal in which a major landlord, HCP Inc. (NYSE: HCP), agreed to waive some of its consent rights. In the deal, Irvine, California-based HCP reduced its Brookdale concentration from about 27% of cash NOI and interest income to about 15.7%.

The move is expected to lend more flexibility for Brookdale to pursue a big change-in-ownership deal.

Beijing-based real estate and leisure firm Zhonghong Zhuoye Group Co Ltd, seemed prepared to buy Brookdale for $20 per share, but the deal reportedly fell apart last month. Brookdale’s share price has tumbled since 2014, when it bought rival Emeritus Corp. in a blockbuster transaction, and rumors have swirled this year that the company is a takeover target.

Though the provider hasn’t announced any similar transactions with its other real estate investment trust (REIT) landlords, Smith left the door open for such a thing Tuesday.

“We are in constant dialogue with all of our REIT partners to try to search for transactions, restructurings or amendments to lease-holds that work for them and work for us,” he said.

Brookdale’s leases with another major landlord, Chicago-based Ventas Inc. (NYSE: VTR) are set to expire in 2019.

Home health takes hit, hospice grows

While competition and a major hurricane have eroded Brookdale’s home health bottom line, the provider sees opportunity in its burgeoning hospice business.

The decline in ancillary services was mostly due to lower home health volumes, primarily from the recent hurricane in Florida, the company said. Brookdale is seeing decent growth in its hospice business, however. The provider recently purchased a hospice agency in Chicago, though it hasn’t yet publicly disclosed details of that acquisition.

The provider’s home health segment earned roughly $87.3 million in revenue during the third quarter of this year, while its hospice operation took in about $17.3 million, according to an investor presentation.

“In Chicago and throughout our hospice business, we’re growing very, very nicely,” Brookdale CFO Cindy Baier said.

Brookdale believes its home health business will regain its footing in the long term despite recent headwinds, she added.

Other home health providers, such as Lafayette, Louisiana-based LHC Group (Nasdaq: LHCG) and Baton Rouge-based Amedisys (Nasdaq: AMED) have spoken about adding hospice assets, especially in markets where they have an existing home health footprint, according to Jeffries analyst Jason Plagman.

“Hospice valuation multiples are generally higher due to hospice having a more positive reimbursement outlook compared to home health,” Plagman told Senior Housing News.

* Update: Brookdale’s stock gained 8.7% on Wednesday, to $9.58 on news that shareholder Land & Buildings disclosed a $5 million share stake, which is up from its previous stake of $3.2 million, according to SeekingAlpha.

Written by Tim Regan

Companies featured in this article:

,