Brookdale Battles Through First Inning of Turnaround, Gains Some Momentum

Brookdale Senior Living (NYSE: BKD) may only be in the “first inning” of its turnaround—but the company’s leadership is making progress on improving operations, and investors appear to like what they see.

The Brentwood, Tennessee-based senior housing provider reported its first-quarter 2018 financial results on Monday after market close. Overall, the company posted a $457.2 million net loss, and impairment charges associated with its ongoing portfolio repositioning contributed about $351.7 million to that loss. And the numbers might not look much better for a while, with further asset sales on the horizon and industry-wide operational challenges ongoing as the company strives to right the ship.

“Frankly, Brookdale is not where I want us to be,” Brookdale President and CEO Cindy Baier admitted on Tuesday during a call with analysts and investors.


But the nation’s largest senior housing provider has plans in place to boost occupancy and employee retention.

The company is actively rolling out a variety of sales and marketing initiatives in 2018. These include extending the hours of operation at its contact center seven days a week, in a move that is expected to improve the provider’s lead capture and speed to lead. The provider is also realigning its overall sales organization and investing in sales directors for its communities.

Brookdale does not expect this plan to proceed without any hiccups.


“We expect sales director retention percentages and voluntary turnover will be somewhat volatile due to the nature of the position,” Baier said.

At the same time, the company expects that 2018 “will be a challenging year,” with occupancy lower than it was in 2017, Teresa Sparks, Brookdale’s interim CFO, said during the call with analysts.

Brookdale’s same-community weighted average unit occupancy for the consolidated senior housing portfolio dropped 90 basis points to 84.8% sequentially from the fourth quarter of 2017.

While results are not expected immediately, Brookdale leadership is focusing on winning in the future, particularly when the wave of aging baby boomers hits senior living. And Jefferies likes the company’s current direction.

All in all, the firm is “optimistic in Brookdale’s operational turnaround post-2018.”

As of market close on Tuesday, Brookdale’s share price had risen 6.96% to $7.68.

Operational progress expected

Overall, Brookdale’s first-quarter 2018 financial results “reflect that we have and continue to make significant changes in both our owned- and leased-asset portfolio,” Baier explained.

As far as analysts are concerned, the results aren’t exactly surprising.

“Investor expectations were rightfully low… so [Brookdale’s first-quarter] results… and 2018 guidance come as no surprise and are already baked into the stock,” a May 7 analyst note from investment bank and financial services firm Jefferies reads.

At this point, any progress Brookdale makes with respect to its turnaround strategy is good news. In fact, “any operational progress should boost the stock,” according to Jefferies.

The New York City-based firm also sees opportunities for Brookdale management to increase share price by monetizing certain owned assets and working with real estate investment trusts (REITs) to exit or sell underperforming leased units.

In the past, Brookdale has faced shareholder pressure to monetize its owned real estate. Baier clarified on Tuesday that the company intends to sell approximately 30 owned assets, several of which are high-performing communities.

While the portfolio repositioning is an ongoing area of focus, some strides are already taking place. In March, Irvine, California-based HCP Inc. (NYSE: HCP) announced an agreement to transition operations of 12 senior housing communities owned by HCP from Brookdale to Atria Senior Living. Additionally, HCP transitioned one community to Orlando, Florida-based provider Sonata Senior Living.

Currently, HCP also is finalizing agreements with different operators to transition additional Brookdale managed communities in 2018.

Chicago-based health care REIT Ventas, Inc. (NYSE: VTR) also entered into definitive agreements with Brookdale this month to restructure a portfolio of 128 communities. The deal could also facilitate additional property sales.

Thinking and acting locally

Since Baier took the helm at Brookdale in February, she has emphasized the provider’s plan to “win locally” by giving leadership at its roughly 1,100 communities more resources and autonomy.

Now, for example, Brookdale’s executive directors have been “empowered to be the CEO of their communities” and “take care of the community as if they owned it,” Baier said.

So far, this approach has enabled the company to utilize out-of-the-box ideas, she suggested.

“I am excited by some of the creative ideas implemented,” Baier said on the earnings call.

Brookdale is also working to develop a more robust executive director succession plan so that any vacancies in the position can be filled more quickly, and by uniquely qualified prospects.

“It’s critical that we have the right leadership in our communities,” Baier said.

All of these decentralizing moves seem to be demonstrating early success in improving new resident leads and employee retention, Jefferies noted.

At the same time, Brookdale has organized its operations team into three geographic regions and several districts, which now oversee an average of 11 communities, as opposed to an average of 15, Baier said.

Brookdale also made “intentional above-industry investments in salaries and wages” to help recruit and retain the best associates, though this move contributed to the company’s first-quarter 2018 consolidated same-community senior housing operating expenses rising 5.8% year-over-year.

All of this is just the start of what will likely be a time-consuming process, however.

“We have a significant amount of work ahead of us,” Baier said.

Written by Mary Kate Nelson

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